Eli Lilly and Company is changing its distribution strategy for Mounjaro and Zepbound to mitigate what it identifies as “duplicate discounts” involving contract pharmacies. Starting October 1, 2024, the manufacturer will limit the shipment of certain weight-loss and diabetes medications to specific contract pharmacies, requiring hospitals to transition to a single-ship-to location per 340B covered entity. This move aims to ensure compliance with the 340B Drug Pricing Program while addressing complexities in how discounts are calculated and applied across large health systems.
Why is Eli Lilly changing its distribution policy?
Eli Lilly states the policy shift is a response to the logistical challenges of managing the 340B program, which requires manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices. According to a statement released by the company, the current model of shipping to an unlimited number of contract pharmacies creates an environment where duplicate discounts—where both a 340B discount and a Medicaid rebate are claimed for the same drug—are difficult to prevent. By consolidating shipments to one designated pharmacy per entity, Lilly intends to increase the transparency of the supply chain and ensure that 340B pricing is applied only to qualified outpatient prescriptions.
How does the 340B program work?
The 340B program, established by Congress in 1992, mandates that drug manufacturers provide outpatient drugs to “covered entities”—such as safety-net hospitals and clinics—at a discount to qualify for Medicaid coverage. As noted by the Health Resources and Services Administration (HRSA), the program is intended to allow these entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. However, the use of contract pharmacies has grown significantly over the last decade, leading to ongoing disputes between pharmaceutical companies and hospital systems regarding the scope of these discounts.
What are the implications for hospital systems?
For many large health systems, the new policy represents a significant shift in pharmacy operations. Hospitals that previously utilized multiple contract pharmacies to dispense medications like Mounjaro (tirzepatide) will now need to centralize their inventory management.
Industry analysts observe that this policy mirrors trends seen across the pharmaceutical industry, where manufacturers are increasingly imposing restrictions on the 340B program. While hospitals argue that these restrictions limit their ability to serve vulnerable populations, manufacturers maintain that the current oversight mechanisms are insufficient to prevent billing errors.
Key Takeaways for Health Systems
- Effective Date: The new distribution policy takes effect October 1, 2024.
- Consolidation: Covered entities are restricted to one “ship-to” pharmacy location for the affected medications.
- Scope: The policy specifically targets GLP-1 receptor agonists used for diabetes and obesity management.
- Compliance: Lilly has indicated that it will work with covered entities to register their preferred pharmacy location through the Lilly 340B portal.
What happens next for patients?
Patients currently prescribed these medications should consult with their providers to determine if their pharmacy’s status will change under the new guidelines. While Eli Lilly’s policy targets the financial and logistical relationship between the manufacturer and the hospital, the primary goal for health systems will be to ensure that patient access to medication remains uninterrupted during the transition. Hospitals are expected to update their pharmacy network designations before the October deadline to avoid potential delays in inventory procurement.