August 2016 - Contract Pharmacy: Important Tips

Office of Pharmacy Affairs Update

August 2016

Contract Pharmacy: Important Tips

Covered entities participating in the 340B Program are permitted to use contract pharmacies for the dispensing of 340B drugs, in addition to or in lieu of an in-house pharmacy. Covered entities should keep in mind that the intent of the 340B Program is to allow safety-net hospitals and clinics to stretch their Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.  In 2010, HRSA published guidelines regarding contract pharmacies (75 Fed. Reg. 10272 (March 5, 2010)). A covered entity that uses contract pharmacies has full responsibility and accountability for the compliance of those pharmacies with all requirements of the 340B Program, including the prevention of both diversion and duplicate discounts. The following reminders and tips are important for covered entities using contract pharmacies.

1. Contract Pharmacy Selection

The use of an individual contract pharmacy or multiple contract pharmacies is voluntary, and a covered entity should first determine its needs for pharmacy services and the appropriate distribution mechanism for those services when deciding whether or not to utilize a contract pharmacy. Some entities choose to use a third party administrator or vendor to facilitate the contract pharmacy implementation process and operations.  Here’s a tool to help covered entities assess contract pharmacy vendors.

2. Compliance: Contract Pharmacy Eligibility and Registration

Contract pharmacies must register for the 340B Program and be listed on the 340B database prior to dispensing 340B drugs on a covered entity’s behalf.  In addition, a contract pharmacy must have a written, signed contract pharmacy agreement in place with the covered entity prior to registering that pharmacy with the 340B Program.  HRSA recommends that the written agreement include all essential elements of the contract pharmacy guidelines (75 Fed. Reg. 10272 (March 5, 2010). Failure to have the contract pharmacy correctly listed in the 340B database may be cause for removal of the contract pharmacy from the 340B Program. For assistance with contract pharmacy registration, the following guide, Covered Entities Guide for Public Users:  Registering a Contract Pharmacy (PDF 781KB), serves as a resource.

3. Compliance: Contract Pharmacy Oversight

Covered entities are required to provide oversight of each contract pharmacy arrangement utilized to dispense 340B drugs.  Covered entities remain responsible for ensuring their contract pharmacies meet statutory obligations to ensure against 340B drug diversion and duplicate discounts (75 Fed. Reg. 10272 (March 5, 2010)).

A covered entity’s 340B Program policies and procedures should include specific controls to verify 340B-eligibility or prevent diversion of 340B drugs at the contract pharmacy, and should describe monitoring procedures to include effective procedures for the eligibility determination process used at contract pharmacies and reconciliation of dispensing and purchasing records to ensure that diversion has not occurred.

HRSA recommends that covered entities engage an independent organization to perform annual audits of the contract pharmacies and develop comprehensive written contract pharmacy policies and procedures that include the performance of independent audits of its contract pharmacies.

In situations where the covered entity is not providing oversight of its contract pharmacies, HRSA may remove those contract pharmacies from the 340B Program.

Resources for performing Contract Pharmacy oversight:

4. Medicaid and Contract Pharmacy

Covered entities may choose to provide 340B drugs to Medicaid patients (carve-in) or not (carve-out). However, the 2010 contract pharmacy guidelines state that contract pharmacies should carve-out Medicaid fee-for-service patients unless there is an arrangement between the covered entity, the contract pharmacy and the State Medicaid agency for the contract pharmacy to carve-in. If that is the case, the covered entity must notify HRSA of such arrangement and provide documentation describing the arrangement as well as the mechanism used to prevent duplicate discounts under such an arrangement. The Checklist for Covered Entity Carve-In Request provides information to be included with the notification request to HRSA for the contract pharmacy to carve-in Medicaid.

HRSA carefully reviews the submission and if the arrangement is acceptable, HRSA adds the covered entity and the associated contract pharmacy to the Contract Pharmacy Carve-in Report on the 340B database. This is another area where compliance with the 340B Program requirements is essential.  The 340 Audit Readiness Seriesis a useful resource that focuses on duplicate discount prevention that supports compliance and program integrity.

Tips for 340B Covered Entity Use of Contract Pharmacy

  • Identify needs for pharmacy services, including Medicaid
  • Assess various contract pharmacy options
  • Execute a written contract and register contract pharmacy in 340B Program
  • Maintain audible records of contract pharmacy services and conduct periodic self-audits
  • Provide comprehensive and ongoing oversight of contract pharmacies
Date Last Reviewed:  April 2017