340b Program Background

• 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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 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 QE’s to receive drugs at heavily discounted prices (average 51% of wholesale price)
 Generates revenues for QE’s via the price spread between 340B and network pricing
 Specified a 1:1 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
100%
80%
60%
40%
20%
0%
Private Sector Pricing
66%
64%
58%
51%
42%
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7000
6000
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 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: Children’s Hospitals, American Indian Tribes, Ryan White AIDS Centers, plus others
 Revised the QE-to-contracted pharmacy ratio from 1:1 to 1:Unlimited
 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)
Growth of Contracted Pharmacy Arrangements Projected 340B Script Volume
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1,200
1,000
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566M
2010 2012
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
Continued growth of Qualified Entities (QE):
 Currently over 15,000 QE’s across the US and US territories, up from 14,000 QE’s in 2010
 California alone has over 10% (1,500) of all QE’s
 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 RFP’s containing 340B requirements:
 Entities are looking for ways to increase their revenue
 RFP’s are being received from 340B QE’s plus prospective clients looking for added capabilities
 Majority of Public Sector and Medicaid RFP’s (80-100%) include 340B requirements
 Many RFP’s 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:
 This is a Federally sponsored program; unsure whether Pharma will object to small % of their overall sales
 Trend shifts towards Specialty drug development may cause shift in program design
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• 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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• 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
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