340B Contract Pharmacy

Key facts

Federal guidance

HRSA notices from 1996 (one pharmacy) and 2010 (multiple pharmacies)

Registration

Listed under the covered entity in HRSA 340B OPAIS

Compliance responsibility

The covered entity, including diversion and duplicate discounts

Legal status

Disputed in federal courts and addressed by varying state laws

What is a 340B contract pharmacy?

Many covered entities in the 340B Drug Pricing Program do not run their own outpatient pharmacy, or cannot serve all their patients from one. Contract pharmacies fill that gap by dispensing drugs the entity has purchased at 340B prices to the entity's eligible patients.

The 340B statute does not mention contract pharmacies. HRSA guidance in 1996 allowed covered entities without an in-house pharmacy to use one contract pharmacy, and guidance in 2010 allowed entities to use multiple contract pharmacies. The number of arrangements grew substantially after 2010.

How contract pharmacy arrangements work

Most arrangements follow a replenishment model:

• A patient of the covered entity fills a prescription at a participating pharmacy, usually paying normal cost sharing through insurance.
• A third-party administrator reviews dispensing data after the fact to identify prescriptions that qualify as 340B.
• The covered entity orders replacement drugs at 340B prices, billed to the entity and shipped to the pharmacy to replenish its stock.
• The pharmacy and administrator receive fees, and the covered entity keeps the remaining margin between insurer reimbursement and the 340B price.
• The covered entity remains responsible for preventing diversion and duplicate discounts and is expected to oversee its pharmacies, including through independent audits.

Why contract pharmacies matter

Contract pharmacy volume is a major driver of 340B growth, so it matters to manufacturers estimating gross-to-net exposure, to covered entities budgeting 340B savings, and to pharmacies and administrators whose revenue depends on these arrangements. The OPAIS listing of contract pharmacies for each covered entity is the starting point for mapping which pharmacies participate and where.

The contract pharmacy dispute

Beginning in 2020, many manufacturers limited 340B pricing on drugs shipped to contract pharmacies, for example by recognizing only one contract pharmacy for entities without an in-house pharmacy or by requiring claims data. HRSA told several manufacturers their policies violated the statute, and litigation followed.

The Third Circuit in 2023 and the D.C. Circuit in 2024 held that the federal statute does not require manufacturers to deliver 340B-priced drugs to an unlimited number of contract pharmacies under the policies they reviewed. Meanwhile, a growing number of states have enacted laws barring manufacturers from restricting contract pharmacy deliveries. The Eighth Circuit upheld Arkansas's law in 2024, other state laws face ongoing challenges, and requirements differ by state, so the current rules must be checked case by case.