Hospitals Pharmaceuticals Public Policy

Who are 340B third-party administrators?

That is the question asked by a recent paper by Nikpay et al. (2023). The authors begin by describing the magnitude of the 340B program:

The 340B drug discount program is designed to lower drug costs and increase drug profits for safety-net providers, called “covered entities,” by entitling them to discounts on drugs for all patients, including those with insurance. The size of these discounts is approximately 50% off Medicare’s reimbursement for many drugs.1 Profits generated from billing insurers for discounted drugs, recently valued at almost $50 billion,, 2750 hospitals are enrolled in the program

Not only can a hospital’s in-house pharmacy participate in 340B, but so can contracted outpatient pharmacy. There are over 73,000 contract pharmacies that qualify for 340B discounts.

While participation in 340B can be lucrative for hospitals, it also can be administratively burdensome due to extensive record keeping required, the need to insure that Medicaid discounts and 340B discounts do not result in double-discounts, and the potential for differential discounts for in-house compared to contracted pharmacies. This complexity has lead to the advent of third-party administrators (TPA), which are firms that handle billing and inventory management. The authors review these TPA entities and here is what they find:

As of September 17th, 2023, we identified 48 companies offering TPA services. Twenty-nine firms offered software-based services on a long-term basis to manage specific 340B administrative functions. Nineteen firms offered consulting-based services on either a limited-term or long-term basis advising covered entities about administrative functions. At least 1 of these consulting firms offered private-label administrative services, in which the TPA is hired to staff and run the covered entity’s 340B program.

While consulting-based 340B TPA were largely independent (89%); for software-based TPA, most were owned by larger entities including: venture capital firms (24%), vertically-integrated pharmacy chains (14%). Other parent companies included software companies (7%), publicly traded revenue cycle management and financial services companies (7%), pharmaceutical wholesalers (3%), and pharmacy benefit managers (3%).

Services offered by 340B TPA include:

  • Auditing and compliance
  • Enrollment assistance
  • Revenue capture and program optimization (i.e., identification of more 340B-eligilbe prescribers)
  • Referral management (i.e., funneling patients to pharmacies with 340B discounts)
  • Inventory management and split billing (i.e., assessing and replenishing the supply of 340B drugs across child sites and contract pharmacies)
  • Patient access cards

You can read the full article here.