Deeper Than the Headlines: Lookout for Compliance Issues with the 340B Drug Pricing Program

340B Drug Pricing Program

The 340B drug pricing program was authorized by Congress in 1992 to generate savings for certain safety-net healthcare providers by allowing them to purchase outpatient drugs at discounted prices. It is estimated that the savings to 340B providers attributable to the program in 2015 was $6 billion.

$6 Billion Dollars. WOO-HOO! That’s a lot of money!

In a nutshell, drug manufacturers sign a pricing agreement that they will charge certain eligible healthcare providers (340B providers) at or below specified maximum prices, known as ceiling prices. The manufacturers calculate 340B ceiling prices each quarter by applying a formula to confidential drug pricing data. The 340B providers benefiting from these discounted prices include such safety-net providers as community health centers and hospitals that serve a disproportionate number of low-income patients.

It sounds like a good plan, but it’s not without risks. The OIG has been reviewing those risks for many years. Recently, Erin Bliss, Assistant Inspector General for Evaluation and Inspections Office of Inspector General testified about these risks before the U.S. House of Representatives Committee on Energy and Commerce: Subcommittee on Oversight and Investigations. Read more here

If your organization participates in the 340B program, it might be a good idea for you to become familiar with that testimony, as it might provide some ideas on areas your 340B compliance program could focus on.

In 2010, the Affordable Care Act expanded the types of providers eligible to participate in the 340B program to include children’s hospitals, critical access hospitals, free-standing cancer hospitals, rural referral centers, and sole community hospitals. As of October 1, 2016, the 340B program included 12,148 providers and 25,348 associated sites, for a total 37,496 registered sites.

Bliss testified that the OIG has identified:

1) A lack of transparency that prevents accurate payments by 340B providers, State Medicaid programs, and pharmaceutical manufacturers; and

2) A lack of clarity regarding program rules that creates uncertainty and results in uneven program implementation and limited accountability.

One area of risk includes the Medicaid program. State Medicaid programs reimburse 340B providers for drugs provided to Medicaid beneficiaries. As of February 2016, the Centers for Medicare & Medicaid Services (CMS) requires State Medicaid agencies to reimburse providers for 340B-purchased drugs at amounts that do not exceed the 340B ceiling price. In addition, States claim Medicaid rebates from drug manufacturers. Generally, States are entitled to statutorily defined rebates from manufacturers for covered outpatient drugs. However, “duplicate discounts” – which occur when drug manufacturers pay rebates to State Medicaid agencies on drugs that they sold at the already discounted 340B price – are prohibited by law.

Bliss testified regarding the need for more transparency in the program and outlined three ways that transparency could support payment accuracy. First, 340B providers need to know the 340B ceiling prices to determine whether they are paying the accurate price. Second, State Medicaid programs need to know the 340B ceiling price, as well as which Medicaid claims are for 340B-purchased drugs, to determine whether they are paying 340B providers accurately. Third, State Medicaid programs need to know which Medicaid claims are for 340B-purchased drugs to ensure that Medicaid programs receive all of the drug rebates to which they are entitled and manufacturers don’t provide duplicate discounts. Bliss also discussed the complexity of contract pharmacy arrangements.

“Contract pharmacies are external pharmacies (often retail pharmacies) that partner with 340B providers to dispense 340B-purchased drugs to the providers’ patients, and their prevalence is on the rise. These pharmacies typically dispense both 340B-purchased drugs on behalf of 340B providers, as well as non-340B drugs. The operations of contract pharmacies are often quite complex, and this complexity has important consequences—variation in eligibility determinations across different 340B providers and inconsistencies in whether uninsured patients benefit directly from the 340B program.”

These are just a couple of the highlights in Bliss’ testimony. If your organization is involved in the 340B program, consider reading the testimony in its entirety to ensure you’re maintaining compliance standards.