Contract Pharmacies: An Integral 340B Component for 30 Years


This past November, the 340B program celebrated its 30th anniversary—a huge milestone and a reason to rejoice and reflect. We are dismayed, however, that certain drug manufacturers are trying to revise the 340B program’s past and reimagine its future. More than 20 drug manufacturers have unilaterally and unlawfully placed restrictions on contract pharmacy arrangements which have diminished the value of the 340B programs for communities in need. [1] However, it is vital to note that, in the last thirty years, the need for outpatient drugs to treat patients has grown exponentially, as has the price of drugs, making the 340B program more crucial than ever for safety net providers and their patients.

Most of us know that Congress passed the 340B statute in 1992 to enable covered entities “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  But did you know that, when Congress was drafting the law, it decided to remove any restrictions on the distribution of 340B drugs to allow covered entities, among other things, to participate in the program through contract pharmacy arrangements?  Only by reflecting on past events like the following can one truly understand the value and importance of “turning 30” in the midst of the contract pharmacy crisis.

March 1992  Just eight months prior to the 340B statute’s enactment, the Senate considered draft legislation that would have defined a covered entity as having the capability of dispensing drugs through “on-site pharmacy services.”[2]  Notably, the final 340B statute did NOT adopt that definition, strongly suggesting that Congress deliberately chose to give covered entities the freedom to dispense 340B through off-site contract pharmacies.

July 1992  The House Subcommittee on Health and the Environment of the House Energy and Commerce Committee held a hearing on several drug discount bills.  At that hearing, Jose Camacho, a representative of the National Association of Community Health Centers (NACHC), testified that placing limits on how clinics acquire and dispense drugs “would [not] be the most efficient distribution arrangement due to the . . . disruption of . . . distribution avenues.”  He told Congress that out of 141 surveyed health centers, 75 did not operate their own pharmacies.  John Rector, a representative of the National Association of Retail Druggists, alerted committee members that contract pharmacy arrangements were already common practice.  So, just four months before passage of the 340B statute, Congress knew that (1) safety net providers opposed restrictions on 340B distribution due to their inefficiencies, (2) many safety net providers did not operate in-house pharmacies, and (3) contract pharmacy arrangements were already a common practice.    

November 1992  In the same legislation that created the 340B program, Congress established a second drug discount program for the Department of Veteran Affairs, the Department of Defense, the Public Health Service, and the Coast Guard.  That program, in contrast to 340B, imposed requirements on how drugs are received, stored and delivered, including through the use of a federal warehouse.  The fact that the 340B program does NOT include such restrictions is a strong indication that Congress deliberately chose to allow covered entities to use the distribution mechanism of their choice, including the use of contract pharmacy arrangements.

2005 – 2007 The Healthy America Act of 2005 and the 340B Program Improvement and Integrity Act of 2007 contained “use of multiple contract pharmacies” sections stating that “[n]othing in this section shall be construed as prohibiting a covered entity from entering into contracts with more than one pharmacy for the provision of covered drugs.”  Healthy America Act of 2005, S. 4, 109th Cong. § 332(b) (2005); 340B Program Improvement and Integrity Act of 2007, S. 1376, 110th Cong. § 5(a) (2007).  Although neither bill was enacted, the proposed legislation shows that Congress was well aware of the existence of contract pharmacy distribution arrangements and chose not to limit them in subsequent legislation.

March 2010  The Patient Protection and Affordable Care Act (ACA) amended the 340B statute in several ways, including to broaden the categories of safety net providers that could participate in the program.  What it did NOT do was restrict the program’s use of contract pharmacies.  Use of contract pharmacies by safety net providers had been endorsed through guidance issued by the Health Resources and Services Administration in 1996. Congress could have again included restrictions on access to 340B drugs when it passed the ACA, but it chose not to do so.  This explicit rejection of limitations on contract pharmacy arrangements can only be explained by Congress’ realization of the inevitable and extensive hardship that would have ensued had covered entities not been able to use contract pharmacies. 

By ignoring both the plain meaning and legislative history of the 340B statute, 18 drug manufacturers have unilaterally and brazenly reduced the benefits of the program for 340B safety net providers and their patients by limiting the distribution of 340B drugs to contract pharmacies.

Powers is in the proverbial trenches fighting on behalf of its clients and allies to protect such arrangements.  We are working with our individual and association clients to litigate in the courts, to educate Congress, to rally with our allies, and to take our case to the public.  We believe in a strong future for the 340B program and stand with the safety net to advocate for the 340B program by encouraging others to join us in this critical fight.  Let’s commit to making the 340B program stronger in the next 30 years!

[1] These manufacturers are: AbbVie, Amgen Inc., AstraZeneca Pharmaceuticals LP, Bausch Health, Boehringer Ingelheim Pharmaceuticals, Inc., Bristol Myer Squibb, Eli Lilly and Company, Exelixis, Gilead Sciences, Inc., GlaxoSmithKline, Johnson & Johnson, Merck and Company, Novartis Pharmaceuticals Corporation, Novo Nordisk, Inc., Pfizer Inc., Sanofi-Aventis US LLC, UCB, and United Therapeutics Corporation.

[2] S. Rep. No. 102-259, at 2 (1992). (A copy of this Senate report is available from the authors).

Powers Principal William von Oehsen has had a significant influence on the 340B program since its inception, playing a pivotal role in the enactment of the 340B statute as well as the ACA amendments.  Bill is well-known for his tireless advocacy to protect and enhance the program.  Bill’s historical knowledge of the program and his zealous promotion of its value in supporting public health has helped 340B hospitals, clinics and other clients carry out their mission of providing quality health care to the nation’s most underserved populations.  Other Powers team members include Barbara Straub Williams, Peggy Tighe, Megan La Suer and Mark Ogunsusi.

William von Oehsen
Barbara Staub Williams
Peggy Tighe
Megan La Suer
Mark Ogunsusi
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