Safety Net Providers Oppose 2-Tier Drug Pricing Policy


Safety net providers, which historically work in underserved communities, have successfully petitioned state legislatures to take action on 340B 2-tier pricing.

Safety net providers are pushing back on the growing use of “2-tiered” policies among payers and pharmacy benefit managers (PBMs) under the 340B Drug Pricing Program that provide lower reimbursement rates for 340B-covered entities compared with non-340B entities.

The practice has been challenged in court, finding its way to state legislatures through safety net providers who argue the practice is impacting their ability to serve more patients and offer comprehensive services.1

On December 20, 2019, the US Court of Appeals for the District of Columbia (DC Circuit) heard a challenge against 2-tiered policies by Cares Community Health, a 340B safety net provider, on claims that the US Department of Health and Human Services (HHS) had unlawfully allowed Humana Health Plan to pay the organization less for drugs obtained through the 340B program.

The DC Circuit sided with Humana, an insurer offering Medicare prescription drug coverage, but the court noted that Congress may have intended for the benefit to remain with safety net providers rather than the insurer in the Public Health Service Act (PHSA).1

Section 340B of the PHSA requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for uninsured and low-income patients.

Pharmacy tier pricing is the way prescription medications are categorized. Tiers are based on usage, cost, and clinical efficacy. Medications in tier 1 have the lowest co-pay or co-insurance, whereas tiers 3, 4, or 5 have the highest.2

As payers and PBMs continue to implement 340B 2-tier pricing models, safety net providers must assess the billing requirements and potential impacts of these models.2

Safety net providers, which historically work in underserved communities, have successfully petitioned state legislatures to take action on 340B 2-tier pricing. At least 4 states—Oregon, Minnesota, South Dakota, and West Virginia—now prohibit PBMs from setting lower reimbursement rates.

HHS has declined to intervene on the issue of 2-tier pricing under the 340B program, with both the Centers for Medicare and Medicaid Services (CMS) and the Health Resources and Services Administration (HRSA) suggesting that they do not have authority to regulate this practice.

CMS responded to comments on the 2016 Medicaid Managed Care Organization (MCO) proposed regulations, which urged CMS to prohibit states from allowing Medicaid MCOs to impose 2-tier 340B pricing models. “Reimbursement by managed care plans for drugs dispensed by 340B covered entities is negotiated between the managed care plans and covered entities and is outside the scope of this rule,” CMS said in a press release.

HRSA has taken a similar position, stating that there is no provision in Section 340B of the PHSA that prohibits 2-tier pricing.


  • Church, R. Flinchum, M. Severson, R. 340B Update: Safety Net Providers Fight Back Against Two-Tier Pricing Models. JDSUPRA website. Accessed January 17, 2020.
  • Pharmacy Tier Pricing. Gusto website. Accessed January 17, 2020.

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