Recently on this blog, we explored the trend of specialty pharmacy in 340B programs and the top three benefits of contracting with a specialty pharmacy for covered entities. Aside from the benefits, it is even more important that covered entities understand the business models before committing to a specialty pharmacy in order to negotiate a contract that will be beneficial to them. For this installment of the series, we’ll examine a few different dispensing fee models* specialty pharmacies are requesting and how trends are changing.
First, a little background.
Since the inception of 340B in the early 90s, and the subsequent expansion of “one to many” CEs to pharmacies, dispensing fees paid to the contract pharmacy has been a very complex challenge as the marketplace has evolved. Like the first contract pharmacy relationships, dispensing fees were an unknown and the true cost of managing the 340B operations took time to understand the impact to a pharmacy’s operations. With the arrival of specialty pharmacy onto the 340B stage, dispensing fee calculations and formulas became even more complex due to the unique clinical monitoring, dispensing, and storage. Establishing fair compensation to the contract pharmacy has always been challenging. What is too little? What is too much? The Medicaid program is one example of dispensing fee studies that have been shifting the market to better understand the resources required by different types of pharmacy settings.
Specialty pharmacy dispensing fee models have evolved dramatically over the past six to eight years. Where many retail pharmacies were able to reconcile financially with a flat fee or a minor percentage, specialty pharmacies, because of the nature of the cost of the drug, find it much more challenging to cover drug cost, overhead and the enhanced multi touch point services that most specialty drugs require. We recommend reviewing dispensing fee studies conducted at the state and national level.
For the purposes of this blog, we’re looking at three popular dispensing/administration fee models which we’ll examine in turn.
Also called collections-based dispensing fees, flat fees describe a static dollar amount — for example only, $10 — that pharmacies collect on every claim they process to cover their overhead costs and leave a profit margin that they would normally gain through non-340B business (note that this is not an actual fee, covered entities and pharmacies should discuss these as part of their business relationship and contracting). For the purposes of this post, let’s say a pharmacy collects $100 between insurance and patient copay. It would keep the $10 flat dispensing fee and send $90 to the hospital.
As the 340B program has evolved to include more specialty drugs, the specialty pharmacies that stock, store and dispense them have realized that flat fees aren’t up to the task and may diminish their returns.
Specialty drugs have a wide range of pricing and can range upwards of $30,000, and specialty pharmacies have learned that it’s hard to find a flat fee that will make them whole and still provide benefit from participating in the 340B program without adversely affecting the covered entity benefit. A flat fee of, say, $350 may work on a prescription specialty drug that is low cost, but not on one that is in a higher range — especially when they may make up to $1,800 in dispensing/administration fees on the same drug in their regular, non-340B business.
The reference price is theoretically supposed to track closely with the drug’s acquisition cost, but pharmacies are limited in what they can confirm or share due to the confidential nature of their reimbursement contracts / agreements. A good point of reference for covered entities to monitor is the National Average Drug Acquisition Cost (NADAC).
Reference pricing can get complicated, so we’ll return to the $100 reimbursement example from above to help explain.
More and more specialty pharmacies are moving to this model, which may have financial implications for 340B hospitals if the reference price is not closely monitored.
Percentage based model
The third model is far more straightforward and ties dispensing fees to a percentage of total payment collected (gross) or the delta between total payment collected and 340B acquisition (net). As long as the covered entity has negotiated a percentage that makes the pharmacy whole and pays for their time and effort in managing the program on the pharmacy side, the percentage-based model has proven to be successful in meeting both the contract pharmacy financial expectations as well as the covered entity benefit expectations.
The latter two options are becoming more and more common as a way for specialty pharmacies to recoup their costs and realize margins, but they can also dramatically change the calculus for 340B covered entities. Sentry offers a number of dispensing fee options and our experts are ready to help you understand how specialty pharmacies determine drug dispensing fees and how they can affect your 340B program. Contact us today for more information!
* Antitrust laws prohibit unreasonable restraints of trade, such as conspiracies and agreements between competitors to engage in price-fixing, bid-rigging and customer or market allocation, and group boycotts or concerted refusals to deal with competitors, suppliers or customers. This blog post provides hypotheticals for discussion purposes only and does not constitute real or actual fees.