340B Overview and Valuations | Partnership Series [Podcast]

Becky Templeton:

Hey, everyone. Thanks so much for tuning in today to another one of our partnership series here at R.J. Hedges & Associates. We are very excited to have Ms. Julie Crozier from Secure340B with us. She's going to be sharing some really great information on the 340B program. So whether you are already someone participating in it or you're someone who's heard about it and you've been kind of thinking, maybe I need some more information, maybe this is something I want to participate in, this would be a great call for you. So looking ahead to our call, here's what we're going to talk about. What 340B is, the who, what, when, wheres, and whys of 340B, if there's any important considerations that you as a pharmacy owner should be considering before you get into the 340B program, any types of manufacturer or provider restrictions that you need to know about, risks and drawbacks of the 340B program.

We're also going to talk about why it's important if you're having your pharmacy valued or you're conducting evaluation of your pharmacy for succession planning, business planning, maybe you're looking at selling your pharmacy, why it's important to list 340B as its own program and how it can impact your value. And then we'll talk about how Secure340B can help your pharmacy. So Julie, thanks so much for joining us today.

Julie Crozier:

You bet, Becky. Thanks for inviting me.

Becky Templeton:

Certainly. Certainly. So can you let everybody out there in virtual space know a little bit about who you are and the company that you work for?

Julie Crozier:

I'm a pharmacist and I co-own Secure340B, which is a company founded exclusively to help independent pharmacies in the 340B space.

Becky Templeton:

Fabulous. So 340B obviously is going to be our big topic of today. So let's go into a crash course of 340B. We'll pretend that whoever's listening has never heard of 340B. So we'll do the who, what, when, where, why. How did it start? What's the purpose? Who were the main players in it? Who gets to benefit from the plans? So I'll let you spend a couple of minutes just giving us that 340B 101, if you would.

Julie Crozier:

Sure. You bet. So 340B was started in 1992. It's a federal drug discount program. And what it was intended for is to help covered entities, which are hospitals or clinics that qualify either by the type of hospital they are or by the number of underserved patients that they take care of. Once they qualify 340B, the idea is that by providing reduced drug cost that they can further expand their services to the community and help more patients in need. If you're a manufacturer and you want your particular drug or drugs on the Medicaid formulary, then you have to participate in 340B. So they are somewhat strong armed into participating in 340B. So virtually, every drug has a 340B price.

Becky Templeton:

So we've talked about how it started and what the purpose is. So who are the main players in 340B?

Julie Crozier:

So there's a lot of players and that's why this program gets very, very confusing. So as I mentioned, the covered entities is what they're called or the hospitals or clinics, and those are the only players that are truly 340B eligible. They can partner with a pharmacy or pharmacies, the contract pharmacies is what they're called. And those contract pharmacies are not 340B eligible, but they are partnered with the 340B eligible hospital. And so when that happens, the way that 340B works is if a patient leaves the hospital or clinic and ends up going to a pharmacy that is 340B eligible, then that prescription is later tested by what's called a third party administrator or TPA. And what that TPA does is it looks at the prescription and really asks the question of, okay, was this prescription written by someone at the covered entity?

If so, there's a few other criteria. Are they Medicaid? So the patient cannot be fee for service Medicaid. Depending on the hospital, there are different criteria for whether that patient is eligible, but ultimately, if the TPA determines that that prescription and that patient were eligible for 340B, then one of two things happen. If the patient is uninsured or underinsured and the hospital and pharmacy have an agreement to provide medications to uninsured patients, then that patient will present a card that is originating with the covered entity, basically like an insurance card but it's 340B, and they'll pay a small copay. The pharmacy will dispense the drug, and then the hospital or clinic, either they'll pay for the drug itself or there'll be cost sharing with the patient, and the pharmacy will just receive a dispensing fee.

For third party claims that are 340B eligible, that works a little different. Regardless of whether it's uninsured or a third party plan, the patient enters the pharmacy just like normal. The pharmacist fills the prescription just as usual. The patient obtains the drug and then walks out. And with the insured patients, they don't even know what 340B is. So you would collect their copay just as normal. They would take the drug with them. And then on the back end, the third party administrator would determine that that prescription was 340B eligible.

They would take the dollars that the pharmacy received from that third party payment and the copay. So those two combined. They would take that and send it to the hospital or clinic, whoever the partner was, less the negotiated dispensing fee. So for that prescription, that dispensing fee becomes the pharmacy's new margin. And the reason for that is that the drug then gets replenished by the hospital or clinic to the pharmacy at no charge. So that's how that works. And the financials work by there being basically the delta between the third party payment and copay and what the hospital has to pay the 340B price.

Becky Templeton:

So could we call it like a phantom inventory or a supplemental inventory that the pharmacy is really just in this business friendship with the hospital and saying, hey, if your patient comes to us, we're going to fulfill the prescription, but on the back end, we're going to take a small cut and you're going to resupply us with whatever the medication was, correct?

Julie Crozier:

That's exactly it. They call it-

Becky Templeton:

Oh, it's a virtual.

Julie Crozier:

Yeah, you got it. They call it virtual inventory. So no drugs need to be separated on the shelf. When they replenish your inventory, you put it right on the shelf, you value it the same as any other inventory, and you just treat it the same. So the only difference will be, it will come in a different tote than your normal order because it will be sent on the hospital's 340B account.

Becky Templeton:

I got you. Okay. So we have the pharmacy serving as an extension of the hospital. We have the hospitals. We've talked about the 340B administrator and the insurance companies that are operating on behalf of Medicaid. Let's see, and the manufacturer, so we talked about who all those people are. Is there anybody else that's a component within the 340B arena?

Julie Crozier:

The wholesaler. So we have to involve the wholesaler because again, that account has to be set up. That 340B account has to be set up as a bill to ship to. So it's billed to the hospital and shipped to the pharmacy.

Becky Templeton:

Okay. Now, does the pharmacy order those replenishment drugs themselves, or is that something that the hospital knows somehow through some connectivity that they just have to dropship it over to the pharmacy?

Julie Crozier:

It depends. Some third party administrators allow for the pharmacy to choose which drugs that they want. Others will send an email and say, tomorrow, you're going to receive these 10 drugs. And when they do it that way, then the pharmacy needs to split their retail order. So if they wanted nine packages on their retail order and they find out that three are going to be purchased through 340B, then they would only order six. So as long as the pharmacy is cutting their regular retail order to reflect what's being purchased on 340B, then they won't have inventory swell, which is what they call it inventory swell.

Becky Templeton:

That makes sense. Okay, and then what are other important considerations that a pharmacy should have if they're looking at getting into a 340B program? We talked about the margins. Obviously, that's probably the biggest driving force behind this. Everyone's looking for a way to help increase their margins within their pharmacy.

Julie Crozier:

Absolutely. The dispensing fee that is negotiated between the contract pharmacy and the hospital or clinic is definitely critical. You want to make sure that whatever you're making on 340B is over and above what you would've made if the prescription wasn't 340B. So you need to know what your retail margin is and make sure that the 340B dispensing fee is higher than that retail margin. But that's not the only thing that is important. It is great to have a great dispensing fee, but if you don't get that drug returned and replenished, then you're losing money, and this happens quite a bit. And the reason it happens quite a bit now is because there are restrictions from manufacturers on certain drugs.

But whether it's a manufacturer restriction or another reason, maybe it's out of stock or there can be all sorts of reasons, that needs to be monitored very carefully because again, you may get a 20% dispensing fee on a thousand dollar medication, which is $200, but if you sent out a thousand dollar medication to a patient and you've never got the drug back, then you're out a lot of money and that's a loser for you. So it's very important to really watch your inventory and make sure that whatever you're dispensing that ends up to be 340B equates to or very closely equates to the packages that have been replenished to you on 340B.

Becky Templeton:

And I would imagine some of the softwares that people are using within their pharmacies have some type of sidekick or element that is specifically geared towards 340B that helps to monitor these items.

Julie Crozier:

Well, it's really difficult. Some can, that's if there are very strict parameters on who qualifies for 340B. So if you're a pharmacy in a small town and there's two doctors that work for this particular clinic and you know that every prescription that's written there, as long as it's not a Medicaid patient is eligible for 340B, then certainly, you can put something in your software or most software is to say these are 340B eligible prescriptions. But in most cases, it's not as obvious whether they're 340B eligible, because you may not know all 200 providers at a hospital. You may not know whether that patient was truly seen at an eligible site of the hospital or clinic. So for that reason, most don't know at the time that the claim is adjudicated whether it's 340B. So what they have to do is they have to pull reports from the third party administrator, whoever that might be, or wait for their invoice from the 340B administrator and hope, depending on the administrator, that it details out exactly what they're being invoiced for, what drugs were sent, what prescriptions were qualified.

Becky Templeton:

Okay. So it sounds like I've got to put a lot of faith in that third party administrator then. Are there things that I can do on my end if my software is not going to be set to help me with this? Is there anything that I can do or my staff can do to make sure that I'm at least being aware of what drugs are going out as 340B, or is it outside of those realms because of the different practitioners in different sites?

Julie Crozier:

What you can keep track of fairly easily is the uninsured prescription. So if you and the hospital have a program that's for uninsured patients, each time that you adjudicate that claim to that card that they're given, you know that that's 340B. And so with that, you could run reports from your pharmacy software and make sure that the inventory that comes in from the hospital on that account that you can match those up, match the packing slip that comes with the inventory, match that to the report run out of your pharmacy system. Likewise, if you can and if the TPA has the reports, you can run reports out of the third party administrators portal and compare those to the inventory that you've received.

The only issue is that those reports are going to be by prescription number. And so prescription number, you might have 60 pills in a bottle and it's for 30 pills, so that's only half a package. So you would need to do the math to roll up what each prescription equates to in terms of packages so that you can then compare the packages that qualify to the packages that you actually received. So it can be done, it takes quite a bit of time, but there are certainly some pharmacies out there that do that and check each line item to make sure that the drug that they dispensed for 340B ended up getting replaced.

Becky Templeton:

All right. Ms. Julie, so how about restrictions? Are there any kind of restrictions that either the pharmacy has or the manufacturers have when they're dealing with 340B?

Julie Crozier:

Yes. Unfortunately, many manufacturers have placed restrictions on 340B delivery of drugs. And where that comes into place is in the contract pharmacy arena. And so for hospitals in particular, there are 25, 26 manufacturers or so that have restricted access to where the hospital can only have one contract pharmacy. And if they have their own pharmacy that's for outpatients, then they can't have any contract pharmacy. So one pharmacy can be designated if they don't have their own. And the reason this is obviously detrimental is many drugs do not qualify for 340B if they've been restricted because there's no 340B pricing that's associated with those because of the manufacturer block. So it's been really, really detrimental to 340B and to patient access. So for grantees like FQHCs, Consolidated Health Centers, things like that, those are less restricted by manufacturers, but they are restricted. There are a few manufacturers that restrict them, maybe six or seven. I'm not sure exactly because it changes all the time, but there are manufacturers that restrict grantees.

However, what we've been learning is that if a grantee does not have their own pharmacy, then each child site of a grantee, so perhaps there's a grantee in one city and they have different child sites in smaller towns distance away. What we've determined is that the grantee can have one pharmacy per child site, which becomes really important when you're talking about areas that are very distant from each other. Because if you're 40 miles from the main grantee area and you're filling a prescription, it's not going to be 340B eligible if that pharmacy cannot be designated. And so now it has to be set up correctly, they have to register in a certain way on the OPA database at the beginning of a quarter.

So the next time they could register is October 1st through 15th. If that doesn't pan out, then they'll need to do January or April and then back to October. So it's only quarterly. They need to register those sites or those pharmacies in a certain manner, but that does open up some of the pricing for 340B. And that's been a very recent, and we don't know if it's a revelation or just because no one has really needed to do this in the past, but that is possible to occur.

Becky Templeton:

So do you foresee them changing any of these regulations and restrictions on locations anytime soon?

Julie Crozier:

Well, there's two more lawsuits that are in the courts and some of the lawsuits haven't really gone the way that we were hoping. And so depending on the outcome of these remaining two, we'll see. But really what it's probably going to boil down to would be legislation and someone making a decision that 340B is important and that the manufacturers are not able or should not be able to restrict which pharmacies can receive 340B pricing when they are partnered with a covered entity.

Becky Templeton:

That would be very good. I'm thinking about our area. I know I'm in Pennsylvania, you're in Texas. We have some very, very rural areas here in Pennsylvania. It's like you have Pittsburgh and Philadelphia and a whole lot in between, and there's a lot of communities there, but a lot of areas are very underserved from where they have to go to get to a hospital. So these types of services here as well as so many other parts of the country, I think would be making that change would be very, very helpful for a large amount of people who get to benefit from this program.

Julie Crozier:

Definitely.

Becky Templeton:

So what are the risks and drawbacks of 340B as a pharmacy owner if I'm considering participating in this program?

Julie Crozier:

Well, 340B can be a great program. It can be wonderful for all parties involved, but it can also be detrimental to an independent pharmacy. And the reason is, of course, that the inventory that is supposed to be replenished must be replenished and you need to make sure that is happening as well as there are many pharmacies that enter into 340B contracts that are frankly just bad contracts. And it's not that the hospital or the third party administrator meant to be restrictive or mean or anything like that, it's just that they don't really understand how independent pharmacies work and why it's important that the pharmacy make more money than they were making prior to 340B to make it worth their time.

So if you're not 100% sure whether you're making money on 340B, making more than you would have without 340B, you need to have it looked at. And if you're not 100% that you're receiving the inventory that is owed to you, then you definitely need to be looking at that as well. So there are risks inherent in the program, but it's usually due to something not being sent or dispensing fees not coming across correctly. There's really anything can happen. As everybody knows, healthcare data is difficult at best to deal with. And so problems occur all the time and you just need to be on top of it to make sure that your program is running the way that it should.

Becky Templeton:

So I have a really great staff and I have people that are very detailed oriented and I want to get into this program. I can easily delegate this to one of those staff members to pull reports, monitor things, and as the owner, I can check in with them and make sure that we are getting our items to us. Now, on the flip side, I'm a very casual business owner and my staff is maybe a little bit overwhelmed. Maybe we have some shortages. There's some areas that we're definitely trying to improve. Maybe this program isn't the best for them right now to look at if it might be stretching them too thin and no one's going to be able to oversee this, is that a fair assumption?

Julie Crozier:

It is. It's like anything else. If you have the time to really focus on it and you know what you're doing, then there's no need to get extra help. It only becomes an issue when you're in something that you have confusion about or you don't have time for. I mean, we all run into issues at home or other places where we don't have the time to do certain tasks and we need help. And then other times we're on top of it, we can figure it out ourselves. We'd rather not pay anyone to do anything because we can handle it, and that's fine too. But whether you're handling it or you find someone else to help handle it, it just needs to be managed.

Becky Templeton:

I think that brings us perfectly into my next question that I had on my list is you mentioned about having people to help you. So when we're looking at your company, Secure340B does a lot to help independent pharmacies become aware, maintain, and evaluate their eligibility and how 340B is impacting them. The one area that I want to talk about is for pharmacies that are selling. We do help on the brokerage side so we can help people go through their succession planning. Do they want to keep it as a generational asset where it's going from family member to family member? Are they looking to sell their pharmacy to a staff member?

Are they looking to sell it to a neighboring pharmacy owner that is in their local community, maybe a neighboring community? Do they not have anybody in mind that they want to sell it to and we're helping to advertise this pharmacy out to the masses? Or is it something that they're interested in partnering with a hospital or a clinic in the area where they can purchase the pharmacy? So on the R.J. Hedges & Associates Business Sale and Acquisition side, we do valuations for pharmacies on a fairly regular basis. Can you explain why it's important for people to ensure that their valuations have 340B listed as a specific line item?

Julie Crozier:

Well, the reason you want to look at 340B when you're valuing your pharmacy or someone else's providing that evaluation is that your 340B program is worth something, and if it's been handled correctly, it can be worth a lot. And so you want to make sure that that is part of the valuation so that you get the top dollar for all aspects of your business. The other thing that needs to be considered is not only what is the 340B program worth to your pharmacy now, what could the program be worth if it was owned by someone else. And what I mean by that is let's say you're selling to another pharmacy in town and that particular pharmacy is the designated pharmacy for manufacturers. Well, what your program's worth now is one number, but when you factor in what prescriptions would have qualified if you were the designated pharmacy, in other words, what prescriptions will qualify once that pharmacy is purchased by the pharmacy down the street, that's the real value.

Another example would be if the hospital decides to buy the pharmacy, you want to sell it to them that they're able to designate their own pharmacy, they would have to designate their own pharmacy. So all of those drugs that potentially weren't eligible for purchase because of the restrictions are now going to be eligible. And so you want to make sure that you're considering that. You also want to look at different scenarios. So different dispensing fee arrangements. If for example, the hospital or clinic bought your pharmacy, they're not going to pay dispensing fees because they own that pharmacy. There's other scenarios, different types of setups that maybe don't work in your current pharmacy, but if another pharmacy across the street or whoever bought it, they could possibly do some things that you're not able to do or don't want to do, that would increase the value. So that all needs to be considered when placing a value on 340B.

Becky Templeton:

Fabulous. Now, Julie, you're not only an expert in 340B, you happen to have an entire company that's primary purpose is helping independent pharmacies navigate the 340B program. So can you please get into some detail as much as you would like on how your company, Secure340B, can help our independent pharmacy owners that are listening in today?

Julie Crozier:

Sure. So we have a suite of services for pharmacies that are not in 340B. There's a little bit of work that needs to occur on the part of the pharmacy to determine which covered entities are near them because again, they need to be filling prescriptions for that particular hospital or clinic so that some prescriptions will qualify for 340B. But they can certainly reach out to us and we can tell them there's a public website that they can go to and look by zip code or by city, by state to see which covered entities, in other words, which hospitals or clinics are near them that they potentially fill prescriptions for. Because remember, not every hospital or clinic is eligible for 340B, for-profits are not eligible. So you want to make sure that you're, before you ask about a partnership with a particular hospital, you want to make sure that they're actually 340B eligible.

If you're already in 340B and you are unsure as to whether your dispensing fee is sufficient, whether you're getting your inventory, all sorts of questions. If you're having cashflow issues and you're not sure what it is and you think it might be 340B, let us know. If you don't have anybody else, please reach out to us. We'll do an analysis and we will let you know exactly what's going on. After that analysis, if you want to use our services going forward where we do all of the things that I mentioned earlier in terms of rolling up all the dispenses, comparing to the packages and letting you know the deltas, letting you know which manufacturers are being restricted, letting you know what your margin truly is on 340B compared to what you would've made, and there's other things that we do, then we'd be glad to do that.

But some pharmacies just need to see how they're doing and they may be doing fine and they can take it from there, and that's absolutely great. There's others that say, yeah, you're right. There's a lot of issues that Secure340B has found and we need some help working those issues out.

Becky Templeton:

How about on contracting? I know that seems to be part of the equation too, where I've now lined up, maybe I've been that DIY person, I've gotten so far in it and I've got this paperwork and I'm going, how do I know if my dispensing fees are in line? How do I know if this paperwork that they've given me and this contract that I needed to sign is appropriate and beneficial for me? Is that something you can help people with as well?

Julie Crozier:

Absolutely. And because we are independent pharmacy focused, if you have a contract and you're not an expert in 340B and you don't know anybody who is, just reach out to us, we'll look at it. We won't charge for that. That is something that if you're going to get in 340B, make sure that your contract will work for you. And it's not just about the dispensing fee, there's invoicing models, questions, there's terms. There's a lot of things that are often in a contract because that contract, remember, is written by the third-party administrator who is hired by your partner, your hospital or clinic. So they may not have in there the terms that would work for your pharmacy, and you may unknowingly sign something that is difficult to execute on. And so make sure that you have somebody review that contract before you sign it and get some feedback there, because you definitely want to make sure that you're able to fulfill the contract and that it'll be a financially sound contract.

Becky Templeton:

Now those contracts, do they renew over a certain period of time or am I locked in from now until forever? Do they go through a yearly or biannual review?

Julie Crozier:

Yeah, so that's one thing. If you're looking at it on your own, one of the things that we always want to make sure is that either party, whether it's you or the hospital clinic, can get out at any time. Now, usually there's a 90 day, you need 90 day notice, but you want to make sure that you have that in there and they want to make sure they have that in there. Sometimes the standard contracts will say 60 days notice if there's a breach. And then there's a certain amount of time where the other party can sever the contract if the breach isn't rectified. And that's fine to have in there too. But you want superseding that is saying that for whatever reason, with 90 days notice or 60 or whatever you want it to be, either party can exit the contract. And that's really, really important for reasons that are unforeseen. And so you want to make sure you have that.

Becky Templeton:

Great. Okay. Is there anything else we need to know about you or your company today? Here's your last minute plug to put anything in that we need to know about.

Julie Crozier:

No, we're just here to help independent pharmacies, so if there's anything you need, just let us know. We'd be glad to help you. If you can do it on your own, that's great too.

Becky Templeton:

All right, Julie. Well, thanks so much for sharing such great information with us today. I know for me, 340B has been something that we've heard about for a long time. I'm so glad that over the last couple of weeks, you were able to give me a more in-depth look at what 340B is. We have a lot of pharmacies that are participating in it, a lot of pharmacies that are interested in participating in 340B. So for you folks, if you're interested in learning more about 340B, I would encourage you to go to Secure340B's website.

They've got a ton of great information on there. I'll have some extra information available. If you want to share this information with anybody on our website, you'll have a transcript of today's podcast, the video link, and some extra information tucked in there just for you. One nice thing you guys might want to consider doing is taking their 340B quiz to see how your pharmacy would stack up in a 340B program. We are going to be getting this sent out shortly. So I want to say thank you so much, Julie, for you joining us today. And thanks so much for everybody tuning in and listening to another one of our partnership series here at R.J. Hedges & Associates.

Julie Crozier:

Absolutely. Thank you so much.