Annals of Health Law - Vol. 25 Issue 1

the 340B Program, the program has grown exponentially. According to an OIG report, the number of unique pharmacies serving as 340B contract pharmacies has grown by 770 percent, and the total number of contract pharmacy arrangements has grown by 1,245 percent.166

Of the 7,000 contract pharmacies, 5,400 are Walgreens locations.167 Walgreens became a prime example of a chain pharmacy that risked abuse of the 340B Program when, in July 2013, Senator Chuck Grassley (R-Iowa) sent a letter to the company’s CEO.168 Senator Grassley asked the Walgreens CEO to explain his company’s participation in the 340B Program and highlighted claims on a Walgreens’ employee online profile that trumpeted the ability of Walgreens to profit wildly off the program.169 The LinkedIn™ page of Timothy Hong, “Senior 340B Inventory and Reconciliation Analyst” with Walgreens, stated that Walgreens’ involvement in the 340B Program “is projected to add a minimum of $250 million in incremental revenue over the next 5 years” and can “Optimize client’s 340B program, so they can be more profitable while lowering Walgreen’s liability.”170 Additionally, Senator Grassley quoted a Walgreens slide presentation that stated Walgreens can “Generate revenue from your 340B patients.”171 These claims are alarming because the 340B Program is intended to generate revenue for, not from, 340B patients, either directly or through helping to expand safety net provider services. Senator Grassley noted that the 340B Program “is not intended to subsidize pharmacies that team up with covered entities to turn a profit.”172

Senator Grassley summarized a major concern with 340B contract pharmacy arrangements perfectly in asking “why should Walgreens, as a for-profit corporation, financially benefit from such a program?”173 This speaks to the question of: what is a fair fee for pharmacies to charge covered entities for dispensing 340B drugs? With community health centers in particular, it is not unusual for contract pharmacies to have the upper hand in bargaining power.174 Commonly, pharmacies will ask for a percentage of savings for every 340B drug dispensed, usually a term paired with a baseline flat fee to

166. See OIG 2014 MEMO, supra note 39.

167. Letter from Chuck Grassley, U.S. Senator, to Gregory Wasson, CEO of Walgreens (July 31, 2013), http://www.pembrokeconsulting.com/pdfs/Grassley_340B_Letter_to_ Walgreens_31July2013.pdf (last viewed March 8, 2014).