Understanding 340B Contracts and Maximizing Your Pharmacy’s Benefits
In this episode of the Bottom Line Pharmacy Podcast delve into the world of 340B contracts with us and Amanda Gaddy from Secure340B. Discover the importance of transparency, knowing your numbers, and leveraging data-driven insights to determine the true impact of 340B programs on your pharmacy’s financial health.
Don’t miss this informative conversation that can help you make a difference in your community while thriving as an independent pharmacy.
If you prefer to read this content, the video transcript is below.
Kendell: Hello, welcome to another episode of the podcast. We have Amanda Gaddy with Secure340B. She’s right outside Atlanta, Georgia. We’re so happy to have you on. This is a big topic. What’s going on with 340B contracts right now? So I’m happy to deep dive in. So Amanda, a little bit about yourself. How did you get started with 340B? And then we can jump into what’s going on today in the 340B arena.
Scotty: Welcome, Amanda.
Amanda: Yes, thank you. So I am a pharmacist, and I’ve been an independent pharmacy pretty much my whole life. And the way I got involved with 340B is one of my good friends started a company called Macro Helix, which was one of the 340B administrators they still are. And so she said, I was working for an independent at the time, and I was just helping them part-time, but before I knew it, I was flying all over the country. I didn’t even know what 340B was. And I was in charge of building their entire contract pharmacy department from the ground up. And so I saw the good, the bad, the ugly, and when I left Macro Helix, I started working with a group of pharmacies overseeing their 340B programs. And I started seeing it from a whole different way, and I thought, there’s way more to it than just the dispensing fee. You have to know, how is this going to impact my rebates on all of your purchases, and is it beneficial? Because the dispensing fee is what’s important. And so we want to make sure that dispensing fee is more than they would make if the claim was not 340B. And so that’s the reason I wanted to start this company, is because the transparency is just not there. And you really have to know the numbers to understand does it work or not work. And so that’s really my passion is to help them independents in this space because they really can make a difference in their community. And that really is the end goal, is helping those patients.
Scotty: I’m going to jump right in on that because something popped right in my head. Well, how are you obviously Secure340B, the organization you’re with there, Amanda, but how is your organization or how do you determine whether that dispensing fee is beneficial or not for the pharmacy?
Amanda: Completely data-driven. We’re not guessing here. We’re basically looking at because that dispensing fee is the margin for that prescription, because all the revenue that the pharmacy receives from the PBMs and the patient copays is transferred to that covered entity minus that dispensing fee. So because that dispensing fee is the margin. We compare that to what the pharmacy would have made on that prescription had they kept all the revenue and they would have paid their wholesaler for that product. So it’s a very black-and-white clear picture, claim level detail on the impact.
Scotty: Are you considering a rebate in there as well?
Amanda: We do so especially with generics because generics have a higher rebate, so we will estimate what the net margin would have been. And that’s actually a mistake that I made when I was on the other side, is I didn’t understand the rebate part and I was just looking at the cost of a generic and I’m like, oh, this is great. But then when you say, well, there’s a 45% rebate on top of that, then that dispense fee doesn’t look as good, right. So you have to look at the entire picture of the net estimated retail margin compared to that dispense fee.
Bonnie: And that’s a perfect word that you used as transparency, I would say. Obviously we Kendell, Scotty, and I see contracts all the time for 340B. Now, we don’t understand them, but that’s why we send them to people like you. But we have seen enough to know sometimes that people haven’t. We see clients that haven’t even really read their contracts, or maybe they think they’ve got a really great deal, and then when someone actually looks at them, they find out that maybe it’s not as great as they thought. Or like you mentioned, it may have been something that they should have negotiated better or maybe walked away from altogether.
Amanda: Absolutely. And there are two pieces to it for us. There’s the financial piece where we’re looking at the data and saying, okay, yes, your dispensing fee is more than it would be if it was just on your retail account. But there’s the inventory part, and that’s really where we’ve got 21 manufacturers that have restrictions right now against hospitals, and I think six against clinics like FQHCs, which means they’re limiting the number of contract pharmacies a covered entity can have. The problem that we’re seeing with this is if a pharmacy is being invoiced when a claim qualifies and they’re not receiving that replenishment, they could just be sitting on a ton of inventory in their accumulator. And this happens every day. So yes, on paper, financially, the dispensing fee is more, but then they’re sitting on $80,000 of inventory. And that happens. I get calls all the time. We’re having a cash flow issue. Can you help me? I look and I’m like, well here’s your cash flow issue. Because remember, they’ve already transferred the revenue for those claims and they’ve paid their wholesale. So it’s like a double whammy because they’re not at least keeping the revenue.
Scotty: So about that inventory piece, how can pharmacies get a grip on that? Is it just understanding that contract or is it being built into the accounting? I know how we do accounting. We’re trying to account for that accumulator, which is not always very clear, but how are you advising your pharmacies on that accumulator? What is that accumulator? How to track that accumulator for those that may not even know that it’s even there?
Amanda: Yes. The very important question to ask is how is the pharmacy being invoiced if they’re being invoiced when the claim qualifies? The accumulator is very important because that means that they’re already transferring revenue. Some TPAs or third-party administrators only invoice the pharmacy after the product has been replenished, which is a little bit cleaner or a lot cleaner, honestly. So if a pharmacy is invoiced when the claim qualifies, then they need to monitor how many packages are leaving their pharmacy, the value of that, and how many packages are coming back. With our company, we have this new product called Invenstory, and it’s the story of the inventory. And so we’re tracking during a quarter how many packages are leaving the pharmacy, what is the value of that. Like, what is that pharmacy actually paid their wholesaler and how many are coming back. And then we’re looking for variables. So just making sure that you’re comparing what’s leaving your store and what’s coming back and making sure if it’s in the accumulator and you’re being billed when it qualifies, then working with that TPA and that’s the covered entity about how to reconcile that.
Bonnie: And every contract is different, as you know. So on the accounting side, we always have lots of fun when we hear, oh yeah, we have a 340B plan, so then we have to dive in and really understand how it operates. So that on the accounting side, we can make sure we show that differently because it all depends on who owns the inventory and how we show the fees and how we show the income makes it challenging, which equals fun, I guess, on our end.
Amanda: Sorry, Scotty.
Scotty: No, you go ahead.
Amanda: I was just going to say another challenge, that I see with pharmacies is when they have programs for the uninsured. So that means that it could be a three-month supply of insulin, their cost is $1,500, but the patient’s only paying 15. So when they adjudicate that claim, it comes back that they were paid $15. But their cost of goods, even though it’s ultimately zero because the covered entity is replenishing, that their pharmacy software shows a loss of minus $1,500. That is a real challenge. We’re trying to figure out maybe even how to work with a pharmacy management system so that we can pull those claims and say, okay, these really aren’t losses because that dispensing fee is the margin, not a negative $1,500. Does that make sense?
Kendell: Yeah, and I think we were talking about that a little bit Amanda. The fact that when you have a 340B program and then you’re adjudicating claims what goes through your pharmacy software, and then if you look at your audit log at the end of the month, if things aren’t being accounted for properly, the inventory or the cost of goods that’s being replenished, then it really can make the audit log itself fall way out of line with what’s actually going on in the pharmacy. Do you see that a lot where at the end of the month, the audit log says their margin is X, but it’s really not?
Amanda: Yeah, especially if you think about it right now, a lot of pharmacies from their fill in brands, it’s showing a loss, of $50, $70, $100. But if they’re in a program where they’re getting 25% of the total paid amount, their margin is 25% of that, it’s not a loss. And so that’s where it really becomes very challenging with especially like right now when you adjudicate it or go to fill a prescription and it’s showing a loss of, let’s say $100, then you’re like, do I really want to order this in and lose money on it? But then if you know it’s 340B and your dispensing fee is going to be 25% of the total paid amount, then you have to shift your thinking so you’re not losing money. Even though that screen, that adjudication screen is showing a loss, it’s not a loss if it’s 340B.
Scotty: Now how about Amanda DIR fees? How do they play into this? Because some contracts don’t mention DIR fees at all. So how does that play into all this?
Amanda: Yeah, so we have some pharmacies that have their dispensing fee is again a percent. So it covers the DIR fee. If a pharmacy is on a flat fee, which brand only, and I hope not, because typically it’s a loss every time, that would be when we would definitely want the DIR fees to be covered. Because if you think about it, if you have a flat fee and let’s say it’s $30, but then in six months you’re paying 10% of that total paid amount, but you’ve already transferred all that revenue minus your dispensing fee, then the pharmacy is underwater at that point. And then next year the DIRs are going to be at the point of sale. So that’s going to be outside of 340B.
Bonnie: I got a question. I hear a lot and this is kind of maybe taking a few steps back, but I have a lot of clients that ask if you’re in an area and you’re unsure how to get started with a 340B plan. Any tips with that?
Amanda: Absolutely. And there’s a lot I want to say that’s going on with manufacturer restrictions right now. But there’s still a lot of opportunity. And again, if it’s structured correctly, you’ll never lose money on a claim, which means that you can do more for your community, you can do clinical MedSync, packaging, all these things that help that patient. So to get started, though, there’s a website, it’s called OPAIS.Gov, I believe. But anyway if you search 340B contract pharmacy. There’s a way that you can actually put in like a zip code the city and it will bring up any covered entity in your area and then you can click on it if they have contract pharmacies currently and the contact information. And this is to me very, I’m going to wear my clinical hat for a second. I think it’s really important to have a conversation with the covered entity about the services that are provided by that pharmacy. So these independents provide a lot more than filling a prescription. So opening up because honestly, these hospitals and clinics need these pharmacies to do adherence programs to do clinical medicine. And so having that conversation say, we want to let you know what we’re doing, we’re sharing the same patients, why don’t we examine and see if 340B would work. Right. There’s no real investment at the beginning. All you have to do is have dispensing data and the MPIs with the providers and run the analysis and say, if we would have been contracted over the first quarter of this year, here’s how much revenue it would generate for you, hospital FQHC, and here’s how it would impact us. And with that revenue and savings, here’s what we can do for our community.
Scotty: Yeah, I mean, the right program can be very beneficial for pharmacies. We see it with a lot of pharmacies, and then the bad ones are bad. But I know when we talked last year, Amanda, the manufacturer issue was a concern with the changes that were, I think starting about March a year ago, how has that all unfolded impact in 340B? Because I know that was a concern last year. How has that all played out?
Amanda: Well, it actually started in 2020, and so we’re up to 21 manufacturers who have imposed some sort of restriction and it varies by manufacturer, it varies by covered entity type, and it’s forever changing. So there was a ruling, I think it was at the end of January that basically sort of supported pharma. And so that’s when we started seeing more restrictions, unfortunately, and I think this is the biggest thing, is it’s limited access to medications for patients. And what I mean by that is those patients who don’t have insurance, if they can’t make it to that one pharmacy, if that’s the requirement, then what are they doing to get their medication? And that’s a true issue that people really aren’t talking about. But I mean, I’m hearing it from my pharmacies that say, hey, we used to fulfill whatever manufacturer and we’ve been restricted now and our patients can’t make it to that pharmacy that’s at the hospital. So what’s going to happen in the future? I don’t know. I really don’t. But I know that Congress is really looking at it and I’m totally cool with transparency. Again, I’m a pharmacist, I’m very black and white, but making it more transparent, making sure that these funds are used correctly, but it really will keep the hospital stores open, especially in rural Georgia where I am. I was just going to say, going back to the services, I literally had a pharmacy owner call me last week and she was able to get technology to do adherence packaging. And she’s like, I never would have been able to do this if I wouldn’t’ve been part of 340B. But this has allowed me the resources to provide this to my patients. And I hear stories like that all the time. These are about people. This is like patients. We’re talking about actual people in the community.
Bonnie: Because like you said, obviously, we talk about this a lot, especially as CPAs and as the side that you’re on as well, about making sure that this is something that is financially beneficial for the pharmacy. But on the other side, it’s also, regardless of that, it is a very positive thing that you can do for your community and for the people of your community that need that. So I guess you always kind of, kind of keep that in the back of your mind, too. This is helping people. You want it to be a win-win for both sides.
Scotty: So what about a pharmacy listening in right now who has a 340B contract, but they have no idea, they don’t know anything about that inventory piece. They don’t know anything about that DIR fee piece. They don’t really know what they may have signed. Maybe they have one or two contracts. I mean, I’ve seen this when we had some clients come on board. So what do you advise for someone that has that 340B contract that doesn’t really know what they got? Well, first of all, know your numbers. So like when a pharmacy is invoiced and they say we owe $30,000, they need to see the claims detail to see what does that mean, and then going back to the inventory piece, have they received the replenishment? And then understand if they are getting a flat fee, how does that compare to what they would have made had that claim not been 340B, including any rebates? So really it’s what is your dispensing fee versus what you would have made without 340B net on your retail? And then are you getting your inventory replenished? The meat of it. That’s the important part.
Bonnie: So I have a question. If someone has signed a contract and maybe you guys look at it, it’s not so great, they’ve already signed it. Is there anything that can be done at that point?
Amanda: We have helped pharmacies renegotiate because again, this is a partnership, right? And so we can go to a hospital and say, look, over this period of time, this pharmacy has lost, this has happened. They’ve lost $70,000, $100,000 and they want to continue to be a partner, but can we renegotiate this and here’s what it looks like. We’re not just, like, throwing a number. We’re like, okay, here’s the modeling to support what we’re recommending. And more often than not, the covered entity is like, absolutely, we want to continue to work with this pharmacy. I don’t think there are bad people trying to take money from pharmacies. I think it’s so complicated that people just come up with a number sometime, like, hey, why don’t we do this number instead of really looking at the claims detailed to support it? And we’ve had some where we’ve not been able to help them renegotiate. And all I can do is say, if it were my pharmacy and I was the owner, I would exit this program, because we can clearly see that this is negatively impacting your pharmacy financially, and you’re not the bank for a hospital. And as much as you want to help your community, the community needs you to not go out of business, and this will put you out of business.
Scotty: Yeah, well, I know when we have a new 340B contract come up, it’s a have you talked to Secure340B? That is not our area of expertise. We might be able to handle the accounting side of it, but that contract piece.
Kendell: Yeah, and you touched on it Amanda, but it’s just in my experiences with a client who is not getting the inventory replenished. But they’ve already paid the wholesaler, and they’ve already paid the hospital. It could be a nightmare. It’s like burning a candle at both ends because you’re paying out the wholesaler and the hospital. And right now, I think there’s not a lot of pharmacies that are just sitting on a ton of cash. You touched on it already. But that’s a big piece that you really don’t want to mess up. It’s a nightmare to unravel, too. If it’s already been tangled up, it’s just a nightmare.
Amanda: One that I’ve seen recently is Ozempic. So Ozempic changed their NDC, and so pharmacies were still being billed for the old NDC, not able to get the new NDC. And a lot of these contracts say, well, we trip every three to six months. Okay, so if you’re sitting on a ton of Ozempic, which is probably $900 a package, and you’re waiting three to six months because that’s what the contract says, that’s where we would get involved and work with the hospital or clinic and the TPA and say that whole period was meant like if you did a partial package to reach a full package. It was not meant to wait three to six months for something that is not available and that’s not with every TPA. I want to be very specific, but some of the TPAs will wait three to six months to tree that up. You’re sitting on 30, 40 Ozempic. That’s a lot of cash that’s just tied up that you can’t get.
Bonnie: That’s a lot.
Scotty: What about those TPAs, Amanda? What role do they play in all of this, obviously administration style, but are some better than others and how they do this or kind of what does it matter? Your TPA?
Amanda: I think it does matter. And we work with all the TPAs, and so I don’t necessarily have a favorite, but I will say regardless of the TPA, the pharmacy should be able to have access to certain reports, like the claim level detail that matches their invoices. They should be able to clearly know what inventory is outstanding and what that trip process is like. So there are some basic things that they should get from their TPA regardless of who it is.
Scotty: Yeah, I know on our end, some TPAs we can’t get information, others we can. I think that’s definitely a big piece of it.
Amanda: Yes, I agree.
Kendell: So at the end of each podcast, so it’s the Bottom Line Pharmacy Podcast. So we try to get to the bottom line, like if you had to, a few sentences or to encapsulize what the viewers or listeners should take away. What’s the bottom line? I have my bottom line ready. I’ve been thinking about my bottom line. I’m going to make mine brief because I have a habit of taking like six bottom lines, so I’m going to try to make mine brief. I think my bottom line is we always talk about the fill and pray. I think with 340B we can’t sign and pray. You actually got to know what’s in the contract. That’s it right there.
Scotty: You just coined a new one right there.
Kendell: Can’t sign and pray.
Bonnie: And mine was kind of like that, too. Again, the word transparency, I think, is clear. You got to know that contract. What I’ve learned today, though, is it’s positive. It sounds like that. Even if you’ve already signed a contract, you should really talk to Secure340B, maybe have you guys look at it and maybe you can give them some pointers on maybe how to go back and renegotiate. So there is still room for that if you guys take a look and things don’t look great, to still maybe change that and renegotiate that contract. So that’s good news.
Scotty: That was a big bottom line, Bonnie. But I’m going to say, keeping up with my theme, I think it’s been my theme most of the year is staying engaged. So staying engaged with those DIR fees, know what the heck you’re doing there, knowing what you’re doing with these contracts and 340B being engaged in it. Don’t sign and pray, as Kendell says, and look for those opportunities in your community if they are some because they can be very beneficial.
Kendell: Did we leave any meat on the bone for Amanda?
Bonnie: I’m sure she’s got something.
Kendell: What’s your bottom line, Amanda? Take it home.
Amanda: When you said sign and pray, it reminds me of when I play golf and I say hit and hope.
Bonnie: That’s a good one.
Amanda: I know Scotty doesn’t have to hit and hope. But no, my bottom line is really that partnership. It’s a partnership between that pharmacy and that covered entity and really just structuring something that works for everybody so they can really, at the end of the day, take better care of their community.
Scotty: Very nice.
Scotty: Well, thank you, Amanda. Amanda at Secure340B. We appreciate you hopping on today, and we appreciate all you do for our clients and the industry as a whole. So thank you so much.
Bonnie: Thank you, Amanda.
Amanda: Thanks for the opportunity. I appreciate all the work you guys do for our independents.