The 340B industry has undergone significant changes since HRSA’s 2010 Contract Pharmacy Guidance, which paved the way for the expansion of retail contract pharmacy networks as part of the 340B program. Although these changes have provided significant expansion opportunities for Covered Entities, the complexity, cost, and regulatory risk has increased, as well.

As a result of 340B program expansion, Covered Entities are increasingly focused on
program oversight and ways to gain better control of the key processes that generate
340B savings for their organizations. The most significant responsibility of the Covered
Entity is the determination of 340B eligible prescriptions to avoid the diversion of
unqualified claims. Ultimately, the Covered Entity is solely responsible for compliance
with 340B regulations established by HRSA; however, the process of 340B administration
is commonly outsourced to one or more third party administrators (TPAs). Increasingly,
the work performed by TPAs has emerged as a distinct risk to Covered Entities due to
disparate methodologies and capabilities across the industry.

Many Covered Entities struggle with the oversight of 340B processes they have
outsourced to TPAs. The problem is compounded for Covered Entities employing multiple
TPAs to gain access to pharmacies utilized by their patient population. To understand these
challenges and the appropriate Covered Entity response, it is helpful to understand the
evolution that has taken place in the industry since 2010.

Pre-2010

Prior to 2010, the 340B industry was organized around in-house pharmacies. During
this period, eligibility was largely determined at the pharmacy via 340B Rx pads or other
manual processes controlled by the Covered Entity. Overall, Covered Entities managed
to self-administer HRSA compliant programs because the number of 340B in-house
pharmacies was limited and the technology requirements were minimal. In general, 340B
programs prior to 2010 were oriented towards reducing drug purchasing costs, whereas
today’s focus is on the development of significant growth in their 340B contract pharmacy
programs. During this period, HRSA guidance did not allow development of retail contract
pharmacy networks.

The 340B industry has undergone significant changes since HRSA’s 2010 Contract Pharmacy
Guidance, which paved the way for the expansion of retail contract pharmacy networks as part
of the 340B program. Although these changes have provided significant expansion opportunities
for Covered Entities, the complexity, cost, and regulatory risk has increased, as well.

2010–2014

The need for TPA services grew in 2010, when HRSA’s Contract Pharmacy Guidance
allowed for the establishment of retail contract pharmacy networks. This change permitted
identification of 340B eligible claims after being dispensed from existing commercial
inventory. Inventory management became more difficult as Covered Entities had to track
340B drug replenishment across multiple retail pharmacies based on processes not directly
under their control. TPAs filled the technology need with virtual inventory management
systems, which made it operationally feasible to establish large contract pharmacy
networks that complied with the new regulatory framework.

Prior to 2014, TPAs offered Covered Entities proprietary virtual inventory management
and replenishment solutions across the contract pharmacy networks they administered.
Covered Entities primarily based their TPA selection on the pharmacy chains available
through a particular TPA. With the exception of Walgreens, that opted to administer its stores,
independent, regional, and national pharmacy chains performed 340B operations on a
store-by-store basis, relying on TPAs to manage 340B replenishment. As 340B participation
expanded, it became increasingly difficult for pharmacy chains to control their inventory
processes, resulting in tactical responses that included:

• Limiting the number of pharmacies participating in 340B
• Restricting the number of TPAs with which they would work
• Exiting the 340B Program entirely

Covered Entities faced a fragmented 340B market that required multiple TPAs to access
the pharmacies needed to optimize their 340B networks. Additionally, 340B growth was
limited, as pharmacy chains pursued enterprise-wide solutions for their inventory issues.

2014–2016

Since 2014, there has been a significant industry shift as the major national pharmacy chains
responded strategically to their inventory challenges and mandated that Covered Entities
use their internal 340B replenishment processes. The role of the TPA has evolved to provide
additional services to both Covered Entities and pharmacy chains, including:

• Technology services that support pharmacy chains seeking to control their 340B
  inventory process internally, commonly referred to as a “340B Backbone”
• Systems integration services for Covered Entities facing the complexity of managing
  multiple “340B backbone” processes mandated by major pharmacy chains

Wellpartner made the strategic decision in 2014 to focus on systems integration services for
Covered Entities and to assist our clients rapid integration with all emerging “340B Backbone”
models. In contrast, other major TPAs, including MacroHelix, Sentry Data Systems, and
CaptureRx have positioned their services to support pharmacy chains in the implementation
of “340B Backbones”, which effectively shifted their customer focus to pharmacy chains. In
addition to the TPAs above, 340B Direct entered the market in 2014, offering both “340B
Backbone” and TPA services.

Over the past two years, the complexity of program oversight has dramatically increased
due to implementation of new “340B Backbone” models that have proven to be unwieldy
for Covered Entities. Today, Covered Entities are faced with the prospect of managing
multiple TPAs and authorizing additional organizations to access their 340B accounts
for replenishment purposes. New responsibilities, including compliance audits and
the reconciliation of multiple replenishment processes, are part of the complex 340B
landscape that each Covered Entity must navigate to secure the future of its 340B program.
In addition to administration concerns, costs have risen for Covered Entities as pharmacy
chains increased their dispensing fees to achieve revenue and gross margin targets.

Adding to the list of challenges during this same period, HRSA oversight and audit activity
increased and more rigorous audit methodologies emerged.

The evolution of the marketplace since 2014 has had some positive impacts
for Covered Entities:

• National and regional pharmacies chains are now fully enabled for 340B, with streamlined
  approval and implementation processes. The net effect is significant expansion in the
  number of pharmacies available to Covered Entities seeking to expand their programs.
• Prior restrictions limiting the number of TPAs have been relaxed. Now, almost all the
  pharmacy chains are available through the major TPAs, which allows each Covered
  Entity greater flexibility in TPA selection.
• Standardized dispensing fee models provide certainty with better cost forecasting when
  compared to historic store-by-store models.

Today’s 340B challenge for Covered Entities is focused on safeguarding compliance
in a complex environment of multiple TPAs and “340B Backbone” models. Technology
capabilities play a paramount role in the management of multiple data interfaces, eligibility
determination methods, and tracking 340B replenishment across multiple inventory models.

Business process controls spread across multiple vendors pose a significant risk to 340B
programs. Without proper oversight, undetected data errors, variable TPA practices, and
replenishment system issues have the potential to cause diversion, placing the entire 340B
program in jeopardy. It is imperative that Covered Entities have their compliance processes in
place prior to pursuing program expansion opportunities that still exist across the industry.

2017

In 2017, pharmacy chains will support administration through all the major TPAs, providing
an opportunity for Covered Entities to consolidate vendors, thereby simplifying their
oversight process. This will allow Covered Entities to gain greater control and reduce risks
related to both eligibility determination and 340B inventory reconciliation.

No longer will Covered Entities have to select a TPA based on exclusive access to a
particular pharmacy chain. Since all the major pharmacy chains are now available through
a standardized process and fee schedule, what was once a primary TPA selection criterion
(pharmacy access) is now moot. Covered Entities can focus on narrowing down their 340B
administrative relationships and evaluate which solution offers the best transparency and
oversight for 340B Program compliance.

Technology capabilities and customer service offered by TPAs will be the primary selection
criteria. TPAs offering the most flexible technology, reporting, and systems integration
capabilities across the various “340B Backbone” models will be best suited to help Covered

Entities meet the challenges in 2017 and beyond. Covered Entities will be able to establish
streamlined 340B platforms that place them in greater control, allowing for 340B expansion
with confidence that HRSA compliance is maintained.

In response to the challenges faced by Covered Entities, Wellpartner offers an enterprise
340B platform that provides a single point of control for 340B eligibility monitoring, inventory
model integration, financial reconciliation, and reporting for all drug purchasing activity.

Today, Wellpartner integrates with all the major “340B Backbone” models utilized by Albertsons/Safeway, CVS, Kmart, Meijer, Rite Aid, Shopko, Walmart, and Winn-Dixie. Wellpartner has also integrated with leading specialty pharmacies, including AHF, Avella, Diplomat, Modern Health/Kroger, and Walmart, providing support unique to the needs of these pharmacies.

As TPA consolidation occurs, Covered Entities will be able to focus less on managing their vendors and more on managing their programs. Wellpartner’s service-oriented model employs all of the technology elements needed to maximize 340B savings, while maintaining the highest standards for HRSA compliance.

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