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Part 1: “I Don’t Want to Go Through This Nightmare”: Frustrations Grow Over Significant Delays in Restoration of 340B Pricing for Contract Pharmacy Purchases

A Special Report From 340B Report:
A two-part series on the growing frustrations safety net providers face in restoring access to 340B pricing in the contract pharmacy setting. Part 1 provides important background on the challenges that covered entities face and looks at the origins of 340B ESP, the clearinghouse used by 16 of the 18 drug manufacturers restricting 340B pricing at contract pharmacies. Part 2 focuses on the perspective of 340B providers trying to jump through what appear to be, in many cases, endless hoops to try to restore 340B pricing.  We also reached out to other key players in the pharmaceutical supply chain and found many stakeholders were not eager to comment.

Adelante Healthcare is a community health center with 10 locations spread across Phoenix and surrounding areas in Maricopa County. Lacking any in-house or wholly owned pharmacies, it contracts with over 100 offsite pharmacies, says 340B Program Manager Amanda Murray.

When founded 40 years ago, Adelante focused primarily on providing care for the migrant farmworker community. It continues to serve these patients, says Murray, as well as a large uninsured population.

Murray has been entering claims data in the 340B ESP platform for all drug manufacturers requiring health centers to do so since late May, when “Merck pulled the trigger on health centers” and the increased loss in revenue meant that Adelante was no longer able to avoid data submission, she says.

Murray notes that one of the manufacturers placing restrictions on health centers — AstraZeneca — does not allow an exception to its contract pharmacy limits for entering data in ESP, so Adelante is forced to forgo its 340B savings from them.  This means that uninsured patients are not able to obtain AstraZeneca medications at an affordable price, Murray says, and often must switch to a different medication that may be less effective.

AstraZeneca did not respond to repeated requests for comment from the 340B Report.

Although Murray has been entering claims data in the 340B ESP system twice monthly for over a month and a half, 340B pricing has not been “turned on” for any of the affected manufacturers, she says. Murray says she was told by her third party administrator (TPA) Wellpartner to expect about a six week lag to get pricing turned on, as this has been the experience of its other covered entity clients.

Murray says she knows she must begin the process of contacting supply chain stakeholders to follow up on the lack of pricing, but she’s dreading it. “I just don’t want to go through this nightmare, but I know I have to,” she says.

Murray calls manufacturers’ contract pharmacy restrictions “ridiculous.”

“Why do this now when [manufacturers] know so many health centers did not have the resources?” she asks, after two years spent fighting a pandemic that took the biggest toll on the vulnerable patients they serve.

Not an Isolated Frustration

Murray’s experience is not isolated. Providers throughout the nation are reporting significant delays getting their 340B pricing restored when using the 340B ESP platform, whether it is to submit 340B claims data, to designate contract pharmacies, or even in instances where the pharmacy is wholly owned and supposedly exempt from contract pharmacy restrictions. Covered entities are encountering communication bottlenecks and breakdowns between 340B ESP, drug wholesalers, TPAs, and pharmaceutical manufacturers on a regular basis, which results in lengthy delays getting pricing “turned on.” According to over a dozen sources that 340B Report interviewed, problems are concentrated in the channel between ESP, wholesalers, and manufacturers.

These sometimes months-long pricing delays are occurring despite time-consuming efforts by entities themselves to facilitate communication between stakeholders in the complex pharmaceutical supply chain and to continuously monitor pricing status and restoration, providers say.

Some entities report issues using the 340B ESP platform itself to upload data, however communication issues between other stakeholders in the supply chain have been more common. The majority of entities interviewed for this series said using the ESP platform itself is mostly straightforward and not time-consuming, following an initial adjustment period.

When, in a minority of cases, uploading data to 340B ESP has been difficult, it is because a particular TPA does not provide reports that are “mapped” to those required by ESP, so they must be mapped manually by entities themselves—a time-consuming and tedious endeavor, according to Torey Lam, a consultant who works with health centers and has experienced this issue.

Origins of 340B ESP

Under the new rules that drug manufacturers have implemented, entities’ access to 340B pricing in the contract pharmacy setting is generally limited to a single entity-designated contract pharmacy or an in-house or wholly-owned pharmacy. Some manufacturers do not even allow covered entities to use pharmacies that they own.

The 340B ESP platform was billed as a way for entities to maintain access to 340B pricing at an unlimited number of contract pharmacies contingent on their submission of de-identified 340B data for all such pharmacies to the secure site. Just three manufacturers used the platform when it was first launched—that number has since ballooned to 16 out of the current 18 drug companies that have restricted contract pharmacy use.

According to Aaron Vandervelde, Managing Director of the consulting firm Berkeley Research Group (BRG) and the Founder and Business Development Lead of 340B ESP, the platform was created to rectify the “lack of transparency” at the claims level for manufacturers, who risked paying duplicate rebates to Medicaid and ineligible rebates to Medicare, Tricare, or commercial payers. This lack of transparency—combined with longstanding drug industry complaints regarding inadequate federal oversight of 340B and the program’s growth—was the driving force behind manufacturer-imposed restrictions.

“Historically there has not been transparency for the pharmaceutical manufacturers at the transactional level,” said Vandervelde. Manufacturers “did not have line of sight into which specific claims a 340B covered entity had classified as 340B. And, lacking that transparency, [they] have had a difficult time identifying and managing ineligible rebates,” he said.

Covered entities and 340B advocates have pushed back hard against these claims, arguing that drug maker concerns about “transparency” are largely unfounded and meant to disguise their true intent to undermine the 340B program. Federal law grants entities the right to obtain discounted drugs, they say, and to dispense them through contract pharmacies. Many entities, especially those in rural areas or lacking in-house pharmacies, rely on multiple contract pharmacies in order to reach their patients, advocates say. They also point out that it is not the responsibility of entities to help manufacturers avoid paying rebates to pharmacy benefit managers (PBMs) on non-Medicaid claims.

The U.S. Health Resources and Services Administration (HRSA) has repeatedly told drug manufacturers that they cannot place restrictions on 340B use, including imposing conditions such as contract pharmacy claims submission requirements. These disputes are currently being litigated in several federal courts. In the meantime, drug manufacturers have shown no signs of relenting, with a total of 18 now imposing contract pharmacy restrictions on covered entities. 

Conflict of Interest?

Second Sight Solutions, a wholly owned subsidiary of BRG, launched the 340B ESP online platform in July 2020, shortly after manufacturers began to place restrictions on 340B contract pharmacy use. For more than a decade, Vandervelde and other BRG colleagues have conducted studies on the 340B program for Pharmaceutical Research and Manufacturers of America (PhRMA ) and other clients interested in scaling back the program’s scope.

Vandervelde has also served as an expert witness and has contributed to amicus briefs on behalf of the pharmaceutical industry in their current battle with the government regarding the legality of the contract pharmacy restrictions. 340B provider groups have raised the question, including in letters to leadership of the U.S. Department of Health and Human Services, whether it is a conflict of interest for Second Sight to serve as the third-party clearinghouse. Providers have pointed out and Vandervelde confirmed that all Second Sight employees are also employees of BRG.

Vandervelde denies any conflict of interest. During a recent webinar hosted by 340B Report, he said that BRG’s establishment of Second Sight as a separate stand-alone legal entity “created a clear line of demarcation” between the two and “can help ensure that the claims data we collect is used solely for the purposes outlined in our terms of service.” Vandervelde says the “IT focused firewall” between BRG and Second Sight ensures that claims data submitted to 340B ESP is “maintained in a completely separate IT environment” not accessible to anyone outside the Second Sight team.

Providers are urging passage of the 340B Protect Act, a bipartisan House bill that would require the U.S. Department of Health and Human Services (HHS) to establish a neutral third party to serve as a claims data clearinghouse that would protect drug manufacturers from issuing Medicaid rebates and 340B discounts on the same drugs. The contractor, which would be selected by HRSA and would work on behalf of the government rather than the drug industry, would collect data on 340B drugs reimbursed by Medicaid to ensure that those claims are not included in states’ Medicaid rebate requests.

“Neutrality is critical to the integrity of the claims submission process and that is obviously lacking in 340B ESP,” says Bill von Oehsen, a long-time 340B attorney who serves as counsel to Ryan White Clinics for 340B Access as well as other 340B stakeholders.

The clearinghouse included in the 340B Protect Act would only address the area of Medicaid duplicate discounts, not commercial or other payer pharmacy claims. 340B covered entity groups argue that protecting drug manufacturers from duplicative commercial rebates to pharmacy benefit managers is beyond the scope of the 340B statute. They also are concerned that the claims data collected by 340B ESP will be used by PBMs to justify lower reimbursement. Drug manufacturers, on the other hand, feel they should not have to provide both 340B discounts and rebates to PBMs and want a mechanism in place to prevent duplication.

Data Submission Worries

Many covered entities worry about how data submitted might be used by Second Sight and BRG, and some have so far refused to submit it at all, instead limiting purchasing and dispensing of 340B-priced drugs to a single in-house or contract pharmacy or substituting restricted drugs for similar ones produced by other manufacturers.

Community health centers have enjoyed greater latitude than hospitals in this regard, as they’ve been subject to less restrictions — to date, seven manufacturers have placed restrictions on health centers, with all 18 targeting hospitals. This has enabled most health centers to “hold the line” and avoid submitting data, says Vacheria Keys, Director of Regulatory Affairs at the National Association of Community Health Centers (NACHC).

However, this may be changing. When Merck extended its contract pharmacy restrictions—previously only aimed at hospitals—to include health centers as well, that was a “tipping point” for some health centers, Keys says. Merck required them to begin submitting data by May 31, 2022, or lose 340B pricing at all but one of their contract pharmacies. More health centers began registering on the 340B ESP site in light of this change, Keys says, as revenue losses caused by additional manufacturer restrictions became unsustainable.

Merck did not respond to multiple requests for comment from the 340B Report.

Keys notes that cumulative losses in 340B savings have reached $700,000 to $800,000 for most health centers and could surge over $1 million if one more manufacturer jumps in. This could force health centers to make tough decisions about staffing and other services, she says. “That’s when you really talk about, do we have to do staff layoffs, and can we keep this dentist, can we keep this behavioral health provider,” Keys says; “it could really impact the delivery of care.”

Lam says more manufacturers imposing restrictions also means less ability to prescribe alternate, 340B-eligible medications. This particularly impacts options for insulin, he says.

Covered entity fears about data use stem from the 340B ESP terms of use laid out by Second Sight, said Keys, because “they own that data, and they can make a report out of it, they can do whatever they like with that information. It’s just very uncomfortable from the covered entity side.” CEs and 340B advocates fear the data could be used to target distinct classes of medications or types of insurance, Keys said, or aggregated in ways that “help pharma save a few dollars, which would have a negative impact on covered entities, 340B providers, and our patients as well.”

Vandervelde said these fears are unfounded, noting that 340B ESP’s terms of use have been updated in response to CE concerns. “If you look at the terms of use, you’ll see that we do not have the right to use the data for any general purpose that we might want to use the data for. It is explicitly used to address those ineligible rebates and to ensure that 340B covered entities are submitting data in a manner that’s consistent with a pharmaceutical manufacturer’s policy,” he said.

Many health centers are hesitant to disclose if they are submitting data, which prevents them from helping each other and sharing information when submission issues arise, says Keys. “It’s hard for me, on the association [NACHC] side, to track how many people are turning over data because it’s very frowned upon,” she said. “Because of that it’s hard for us to know well who’s doing it, and what are the challenges that you’re having,” Keys said.

Reports of lengthy delays getting 340B pricing for health centers that do submit data also don’t help motivate their peers to participate, says Keys. She notes that over 500 covered entities are currently submitting data to 340B ESP, and the majority are hospitals. There are currently about 1,400 community health centers in the U.S. 

Thursday in Part 2: “There Have Been Challenges Up and Down the Supply Chain”—The View from the Field and Responses from Stakeholders

Tomorrow, in the second part of our Special Report, we provide the perspective of more 340B providers who are trying to jump through what appear to them, in many cases, to be endless hoops to try to restore 340B pricing in the contract pharmacy setting. You will also see comments from other players in the pharmaceutical supply chain and will learn that some stakeholders were not eager to comment.

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