Since the enactment of Section 340B in 1992,1 federal (and drug manufacturer) enforcement of legal requirements imposed by 340B on “covered entities” has been quite limited. Between health reform legislation and the likelihood that covered entities will expand their 340B projects in light of the changed contract pharmacy guidelines, described below, far more vigorous enforcement is almost certainly on the way. Those guidelines were issued in March 2010 by the Health Resources and Services Administration (“HRSA”).2 See Notice Regarding 340B Drug Pricing Program – Contract Pharmacy Services, 75 Fed. Reg. 10272. They became effective on April 5, 2010.
The 2010 guidelines substantially liberalized previous HRSA policy on covered entity contracting with third party pharmacies. Prior policy generally limited those contracts to one per entity delivery site. The 2010 version in sharp contrast allows entities to contract with chain pharmacies, multiple community pharmacies, and Pharmacy Benefit Managers (“PBMs”) to provide prescribed drugs to the entity’s patients. There are no limits on the number of such contracts, but because the prescription drugs purchased under 340B may only be provided to covered entity patients, it would make no sense to contract with pharmacies not located conveniently to those patients. The guidelines also permit a covered entity to dispense 340B drugs both through an in-house pharmacy and through commercial pharmacy contracts. They replace the previous contract pharmacy guidelines as well as all informal HRSA policy statements and correspondence addressing 340B contract pharmacies. See 75 Fed. Reg., at 10277.
The ease of pharmacy contracting under the 2010 guidelines virtually invites covered entities to expand their 340B projects through pharmacy contracting. If the increased volume of covered entities asking our firm for assistance in pharmacy contracting is any indication, that expansion is well under way.
Our firm’s efforts for covered entity clients in the process of utilizing or increasing the utilization of outside pharmacies typically begin with an analysis of the terms of the entity’s pharmacy contracts. For more and more such clients, we also must review the terms of contracts with vendors proposing to provide management services to the entity (usually) in connection with the entity’s outside pharmacy contracts.
The pharmacy and vendor contracts we review almost always raise significant legal concerns. Increasingly it is the vendor contracts that worry us the most. The services vendors offer vary, but virtually all involve relieving the entity of the “headaches” associated with outside 340B pharmacy contracting. As welcome as relieving the entity’s contracting headaches might be, the problem with such relief is that the liability to the Government (or manufacturers) for all violations of 340B and (generally) other applicable federal law cannot be handed off to a vendor; it remains with the covered entity.