Health Reform WK-EDGE HRSA has taken steps to improve oversight, integrity of 340B Program
Friday, May 25, 2018

HRSA has taken steps to improve oversight, integrity of 340B Program

By Jeffrey H. Brochin, J.D.

The Government Accountability Office (GAO) has issued a statement on the status of the Health Resources and Services Administration’s (HRSA’s) oversight of the 340B Drug Pricing Program and their efforts to comply with the GAO’s 2011 audit recommendations. The GAO statement was based on testimony offered before the U.S. Senate’s Committee on Health, Education, Labor and Pensions, and determined that although HRSA has initiated audits of covered entities and has provided clarified guidance for drug manufacturers, the agency has still not clarified guidance as to the definition of an eligible patient nor hospital eligibility criteria for program participation, and the GAO has called upon HRSA to provide greater specificity and clarity in those areas. (GAO Report, GAO-18-556T, May 15, 2018).

Background. The 340B Drug Pricing Program was created following the enactment of the Medicaid Drug Rebate Program and gives 340B covered entities discounts on outpatient drugs comparable to those made available to state Medicaid agencies. HRSA is responsible for administering and overseeing the program which requires drug manufacturers to sell outpatient drugs at discounted prices to covered entities—eligible clinics, hospitals, and others—in order to have their drugs covered by Medicaid. Covered entities are only allowed to provide 340B drugs to certain eligible patients. Entities dispense 340B drugs through in-house pharmacies or contract pharmacies, which are outside pharmacies that entities contract with to dispense drugs on their behalf. Both the number of covered entity sites and the number of contract pharmacies has increased significantly in recent years: the number of participating covered entity sites—currently about 38,000—has almost doubled in the past 5 years, as section 7101 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) expanded the eligibility to additional hospital types. The number of contract pharmacies increased from about 1,300 in 2010 to around 18,700 in 2017. In recent years, questions have been raised regarding oversight of the 340B Program.

Recommendations in the 2011 GAO report. In its September 2011 report, the GAO found that the HRSA’s oversight of the 340B Program was inadequate to ensure compliance with program rules, and the GAO recommended actions that HRSA should take to improve program integrity. Specifically, the GAO found that HRSA oversight of the 340B Program was weak because it primarily relied on covered entities and manufacturers to ensure their own compliance with program requirements and the agency engaged in few oversight activities. The GAO recommended that HRSA conduct audits of covered entities. The GAO also found a lack of specificity in guidance for manufacturers for handling cases in which distribution of drugs was restricted, such as when there was a shortage in drug supply, and the GAO recommended that HRSA refine its guidance in that area.

HRSA improvements cited. Among the recent findings by the GAO were: (1) HRSA now audits 200 covered entities a year (less than 2 percent of entities participating in the 340B Program) and that audits conducted to date have identified instances of non-compliance with program requirements, including the dispensing of drugs to ineligible patients; and (2) that in May 2012, HRSA clarified its policy for manufacturers that intend to restrict distribution of a drug and provided additional detail on the type of information manufacturers should include in their restricted distribution plans.

HRSA has not clarified guidance on two issues. The GAO also found that HRSA guidance on (1) the definition of an eligible patient and (2) hospital eligibility criteria for program participation both still lacked specificity, and recommended that HRSA clarify its guidance. HRSA agreed that clearer guidance was necessary and, the report noted that in 2015, HRSA released proposed guidance that addressed both issues. However, in January 2017, the agency withdrew that guidance in accordance with recent directives to freeze, withdraw, or postpone pending federal guidance. In March 2018, HRSA indicated it was in the process of determining the next steps related to guidance on the patient definition, but would need additional authority to further clarify guidance on hospital eligibility; rulemaking authority for the 340B Program was requested in the administration’s fiscal year 2019 budget proposal.

Participation in the 340B Program is voluntary for both covered entities and drug manufacturers, but there are strong incentives to participate including the fact that covered entities can realize substantial savings through 340B price discounts—an estimated 20 to 50 percent of the cost of the drugs, according to HRSA—and in addition, covered entities can generate 340B revenue by, for example, purchasing drugs at 340B prices for all eligible patients regardless of the patients’ income or insurance status and generating revenue, such as by receiving reimbursement from a patient’s insurance that may exceed the 340B price paid for the drugs.

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