PBM-Owned Specialty Pharmacies Expand Their Role In—and Profits From—the 340B Program

Last week, I documented that nearly half of U.S. pharmacies now participate in the 340B Drug Pricing Program. Below, we update our exclusive analysis of the biggest specialty pharmacies within 340B.

The four largest specialty pharmacies are owned by CVS Health, Cigna’s Express Scripts business, UnitedHealth Group’s OptumRx business, and Walgreens Boots Alliance/Prime Therapeutics.

As you will see below, these specialty pharmacies have dramatically increased their participation in the 340B program. Hospitals are the primary 340B covered entities that engage with these specialty pharmacies.

We estimate that specialty pharmacy dispensing accounted for nearly one-third of PBMs’ total gross profits in 2019. Consequently, the 340B program is a significant and growing component of profitability for these large, for-profit, publicly traded companies.

Later this week, I’ll examine how patients with commercial and Medicare Part D insurance are subsidizing the super-sized 340B profits of these companies.

340BACKGROUND

Today’s article is the third in our 2020 series exploring the 340B Drug Pricing Program. Here are the first two parts:

• New HRSA Data: 340B Program Reached $29.9 Billion in 2019; Now Over 8% of Drug Sales

• Walgreens and CVS Top the 28,000 Pharmacies Profiting from the 340B Program. Will the Unregulated Party End?

For broader background on 340B’s role in the pharmacy and PBM industries, see section 11.5 of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

340BIGGEST

The table below summarizes the 340B contract pharmacy involvement of the top four specialty pharmacies, as identified in The Top 15 Specialty Pharmacies of 2019: PBMs Stay On Top. For comparison, the table also includes non-specialty pharmacies operated by the parent companies.

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Observations:

• As of mid-2020, specialty locations associated with the top four specialty pharmacies are operating a combined 224 locations that act as contract pharmacies for 340B covered entities. CVS and UnitedHealth also operate an additional 78 infusion sites that function as 340B contract pharmacies.
  
  These 302 locations have more than 17,000 contractual relationships with covered entities. Most of the relationships are with disproportionate share hospitals and children’s hospitals. Thus, specialty pharmacies and infusion sites account for 15% of total contract pharmacy relationships with 340B hospitals and other covered entities. Yet they represent only 1% of 340B contract pharmacy locations.
  

• Specialty pharmacies have significantly expanded their 340B presence, as indicated by the jump in the number of relationships with covered entities shown in the chart below. (The figures below exclude infusion and retail sites.)

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• Each specialty pharmacy location has dozens or even hundreds of contract pharmacy relationships. This is unsurprising, because specialty pharmacies typically fill prescriptions from a central location and then deliver the products directly to a patient’s home. For example, the typical CVS Specialty location has agreements with 225 covered entities; a typical Accredo pharmacy has agreements with 159 covered entities; and a typical AllianceRx Walgreens Prime location has agreements with 618 covered entities.
  
  Walgreens has 127 stand-alone local community specialty pharmacies that are branded as Community, A Walgreens Pharmacy. Each location acts as a contract pharmacy for an average of nine 340B covered entities. These locations have many fewer relationships per location. The non-specialty pharmacies of CVS and Walgreens have an average of three to five relationships per location.

Given this growth, manufacturers should demand contractual carve-outs in their PBM agreements. Otherwise, specialty prescriptions will have 340B discounts on top of commercial and Part D rebates.

HOW PATIENTS LOSE

PBMs are earning a greater share of their profits from specialty pharmacy dispensing. We estimate that specialty pharmacy dispensing accounted for 32% of PBMs’ total gross profits in 2019, compared with only 17% in 2015. (See Exhibit 179 of our 2020 pharmacy/PBM report.)

What’s more, specialty pharmacies can earn profits from the 340B program that are three to four times larger than a specialty pharmacy’s typical gross profit from a commercial or Part D plan. Why else do you think PBMs are expanding so quickly into the 340B market?

In my next article, I’ll follow the 340B dollar. You’ll see how patients covered by commercial insurance or Medicare Part D are losing out when their specialty pharmacy is also a 340B contract pharmacy. The intuition is straightforward. Patients taking specialty drugs have out-of-pocket costs tied to coinsurance or within the deductible phase. They therefore pay full price—or a percentage of full price—for drugs that are sold to 340B hospitals at deep discounts.

It’s grossly unfair regardless of how a hospital spends its 340B savings. Alas, there is no political will to fix these distortions, so the 340B profiteering will continue.