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Report (OEI-05-13-00431)

Contract Pharmacy Arrangements in the 340B Program

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The 340B Drug Pricing Program requires drug manufacturers participating in Medicaid to provide discounted covered outpatient drugs to certain eligible health care entities, known as covered entities. These entities may contract with pharmacies to dispense drugs purchased through the program on their behalf. Although the majority of covered entities do not use contract pharmacies, their use has increased rapidly over the past few years. Additionally, recent HRSA audits of covered entities have found program violations related to contract pharmacies.


We interviewed a purposive sample of 30 covered entities-15 community health centers and 15 disproportionate share hospitals-to learn about how they operate and oversee their contract pharmacy arrangements. We also interviewed eight 340B administrators-i.e., companies hired by covered entities to help manage contract pharmacy arrangements-to learn about how they assist covered entities in preventing diversion and duplicate discounts in contract pharmacy arrangements.


We found that contract pharmacy arrangements create complications in preventing diversion, and that covered entities are addressing these complications in different ways. The covered entities that we reviewed in our study reported different methods of identifying 340B eligible prescriptions to prevent diversion in their contract pharmacy arrangements. In some cases, these different methods lead to differing determinations of 340B eligibility from one covered entity to another for similar types of prescriptions. As a result, there is inconsistency within the 340B Program as to which prescriptions filled at contract pharmacies are treated as 340B eligible.

We also found that contract pharmacy arrangements create complications in preventing duplicate discounts. Most covered entities in our study prevent duplicate discounts by not dispensing 340B purchased drugs to Medicaid beneficiaries through their contract pharmacies. However, some covered entities that do dispense 340B purchased drugs to Medicaid beneficiaries through their contract pharmacies did not report a method to avoid duplicate discounts.

Additionally, we found that some covered entities in our study do not offer the discounted 340B price to uninsured patients in their contract pharmacy arrangements.

Finally, we found that most covered entities in our study do not conduct all of the oversight activities recommended by HRSA. Although almost all covered entities reported monitoring their contract pharmacy arrangements, the extent of such monitoring varies. Few covered entities reported retaining independent auditors for their contract pharmacy arrangements as recommended in HRSA guidance.

This report does not contain recommendations.

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