340b Program Background

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340b Program Background
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General Overview

• What is the 340b program
• Recent legislative changes and the impacts
• What it means for Indian Tribes
• What is means for pharmacies and PBMs

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What is the 340B Program?

• Federally-sponsored provision added to VHCA in
  1992
• Designed to provide affordable drug access to
  at-risk populations via Qualified Entities (QE)
• Includes Disproportionate Share Hospitals (DSH),
  Critical Access Hospitals (CAH), Federally
  Qualified Health Centers (FQHC)
• The 340B business model
• Targets low-income/indigent families and
  individuals
• Allows QEs to receive drugs at heavily
  discounted prices (average 51 of wholesale
  price)
• Generates revenues for QEs via the price spread
  between 340B and network pricing
• Specified a 11 ratio of QE to specific
  contracted pharmacy (typically in-house)
• Prior to PPACA, 340B was a niche with limited
  access, specific eligibility and operational
  requirements
• Mandatory segregation of 340B versus non-340B
  drug inventories
• Physical drug inventories must be on-site and
  maintained separately from non-340B drugs
• Only available to employees of qualified entities
  and eligible patients of record of QE-employed
  providers
• Separate records for claims processing, patient
  files and data increased the difficulty for
  hospitals to participate

340B Program Overview
The 340B Discount
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340B Program Size, Impact and Importance

• 340B market has experienced significant growth
  in patient encounters due to a number of factors
• High unemployment poor job market have driven
  millions of consumers to Federally Qualified
  Health Centers
• State and Federal administration significantly
  increased funding for community healthcare to
  increase access
• In 2010, 340B qualified entities had approx. 260
  M outpatient encounters averaging of 2.2
  scripts/patient encounter
• HCR modified a number of 340B rules to increase
  access and coverage for the eligible 340B
  population
• Expanded list of qualified entities across the
  DSH and Federally Qualified Health Centers
• Recently expanded eligible entities Childrens
  Hospitals, American Indian Tribes, Ryan White
  AIDS Centers, plus others
• Revised the QE-to-contracted pharmacy ratio from
  11 to 1Unlimited
• Allowed for virtual versus physical
  inventories of 340B drug supplies
• Resulting market impact of HCR implementation
• 340B drug purchases were over 6 billion in 2010
• Script volumes have experienced tremendous growth
  and is expected to continue
• 2010 total estimated 340B script volume was over
  566 million scripts, or 17.2 of the total
  estimated US script volume
• By 2012 340B script volume is projected to double
  to 1.1 billion (per McKesson 2010)

Projected 340B Script Volume
Growth of Contracted Pharmacy Arrangements
1,100M
566M
2012
2010
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340B Market Whats the Attraction?

• Continued growth of Qualified Entities (QE)
• Currently over 15,000 QEs across the US and US
  territories, up from 14,000 QEs in 2010
• California alone has over 10 (1,500) of all QEs
  
• DSH, Critical Access Hospitals and Federally
  Qualified Health Centers facilities represent
  over 80 of all qualified entities
• 340B program does not discriminate anyone who
  meets eligibility requirements can access 340B
  drug prices
• Program is difficult to understand and even
  harder to administer, manage
• Competition is fragmented and no large
  competitors currently in this space
• A number of companies provide consulting services
  and/or program administration, management
• 340B may not be compatible with standard PBM
  business models
• Growth in this market would likely increase
  attraction by various companies
• Significant increase reported in RFPs containing
  340B requirements
• Entities are looking for ways to increase their
  revenue
• RFPs are being received from 340B QEs plus
  prospective clients looking for added
  capabilities
• Majority of Public Sector and Medicaid RFPs
  (80-100) include 340B requirements
• Many RFPs show lack of knowledge on 340B
  specifics and qualifications many RFP requestors
  do not qualify for 340B
• Potential market risks for future considerations
• Changes in legislation may impact 340B program
  and discounts
• OptumRx believes there is no current legislative
  activity significantly impacting the 340B market
• Increased access and participation may drive
  Pharma to reconsider participation and/or
  pricing

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340B Market Implications for Tribes?

• Ability to take advantage of 340b pricing without
  a tribal pharmacy
• No rebates paid on 340b drugs
• Tribes need contract with wholesaler and have
  agreements with each pharmacy they intend to fill
  340b scripts with
• May want to consider a 340b-facilitation vendor
  to handle
• Patient eligibility verification
• Virtual inventory control
• Automated reporting and auditing requirements
• Even though eligible by Tribal status, still need
  to register with Health Resources and Services
  Administration (HRSA) Office of Pharmacy Affairs
  (OPA)
• http//opanet.hrsa.gov/opa/default.aspx

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340B Market Implication to Pharmacies/PBMs?

• Limited or no spread revenue on 340b drugs
• Pharmacies may charge a large dispense fee
• PBMs may require an administration fee (for full
  pass-through of the 340b discount)
• Few, if any, PBMs currently engaged in 340b
  verification processes