By Joseph Walker

A new breed of drug middlemen are pushing an unusual cost-saving strategy that lets their employer clients tap a federal program meant for hospitals that serve the poor.

The government program, known as 340B, allows hospitals that care for many uninsured and low-income patients to purchase outpatient medicines at steep discounts. Hospitals can pocket the savings, but they can also choose to pass the discounts on to patients at their pharmacies.

Startup companies such as Rescription, MakoRx and Liviniti are selling pharmacy-benefit plans that save employers money by funneling workers to those 340B hospital pharmacies instead of traditional drugstores. The workers get the discounted 340B price under these plans. Hospitals participate because it expands their customer base and they receive fees for dispensing prescriptions, the companies say.

The startups count some of the participating hospitals among their clients, providing benefits for hospital workers. They say they are hoping to change the business of pharmacy-benefit managers, or PBMs, which traditionally negotiate prices for their clients with drugmakers and demand rebates to cut net costs.

Exactly how much of those rebates actually goes back to employers is in dispute, with some critics contending that PBMs take more than their fair share.

"Employers incorrectly think, 'Oh, my God, I got this monster rebate check,'" said Scott Martin, chief executive of Ketchum, Idaho-based Rescription. "But the only reason you're getting a massive rebate is because you're paying exponentially more on the drugs than you did last year."

The arrangements with 340B hospitals avoid rebates because the hospitals buy directly from the drugmakers at the discounted price -- and through these plans they pass on that low price directly to the employers, the companies say. The PBMs make money by charging a monthly administrative fee for the employees they manage.

These models, and the 340B program itself, are controversial.

The 340B program has grown into a behemoth since it was created by Congress in 1992, cutting the cost of drugs today for thousands of participating hospitals. In 2023, 340B hospitals purchased $66 billion in drugs, according to federal data, and at an estimated 55% discount to their list prices, according to Iqvia.

It has raised the ire of pharmaceutical companies that say 340B encroaches on their profits while enriching already-fat hospitals that sometimes abuse the program. For instance, hospitals sometimes charge marked-up prices on the discounted drugs to uninsured patients and insurers instead of passing on the savings to the poor.

Extending those discounts instead to employers pushes the envelope even further, critics say.

"It is a blatant abuse of the program," said Adam Fein, president of the research group Drug Channels Institute, and a critic of PBMs and the 340B system.

Martin says his program is compliant with regulations governing the 340B program, which is meant to help hospitals offset the cost of caring for the indigent. The program benefits the hospital by expanding its revenue, "while simultaneously delivering significant savings for employer-sponsored prescription drug programs," Martin said.

Martin said Rescription is careful to avoid the abuses that some critics have levied against the 340B program, such as not passing along the discounts to patients. Hospitals pass along 100% of the discounts they receive through 340B to employers, and are compensated only with a dispensing fee for each prescription they provide to patients, he said.

Rescription targets the 5% of high-price drug claims that comprise 70% or more of prescription-drug spending, says Martin. The company gives clients a guaranteed price for every drug, using 340B prices for high-cost medicines; for typical generic and branded drugs, it uses benchmark pricing of retail pharmacy acquisition costs published by the Centers for Medicare and Medicaid Services.

To make this work, employees who participate in Rescription's program must become a patient at a participating 340B hospital.

So far, Rescription has enrolled two hospitals and piloted the program with the hospitals' own employees, including Louisiana's Baton Rouge General Medical Center. The hospital implemented the program earlier this year, reaching roughly 4,000 employees and dependents covered by its health plan.

Pharmaceuticals represent about 32% of the hospital system's $31 million health-insurance costs, said Paul Douglas, senior vice president of strategy, business development and human resources at Baton Rouge General Medical Center. "It was becoming unsustainable," he said. "We just couldn't afford these year-over-year increases."

In January, the hospital's prescription-drug spending was 33% lower than in the same month a year earlier, said Douglas. Baton Rouge says its greatest use of 340B is in its emergency room and infusion center, where it typically gets paid a fixed dollar amount for each episode of care.

For some high-cost drugs, Baton Rouge's 340B discounts are upward of 80%. The rheumatoid arthritis drug Enbrel, for example, will cost $600, compared with an average net price of $4,830 after rebates through other PBMs, according to marketing material by Rescription and Baton Rouge General.

To be eligible for the discounts, employees must complete a telehealth visit with one of Baton Rouge's clinical pharmacists. So far, 99% of workers taking high-cost drugs have signed up for Rescription, according to Douglas. And they all receive their medications with no out-of-pocket costs.

At Bergen New Bridge Medical Center, a safety net hospital in Paramus, N.J., spending on employee prescription drugs also fell. In 2023, the first year it joined with Rescription, prescription-drug spending was reduced by 28%, compared with what it would have spent under its previous PBM, said Bergen's Geoffrey Gibson, senior vice president of corporate affairs.

The hospital also saw its year-over-year drug spending decline last year. Bergen New Bridge paid 1% to 3% less for its drugs, compared with the 8% to 10% increase employers usually expect, Gibson said. The hospital system has about 2,200 people on its health benefits plan, including employees and their dependents. Bergen says it also passes along the discounts it receives to uninsured patients.

Bergen New Bridge is in the process of obtaining a state retail pharmacy license by the end of this year, so that it and Rescription can start marketing the program to other employers in the state. New Bridge will be responsible for dispensing medications through its pharmacy.

Louisiana-based Liviniti, a PBM formerly known as Southern Scripts, is also in the business. The startup guarantees drug cost savings of at least 20% and $0 out-of-pocket cost for many patients through its TelesaverRx service. Employees just need to have a once-annual telehealth visit, via phone or videoconference, with someone from a 340B hospital, according to company marketing online.

In one case, Liviniti said, a client saved $41,000 over a year on an employee's multiple sclerosis medication Gilenya by tapping the hospital discounts.

Write to Joseph Walker at joseph.walker@wsj.com

(END) Dow Jones Newswires

Liviniti has been in business over 10 years. "How Some Startups Are Helping Employers Get Big Drug Discounts," at 9:08 a.m. ET, incorrectly said the company was a startup.

(END) Dow Jones Newswires

March 15, 2025 15:32 ET (19:32 GMT)

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