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S.B. 263 Protects 340B Covered Entities from Predatory Practices in Ohio

Client Alert

Just before the end of calendar year 2020 and at the end of its two-year legislative session, the Ohio General Assembly passed Senate Bill 263, which prohibits insurance companies and pharmacy benefit managers (“PBMs”) from imposing on 340B Covered Entities discriminatory pricing and other contract terms. This is a win for safety net providers and the people they serve, as 340B savings are crucial to their ability to provide high quality, affordable programs and services to patients.

What is the 340B program?

The 340B program provides discounts on outpatient prescription and over-the-counter drugs to certain safety net health providers, called Covered Entities (“CEs”). The program's intent is to stretch scarce federal resources by allowing CEs to increase patient services with the savings realized from participation in the 340B program. Federally Qualified Health Centers (“FQHCs”), FQHC Look-Alikes, Ryan White Clinics, and Disproportionate Share Hospitals are CEs. CEs typically save 18-50% on outpatient drug costs through participation in the program. CEs use 340B savings to provide needed services – such as behavioral health, dental, case management and enhanced pharmacy management – to the most underserved Ohioans such as those who literally cannot afford to pay for health care services.

How does the 340B program work?

Section 340B(a)(1) of the Public Health Service Act requires that the U.S. Secretary of Health and Human Services enter into a pharmaceutical pricing agreement (“PPA”) with each manufacturer of covered outpatient drugs. Through the PPA manufacturers agree to charge a price for covered outpatient drugs that will not exceed an amount determined under the statute. This is known as the 340B ceiling price. The PPA “shall require that the manufacturer offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.”[1] 

What does this mean in the context of SB 263?

SB 263 stops a practice negatively affecting 340B Covered Entities – insurance companies and PBMs diverting funding intended to care for underserved patients and communities to increase their profit margins. This happens when insurance companies and PBMs target 340B providers with discriminatory contracts – contracts that absorb all or part of the savings earned by 340B providers. They do this by reducing reimbursement and/or adding fees not applicable to non-340B providers, and then forcing CEs to either sign the contract or not be able serve patients in their network. Despite insurance companies and PBMs being aware that CEs depend on 340B savings to serve every patient who walks in its doors, regardless of ability to pay, they continue to offer discriminatory contracts to CEs. This practice isn’t just theoretical. One real-life example of a Payor/CE contract includes language that explicitly reimburses the CE more than 30 times less for a 340B brand name drug than for a retail brand name drug. In this same real-life example, not only does the Payor reimburse the CE significantly less for 340B drugs, it entirely wipes out the 340B savings intended for the Covered Entity, as provided in federal law.

The passage of SB 263 will help to end the predatory contracting practices of PBMs and insurance companies and was vital for CEs that rely on 340B savings. For questions about the 340B program or SB 263 please reach out to healthcare attorney Daphne Kackloudis at dlkackloudis@bmdllc.com.

For an update on federal actions being taken to reduce predatory practices of PBMs, see BMD Healthcare and Hospital Law Member Jeana Singleton's article HHS Issues Opinion Regarding Illegal Attempts by Drug Manufacturers to Deny 340B Discounts under Contract Pharmacy Arrangements.

[1] https://www.hrsa.gov/opa/manufacturers/index.html


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