Drug reimbursement
A new tally of state laws and a new white paper are the latest signs of states' growing role in policing PBM efforts to ratchet down reimbursement for 340B-purchased drugs. | Shutterstock

16 States Have Passed Laws Since 2019 Targeting PBMs’ 340B Payment Cuts

Sixteen states have passed laws since 2019 addressing pharmacy benefit manager (PBM) discrimination against 340B covered entities, according to a draft summary of state action on the subject circulating among community health center advocates.

Meanwhile, two longtime 340B program policy experts—Jeffrey Lewis and William von Oehsen—released a white paper yesterday on the relationship between PBMs and the 340B program. It comes just days after the American Health Law Association issued its own backgrounder on the subject. Lewis is the President and CEO of Legacy Health Endowment. von Oehsen is a principal at Powers Law and played an important role in the creation and expansion of the 340B program.

The burst of related developments is a reminder that while 340B is a federal program, states have a huge say over how 340B works due to their regulation of the insurance industry. Gridlock in Washington is a big reason why 340B covered entities have turned to states for relief from PBMs’ and payers’ discriminatory reimbursement, fees, and network access. From the provider perspective, on the one hand, many beneficial state laws have been passed. On the other hand, most states have not passed such laws, and those now in place vary in substance and strength.

Draft Summary of State Action

The draft synopsis of state laws, written by health center advocates and shared with 340B Report before its public release, is dated June 24. It lists 16 states as having passed one or more bills since 2019 that protect community health centers’ 340B savings from PBMs and insurers—Arkansas, Georgia, Indiana, Kansas, Kentucky, Minnesota, Montana, North Dakota, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Utah, Vermont, and West Virginia. In 11 of the 16 states, the Republican party controlled the governor’s office, the state House, and the state Senate when the bills became law, the list shows. Many of the bills’ lead sponsors are Republican.

Six states enacted laws this year alone—Arkansas, Indiana, Kansas, North Dakota, Tennessee, and Vermont, the list shows. Bills addressing PBM and insurer discrimination against 340B entities are under consideration in five more states—Kansas, Michigan, Nebraska, North Carolina, and Pennsylvania.

The laws and bills address a range of PBM and insurer actions, such as discriminating against 340B providers or their contract pharmacies with regard to reimbursement, fees, pharmacy network access, patient choice about where to have prescriptions filled, and use of claims modifiers.

PBMs and 340B White Paper

In their new white paper, Lewis  and von Oehsen say PBMs’ reduced 340B reimbursement “essentially transfers the benefit of the program from safety net providers to for-profit payers.”

Lewis and von Oehsen lead off their paper with background on PBMs and the 340B program. In the late 1990s, they say, some PBMs “began requiring participating pharmacies to enter unique contracts or contract addenda as a condition of the pharmacies being able to bill and get paid for 340B drugs.”

“Pharmacies owned by or under contract with 340B hospitals and clinics were permitted to participate in the PBMs’ pharmacy networks but only if they agreed to 340B-specific terms and conditions,” Lewis and von Oehsen say. “In almost all circumstances, these terms and conditions included a reduction in drug reimbursement which, not surprisingly, elicited strong objections from safety net providers.”

PBMs, they say, “defend their actions by explaining how the 340B program has gradually eroded their rebate revenue from manufacturers which, in turn, has forced them to implement these 340B-specific measures.” Covered entities counter that “losing rebate dollars is a problem of the PBMs’ own making and does not justify shifting the revenue loss to safety net providers.  And there is evidence that HRSA [the U.S. Health Resources and Services Administration] agrees with covered entities on this point.”

“HRSA has gone on record to express its concern that discriminatory reimbursement, if left unchecked, will undermine the purpose of the 340B program,” Lewis and von Oehsen say. “Apexus, which is under contract with HRSA to provide 340B technical assistance and other services through its 340B Prime Vendor Program, has issued an informational paper that cautions that some private payers have been issuing contracts to 340B covered entities with significantly lower reimbursement than they would offer other retail pharmacies. The paper portrays these discriminatory practices as problematic.”

Covered entities reached out to HRSA for help, “but [it] declined to take action citing its lack of authority,” they say. “Federal legislative efforts to address the problem have also fallen short, at least so far…. As a result, covered entities have increasingly sought relief at the state level.”

“The most effective solution for fighting discriminatory reimbursement at the state level is to mobilize an advocacy campaign to convince a state legislature to enact a statute specifically prohibiting PBMs from discriminating against 340B pharmacies in their contracting and reimbursement practices,” Lewis and von Oehsen say.

“It is important to note that, although collaboration among covered entities and covered entity groups can strengthen advocacy efforts, it can also raise concerns about collusion and group boycotts in violation of state and federal antitrust laws,” they warn. “For this reason, covered entities should avoid suggesting that purchasers engage or refrain from engaging in negotiations with a given PBM or payer. They should also avoid sharing pricing information, contract terms or fee arrangements. These risks can be avoided by working with state and national advocacy organizations because collaboration as part of an advocacy effort is immune from antitrust liability.”

Lewis and von Oehsen said their PBMs and 340B white paper is the first in a series on the 340B program that they will issue over the course of the next year. The papers “will focus on targeted issues to help explain original congressional intent, how the program may be being abused and targeted recommendations that elected officials could consider,” they said. 

The partnership between Lewis and von Oehsen is interesting. Lewis, who served as chief of staff to the late U.S. Senator John Heinz (R-PA) and then ran the Teresa and H. John Heinz III Foundation, spent a number of years advocating for the expansion of the 340B program. Over the years, he has become critical about 340B’s growth and has questioned whether hospitals are good stewards of the program. von Oehsen, who played a key role in drafting the 340B law and remains a stalwart advocate for 340B hospitals and other providers. “While we may not always agree on every issue, we do concur on the most important matter: the long-term sustainability of the 340B program,” they note.

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