What is a 340B contract pharmacy?

A 340B contract pharmacy is a retail pharmacy that fills prescriptions on behalf of a 340B-covered entity (safety-net hospital, FQHC, etc.) under a contractual arrangement. The contract pharmacy receives the drug at 340B prices and dispenses it to the covered entity's eligible patients.

The model was created by HRSA guidance in 1996 and dramatically expanded in 2010 when HRSA allowed covered entities to contract with an unlimited number of pharmacies. Today, large 340B hospitals may have hundreds or thousands of contract pharmacies in their network — including major retail chains.

For plan sponsors, contract pharmacies are the mechanism by which 340B leakage reaches commercial plans. The covered entity buys the drug at 340B price, the contract pharmacy dispenses it to a patient who happens to also be commercially insured, the claim is billed to the commercial plan at the PBM contract rate (far above 340B), and the spread is split between the covered entity, contract pharmacy, and (sometimes) a third-party administrator. The commercial plan pays the full PBM rate even though the drug only cost 340B price to acquire.