Understanding your 340B contract pharmacy agreement: Five areas worth negotiating

By David Hardman, MBA 340B ACE; Jason Atlas, RPh, MBA, 340B ACE

The pharmacy owner’s guide to the 340B pharmacy services agreement

As a pharmacy owner, are you struggling with which parts of your 340B pharmacy services agreement (PSA) to negotiate and/or exclude? You’re not alone. PSAs can vary by both 340B covered entity and third-party administrator (TPA) capabilities, but looking at five key areas can help you navigate your PSA with ease and negotiate the best terms for your pharmacy.

1. Billing model

The billing model is the methodology TPAs use to reconcile the financials of 340B captured claims at the contract pharmacy (CP) on behalf of the covered entity (CE). The primary billing models are:

  • Bill at Transaction (BAT), in which the TPA invoices the pharmacy immediately for each individual prescription, regardless of whether it meets a replenishable package size.
  • Bill at Replenishment (BAR), which occurs when the TPA invoices the pharmacy after a full package size is met through 340B eligible dispensations.

The billing model is the most critical component of a 340B partnership. While the impact may vary, many pharmacies experience 340B-related cash flow issues with BAT. The model creates a drug liability until the full package size is met and replenished. Conversely, BAR eliminates the drug liability by aligning the outgoing payment with the replacement inventory.

340B contract pharmacy essentials: Configuring your 340b contract pharmacy program for success

Learn more

For a more detailed explanation of billing models, view the on-demand session on the topic from ThoughtSpot 2020.

2. Claims model

The claims model is the methodology a TPA uses to determine which prescriptions are captured into the 340B program. The inclusion of a financial filter, which is a profitability check on each individual prescription, is often incorporated to benefit a CE. TPAs determine which claims are captured by analyzing copay, third-party reimbursement, 340B cost of goods, and dispense fees to ensure profitability for the CE. 

The most popular claims models include:

  • The “all claims” model, which includes both brand and generic drugs, without the use of a financial filter. Any prescription that meets 340B eligibility, is captured into the program.
  • The “winners only” model, which captures both brand and generics that pass the profitability check (financial filter mentioned above). To give perspective, the financial filter in the winners only model removes approximately 70% of 340B eligible prescriptions due to cost.
  • The “brand only” model, as you may be able to guess, only captures brand drugs that pass the profitability check. The brand only model results in roughly a 90% reduction of 340B eligible prescriptions due to the complete removal of generics.

As you can see, the type of claims model can have an impact on the total number of prescriptions captured and included in your 340B program. This decision has the potential to exacerbate other choices, so it is good practice to evaluate in total.

3. Reimbursement model (dispense fees)

The reimbursement model is the methodology a TPA uses to compensate a pharmacy’s dispensations of 340B captured claims for the CE. Three of the most common approaches are:

  • A flat fee model, in which a flat fee is applied to every 340B claim that is captured in the program.
  • A straight percentage, in which the percentage can be applied to either total claim revenue (copay + third-party reimbursement) or in some cases, the net savings (total claim revenue – 340b cost of goods).
  • And lastly, flat + percentage which incorporates aspects of the previous two models.  

Consider that your pharmacy economics are continually evolving and a flat dispense fee won’t typically address those changes. Today, flat fees are most often used in the all claims model, while the percentage fees work best with models that incorporate a financial filter, winners, or brand only. This isn’t an exhaustive list of available options, but it tends to be the most popular approaches adopted by CEs.

It’s worth mentioning that if your pharmacy has an older contract that still includes a flat dispense fee with a financial filter, we highly encourage you to contact our 340B Advisory Team about evaluating your 340B financial impact with an Advanced Analytics report.

4.     Cash card

A cash card program offers point-of-sale savings on prescriptions to patients that meet 340B eligibility criteria. Providing patient discounts enables the CE to support their mission of expanding access and services to the vulnerable patient population. CEs provide patient access to affordable medications by extending 340B discounts through their CP network. The cash card program’s design is contingent on both the TPA’s capabilities and CE’s goals, which may vary between hospital participants and federal grantees.

The cash card supports the intent of the 340B program and independent pharmacies should consider participation, when offered, as it allows the CP and CE to better serve the vulnerable patient population. Additionally, being on a short list of pharmacies that accepts a cash card means more visibility and potential foot traffic for your pharmacy.

Learn more

For an in-depth discussion and example of the cash card program, tune in to our recent discussion on the Good Neighbor Pharmacy podcast.

5. Pharmacy fees charged by the TPA

In rare situations, a pharmacy may incur fees from the TPA for their participation in the program. This could be in the form of a flat fee for accessing the TPA’s software portal/reporting suite or a per claim fee for acquiring switch data. While uncommon, this poses a potential financial risk if overlooked.

Unfortunately, in most scenarios, the fees are only applied to independent pharmacies. If the CE’s TPA imposes fees on your pharmacy, we encourage you to incorporate those costs into the negotiated dispense fee. Be sure to review the complete PSA before finalizing all contract terms.

Deciphering your 340B agreement can be difficult. Contracts are confusing and terminology isn’t always uniform. Use this guide to focus your attention on the most impactful components to your pharmacy’s 340B partnership. Remember, each decision can have an impact on inventory, cash flow, and financials. Achieve program alignment by making all decisions in unison.  

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About the Authors

David Hardman, MBA 340B ACE

Director, 340B Enterprise Strategy and Solutions
AmerisourceBergen
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Jason Atlas, RPh, MBA, 340B ACE

Vice President, 340B Enterprise Strategy & Solutions
AmerisourceBergen
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