The evolving legal and legislative landscape surrounding the 340B Drug Pricing Program has significant implications for hospitals’ specialty pharmacies. Here’s a breakdown of the new developments and their likely impacts:

340B contract pharmacy restrictions

Drug manufacturers have increasingly restricted the use of contract pharmacies, especially specialty pharmacies, arguing that the 340B statute does not require them to deliver drugs to multiple contract pharmacies. Ongoing litigation has created a significant amount of uncertainty for 340B entities.

That said, the manufacturer restriction which has had the most impact in prompting 340B health systems to build and/or own onsite pharmacies — specialty and retail — is the one limiting 340B eligibility to contract pharmacies within 40 miles of a hospital’s campus.

An on-campus specialty pharmacy can also help many 340B health systems overcome the even more punitive Single Pharmacy restriction — which compels hospitals to select just one pharmacy as their sole Contract Pharmacy eligible for manufacturers’ 340B pricing. Naturally, say manufacturers, that means the single pharmacy must be either retail or specialty. They know that the majority of a hospital’s patients receive prescriptions from the retail pharmacy, BUT that many (if not most) hospitals generate significantly more 340B revenue from specialty drug prescriptions.

The good news for 340B health systems is that there is legal workaround to that restriction. In many states, hospitals can operate specialty pharmacies alongside their retail pharmacies — provided: 1) The two pharmacies are physically located in two separate spaces, and 2) The retail and specialty pharmacies have no overlapping procedures, functions or personnel.

Impact of contract pharmacy restrictions on 340B hospitals:

REVENUE PRESSURE: Specialty pharmacies operated by, or affiliated with, hospitals may lose access to 340B discounts if manufacturers prevail in restricting contract pharmacy arrangements.

REDUCED COST SAVINGS: Hospitals often rely on specialty pharmacy revenue to support uncompensated care. In fact, some 340B hospitals’ specialty pharmacies generate as much as six times the 340B revenue generated by their retail pharmacies. It goes without saying that unchecked manufacturer restrictions reduce margin opportunities from discounted drugs. 

NOTE: Every one of the 21 health systems whose 340B programs are managed by ProxsysRx have enjoyed increased savings and revenue since the introduction of the first restrictions in 2020.

OPERATIONAL ADJUSTMENTS: As mentioned earlier, many 340B hospitals have chosen to bring specialty pharmacy operations in-house to retain 340B eligibility. Which is why ProxsysRx’s specialty pharmacy team has sought, and earned, accreditation by both URAC (the Utilization Review Accreditation Commission) and ACHC (Accreditation Commission for Health Care).

Considering a specialty pharmacy for your health system?

ProxsysRx (now VytlOne) is currently contracted to guide five separate health systems through the process of building, accrediting, launching and managing their own 340B specialty pharmacies. Moreover, the first specialty pharmacy we guided through that process opened its doors in June, 2024 — and within six months was generating a monthly net income of more than $1 million. 

Our process enables the health systems we serve to get In Network for a number of 340B specialty drugs even before their specialty pharmacies are accredited —providing much-needed cash-flow in funding them.

Two Key 340B legal cases:

There have been two closely-watched federal court cases addressing the dispute between drug manufacturers and the U.S. Department of Health and Human Services (HHS) over 340B. 

1) Sanofi v. HHS (2023)

Court: U.S. Court of Appeals for the Third Circuit

Here, the court ruled that, because the 340B statute does not expressly require manufacturers to ship to contract pharmacies, HHS exceeded its authority by issuing a 2020 Advisory Opinion which maintained that drug manufacturers must offer 340B discounts to covered entities when using contract pharmacies to distribute medications to patients. 

2) AstraZeneca v. HHS (D. Del. and 3rd Cir.)

Courts: Delaware District & The U.S. Court of Appeals for the Third Circuit

AstraZeneca similarly challenged HHS’s interpretation of the 340B statute in this case. The District of Delaware sided with HHS, but was reversed on appeal. 

What’s next for the two cases?

A Supreme Court review is possible, in which case, the high court’s decision could reshape the entire structure of 340B contract pharmacy access. Regardless of court rulings, the spotlight on 340B program integrity means hospitals must tighten eligibility and documentation controls.

Subsequent 340B legal cases:

Novartis Pharmaceuticals Corporation v. Johnson

Eighth Circuit Court (March 2024)

In this case, the Eighth Circuit upheld an Arkansas law that prohibits manufacturers from restricting 340B drug discounts for providers using contract pharmacies. The court found that the federal 340B statute does not preempt such state laws, allowing states to enact their own protections for contract pharmacies. 

Novartis Pharmaceuticals Corporation v. Johnson

D.C. Circuit Court (May 2024)

The court ruled that the 340B statute does not categorically prohibit drug manufacturers from imposing conditions on the distribution of discounted drugs to covered entities, including through contract pharmacies. The court upheld manufacturer restrictions in the specific cases of Novartis and United Therapeutics, but acknowledged that more onerous restrictions could potentially violate the statute. 

Novartis, AbbVie, AstraZeneca and PhRMA (plaintiffs)

Maryland (September 2024)

In this case, Novartis, AbbVie, AstraZeneca and PhRMA attempted to obtain a preliminary injunction against 340B pricing for contract pharmacy arrangements in Maryland. The court refused to block Maryland’s law ordering drug companies to offer 340B discounts on medications dispensed through third-party pharmacies associated with hospitals and clinics serving low-income communities. 

Novartis, AbbVie and PhRMA (plaintiffs)

West Virginia (December 2024)

A federal judge issued a preliminary injunction blocking enforcement of West Virginia’s law that mandated drug makers to provide 340B discounts through contract pharmacies. The court found that the law likely conflicted with federal provisions, particularly concerning manufacturers’ audit rights. 

AstraZeneca v. Mississippi

Mississippi (December 2024)

Here, a federal judge denied AstraZeneca’s request to block Mississippi’s law requiring manufacturers to honor 340B discounts through contract pharmacies. The court concluded that the state law complemented federal law and was not preempted. Moreover, the judge determined that AstraZeneca did not demonstrate a substantial likelihood of prevailing on the merits of their complaint.

State-level 340B legal actions

Numerous states have passed laws to protect 340B-covered entities and their contract pharmacies, leading to further legal conflicts with drug manufacturers. At the forefront, Arkansas and Louisiana successfully pressured more than a dozen manufacturers to lift their 340B price restrictions. Following their lead, six more states — Kansas, Maryland, Minnesota, Mississippi, Missouri and West Virginia — enacted similar protection laws in 2024. Three other states (Delaware, Kentucky, and Rhode Island) have passed legislation protecting 340B health systems in at least one chamber of their state legislatures, while 15 more states have introduced similar bills.

Direct manufacturer distribution models 

In the direct manufacturer distribution model, drug manufacturers ship medications directly to the covered entities (or their contract pharmacies) rather than through traditional wholesalers — which sounds like an effective way to streamline the distribution process. 

The problem, of course, is that this places distribution in the hands of the very entities seeking to undermine the 340B program. Offhand, the model poses two obvious threats to 340B hospitals and the patients they serve:

• Access Challenges: Hospital specialty pharmacies may be excluded from accessing certain 340B-priced specialty drugs. 
• Reduced Patient Coordination: This fragmentation can disrupt care continuity, especially for high-touch specialty drugs requiring close coordination between provider, patient and pharmacist.

Technology and 340B data transparency demands

Legal and regulatory scrutiny is prompting demands for better tracking of 340B drug use and patient eligibility — placing ever-higher demands on health systems and specialty pharmacies to maintain compliance. More than ever, hospitals need to be ready at all times to document how their specialty pharmacy programs align with patient care goals and 340B intent.

Moreover, given the ever-increasing complexity involved in dealing with manufacturer restrictions, not to mention the 340B program itself, never has customized, analytics-driven technology been more critical to optimizing prescription savings opportunities. At the same time, the need for seasoned experts managing your software, your 340B program and your specialty pharmacy have never been greater.

For Further Reading:  
Empower Your Health System’s 340B Program With Analytics
Specialized Software Can Only Do So Much For 340B Programs

Manufacturers imposing restrictions

While the number is constantly changing, the following manufacturers have imposed (or are currently imposing) some form of restrictions that violate the intent of the 340B law as written: AbbVie, Amgen, Astellas, AstraZeneca, Bausch, Bayer, Biogen, Boehringer Ingelheim, Bristol Myers Squibb, Eli Lilly, EMD Serono, Exelixis, Gilead, GlaxoSmithKline, GSK, Jazz Pharmaceuticals, Johnson & Johnson, Merck, Novartis, Novo Nordisk, Organon, Pfizer, Sanofi, Teva, UCB, United and United Therapeutics.

Compliance and operational strategy

Hospitals with in-house specialty pharmacies are in a stronger position than those using contract specialty pharmacies — both with compliance and operational strategy — but it’s critical to stay proactive.

One tactic for defending programs during audits is taking steps to improve Patient-Centered Services, demonstrating that specialty pharmacies provide improved adherence, lower total cost of care and better outcomes supports 340B’s intent. One proven step 340B hospitals can take in that direction is implementing programs to reduce readmissions. At the same time, a 340B program that’s fully integrated into a health system’s continuum of care can improve its overall mission of ensuring better health for the entire community.

Finally, a proven strategy for protecting your specialty pharmacy’s access to 340B discounts is to forge research partnerships with the very manufacturers seeking to restrict its access to eligible prescriptions. 

For Further Reading:
Best Practices For A 340B Hospital Looking To Build An Onsite Specialty Pharmacy
How To Achieve Readmission Reduction, One Patient At A Time
How To Use Your 340B Program As a Community Health Engine
Partnering With Manufacturers To Overcome 340B Specialty Drug Restrictions 

VytlOne is here to help.

To learn how we can help your health system fund, launch and manage a successful specialty pharmacy — while integrating your 340B program throughout the continuum of care — contact Howard Hall any time. howard.hall@proxsysrx.com | 214.808.2700