Case 13 340B Drug Pricing Program Oversight
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Case 13 340B Drug Pricing Program Oversight
Section 602 of the Veterans Health Care Act of 1992 was titled “Limitations on Prices of Drugs Purchased by Certain Clinics and Hospitals.”It amended the Public Health Services Act by adding a new section, Section 340B, to that act. Section 602 of the Veterans Health Care Actread in part:
Part D of title III of the Public Health Service Act is amended by adding the following subpart: “SUBPART VII – DRUG PRICINGAGREEMENTS” LIMITATION ON PRICES OF DRUGS PURHASED BY COVERED ENTITIES “Sec. 340B (a) Requirements for Agreement withSecretary – “(1) In general. The Secretary shall enter into an agreement with each manufacturer of covered drugs under which theamount required to be paid … to the manufacturer for covered drugs … does not exceed an amount equal to the average manufacturerprice for the drug under title XIX of the Social Security Act in the preceding quarter, reduced by the rebate percentage described inparagraph (2). “Rebate percentage defined. – (A) In general. For a covered outpatient drug … the ‘rebate percentage’ is the amount equalto – “(i) the average total rebate required under Section 1927(c) of the Social Security Act … for a unit of the dosage form and strengthinvolved during the preceding quarter divided by “(ii) the average manufacturer price for such a unit of the drug during such quarter….”
Section 340B applied Medicaid drug discounts to drugs purchased for clinics that served many outpatients who were not eligible forMedicaid at qualified safety-net institutions. For the most part, eligible clinics were associated with hospitals receiving disproportionateshare payments under Medicare, pediatric hospitals, and community health centers. Also included were specialized clinics and projects forHIV/AIDS, hemophilia, black lung, tuberculosis, and family planning, as well as those serving Native Americans and Native Hawaiians.Hospitals were required to be governmental or nonprofit with a contractual commitment to provide services supported by governments,have a disproportionate share percentage greater than 11.75, and not obtain the covered drugs through a group purchasing agreement. Thedrugs had to be used for patients of the covered entity and could not be resold.
A key provision of Section 340B read “(10) No prohibition on larger discount. Nothing in this subsection shall prohibit a manufacturer fromcharging a price for a drug that is lower than the maximum price that may be charged under paragraph (1).” The Patient Protection andAffordable Care Act (ACA or PPACA) increased the 340B discount to 13% on generic drugs and 23.1% on branded drugs. Specific discountshave been reported to range from 15–60% on prescription drugs. The law prohibits getting both a state Medicaid rebate and a 340Bdiscount on a drug.
BACKGROUND
In the 1980s, Congress established a discount drug purchasing program for the Veterans Administration. In 1990, it extended this discountprogram to Medicaid purchases on behalf of low-income and uninsured enrollees under the Medicaid Drug Rebate Program. Soon it becameclear that this law conflicted with another requirement that state Medicaid programs receive discounts matching the lowest prices offeredin non-Medicaid markets. Congress moved to remedy this problem. Otherwise, the participating pharmaceutical and biotechnologycompanies would choose to stop offering discounts across the board.
The 340B program is administered by the Office of Pharmacy Affairs within Health Resources and Services Administration (HRSA) of theDepartment of Health and Human Service. This office is tasked with auditing compliance with program requirements, especially theeligibility of covered entities, and program integrity concerning diversions and duplicate discounts and manufacturer pricing. However, thisoffice has a very limited staff, and the number of institutions taking advantage of the program has been growing rapidly. HRSA also supportsa number of other programs, such as the Ryan White HIV/AIDS program and community and rural health centers that are covered entitiesfor 340B drug discounts.
The HRSA website describes the intent of 340B in a listing of Frequently Asked Questions to be “to permit covered entities to stretch scarceFederal resources as far as possible, reaching more eligible patients and providing more comprehensive services” [HR Rep. No. 102-384384(II) at 12 (1992)].
Although there are limitations on billings to Medicaid patients, there are no constraints on billings to non-Medicaid patients.
The ACA freed up hospitals to choose among discount sources such as 340B and their group purchasing organizations. The ACA also made anumber of provisions to strengthen program integrity.
Section 1703 of the ACA called for a Government Accounting Office (GAO) study of the program:
… that examines whether those individuals served by the covered entities under the program under section 340B of the Public HealthService Act (42 U.S.C. 256b) (referred to in this section as the “340B program”) are receiving optimal health care services.
(b) RECOMMENDATIONS. – The report under subsection
(a) shall include recommendations on the following:
(1) Whether the 340B program should be expanded since it is anticipated that the 47,000,000 individuals who are uninsured as ofthe date of enactment of this Act will have health care coverage once this Act is implemented.
(2) Whether mandatory sales of certain products by the 340B program could hinder patients access to those therapies through anyprovider.
(3) Whether income from the 340B program is being used by the covered entities under the program to further the programobjectives.
THE 2011 GAO STUDY
That study was issued by the GAO in September 2011. In the conclusions it noted:
The 340B program allows certain providers within the U.S. health care safety net to stretch federal resources to reach moreeligible patients and provide more comprehensive services, and we found that the covered entities we interviewed reportedusing it for these purposes. However, HRSA’s current approach to oversight does not ensure 340B program integrity, and raisesconcerns that may be exacerbated by changes within the program. According to HRSA, the agency largely relies on participants’self-policing to ensure compliance with program requirements, and has never conducted an audit of covered entities or drugmanufacturers. As a result, HRSA may not know when participants are engaging in practices that are not in compliance.Furthermore, we found that HRSA has not always provided covered entities and drug manufacturers with guidance thatincludes the necessary specificity on how to comply with program requirements. There also is evidence to suggest thatparticipants may be interpreting guidance in ways that are inconsistent with the agency’s intent. Finally, participants have littleincentive to comply with program requirements, because few have faced sanctions for noncompliance …
PPACA [i.e., ACA] outlined a number of provisions that, if implemented, will help improve many of the 340B programintegrity issues we identified. For example, PPACA requires HRSA to recertify eligibility for all covered entity types on an annualbasis … Additionally, PPACA requires HRSA to develop a formal dispute resolution process, including procedures for coveredentities to obtain information from manufacturers, and maintain a centralized list of 340B prices—provisions that would helpensure covered entities and manufacturers are better able to identify and resolve suspected violations. PPACA also requiresHRSA to institute monetary penalties for covered entities and manufacturers, which gives program participants more incentiveto comply with program requirements. Finally, PPACA requires HRSA to conduct more direct oversight of manufacturers,including conducting selective audits to ensure that they are charging covered entities the correct 340B price.
However, we identified other program integrity issues that HRSA should also address. For example, the law does not requireHRSA to audit covered entities or further specify the agency’s definition of a 340B patient. While HRSA has developed newproposed guidance on this definition, it is uncertain when, or if, the guidance will be finalized.
Because the discounts on 340B drugs can be substantial, it is important for HRSA to ensure that covered entities onlypurchase them for eligible patients both by issuing more specific guidance and by conducting audits of covered entities toprevent diversion. Additionally, while PPACA included a provision prohibiting manufacturers from discriminating againstcovered entities in the sale of 340B drugs, HRSA does not plan to make any changes to or further specify its relatednondiscrimination guidance.
Absent additional oversight by the agency, including more specific guidance, access challenges covered entities have facedwhen manufacturers’ have restricted distribution of IVIG at 340B prices may continue and similar challenges could arise forother drugs in the future. (GAO, 2011, pp. 33–34)
HOW IS THE PATIENT HELPED?
The ACA and the GAO report said little about getting the resulting savings to the patient’s bill. As the law has been modified over the years,the direct link to the low-income, uninsured patient has weakened. The discounted drugs can even be used for commercially insuredpatients. The 2011 GAO report found that “some covered entities passed 340B savings on to patients by providing lower-cost drugs touninsured patients. For example, many covered entities determined the amount that a patient is required to pay based on the lower cost of340B-priced drugs” (p. 17). The report noted that some covered entities had indicated that without the discounts they would have to closetheir pharmacy or curtail other services.
For a number of reasons, operating the 340B program in the hospital environment creates more opportunities for drug diversioncompared to other covered entity types. First, hospitals operate 340B pharmacies in settings where both inpatient and outpatient drugsare dispensed and must ensure that inpatients do not get 340B drugs. Second, hospitals tend to have more complex contractingarrangements and organizational structures than other entity types—340B drugs can be dispensed in multiple locations, includingemergency rooms, on-site clinics, and off-site clinics. In light of this and given HRSA’s nonspecific guidance on the definition of a 340Bpatient, broad interpretations of the guidance may be more likely in the hospital setting and diversion harder to detect. Third, hospitalsdispense a comparatively larger volume of drugs than other entity types—while representing 27 percent of participating coveredentities, according to HRSA, DSH hospitals alone represent about 75 percent of all 340B drug purchases. (GAO, 2011, p. 29)
OTHER IMPACTS OF THE ACA
The ACA added a number of classes of institutions, including affordable care organizations, freestanding cancer hospitals, clinical accesshospitals, rural referral centers, and sole community hospitals. Many millions of uninsured individuals are to receive insurance. This wouldgreatly increase the consumption of 340B drugs, even though one might argue that the original need for the 340B program was partiallymitigated.
MANUFACTURER PUSHBACK
In early 2013, the Biotechnology Industry Organization (BIO) issued a white paper subtitled “A Review and Analysis of the 340B Program.”It was cosponsored by the Community Oncology Alliance (COA), the National Community Pharmacists Association (NCPA), National PatientAdvocate Foundation (NPAF), the Pharmaceutical Care Management Association (PCMA), and the Pharmaceutical Research andManufacturers of America (PhRMA). The report’s executive summary cited:
Areas of most concern included the following:
- Concerns that some uninsured, indigent patients may not be experiencing direct benefit from the program’s existence.
- Anecdotal evidence that clinical decision-making may be skewed by efforts to take advantage of the 340B discount.
- Growing evidence of displacement of non-340B providers who serve a key role in providing patient access to important health careservices. (BIO, 2013, p. 1)
The same executive summary cited the concerns expressed in the GAO report, as well as insufficient resources at HRSA to carry out itsresponsibilities under 340B and the ACA, the need for clearer guidance, and HRSA’s use of “subregulatory” procedures to clarify definitionsand establish interpretive guidelines.
The HRSA website contained the following observation:
PROGRAM GUIDELINES
HRSA chose to publish guidelines in the Federal Register rather than regulations to administer the Section 340B program. Guidelines arethe quickest and most flexible way to convey to all concerned parties how HRSA interprets the Section 340B requirements. Guidelines arealso used to disseminate procedures that are acceptable under the statute. To ensure that the guidelines were as appropriate andresponsive as possible to the legitimate concerns of the covered entities and manufacturers, comments were solicited on all of theguidelines before HRSA published them in a final notice.
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