HHS Issues Advisory Opinion on Contract Pharmacies Under the 340B Program

Alerts / January 11, 2021

On Dec. 30, 2020, the Department of Health and Human Services (HHS) Office of the General Counsel released an advisory opinion concluding that drug manufacturers are obligated to deliver discounts under the 340B Drug Pricing Program on covered outpatient drugs when contract pharmacies are acting as agents of 340B covered entities.

Section 340B of the Public Health Service Act, 42 U.S.C. § 256b established the 340B program. The 340B program limits the prices manufacturers may charge for medications sold to specified healthcare facilities, which are called “covered entities.” Covered entities can include public hospitals and community health centers. As a condition of coverage of their products under Medicaid and Medicare Part B, drug manufacturers must agree to sell their covered outpatient drugs to covered entities at no more than the statutorily set “ceiling price.” See Social Security Act § 1927(a)(1).

According to the advisory opinion, many covered entities enter into written agreements with pharmacies (contract pharmacies) to distribute their covered outpatient drugs to the entities’ patients. The covered entity orders and pays for the 340B drugs, which are then shipped from the manufacturer to the contract pharmacy. The contract pharmacy then sends the drug to the patient. The covered entity purchases the drug, and the contract pharmacy provides the pharmacy services to dispense the drug to a patient.

In the advisory opinion, the HHS Office of the General Counsel asserts that the plain meaning of Section 340B requires manufacturers to sell covered drugs to covered entities at or below the ceiling price. This requirement is independent of whether or not a contract pharmacy is used to dispense the prescription drugs. The HHS Office of the General Counsel maintains that this plain meaning is also supported by the purpose and history of the 340B program. Last, the HHS Office of the General Counsel maintains that the risk of diversion and duplicate discounts will not be increased through the use of contract pharmacies.

Although this advisory opinion is not a final agency action or a final order, and it does not have the force or effect of law, it sets forth the current views of the HHS Office of the General Counsel. When purchasing covered drugs under the 340B program, covered entities should seek them from manufacturers at the ceiling price even when using contract pharmacies. And contract pharmacies should closely monitor their purchasing agreements on behalf of the covered entities they contract with.

Authorship Credit: Lee Rosebush, Lindsay Holmes and Marc Wagner

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