CVS Caremark has decided not to implement reimbursement reductions which may have had adverse effects on Covered Entities and their retail pharmacies (including contract pharmacies). This decision, coupled with the recent court decision invalidating certain aspects of the proposed Medicare Part B payment reductions for 340B drugs,[1] provides some positive news for these Covered Entities after years of uncertainty over the future of the 340B Program.
By way of background, CVS Caremark, a pharmacy benefits manager (PBM), issued notices of amendments to its Provider Manual to its network participants in late 2018. These amendments targeted both Covered Entity-owned retail pharmacies in addition to the Covered Entity’s contract pharmacy network used for dispensing 340B Program drugs. Via these amendments, CVS Caremark simultaneously sought to lower network reimbursement rates for Covered Entity-owned pharmacies while also reserving the right to apply unique terms to any retail pharmacy dispensing significant quantities of 340B Program drugs via a contractual arrangement with a Covered Entity.
These proposed amendments created considerable confusion and consternation among Covered Entities, who strongly opposed these amendments. Many Covered Entities indicated that they would need to cease or significantly curtail operations if the reimbursement reductions were in fact implemented. Retail pharmacies not owned by Covered Entities (but which dispensed 340B drugs to patients on behalf of Covered Entities via contractual arrangements) also opposed the proposed amendments, saying they would likely have a materially detrimental impact on the pharmacies’ revenue. Ultimately, given CVS Caremark’s size and market share as a PBM, the proposed amendments were poised to have a material impact on the 340B Program pharmacy space.
Based on feedback from pharmacies, CVS Caremark ultimately withdrew the proposed amendments via a confidential letter (since obtained by Modern Healthcare) on February 11, 2019.[2] While it is unclear what other factors may have influenced CVS Caremark’s decision, PBMs have come under increasing scrutiny for their role in affecting drug prices in recent years. Notably, the Department of Health and Human Services Secretary Alex Azar mentioned the potentially detrimental role of PBMs in driving drug prices during his address at the 2018 340B Coalition Summer Conference in Washington, DC.
Ultimately, regardless of the reason, CVS Caremark’s decision to retract its proposed amendments is good news for Covered Entities and 340B Program participating pharmacies, and provides some certainty toward reimbursement rates over the coming months. Nonetheless, the attempted reimbursement reductions under both Medicare and private PBM networks indicate a growing desire by payor-side entities (and no doubt manufacturers) to rein in what they perceive as excesses and overutilization in the 340B Program.
Moving forward, all 340B Program participants should carefully review and monitor the terms of any agreements which may affect the pricing and reimbursement for 340B drugs (e.g., payor and PBM agreements) to ensure continued protection of their respective 340B Program interests. As any private entity has the legal right to negotiate varying levels of reimbursement for 340B drugs (as they would for any other category of drug), the best protection for any entity with a stake in 340B Program pricing is strong and clear contractual language.
For more information on this change and how it might affect your 340B program participation, please contact your Quarles & Brady attorney or:
- Brenda M. Maloney Shafer: (602) 229-5774/brenda.shafer@quarles.com
- Richard B. Davis: (414) 277-5844/richard.davis@quarles.com
[1] For a more detailed discussion of this decision, please see our recent article, available here.
[2] “CVS Caremark reverses course on planned pay cuts to 340B providers” by Susannah Luthi in Modern Healthcare, February 11, 2019. Article available here.