The 340B Drug Pricing Program Needs A Big Fix

The 340B Drug Pricing Program Needs A Big Fix

September 27th, 2011 // 12:09 pm @ jmpickett

Is the 340B Drug Pricing Program broken? Maybe not entirely, but a big fix may be in order, according to a new report released by the US Government Accountability Office. After interviewing 61 participants, including drugmakers and hospitals, the GAO says the Health Resources and Services Administration Agency relies too heavily on self-policing to ensure compliance.

The report found that HRSA oversight is inadequate to ensure that participating hospitals use drugs purchased under the 340B program are administered only to eligible patients, and that drugs are sold to eligible hospitals and clinics at or below stipulated prices. For its part, the US Department of Health & Human Services responds that funding is inadequate to implement more rigorous oversight.

“This report portrays a programs that is out of control and not doing what it is supposed to do,” Ian Spatz, a senior advisor to Manatt Health Solutions and a former vp for public policy at Merck, tells us. “340B was created to protect safety net providers, not enrich them by billing people for costs they didn’t incur. This reports makes clear that this is a program without oversight or effective controls.”

[UPDATE: A trade group that represents hospitals that participate in the 340B program, however, argues that these most of these entities are providing proper care and complying with the program. “SNHPA is confident that a significant majority of private nonprofit hospitals in the program are providing substantial levels of indigent care,” William von Oehsen, president and general counsel of Safety Net Hospitals for Pharmaceutical Access. “Nevertheless, we agree that there should be clearer eligibility criteria for private nonprofit hospitals.”]

Some quick background: the 340B program was created in 1992 to give certain ’safety net providers’ discounts on outpatient drugs that are supposed to be comparable to pricing made available to state Medicaid agencies. These hospitals and clinics, or ‘covered entities,’ spend about $6 billion annually on drugs. And their numbers have been rising – from 8,605 in 2001 to 16,572 this year.

Why participate? Hospitals and clinics can realize substantial savings through 340B discounts – an estimated 20 percent to 50 percent off the cost of drugs, and also generate revenue. For instance, these entities can buy drugs at 340B prices for all patients eligible under the program regardless of their income or insurance status, and then obtain reimbursement that may the prices paid. The hospitals and clinics generally report using the program to support or expand services, the GAO says.

But these hospitals and clinics are prohibited from transferring 340B drugs to individuals who are not eligible patients. And because the program lacks requirements on how 340B revenue can be used, there have been questions about how revenue is generated and applied, and whether a larger share of drug costs are being shifted to others in the health care system.

Meanwhile, there are also questions about pricing by drugmakers. Two entities interviewed by the GAO reported that it is difficult to determine whether they have been charged correctly for drugs because manufacturer calculations of 340B prices are not transparent. For instance, there is no centralized list of 340B prices.

At the same time, three drugmakers told the GAO that they have suspected covered entities of diverting 340B drugs, although it can be difficult to prove diversion took place. But the GAO reports that conducting audits is a rarity, because the cost of doing so can be burdensome, according to a trade group that spoke with the agency.

Consequently, the GAO found various problems. Among them – the HRSA’s current guidance on the definition of a 340B patient is sometimes not specific enough to define situations under which an individual is considered a patient of a covered entity for the purposes of 340B and, therefore, covered entities could interpret it either too broadly or too narrowly. This could lead to unintended diversion.

[UPDATE: For its part, the SNHPA argues that drugmakers and covered entities “often disagree on which individuals may receive discounted drugs due to misperceptions on how hospitals dispense and administer outpatient drugs. These misperceptions can result in the incorrect belief that covered entities are diverting 340B drugs to ineligible patients.” The trade group wants the HRSA to revise the patient definition to clarify the rules.]

The HRSA has also not issued guidance specifying the criteria under which hospitals that are not publicly owned or operated can qualify for the 340B program.

Meanwhile, HRSA guidance is not specific in outlining practices that drugmakers should to ensure that drugs are equitably distributed to covered entities and non-340B providers when distribution is restricted. As an example, the GAO reports that some covered entities raised concerns about the way makers of intravenous immune globulin have interpreted and complied with the guidance, because some covered entities have sometimes purchase prodcut IVIG at higher, non-340B prices.

And one entity told the GAO that drugmakers can offer a certain amount of medicines at 340B prices, and while the distribution may not be equitable, still contend they are complying with the guidance. But while health care form included a provision prohibiting drugmakers from discriminating against covered entities when selling 340B drugs, the HRSA told the GAO there are no plans to provide additional details to the so-called ‘non-discrimination’ guidance.

This provision calls for the HRSA to make a centralized list of HRSA-verified 340B prices available to covered entities; conducting selective audits of manufacturers, and establishing procedures by which manufacturers repay covered entities for overcharges. But the agency has not yet started to do so.

And so the GAO gave the HRSA a spanking: “Beyond relying on participants’ self-policing, HRSA engages in few activities to oversee the 340B program and ensure its integrity, which agency officials said was primarily due to funding constraints. For example, HRSA officials told us that the agency verifies eligibility for the 340B program at enrollment, but does not periodically recertify eligibility for all covered entity types. As a result, there is the potential for ineligible entities to remain enrolled in the program.

“In addition, HRSA officials told us that they do not require a review of the procedures participants put in place to ensure compliance, and, although the agency has the authority to conduct audits of program participants to determine whether violations have occurred, it has never done so.

And “the agency only reviews manufacturers’ plans to restrict access to drugs at 340B prices if a manufacturer contacts HRSA or concerns with a plan are brought to the agency’s attention. Similarly, although HRSA calculates 340B prices separately from manufacturers, officials told us that, at this time, the agency does not use these calculations to verify the price that manufacturers charge covered entities, unless an entity reports a specific pricing concern.”

Source: Pharmalot