Legal Update, June 2019

Legal Update

To Contract or Not to Contract – It Depends
By Mike Glomb

HTCs, like all other 340B covered entities, may contract with an appropriately licensed pharmacy to dispense drugs to the covered entity’s patients. This often is an effective way for an HTC to provide better access to pharmacy services for its patients. Further, in the event that an HTC does not operate its own dispensing pharmacy, contracting with a licensed pharmacy may be the only way for it to participate in the 340B program and generate savings that can be used to promote patient care.

HRSA has published guidelines for covered entities to follow in contracting with a pharmacy to dispense 340B drugs. The guidelines assume that the 340B covered entity and the pharmacy are separate and independent legal entities, both with the legal capacity to enter into a binding contractual relationship. That is not always the case with HTCs that are part of a larger institution.

For example, a hospital/health system that has a grant to operate an HTC may also operate an in-house pharmacy that serves the HTC’s patients. The pharmacy and HTC may operate as separate divisions of the hospital, as separate cost centers, and under entirely different management authority. But, unless either the pharmacy or the HTC are organized as an independent legal entity, such as a corporation or Limited Liability Company (LLC), they do not have the legal capacity to contract with each other. Put another way, from a legal perspective they are one legal entity, and an entity cannot contract with itself.

Why is this important? 340B contract pharmacies typically charge a dispensing/service fee to a 340B covered entity. While these are negotiable, the extent of which depends on the circumstances. The fee, set at fair market value, always will include some element of profit for a commercial pharmacy. In contrast, the federal grant administration regulations do not allow grantees to make a profit on their grant-supported activities. Using the previous example, the hospital would be allowed to cover its pharmacy’s reasonable overhead costs in dispensing to HTC patients, but could not earn a profit.

In the situation where the pharmacy and the HTC are both part of the same legal entity, characterizing the relationship between the HTC and the pharmacy as a “typical” 340B contract pharmacy arrangement, with fees comparable to what a commercial pharmacy might charge, does not change the result. As a matter of law, if there is no separate legal entity with which to contract, there can be no contract. And the applicable grant administration rules apply. For that reason, HRSA does not require a “contract” between a covered entity and a pharmacy when both are part of the same legal entity.

That is not to suggest that an HTC may ignore appropriate oversight of its “sister” pharmacy if it is part of the same legal entity. An HTC should have written policies and procedures, expressed in an MOU or similar document, addressing inventory management, patient eligibility documentation, service/overhead charges, and the like, and have written policies and procedures for overseeing the pharmacy’s handling of 340B drugs dispensed to HTC patients.

For more information, contact Elizabeth “Issie” Karan at or Michael Glomb at

Also in this Issue…

Notes from Joe
· Checking in, Halfway Through the Year

Washington Update
· Update on Alliance Advocacy Activities

Payer Update

Notes from the Community
· Update from the Hemophilia Alliance Foundation
· Reminder about 340B Conference

Team Alliance Contact Information

Team Alliance Contact Information

We work for you! Please don’t hesitate to contact any of us with any questions or concerns:

Name Email Phone
Joe Pugliese 215-439-7173
Sean Singh 727-388-7326
Jeff Blake 317-657-5913
Jeff Amond 608-206-3132
Johanna Gray, MPA 703-304-8111
Elizabeth Karan 612-202-3240
Roland P. Lamy, Jr. 603-491-0853
Dr. George L. Oestrich, Pharm.D., MPA 573-230-7075
Ellen Riker 202-257-6670
Mark Plencner 701-318-2910
Kimberly Wolverton Lackman
Michael B. Glomb 202-466-8960
Theresa Parker 727-688-2568
Karen Bowe 717-571-0266
Joel Bellucci 727-504-0491