The Bottom Line Pharmacy Podcast: Leveraging Analytics in 340B Success Featuring Draven Tell, lead Analyst With Secure340B

Cracking the 340B code can feel like climbing Mt. Everest…but done right, it can be an absolute game-changer for independent pharmacies.

That’s what this week’s episode of The Bottom Line Pharmacy Podcast is all about!

Scotty Sykes, CPA, CFP® and Kathy Blanchard team up with Draven Tell, Lead Analyst at Secure340B to break down:

• Low Hanging Fruits With 340B Programs
• Why Accumulators Matter and Their Impact on Your Bottom Line
• How state legislation is pushing back against manufacturer restrictions

Join the discussion with us!

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More resources on this topic:

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Podcast | Overcoming Challenges with 340B Contracts

Podcast | Understanding 340B Contracts and Maximizing Your Pharmacy’s Benefits

Clip | The Impact of DIR Fees on 340B Pharmacies

If you prefer to read this content, the video transcript is below:

Scotty Sykes, CPA, CFP®: Welcome everybody to an episode of the Bottom Line Pharmacy Podcast. And we got one of our recurring vendors here with us today, Secure 340B. Always a pleasure to have you guys join us and give us the update on the 340B side of things. You know, we are seeing a lot of pharmacies continue to get into the 340B space, which I like to see because it can be very lucrative for both the covered entity and the pharmacy if done right. The key thing is if it’s done right, so hopefully we can get into that, what that means. But Draven, thanks again for being on today. And how about we just kick off with you know, what’s new in the 340B world since maybe we last talked last year. What’s new? What’s going on in the 340B world? 

Draven Tell: Yeah, for sure. Thanks for having me. Yeah, so the biggest new thing I would say and that happened in the last couple of days was state legislation coming out of Nebraska. They just passed a bill. And so, we’ve seen that now in multiple, multiple different states. I think Arkansas led the charge and then Nebraska being the most recent and then all those other guys in between. But theirs was actually a little bit unique in that it didn’t have an effective date. It went into effect kind of immediately as the bill was passed. And so, we’ve gotten to see some momentum from that as two manufacturers have already kind of put out their statements acquiescing to the bill. That was Novartis as well as Merck. So, seeing some momentum there, we’re seeing in a lot of states, last legislation cycle, they kind of trickled in the bills did, and they were a little bit sporadic. We have that map now that we have where they’ve been passed or introduced and it’s almost the entire United States now that they’ve been either passed or introduced. So it seems like it’s really starting to kind of work itself out. People are becoming more and more aware of these things and so we’ve seen a lot more action being taken and it’s been good to follow. 

Scotty Sykes, CPA, CFP®: So, what is it with this legislation that is, what is it? I mean, why is there legislation going on and why is there momentum here? What’s the issues that they’re trying to fix? 

Draven Tell: Yeah, absolutely. So, a few years back, we started to see contract pharmacy start to be restricted at that manufacturer level. Early on, it was restricting covered entities to maybe only having a single contract pharmacy or requiring some sort of data submission. And in some instances, it was both, right? They could only have one pharmacy, and they had to submit that data. And these were all things that the manufacturer was able to do just because the rules of the game aren’t really spelled out in 340B all that well. And so, they were putting these kinds of blocks in place that allowed them to restrict access to that 340B pricing that the program kind of depends on. And so, this state legislation has kind of been an answer to that of saying, okay, there can be some rules in place, but they need to be in a way that the covered entity can still have their contract pharmacies. So, these patients can still go to the pharmacies they want to and have that access. And so that’s been the main goal of the state legislation has been to kind of counteract some of the hurdles that were put up by the manufacturers and restore some of that contract pharmacy ability for the covered entity to partner with those pharmacies. 

Scotty Sykes, CPA, CFP®: That’s interesting because the, you know, Arkansas, mentioned Arkansas, Arkansas has been leading the charge for a long time, especially recently with some, some updates from what they’re doing. That momentum in the legislative realm continues to push forward for pharmacy. So ultimately, hopefully that’s a good thing overall. And it gets to the federal level. We shall see that’s what everybody’s kind of on pins and needles about, but, yeah. So, you know, we, again, I’ve been seeing some pharmacies that have gotten into 340B lately. And most of them are doing really well with it, but occasionally you’ll get one that the numbers just from where we sit on the profit and loss statement, Kathy, just don’t make a whole lot of sense. And what’s the best way, I guess, the easy low hanging fruit to determine, hey, is this a good 340B contract? 

Kathy Blanchard, Senior Pharmacy Accountant: I think that’s exactly what it is. If you stop and think, the covered entity has all their people that write the contract, but the pharmacy just kind of looks at it says, yeah, okay, I’ll do this for you. They don’t have an advocate. And that’s where I see so many of our pharmacies missing the boat. Either not having somebody read and understand the 340B contract that they’re getting ready to sign, or just taking it and sitting on it for six or seven years and never renegotiating that opportunity. Am I right Draven? 

Draven Tell: Yeah, absolutely. I don’t think that there’s ever any like ill will in these contracts to set the pharmacy back. And so, when we see issues arising at the pharmacy, it’s typically just from a lack of clarity, whether it be the effect that it would have on the pharmacy. We saw a lot of that when DIR fees were being clawed back. That’s cleaned up a little bit since they’ve gone point of sale. But that was just something that Covered Entity was blind to that could have crazy negative effects on the pharmacy. And then moving forward into the space, just programs that were set up with the idea that all these brand medications would be qualifying that all of a sudden due to these restrictions aren’t. And so, as things change, it could be just the way that the contract was set up to begin with. But even if it’s just things that have changed throughout the process, we’re seeing pharmacy impact not be as advertised, right? And so, you expect, like you’ve seen with a lot of these partnerships, positive outcomes, but instead we either see cashflow issues or inventory swell that leads to cashflow issues because that is kind of the final thing there is right, like how is this program affecting the cashflow of the pharmacy? And so, I think that, like you said, you kind of hit it right on the head. That’s what we expect to see. And when we don’t see it, then it comes into the data and what’s causing those issues in best practices. And sometimes it’s just about renegotiating the contract in a way that makes sense for the current landscape. 

Kathy Blanchard, Senior Pharmacy Accountant: I mean, even if it’s just so much as the terms for the reimbursement to the covered entity, making sure that the pharmacy collects those funds before the covered entity demands their piece of the pie. Some of them have got terms out there. They’re going to hit you with that bill at 30 days. You haven’t even gotten paid. And they want to take the money from you. So, it’s just so good to have somebody look at it and point out those little idiosyncrasies that can help the pharmacy really benefit tremendously from being involved in a 340B. 

Draven Tell: Mm-hmm. Absolutely.  

Scotty Sykes, CPA, CFP®: There’s a lot of traps in 340B and if you’re not careful, you can slip into one of those. And like you said Draven, maybe it’s not intentional. It’s just the way it’s set up and there’s just a lack of clarity, lack of communication between, you know, how the pharmacy operates and what the expectations are on the pharmacy side. There’s a lot of traps and you can fall into one and get in trouble. Which is why you guys are around, right? 

Draven Tell: Yeah, so yeah, we work exclusively with independent pharmacies for that exact reason. When we got started, it was a lot of the contract negotiation, new opportunities, just kind of guiding our pharmacies to make sure that they got off on the right foot. The program was a lot simpler back then. So it was one of those things where if you got off on the right foot, you were kind of good, right? Like the program would just kind of chug along and the pharmacy would fill scripts. And as long as there weren’t any huge issues which they could always come to us with, the program kind of went steady. But with so many changes now from the manufacturer side and the legislation side, we’ve really bolstered up our kind of support side where we do a lot more like ongoing reporting, we’re measuring a lot more metrics, that’s where like the data analytics stuff that I do, we’ve just gotten a lot less passive and a lot more proactive on monitoring these programs and making sure that as things change, that the pharmacy is still set up for success. Because with things always shifting, it’s not as much of a just kind of set it and forget it program like it may have been a decade ago. Now it really does require a lot more resources that frankly independent pharmacies don’t have. They’re already stretched through too thin and I’m sure y’all are fully aware of that. 

Scotty Sykes, CPA, CFP®: Yeah, for sure. 

Kathy Blanchard, Senior Pharmacy Accountant: Well, in the 340B arena, we’ve had several pharmacies recently that have called and said, you know, how do I find out if there’s a covered entity or a clinic in my area that is interested in partnering with me to provide that for my community? How do you guys assist in that effort? 

Draven Tell: Yeah, so we use the HRSA database. You can often search either by name if you have particular entities in mind or zip code if you’re just like, I don’t even know what’s in my area. But once we’ve kind of identified covered entities that could be a potential match, that’s where we really are able to kind of hit our stride where we can run feasibility analysis to determine, okay, what’s the volume of the program look like? What specific claims do we think can qualify? And then have those conversations with the covered entities around their expectations. With manufacturer restrictions and things like that, the expectation for a program might look different for your pharmacy than the one across the street. And so, having that clarity up front really lets the pharmacy determine, hey, is this worth the resources that I need to dump into it to build something here? Because like y’all have seen if the answer to that question is yes. There can be a ton of value for those pharmacies. But if the answer is no, we don’t want to necessarily run them through this whole gauntlet of processes and introduce them to some of those pitfalls you mentioned. If it’s not, not worth their while. So that’s kind of where we act in that process. 

Scotty Sykes, CPA, CFP®: So, let’s say you have a pharmacy out there identifies a covered entity, opportunity. What would kind of be the top two or three things you would suggest like in terms of setting up the agreement, things to look out for, to make sure they’re setting themselves up for the best success. 

Draven Tell: Absolutely. One, Kathy kind of alluded to or mentioned earlier, net payment terms is huge. It’s just going to be a little blip, and it’ll say net 15, net 30, whatever it is. But making sure that that’s long enough to stretch out, to reach your reimbursement. It just has to be that way, right? You can’t be billed by the covered entity for money you haven’t received yet. So that’s an easy one. Another one is the term and termination clause. That one always kind of sounds scary. But really all that allows the pharmacy to do is if there’s a way to get out 30, 60, 90 days’ notice for like no fault, no cause, it allows them to renegotiate that contract as things change. So that’s something that we kind of require in all the contracts we look over just because we know things change. And we want both the covered entity and the pharmacy to be able to come back to the table and say, hey, something changed. It’s not working for us anymore. How do we come together as partners and make it work going forward? And then the third one is kind of the most obvious, the dispense fee, right? You need to make sure that whatever that margin is that you’re getting supersedes the margin that you’re currently receiving on the retail side and buy enough that it makes sense for the additional services and work that goes into the 340B program. So, when we’re looking at our pharmacies, we’re often looking at somewhere between like 10% and 15%, depending on the services they offer, right? A lot of times it’s free delivery for these patients or adherence packaging and things like that. But making sure that if you’re doing a brand only program, that your dispense fee is kind of covering up for some of the losses that you’re seeing on the brand program. But if you’re including generics, then that dispense fee needs to be higher, not only because your margins are better, but as you take those generics from your retail catalog to your 340B catalog, how does that affect your rebates and things like that? And just having all that in your head when you’re negotiating these contracts to make sure that whatever you’re retaining and whatever you’re receiving from the program actually matches kind of what you’re giving up and it is worth your time. 

Kathy Blanchard, Senior Pharmacy Accountant: As far as like accumulators go, I know that’s something we work diligently with our clients to help them understand the impact of that on their balance sheet. But I know there’s some new things in the system. I know they can get credits versus accumulators. Can you kind of explain that and what to watch for? 

Draven Tell: Yeah, absolutely. We actually helped like you guys partnered with the accumulators on dispensed customers. So that was kind of the original way to do it. And we still see those all the time. Most of the TPAs still offer that as a model. But what that results in is the pharmacy passing revenue to the covered entity before they’ve received the product. And so, when you look at your accumulator value in that instance, that’s cash, essentially. That is product that is owed to you that you’ve already passed revenue for. And so, when we look at those values, it’s very important to take that into consideration as far as the financials are concerned, because that is basically outstanding inventory to you. Newer models might have pay on replenishment, so you won’t pass that revenue until after you’ve received the product. And so that accumulator kind of represents something different. That accumulator now represents like potential 340B that once the product is purchased from there and moved to the pharmacy, then the transaction gets to take place. You pass the revenue to the covered entity and then you retain your dispense fee. So those are kind of the two current models as far as they tie into that accumulator. And then Kathy, you mentioned credit-based replenishment, which is now kind of the newest thing and hopefully a solution to some of the track and trace hurdles and things like that that we’ve seen. But basically, how that will work is instead of receiving that physical inventory, you’ll instead receive a credit to your wholesaler account at your purchase price. And so that just allows the pharmacy to be a lot more liquid. They can either purchase to replenish that back onto their shelf, whatever that drug happened to be that qualified for 340B, or it can just go into their normal drug spend if it’s a rare drug that they don’t get all the time or the patient switched after this one transaction or whatever it happens to be. We’ve just seen that that’s a really nice feature to have for these pharmacies because they were already doing a lot of that already, right? They’d get this big shipment of 340B, and they’d send it for return. But then you’re dealing with refrigeration and a bent corner of a box results in you not getting your return and just all sorts of issues there. And so, this kind of skips the middleman there and simplifies things for the pharmacy. 

Scotty Sykes, CPA, CFP®: So that credits the way to go, if you can. But those accumulators, this is where you need to understand what it is you have, because those accumulators are a big deal. They can be if you’re not paying attention to it.  

Kathy Blanchard, Senior Pharmacy Accountant: It can be a really big deal. 

Scotty Sykes, CPA, CFP®: Yeah, so you could have a 340B contract and have no idea you have accumulators. We’ve seen that and that can skew all kinds of data for you. what is that language in there that they’re looking out for? If I’m a pharmacy right now, I go pull out my contract. What am I looking for where it’s going to tell me I have accumulators or not? 

Draven Tell: Yeah, so one of the unfortunate things is a lot of times, pay-on-dispense versus pay-on-replenishment is a like toggled feature that is just behind the scenes in a software. It’s not even in the contract language a lot of times. So that’s something when we’re negotiating a contract, we typically either have it added to the contract or there’s some sort of like addendum that shows where we’ve selected all these features. If they don’t have something like that, it’s definitely something that you reach out to your point of contact either at the covered entity or the TPA and you find out, you just ask, hey, am I paying a replenishment or am I paying on dispense? And especially at the TPA, they should know what that means and that should provide clarity. And again, that’s the big thing to know, right? If you’re paying on dispense, then any of that value that’s in the accumulator, and we’re talking about potentially hundreds of thousands of dollars in some instances, it needs to be aware because if that is the case, then that’s money that the pharmacy needs. And if it’s pay-on-replenishment, it becomes a lot less of an issue. But still, that accumulator can be looming qualifications, right? And so, an example that I like to give is when Ozempic was on back order, I guess that was last year, we would see accumulators really, really pile up. And on pay-on-dispense side, if you have 100 Ozempic in the accumulator, well, that’s money that you’ve passed to the covered entity that on paper you’re like, oh, I have my dispense fee, I’m doing great, but you’re not receiving any of the product. So you just keep buying these Ozempic from your wholesaler or wherever you’re able to find it because it’s on back order in a lot of places. And so, you might even be paying a little bit more for your Ozempic. And all of a sudden, you’re running a deficit because you’re paying for the drug and passing all that revenue to the covered entity. So that was what we were seeing on the pay on dispense side. And then on the pay and replenishment side, it was still something we needed to pay attention to because if you had those same 100 Ozempic, all of a sudden, they might try to ship you 50, 60 of them so that they could process it and send you a big invoice to send that money over to the covered entity once they’re able to finally get their hands on the Ozempic. But a pharmacy can’t handle 50 or 60 Ozempic that they piled up over three or four months, all in one shipment. And so, either way, it’s important to pay attention to that accumulator. It’s just more important to know, is this affecting my financials or is this just something that I need to pay attention to for the sake of inventory swell and just consistency of the program? 

Scotty Sykes, CPA, CFP®: Hmm, that’s good stuff. 

Kathy Blanchard, Senior Pharmacy Accountant: And when you mentioned that, there was another point that I thought of is those partial bottles that never hit the full bottle mark, making sure that you’ve got that little tiny true up clause in there so that those piece of bottles, you get the money for those instead of them just sitting out there at 10 pills or 20 pills and it never hits that full bottle mark.  

Draven Tell: Absolutely, no, that’s a really good point and even if you have true up language and you think I get those true-ups, I know I do sometimes they’re further apart than  you think because you’re busy doing other stuff so you’re not paying attention to them. So there are ways that if  you feel like you’re looking at your accumulator and you’re seeing a lot of those partial packages, reach out to your TPA. See if they can do it true up especially for expensive brand medications and things like that. It’s important because it can add up really quickly. Even a half a bottle, it can be hundreds of dollars. So that’s a really good point. 

Scotty Sykes, CPA, CFP®: What about the TPA Draven? What, I guess there’s not a lot of control over the TPA when you  enter into a 340B contract, TPA is kind of already assigned, so to speak. What does the pharmacy need to do in terms of their TPA? What’s like a best practice build a relationship with them and check in with them every month or, you know,  what’s just something to be mindful of there? 

Draven Tell: It’s gonna be different TPA to TPA. Some will have their own pharmacy specific account manager. And if you have one of those, it’s really important to kind of foster that relationship. Make it where it feels a little bit more open door, where you’re getting responses from email. And part of that’s just building a rapport, right? These guys are busy just like everybody else is. And so, if they like you, they’re more likely to see your email and wanna respond quickly. And so that’s something that we always talk about and recommend is just, having rapport with your TPA contacts, with your covered entity. Like build a partnership here so that it doesn’t feel adversarial. It doesn’t feel like one wins, one doesn’t. It feels like everybody’s winning and it’s as a team and we’re all pushing in the same direction. So that’s the best way to look at it, right? Of course there’s gonna be hurdles and frustrations along the way that make that a little more difficult. But if you don’t have an assigned account manager, then just trying to find somebody that is a contact. Maybe you have to go through the general support one time. But once you finally get a hold of somebody, maybe trying to get an email to say, hey, I’ll go through support if I need to, but if it ever needs to be escalated or I need something really, really quickly because I just got 60 bottles of Ozempic I got to figure out what to do with, who can I contact? And just kind of work those avenues so that you’re kind of prepared ahead of time for if something big happens, you’re not having to sit in a queue for three weeks waiting for your support case to be worked, like is the case with some of these TPAs some of the times depending on issues. mean, at the beginning of the year in January, we saw the issue with the switch. And so, data wasn’t flowing, qualifications aren’t happening. Well, that’s TPA agnostic. That’s just an issue. Everybody’s hair is on fire. Well, because that’s the case, they’re trying to work through it, but your specific support case isn’t going to get answered. And so if you had a different problem at that time, you were like 33rd on the queue waiting forever to get your questions answered because the whole industry was on fire for a couple of weeks. And so having an individual that you can reach out to, even if it’s just at your covered entity or at the TPA, that you can say like, hey, these are the problems that I’m having, how do we work together to solve them, I think is the biggest key when it comes to that sort of thing. 

Scotty Sykes, CPA, CFP®: Right. Always good to build those relationships with your vendors for sure. Draven, what else did we not ask, or you want to add here to the audience? 

Draven Tell: I mean, from my data background, there are some reports that it’s important to just kind of be aware of in your TPA. If you’re logging into a portal, it can be really easy to just be overwhelmed and not know what you’re looking for and what’s valuable and what’s just kind of fluff. And so, the big things, one, we’ve already talked about the accumulator. That’s extremely important to pay attention to. One is if you can get your hands on any sort of claim level invoice, you’re always going to see obviously the big number that comes due that you pass to the covered entity. But if you can break that out into claims, you can really understand what is qualifying versus what isn’t. That can be very beneficial to a pharmacy, especially in the current brand landscape where we’re seeing certain brands are just losing money for pharmacies. But if they’re all qualified for 340B, they’re actually profitable. And so being able to differentiate between those two things is important and having access to the claim level detail allows you to do that. And then the third big thing is the replenishments. So we kind of talked about that with the accumulator filling up. If you’re not receiving the product, you can have the best program in the world on paper. But if you’re basically paying double because you have to purchase the drug yourself and pass the rest of the recovered entity, it’s never going to flush out that way. And so making sure that you’re receiving the product that you’re being invoiced for is important as well. 

Kathy Blanchard, Senior Pharmacy Accountant: Those accumulators can also run negative too, where you’ve over received what is due to you. And I think that’s been a surprise for several of our stores where they’ve gotten too much of something and then they owe it back in some way. 

Draven Tell: Yeah, absolutely. And that’s something that we’ve had to work through kind of on a case-by-case basis, because it’s a tough deal in a lot of cases where pharmacies might get inventory that were tied to qualifications and then those qualifications get reversed. And that’s what leads to overqualification. And just kind of advocating and showing the pharmacy, okay, this is where you receive that additional value where the pharmacist or the covered entity passed that revenue back, but you also retain the product. If that was actually the case. And letting the pharmacy know, hey, it’s okay that you’re having to pay this back to the covered entity because you receive double upfront or whatever it happens to be, is important to give them that peace of mind. Or if it isn’t the case, which we’ve seen where this bill comes due, but we can’t really explain it in the data, we’re able to advocate for the pharmacy and say, hey, I know that you’re saying they owe all this, but you have to show where they received this double value and things like that. And if they’re unable to show that, then it’s important that the pharmacy doesn’t just kind of foot the bill for these mistakes that were made upfront. 

Scotty Sykes, CPA, CFP®: Sure. One question I have is, is there a metric in terms of dispensing fee to revenue that you’re giving back to the covered entity that’s just a quick barometer of if you’ve got a pretty good contract or not, because I mean, guess it depends on what it is, you know, brand generics and things like that. But you’ll see sometimes I’ll see some plans where they’re giving back a million dollars of revenue and their dispensing fees are $80,000. I’ll see another one. They’re giving back $300,000 of revenue and their dispensing fees $80,000. So, there’s just, you know, it’s all over the map and I’m like, all right, so that doesn’t seem very good if you’re giving back a million dollars of revenue. You’re only picking up $80,000 of dispensing fee. Is that a valid way of kind of a quick glance at the effectiveness of the program for the pharmacy or is that just, you got to dig deeper. 

Draven Tell: I think it’s a good starting spot. The big thing that kind of that matters in that equation and you touched on it is drug mix, right? Is it brand and generic? Is a lot of it can be where we’ve seen some crazy numbers is it’s an HIV clinic. And so HIV medications margin is like compared to its 340B price is actually a lot closer together than your typical brand medication. So, for some brand medications, you might see it cost the pharmacy $300. The 340B cost is 15 cents. So, there’s a lot of gap there to work with that generates the revenue for the program that then can be split up in more traditional 25% goes to the pharmacy, 75% to the covered entity. If it’s closer, right, and that revenue shrinks and the cost of goods goes up, that’s when you can see the revenue kind of differentiate and you see those pharmacies that pass a large number, a large part of their collected amount to the covered entity without retaining as much. But I would say if you’re in a standard brand contract, you’re not doing a bunch of that HIV medication, you should be kind of targeting, if we’re gonna keep it really wide, maybe like a 20 to 30% retention of that dispense fee is a good number to keep in place. And then, just kind of having, if you kind of fall outside of that norm, have an idea of what you would make had those things not been 340B, right? And that’s how you can kind of do the math because if you typically would make 5% and now you’re only making 6%, well, you’re probably doing a lot of extra work for one percentage point and then you’re opening yourself up to some of those whole issues that we’ve talked about on this call for 1%. But if you were gonna lose 4% and instead now, you’re making 6%. Now that’s a 10% spread and that’s a different equation even though the dispense fee might look the same. So, I think those are the two things to keep in mind is how to compare your dispense fee to whatever you would make if it wasn’t 340B and determining whether that’s worth it or not for you. 

Scotty Sykes, CPA, CFP®: Good answer. Draven knows his 340B. Tell you what, Secure340B, you guys do a lot of work. So, a lot of good work. So, well, Draven, won’t hold you up any longer. We appreciate you hopping on and sharing a few 340B tips with the audience. And I’m sure we’ll circle back with you in the near future to have you back on and give us some more 340B updates and tips. So, thanks again for hopping on. 

Draven Tell: Yeah, absolutely. Thank you guys for having me. 

Kathy Blanchard, Senior Pharmacy Accountant: Thanks