Study finds that growth in hospital-pharmacy contracts to distribute discounted drugs is poorly aligned with community need

Research from Associate Professor Sayeh Nikpay found that hospitals are contracting with pharmacies to offer discounted drugs through a safety-net program in areas where patients who rely on the program are less likely to reside.

Charlie Plain | May 5, 2022

A new study by the University of Minnesota School of Public Health investigates the growth of contracts between community pharmacies and partnerships hospitals and safety-net clinics, such as Federally Qualified Health Centers, to dispense discounted drugs through a U.S. government program meant to aid low-income patients. These partnerships with pharmacies, called contract pharmacies, have increased dramatically in the past decade, but the contracted pharmacies where the cheaper drugs are sold haven’t necessarily expanded to areas where people need them most.

Sayeh Nikpay smiling while wearing a colorful scarf and black top.
Study lead author and Associate Professor Sayeh Nikpay.

The study was led by Associate Professor Sayeh Nikpay and published in the American Journal of Managed Care.

“The number of contract pharmacies has increased six-fold from approximately 3,000 before 2010 to more than 20,000 in recent years,” said Nikpay. “But what we found is that the pattern of expansion of contract pharmacies differs between hospitals and safety-net clinics, suggesting that the two may use the program differently.”

Contract pharmacies can provide discounted drugs to uninsured and underinsured patients through the Health Resources & Services Administration’s 340B drug pricing program. Under the program, pharmaceutical companies are compelled by the U.S. government to sell specific drugs at deep discounts to hospitals and clinics in exchange for having their drugs covered under Medicaid and the Veterans Administration health benefit. Traditional insurers then reimburse hospitals and clinics for the drugs at rates higher than those charged through the 340B program. Facilities can keep the difference between what they paid for the drugs and the amount insurance companies reimbursed to help fund or expand care for safety-net patients.

However, previous research shows that many hospitals don’t use the money this way.

Federally supported safety-net clinics, like Federally Qualified Health Centers, have an explicit mission to serve patients regardless of their ability to pay and they treat many uninsured and underinsured patients. Hospitals, on the other hand, don’t typically have this mission, and mostly see privately insured and Medicare patients. 

“The contracts have grown because these arrangements are really attractive to 340B hospitals and clinics because they increase the amount of 340B drugs they can prescribe in the community,” said Nikpay. “The more drugs prescribed, the more savings.”

According to Nikpay’s findings, however, the growth isn’t always happening in ways that policymakers likely intended, especially among hospitals:

  • Hospitals were more likely to establish contract pharmacies in counties with lower as opposed to higher uninsured rates and also in areas that were less likely to be medically underserved. 
  • In contrast, safety-net clinics were more likely to establish contract pharmacies in urban areas and areas with high poverty rates.

“Hospitals are using this program differently than safety-net clinics when it comes to contract pharmacies, and the findings suggest that the contract pharmacy arrangements aren’t being targeted to communities where there are more uninsured and underinsured people,” said Nikpay. “This matters because policy proposals to address the proliferation of contract pharmacies must be tailored so that they don’t negatively impact safety-net clinics, which seem to be using the program as policymakers originally intended.”

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