When enacted as part of the Public Health Service Act of 1992, the 340B drug discount program was envisioned as a way to lower drug costs and increase revenues for safety-net healthcare providers by allowing them to pay heavily discounted prices for prescription drugs – approximately 50 percent off the price – but get reimbursed at the full cost. With revenues from the discounted drugs, these safety-net providers would be able to offer discounts on drugs for their patients and enhance their care offerings to help achieve 340B’s goal of “reaching more eligible patients and providing more comprehensive services.”

The 340B program has grown substantially in the last three decades to include more eligible hospitals and a dramatic expansion in the number of pharmacies contracted via the program to dispense drugs. Now, a new study from the University of Minnesota School of Public Health (SPH) sheds light on a previously unexamined area of 340B’s growth: third-party administrators (TPAs). Third-party administrators are companies that provide a range of operational services to other firms within the 340B program. Although TPAs play an important and increasing role in the 340B ecosystem, the TPA market is poorly understood regarding its size, competitiveness, and the scope of services offered by TPA firms.

The goal of the new analysis is to identify firms offering advertising services that could be considered TPA services, assess their ownership, and categorize the types of services they offer. The researchers identified four main types of services offered by these probable TPAs: Compliance and auditing, inventory management, program optimization (firms that focus on maximizing the revenue potential of 340B discounts for providers), and firms that focus on patient access, including helping providers determine which patients are eligible.

Published in Health Affairs Scholar, the study:

• Identified 48 companies offering TPA services.
  • Of those, 29 firms offered software-based services on a long-term basis to manage specific 340B administrative functions, while 19 offered consulting-based services on either a limited-term or long-term basis.
• Examined ownership and parent company affiliation of each TPA.
  • Eight are owned by private equity firms, two are owned by software companies, and six are owned by a variety of vertically integrated healthcare stakeholders, such as pharmacies, pharmaceutical benefit managers, and pharmaceutical wholesalers.

“As the 340B program grows across sectors, the administrative complexity of the program has also expanded in ways that elected officials, regulators, and others involved in the program may not be fully aware of,” says Sayeh Nikpay, SPH associate professor and lead author of the study. “Among other drawbacks, the lack of information about TPA firms leaves 340B contractors in the dark when determining fees, potentially leading them to overpay for services. Greater transparency throughout the 340B program is greatly needed to ensure better and more efficient functioning in the program. This study is the first peer-reviewed analysis of the prominent role TPAs are playing in 340B and helps shed light on a little-known aspect of the program.”

The paper suggests that TPAs warrant additional attention from health policy researchers, policymakers, and journalists.

The study authors note that more research on the role of TPAs in 340B is needed. For example, information on the size of the market in terms of revenues, the market share of individual TPAs, TPA compensation structure, and the evolution of these measures over time is critical for understanding the real role TPAs play in the 340B program.