Drug Pricing
Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement
Gao ID: GAO-11-836 September 23, 2011
In Process
Thirteen of the 29 covered entities we interviewed reported that they generated 340B program revenue that exceeded drug-related costs, which includes the costs of purchasing and dispensing drugs. Of those remaining, 10 did not generate enough revenue to exceed drug-related costs, and 6 did not report enough information for us to determine the extent to which revenue was generated. Several factors affected 340B revenue generation, including drug reimbursement rates. Regardless of the amount of revenue generated, all covered entities reported using the program in ways consistent with its purpose. For example, all covered entities reported that program participation allowed them to maintain services and lower medication costs for patients. Entities generating 340B program revenue that exceeded drug-related costs were also able to serve more patients and to provide additional services. According to the 61 340B program stakeholders we interviewed, manufacturers' distribution of drugs at 340B prices generally did not affect providers' access to drugs. Specifically, 36 stakeholders, including those representing manufacturers, covered entities, and non-340B providers, did not report any effect on covered entities' or non-340B providers' access. The remaining 25, also representing a wide range of perspectives on the 340B program, reported that it affected access primarily in two situations: (1) for intravenous immune globulin (IVIG), a lifesaving drug in inherently limited supply; and (2) when there was a significant drop in the 340B price for a drug resulting in increased 340B demand. In both situations, manufacturers may restrict distribution of drugs at 340B prices because of actual or anticipated shortages. Stakeholders reported that restricted distribution of IVIG resulted in 340B hospitals having to purchase some IVIG at higher, non-340B prices. They also reported that restricted distribution when the 340B price of a drug dropped significantly helped maintain equitable access for all providers. HRSA's oversight of the 340B program is inadequate to provide reasonable assurance that covered entities and drug manufacturers are in compliance with program requirements--such as, entities' transfer of drugs purchased at 340B prices only to eligible patients, and manufacturers' sale of drugs to covered entities at or below the 340B price. HRSA primarily relies on participant self-policing to ensure program compliance. However, its guidance on program requirements often lacks the necessary level of specificity to provide clear direction, making participants' ability to self-police difficult and raising concerns that the guidance may be interpreted in ways inconsistent with the agency's intent. Other than relying on self-policing, HRSA engages in few activities to oversee the 340B program. For example, the agency does not periodically confirm eligibility for all covered entity types, and has never conducted an audit to determine whether program violations have occurred. Moreover, the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater, in part because they serve both 340B and non-340B eligible patients. This further heightens concerns about HRSA's current approach to oversight. With the number of hospitals in the 340B program increasing significantly in recent years--from 591 in 2005 to 1,673 in 2011--and nearly a third of all hospitals in the U.S. currently participating, some stakeholders, such as drug manufacturers, have questioned whether all of these hospitals are in need of a discount drug program. To ensure appropriate use of the 340B program, GAO recommends that HRSA take steps to strengthen oversight regarding program participation and compliance with program requirements. HHS agreed with our recommendations.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Debra A. Draper
Team:
Government Accountability Office: Health Care
Phone:
(202)512-3000
GAO-11-836, Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
September 2011:
Drug Pricing:
Manufacturer Discounts in the 340B Program Offer Benefits, but Federal
Oversight Needs Improvement:
GAO-11-836:
GAO Highlights:
Highlights of GAO-11-836, a report to congressional committees.
Why GAO Did This Study:
The Health Resources and Services Administration (HRSA), within in the
Department of Health and Human Services (HHS), oversees the 340B Drug
Pricing Program, through which participating drug manufacturers give
certain entities within the health care safety net-”known as covered
entities-”access to discounted prices on outpatient drugs. Covered
entities include specified federal grantees and hospitals. The number
of covered entity sites has nearly doubled in the past 10 years to
over 16,500.
The Patient Protection and Affordable Care Act (PPACA) mandated that
GAO address questions related to the 340B program. GAO examined: (1)
the extent to which covered entities generate 340B revenue, factors
that affect revenue generation, and how they use the program; (2) how
manufacturers‘ distribution of drugs at 340B prices affects covered
entities‘ or non-340B providers‘ access to drugs; and (3) HRSA‘s
oversight of the 340B program. GAO reviewed key laws and guidance,
analyzed relevant data, and conducted interviews with 61 340B program
stakeholders selected to represent a range of perspectives, including
HRSA, 29 covered entities, 10 manufacturers and representatives, and
21 others. Selection of stakeholders was judgmental and thus,
responses are not generalizable.
What GAO Found:
Thirteen of the 29 covered entities we interviewed reported that they
generated 340B program revenue that exceeded drug-related costs, which
includes the costs of purchasing and dispensing drugs. Of those
remaining, 10 did not generate enough revenue to exceed drug-related
costs, and 6 did not report enough information for us to determine the
extent to which revenue was generated. Several factors affected 340B
revenue generation, including drug reimbursement rates. Regardless of
the amount of revenue generated, all covered entities reported using
the program in ways consistent with its purpose. For example, all
covered entities reported that program participation allowed them to
maintain services and lower medication costs for patients. Entities
generating 340B program revenue that exceeded drug-related costs were
also able to serve more patients and to provide additional services.
According to the 61 340B program stakeholders we interviewed,
manufacturers‘ distribution of drugs at 340B prices generally did not
affect providers‘ access to drugs. Specifically, 36 stakeholders,
including those representing manufacturers, covered entities, and non-
340B providers, did not report any effect on covered entities‘ or non-
340B providers‘ access. The remaining 25, also representing a wide
range of perspectives on the 340B program, reported that it affected
access primarily in two situations: (1) for intravenous immune
globulin (IVIG), a lifesaving drug in inherently limited supply; and
(2) when there was a significant drop in the 340B price for a drug
resulting in increased 340B demand. In both situations, manufacturers
may restrict distribution of drugs at 340B prices because of actual or
anticipated shortages. Stakeholders reported that restricted
distribution of IVIG resulted in 340B hospitals having to purchase
some IVIG at higher, non-340B prices. They also reported that
restricted distribution when the 340B price of a drug dropped
significantly helped maintain equitable access for all providers.
HRSA‘s oversight of the 340B program is inadequate to provide
reasonable assurance that covered entities and drug manufacturers are
in compliance with program requirements”such as, entities‘ transfer of
drugs purchased at 340B prices only to eligible patients, and
manufacturers‘ sale of drugs to covered entities at or below the 340B
price. HRSA primarily relies on participant self-policing to ensure
program compliance. However, its guidance on program requirements
often lacks the necessary level of specificity to provide clear
direction, making participants‘ ability to self-police difficult and
raising concerns that the guidance may be interpreted in ways
inconsistent with the agency‘s intent. Other than relying on self-
policing, HRSA engages in few activities to oversee the 340B program.
For example, the agency does not periodically confirm eligibility for
all covered entity types, and has never conducted an audit to
determine whether program violations have occurred. Moreover, the 340B
program has increasingly been used in settings, such as hospitals,
where the risk of improper purchase of 340B drugs is greater, in part
because they serve both 340B and non-340B eligible patients. This
further heightens concerns about HRSA‘s current approach to oversight.
With the number of hospitals in the 340B program increasing
significantly in recent years”from 591 in 2005 to 1,673 in 2011”and
nearly a third of all hospitals in the U.S. currently participating,
some stakeholders, such as drug manufacturers, have questioned whether
all of these hospitals are in need of a discount drug program.
What GAO Recommends:
To ensure appropriate use of the 340B program, GAO recommends that
HRSA take steps to strengthen oversight regarding program
participation and compliance with program requirements. HHS agreed
with our recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-11-836]. For more
information, contact Debra A. Draper at (202) 512-7114 or
draperd@gao.gov.
[End of section]
Contents:
Letter:
Background:
340B Revenue Generated by Covered Entities Varied, but All Entities
Reported That the Program Was Used to Support or Expand Access to
Services:
Manufacturers' Distribution of Drugs at 340B Prices Generally Did Not
Affect Providers' Access to Drugs Except in Two Situations:
HRSA's Oversight of the 340B Program Is Inadequate:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Selection of Interviews with Program Stakeholders:
Appendix II: Select Information on Entities Eligible to Participate in
the 340B Program:
Appendix III: Comments from the Department of Health and Human
Services:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: HRSA's Definition of a Patient Eligible for Discounted Drugs
under the 340B Program:
Table 2: Key 340B Program Integrity Provisions Included in PPACA:
Figures:
Figure 1: Growth in Covered Entity Sites, 2001 to 2011:
Figure 2: 340B Program Participation among Hospitals and Their
Affiliated Sites, 2005 and 2011:
Abbreviations:
ADAP: AIDS Drug Assistance Program:
CMS: Centers for Medicare & Medicaid Services:
DSH: disproportionate share hospital:
FQHC: federally qualified health center:
GPO: group purchasing organization:
HHS: Department of Health and Human Services:
HRSA: Health Resources and Services Administration:
IVIG: intravenous immune globulin:
PHSA: Public Health Service Act:
PPACA: Patient Protection and Affordable Care Act:
PSSC: Pharmacy Services Support Center:
PVP: Prime Vendor Program:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 23, 2011:
The Honorable Tom Harkin:
Chairman:
The Honorable Michael B. Enzi:
Ranking Member:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable Fred Upton:
Chairman:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
Our nation's health care safety net provides services to low-income,
uninsured, underinsured, and other individuals who experience barriers
accessing care, regardless of their ability to pay. Certain types of
providers within the safety net have access to discounted prices on
outpatient drugs through the 340B Drug Pricing Program.[Footnote 1]
The program, created in 1992 and named for the statutory provision
authorizing it in the Public Health Service Act (PHSA),[Footnote 2]
requires drug manufacturers to give 340B discounts to entities covered
under the law--known as covered entities--in order to have their drugs
covered by Medicaid.[Footnote 3]
Covered entities include clinics and hospitals that provide general
health care services, as well as those that serve patients with
specific conditions or diseases, and are typically eligible for the
program because they receive some type of federal support, such as a
federal grant. According to the Health Resources and Services
Administration (HRSA), the agency within the Department of Health and
Human Services (HHS) responsible for administering and overseeing the
340B program, the purpose of the program is to enable covered entities
to stretch scarce federal resources to reach more eligible patients,
and provide more comprehensive services.[Footnote 4] Covered entities'
current spending on 340B drug purchases is estimated to be about $6
billion annually.
Participation in the 340B program is voluntary for both covered
entities and drug manufacturers, but there are strong incentives to
participate. Covered entities can realize substantial savings through
340B price discounts--an estimated 20 to 50 percent off the cost of
drugs, according to HRSA. In addition, covered entities can generate
340B revenue.[Footnote 5] For example, covered entities can purchase
drugs at the 340B price for all patients eligible under the program
regardless of their income or insurance status, and generate revenue,
such as through a patients' insurance reimbursement, that may exceed
the 340B price paid for the drugs.[Footnote 6] As of July 2011, there
were more than 16,500 covered entity sites enrolled in the program--
about double the number reported in 2001.[Footnote 7] Because they
must participate in the 340B program to receive Medicaid reimbursement
for their drugs, incentives for participation by drug manufacturers
also are strong. According to HRSA, most manufacturers that produce
outpatient drugs have participated in the program since its inception.
HRSA requires program participants to meet certain conditions set
forth both in law and agency guidance. For example, under the PHSA,
covered entities are prohibited from transferring 340B drugs to
individuals who are not eligible patients of the entities.[Footnote 8]
Similarly, to help ensure covered entities receive the discounts they
are entitled to, HRSA has issued nondiscrimination guidance
prohibiting drug manufacturers from distributing drugs in ways that
would discriminate against covered entities compared to other, non-
340B healthcare providers.[Footnote 9] This includes not conditioning
the sale of drugs to covered entities on restrictive conditions, such
as requiring them to commit to minimum purchase amounts, which would
discourage entities from participating in the program. However,
stakeholders, including both covered entities and drug manufacturers,
have raised questions about the extent to which 340B program
requirements are followed and the extent to which HRSA ensures
compliance. Further, because the 340B program has no requirements on
how 340B revenue can be used,[Footnote 10] stakeholders, such as drug
manufacturers, have raised questions about covered entities'
generation of revenue and whether they are using it in ways consistent
with the purpose of the program. Additionally, due to continued growth
in the number of covered entities participating in the program, some
stakeholders have raised questions about whether increased use of 340B
discounts shifts a larger share of drug costs to others in the health
care system.
The Patient Protection and Affordable Care Act (PPACA) amended the
340B program by expanding entity eligibility for the program to
include additional types of hospitals.[Footnote 11] PPACA also
contained provisions to improve 340B program integrity, and included a
provision explicitly prohibiting manufacturers from discriminating
against covered entities in the sale of 340B drugs, consistent with
HRSA's nondiscrimination guidance.[Footnote 12] The passage of PPACA
has raised some questions for 340B stakeholders about the program. For
example, although proponents of the explicit prohibition on
manufacturers contend that it is necessary to prevent discrimination
against covered entities, critics are concerned about how it could
affect non-340B providers' access to drugs.[Footnote 13] Additionally,
PPACA extends health insurance coverage to more Americans, and some
stakeholders, such as drug manufacturers, have questioned whether
covered entities will need the discounts provided through the 340B
program given this increased coverage.
PPACA directed us to address several questions related to the 340B
program. In response to the mandate, we examined: (1) the extent to
which covered entities generate 340B revenue, factors that affect
their revenue generation, and how entities use the program; (2) how
manufacturers' distribution of drugs at 340B prices affects providers'
access to drugs, whether those providers are covered entities or non-
340B providers; and (3) HRSA's oversight of the 340B program.
To examine the extent to which covered entities generate revenue
through their participation in the 340B program, factors that affect
their revenue generation, and how entities use the program, we
conducted interviews with a judgmental sample of 29 covered entity
organizations primarily selected to represent five covered entity
types located in five states. We selected entity types based on
factors, including high levels of participation in the 340B program
and variation in organizational structure and the types of services
provided. We selected states based on factors, including geographic
variation and the percentage of uninsured in the state. Specifically,
we interviewed 7 federally qualified health centers (FQHC),[Footnote
14] 5 family planning clinics, 5 AIDS Drug Assistance Programs (ADAP),
5 hemophilia treatment centers, and 5 general acute care hospitals
with a Medicare disproportionate share hospital (DSH) adjustment
percentage of greater than 11.75 percent[Footnote 15]--in this report
we refer to these hospitals as DSH hospitals.[Footnote 16] These
entities were located in Illinois, Massachusetts, Tennessee, Texas,
and Utah. We specifically selected Massachusetts to gain a better
understanding of the potential effect of PPACA's health insurance
reforms on the 340B program.[Footnote 17] In addition to interviewing
covered entities located in the five states, we conducted interviews
with 2 additional DSH hospitals located in other states, because of
questions raised in stakeholder interviews about how these hospitals
were using the program. When possible, we collected relevant
documentation from covered entities. Although we selected covered
entities to interview that represented a variety of entity types, not
all covered entity types are represented. Further, our selection of
covered entities was judgmental, and our sample is not generalizable.
(See appendix I for more details on how we selected covered entities
and appendix II for more information about the entity types eligible
to participate in the 340B program.)
To examine how manufacturers' distribution of drugs at 340B prices
affects providers' access to drugs, whether those providers are
covered entities or non-340B providers, we conducted interviews with
61 340B program stakeholders, including our judgmental sample of 29
covered entities, as well as 32 other program stakeholders
representing a wide range of perspectives on the program.[Footnote 18]
Included were interviews with 6 drug manufacturers, selected based on
factors such as having a large market share and producing drugs with
reported challenges related to their distribution at 340B prices, and
6 organizations representing drug manufacturers and others involved in
distributing drugs from manufacturers to providers. We also
interviewed stakeholders representing providers, including 9
organizations representing covered entities, 2 organizations
representing non-340B providers, and 5 organizations representing both
covered entities and non-340B providers. Finally, we interviewed HRSA
and the Centers for Medicare & Medicaid Services (CMS), as well as
HRSA's 2 340B program contractors. (See appendix I for more details on
interviewees and how we selected them.) Similar to our selection of
covered entities, our selection of other program stakeholders was
judgmental and, as such, responses are not generalizable. In addition,
we reviewed relevant documentation from interviewees, and analyzed
industry data as well as data from HRSA's covered entity database to
determine the number of hospitals in the U.S. currently participating
in the 340B program. We reviewed data-related documentation and
interviewed agency officials, and determined these data were
sufficiently reliable for our purposes.
To examine HRSA's oversight of the 340B program, we conducted
interviews with the 61 program stakeholders discussed above and
reviewed relevant documentation. We reviewed information from HRSA and
other HHS agencies, including those that administer the grants that
make entities eligible for the 340B program.[Footnote 19] We also
reviewed key laws, guidance, and relevant literature related to the
program and to safety net providers. We analyzed data from HRSA's
covered entity database to determine changes in 340B program
participation among covered entity types since 2001. We reviewed data-
related documentation and interviewed agency officials, and determined
these data were sufficiently reliable for our purposes.
We conducted our performance audit from September 2010 through
September 2011 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Background:
The 340B program was created in 1992 following the enactment of the
Medicaid Drug Rebate Program and gives certain safety net providers
discounts on outpatient drugs comparable to those made available to
state Medicaid agencies.[Footnote 20] HRSA, through its Office of
Pharmacy Affairs, is responsible for administering and overseeing the
340B program,[Footnote 21] which according to federal standards,
includes designing and implementing necessary policies and procedures
to enforce agency objectives and assess program risk. These policies
and procedures include internal controls that provide reasonable
assurance that an agency has effective and efficient operations and
that program participants are in compliance with applicable laws and
regulations.[Footnote 22]
Program Participants:
Eligibility for the 340B program is defined in the PHSA. Entities
generally become eligible by receiving one of 10 federal grants or by
being one of six hospital types. (See appendix II for a complete list
of covered entity types and their eligibility requirements.) To
participate in the 340B program, eligible entities must register with
HRSA and be approved. Entity participation in the 340B program has
grown over time to include over 16,500 covered entity sites (see
figure 1).
Figure 1: Growth in Covered Entity Sites, 2001 to 2011:
[Refer to PDF for image: vertical bar graph]
Year: 2001;
Number of covered entity sites: 8,605.
Year: 2002;
Number of covered entity sites: 9,193.
Year: 2003;
Number of covered entity sites: 10,325.
Year: 2004;
Number of covered entity sites: 11,442.
Year: 2005;
Number of covered entity sites: 12,162.
Year: 2006;
Number of covered entity sites: 11,926.
Year: 2007;
Number of covered entity sites: 12,404.
Year: 2008;
Number of covered entity sites: 13,139.
Year: 2009;
Number of covered entity sites: 14,076.
Year: 2010;
Number of covered entity sites: 14,725.
Year: 2011;
Number of covered entity sites: 16,572.
Source: GAO analysis of HRSA data.
[End of figure]
Federal grantees are eligible for the 340B program by virtue of
receiving certain federal grants administered by different agencies
within HHS. Eligible grantees include clinics that offer primary and
preventive care services, such as FQHCs,[Footnote 23] family planning
clinics, and clinics that target specific conditions or diseases that
raise public health concerns or are expensive to treat, such as
hemophilia treatment centers. Participating clinics may offer eligible
services at one or multiple sites. They also include state-operated
ADAPs, which serve as a "payer of last resort" to cover the cost of
providing HIV-related medications to certain low-income individuals.
Hospitals eligible for the 340B program include certain DSH hospitals,
children's hospitals, freestanding cancer hospitals, rural referral
centers, sole community hospitals, and critical access hospitals.
While DSH hospitals have been eligible for the program since its
inception, children's hospitals became eligible in 2006, and the
remaining hospital types became eligible through PPACA.[Footnote 24]
Hospital eligibility for the 340B program has more elements than that
of federal grantees, because unlike federal grantees, hospitals do not
qualify for the program based on receipt of a federal grant. Rather,
they must meet certain requirements intended to ensure that they
perform a government function to provide care to the medically
underserved. First, hospitals generally must meet specified DSH
adjustment percentages to qualify; however, critical access hospitals
are exempt from this requirement.[Footnote 25] Additionally, all
hospitals must be (1) owned or operated by a state or local
government, (2) a public or private, nonprofit corporation that is
formally delegated governmental powers by a unit of state or local
government,[Footnote 26] or (3) a private, nonprofit hospital under
contract with a state or local government to provide health care
services to low income individuals who are not eligible for Medicaid
or Medicare. Clinics and other sites affiliated with a hospital, but
not located in the main hospital building, are eligible to participate
in the 340B program if they are an integral part of the hospital,
which HRSA has defined as reimbursable sites on the hospital's most
recently filed Medicare cost report.[Footnote 27]
All drug manufacturers that supply outpatient drugs are eligible to
participate in the 340B program and must participate if they want
their drugs covered by Medicaid. To participate, manufacturers are
required to sign a pharmaceutical pricing agreement with HHS in which
both parties agree to certain terms and conditions and submit this
agreement to HRSA.
Program Structure and Operation:
Covered entities typically purchase and dispense 340B drugs through
pharmacies and can structure their programs in different ways.
Entities can have (1) an in-house pharmacy model, in which the
pharmacy is housed within the covered entity, (2) a contract pharmacy
model, in which the entity contracts with an outside pharmacy to
dispense drugs on their behalf, or (3) both. Historically, only
covered entities that did not have an in-house pharmacy were allowed
to contract with a single outside pharmacy to provide services. In
March 2010, however, HRSA issued guidance allowing all covered
entities--including those that have an in-house pharmacy--to contract
with multiple outside pharmacies.[Footnote 28] Some covered entities
use HRSA's Pharmacy Services Support Center (PSSC) or private
companies that provide technical assistance, information technology,
and other services to help develop, implement, and manage their 340B
pharmacy program.
The 340B price for a drug--often referred to as the 340B ceiling
price--is based on a statutory formula and represents the highest
price a drug manufacturer may charge covered entities;[Footnote 29]
however, the provision establishing the 340B pricing formula indicates
that manufacturers may sell a drug at a price that is lower than the
ceiling price.[Footnote 30] As such, covered entities may negotiate
prices below the ceiling price. Manufacturers are responsible for
calculating the 340B price on a quarterly basis. Occasionally the
formula results in a negative price for a 340B drug.[Footnote 31] In
these cases, HRSA has instructed manufacturers to set the price for
that drug at a penny for that quarter--referred to as HRSA's penny
pricing policy.
Key Program Requirements:
Covered entities must follow certain program requirements as a
condition of participating in the 340B program. For example, covered
entities are prohibited from diverting any drug purchased at a 340B
price to an individual who does not meet HRSA's current definition of
a patient. This definition was issued in 1996 and outlines three
criteria which generally state that diversion occurs when 340B
discounted drugs are given to individuals who are not receiving health
care services from covered entities or are only receiving non-covered
services, such as inpatient hospital services, from covered entities.
(See table 1 for more information on HRSA's definition of a 340B
patient.) Covered entities are permitted to use drugs purchased at the
340B price for all individuals who meet the definition of a patient,
whether or not they are low income, uninsured, or underinsured.
Table 1: HRSA's Definition of a Patient Eligible for Discounted Drugs
under the 340B Program:
Criteria for patient eligibility[A]:
1. The covered entity has established a relationship with the
individual, such that the covered entity maintains records of the
individual's health care.
2. The individual receives health care services from a health care
professional who is either employed by the covered entity or provides
health care under contractual or other arrangements (e.g., referral
for consultation) such that responsibility for the care provided
remains with the covered entity[B].
3. The individual receives a health care service or range of services
from the covered entity which is consistent with the service or range
of services for which grant funding or FQHC look-alike status has been
provided.[C]
Source: GAO analysis of HRSA guidance.
Notes: HRSA guidance on the definition of a patient eligible for
discounted drugs under the 340B program was issued in 1996. See Notice
Regarding Section 602 of the Veterans Health Care Act of 1992 Patient
and Entity Eligibility, 61 Fed. Reg. 207, 55156 (Oct. 24, 1996).
[A] These criteria do not apply to ADAPs; rather, an individual will
be considered a patient of an ADAP if enrolled in the ADAP program.
[B] An individual is not considered a patient if the only health care
service received from the covered entity is the dispensing of a drug
or drugs for subsequent self-administration or administration in the
home setting.
[C] DSH hospitals are exempt from this requirement.
[End of table]
Covered entities also are prohibited from subjecting manufacturers to
duplicate discounts whereby drugs prescribed to Medicaid patients are
subject to both the 340B price and a rebate through the Medicaid Drug
Rebate Program. To avoid duplicate discounts, covered entities can
either purchase drugs for Medicaid patients outside the 340B program,
in which case the state Medicaid agency may claim the rebate, or they
can use drugs purchased at 340B prices, in which case the agency may
not claim the rebate. Covered entities that decide to use 340B drugs
for Medicaid patients must notify HRSA so that it can coordinate with
state Medicaid agencies for billing purposes. Further, certain covered
entities--DSH hospitals, children's hospitals, and freestanding cancer
hospitals--are prohibited from purchasing outpatient drugs through any
group purchasing organization (GPO).[Footnote 32] However, they may
purchase drugs through the specified HRSA contractor, the Prime Vendor
Program (PVP). Rural referral centers, sole community hospitals, and
critical access hospitals participating in the 340B program are
allowed to purchase outpatient drugs through any GPO.
Drug manufacturers also must follow certain 340B program requirements.
Specifically, they must sell outpatient drugs to covered entities at
or below the statutorily determined price. In addition, HRSA's
nondiscrimination guidance prohibits manufacturers from distributing
drugs in ways that discriminate against covered entities compared to
other providers. This includes ensuring that drugs are made available
to covered entities through the same avenue that they are made
available to non-340B providers, and not conditioning the sale of
drugs to covered entities on restrictive conditions, which would have
the effect of discouraging participation in the 340B program.
340B Revenue Generated by Covered Entities Varied, but All Entities
Reported That the Program Was Used to Support or Expand Access to
Services:
About half of the covered entities we interviewed reported that they
generated 340B program revenue that exceeded drug-related costs--the
costs of purchasing and dispensing a drug--and revenue generation
depended on several factors. Regardless of the amount of 340B revenue
generated or the savings realized through 340B discounts, covered
entities generally reported using the 340B program to support or
expand access to services.
About Half of Covered Entities Reported Generating 340B Revenue That
Exceeded Drug-Related Costs, and Revenue Generated Depended on Several
Factors:
Thirteen of the 29 covered entities we interviewed reported that they
generated revenue through the 340B program that exceeded drug-related
costs.[Footnote 33] Of the 16 remaining, 10 did not generate enough
340B revenue to cover all drug-related costs, and 6 covered entities
were unable or did not report enough information for us to determine
the extent to which they generated 340B revenue due, in part, to their
inability to track 340B-specific financial information.
In general, 340B revenue--whether exceeding drug related costs or not--
was generated through reimbursement received for drugs dispensed by
340B in-house or contract pharmacies, though several factors affected
the extent to which the covered entities we interviewed generated
revenue through the program:[Footnote 34]
* Third-party reimbursement rates: Eighteen of the 29 covered entities
we interviewed generated 340B revenue by receiving reimbursement from
third-party payers and tracked revenue by payer source. Of the 18,
most reported that they generated more 340B revenue from patients with
private insurance and Medicare compared to other payers.[Footnote 35]
However, a few of these covered entities reported that their ability
to generate 340B revenue from private insurers, including Medicare
Part D plans, was decreasing because some insurers were reducing
contracted reimbursement rates for drugs based on the entity's status
as a 340B provider. Of the 18 covered entities, most of those that
used 340B drugs for Medicaid patients reported that state-determined
Medicaid reimbursement rates for these drugs were generally lower,
compared to private insurers and Medicare. For example, most reported
that Medicaid reimbursement for a 340B drug was set at the price paid
for the drug--the 340B price or any lower price--plus a dispensing
fee, the latter of which generally did not cover the costs of
dispensing the drug.[Footnote 36] This is typically referred to as
reimbursement at actual acquisition cost, which reduces a covered
entity's ability to generate revenue because the state, rather than
the entity, benefits from any savings from purchasing drugs at the
340B price.[Footnote 37] However, a few covered entities generated
more 340B revenue through Medicaid than others because they had
contractual agreements with their states to share 340B-related
savings.[Footnote 38] Covered entities in two of the five states
included in our selection had such agreements. Finally, a majority of
the 18 covered entities reported that revenue generated from uninsured
patients was lower than that from all other payers.
* ADAP status: Factors that affected 340B revenue generation for the
five ADAPs we interviewed were different than for other entity types,
because unlike other covered entity types, ADAPs do not receive third-
party reimbursement for drugs. Rather, ADAPs serve as a "payer of last
resort" to cover the cost of providing HIV-related medications to
certain low-income individuals who, for example, are uninsured and
cannot afford to pay for drugs or who cannot afford their health
insurance coverage for drugs. ADAPs can choose to cover costs of drugs
by either paying for the drugs directly or by assisting patients with
the costs associated with health insurance, including payments for
premiums and co-payments or deductibles. When ADAPs purchase drugs
directly, they realize 340B savings on drugs--either at the point of
purchase or after the fact through manufacturer rebates--but do not
generate revenue through the program. When ADAPs assist with patients'
health insurance by paying for co-payments or deductibles on a drug,
they sometimes generate revenue by collecting the rebates representing
the full 340B discount on a drug for which they may have only paid a
portion of the price. Three of the five ADAPs we interviewed reported
generating revenue this way.
* Ability to leverage resources to access the lowest drug prices: Some
of the 29 covered entities we interviewed reported leveraging
resources, such as through their larger parent organizations or the
PVP, to access drugs at prices below the 340B ceiling price,
potentially increasing the difference between the price paid for the
drug and the reimbursement received. In addition, some covered
entities said they had access to sophisticated information technology--
for example by contracting with private companies--or had more staff
to help ensure that they were obtaining the lowest priced drugs.
As more people gain insurance coverage under PPACA, covered entities
may serve more patients with private insurance and Medicaid,[Footnote
39] which may affect the extent to which they generate 340B revenue.
One covered entity located in Massachusetts reported that after the
state implemented universal health care, while they received more
revenue from reimbursement for low-income patients that gained private
insurance, these patients often could not afford associated co-
payments or deductibles, and the entity covered these costs.[Footnote
40] In addition, according to one ADAP we interviewed, as more
individuals gain private insurance, the ADAP may increasingly choose
to pay for health insurance for patients rather than paying for
patients' drugs directly. This may enable it to generate revenue
through the 340B program if it can claim more rebates for drugs for
the newly insured patients. According to some covered entities, the
impact of serving more Medicaid patients may depend on the Medicaid
reimbursement rate that entities receive. For example, patients that
gain Medicaid coverage may begin to seek services from covered
entities, and for those entities that lose money on Medicaid patients,
this may decrease their ability to generate 340B revenue. Conversely,
for covered entities that have contractual agreements to share 340B-
related savings with their states, the increased Medicaid population
may increase their ability to generate 340B revenue.
Covered Entities Reported Using the 340B Program to Support or Expand
Access to Services:
Regardless of the amount of revenue generated through the program, all
of the 29 covered entities we interviewed reported that the 340B
program, including the up-front savings they realized on the cost of
drugs, allowed them to support their missions by maintaining services
and lowering medication costs for patients, which is consistent with
the purpose of the program. For example, some covered entities
reported that they used the 340B revenue generated by certain patients
to offset losses incurred from other patients, which helped support
the financial stability of the organization and allowed them to
maintain services. Further, one covered entity reported that without
340B revenue or the savings on drugs through its participation in the
program, it would be unable to offer all the services it provides--
both pharmaceutical and clinical--and another reported that it would
have to close its outpatient pharmacy without the program. In addition
to maintaining services, some covered entities passed 340B savings on
to patients by providing lower-cost drugs to uninsured patients. For
example, many covered entities determined the amount that a patient is
required to pay based on the lower cost of 340B-priced drugs.
In addition, the 13 covered entities that generated 340B revenue that
exceeded drug-related costs were able to use this revenue to serve
more patients and to provide services that they might not have
otherwise provided, including additional service locations, patient
education programs, and case management, which is also consistent with
the purpose of program. One covered entity, for example, reported that
it used the revenue generated through the 340B program to provide
additional service delivery sites in other parts of the state, which
eliminated the need for some patients to travel more than 60 miles to
receive services. A few covered entities reported using 340B revenue
to support patient and family education programs, such as those where
pharmacists provide education on drug interactions. Additionally, one
covered entity reported using 340B program revenue to fund a case
management program that did not generate any revenue on its own;
[Footnote 41] some services provided through this program included
arranging transportation for patients to receive clinical services,
coordinating necessary specialty care, and providing translation
services.
Even though the uses of revenue generated through the 340B program
were for similar purposes, some covered entities relied on the program
more than others. For example, one FQHC reported that 340B revenue
accounted for approximately 5 percent of its total budget, and was
used to provide additional services within the organization. However,
one hemophilia treatment center reported that 340B revenue accounted
for about 97 percent of its total budget and was used to support all
of its program operations.[Footnote 42]
Manufacturers' Distribution of Drugs at 340B Prices Generally Did Not
Affect Providers' Access to Drugs Except in Two Situations:
According to stakeholders we interviewed, manufacturers' distribution
of drugs at 340B prices generally did not affect providers' access to
drugs. For example, 36 of the 61 program stakeholders we interviewed
did not report any effect on covered entities' or non-340B providers'
access to drugs related to manufacturers' distribution of drugs at
340B prices. These stakeholders represented a wide range of
perspectives on the 340B program, including those representing
manufacturers, covered entities, and non-340B providers.
The remaining 25 program stakeholders--also representing a wide range
of perspectives on the 340B program--reported that manufacturers'
distribution of drugs at 340B prices affected providers' access to
drugs primarily in two situations.[Footnote 43] The two situations
were: (1) for intravenous immune globulin (IVIG), a lifesaving immune
deficiency drug, the supply of which is inherently limited;[Footnote
44] and (2) when there was a significant drop in the 340B price of a
drug, which may result in increased demand for the drug by covered
entities. Both situations relate to the restricted distribution of
drugs, which may occur during shortages or when shortages are
anticipated.
Stakeholders reported that manufacturers' restricted distribution of
IVIG at 340B prices resulted in 340B hospitals having to purchase some
IVIG at higher, non-340B prices in order to meet their demand for the
drug.[Footnote 45] Manufacturers restrict the distribution of IVIG on
an ongoing basis, because it is susceptible to shortages.
Stakeholders, including five of the seven DSH hospitals we
interviewed, reported that because of the restricted distribution of
IVIG at 340B prices, 340B hospitals often must purchase some IVIG at
higher, non-340B prices to meet their patients' needs. For example,
DSH hospitals reported that when they were unable to access IVIG at
340B prices, additional IVIG was available for purchase at higher, non-
340B prices directly from manufacturers, from specialty pharmacies,
[Footnote 46] or from GPOs.[Footnote 47] Moreover, one DSH hospital
reported that it had to purchase about one-third of the IVIG it needed
at non-340B prices--paying about $20,000 to $25,000 more per month
than what it would have paid if it could have purchased it at 340B
prices.
Although manufacturers' distribution of IVIG at 340B prices may not
meet 340B hospitals' demand, some stakeholders, such as drug
manufacturers, reported that changes in the amount of IVIG allocated
for sale at 340B prices could negatively affect non-340B providers'
access to these drugs. For example, one IVIG manufacturer reported
that it restricted its distribution of IVIG by allocating its supply
based on the amount of the drug purchased by providers in 2004--
allocating 95 percent of its projected monthly sales to non-340B
providers and the remaining 5 percent to covered entities at the 340B
price.[Footnote 48] This manufacturer stated that its distribution was
fair, and that changing distribution plans to increase the amount of
IVIG drugs available at 340B prices could negatively affect non-340B
providers' access to the drugs. However, HRSA officials told us that
the allocation of IVIG in this way is not sufficient or fair. Nearly a
third of the nation's hospitals currently participate in the 340B
program, and one large GPO we interviewed reported that 340B hospitals
tended to be the bigger hospitals in the company's membership base.
[Footnote 49] Thus, if other manufacturers similarly restrict the
distribution of IVIG at 340B prices, it is unlikely that covered
entities' demands will be met at the 340B price.[Footnote 50]
Stakeholders reported that manufacturers' distribution of drugs at
340B prices also affected providers' access to drugs when the 340B
prices dropped significantly. In certain cases, when the 340B price of
a drug dropped, some covered entities stockpiled the drug, which
resulted in shortages in the supply for other providers, including
other covered entities. For example, two covered entities we
interviewed reported challenges accessing drugs when their 340B prices
dropped, because other entities purchased large amounts of these
drugs. In other cases when the 340B prices dropped, manufacturers
restricted the distribution of those drugs at 340B prices to ensure
that all providers had equitable access. For example, one manufacturer
reported that after the price of an oral contraceptive dropped to a
penny as a result of HRSA's penny pricing policy, it received an order
from a covered entity that exceeded the manufacturer's current
national supply by 50 percent. In response, this manufacturer
consulted with HRSA to ensure compliance with the agency's
nondiscrimination guidance and restricted the distribution of drugs at
340B prices by allocating its supply based on the projected demand in
the market and providers' past purchasing patterns.
HRSA's Oversight of the 340B Program Is Inadequate:
HRSA's oversight of the 340B program is inadequate because it
primarily relies on participants' self-policing to ensure compliance.
Changes in the settings where the program is used may heighten
concerns about the inadequacy of HRSA's oversight, and HRSA's plans
for improving oversight are uncertain.
HRSA's Oversight Is Inadequate to Ensure Participants' Compliance with
340B Program Requirements:
HRSA's oversight of the 340B program is inadequate because it
primarily relies on covered entities' and manufacturers' self-
policing--that is, participants ensuring their own compliance with
program requirements. Upon enrollment, HRSA requires both covered
entities and manufacturers to certify that they will comply with
applicable 340B program requirements and any accompanying agency
guidance. As part of this certification, agency officials told us that
they expect participants to develop the procedures necessary to ensure
compliance, maintain auditable records that demonstrate compliance,
and inform HRSA if violations occur. For example, covered entities
must develop adequate safeguards to prevent drugs purchased at 340B
prices from being diverted to non-eligible patients, such as inventory
tracking systems that separately purchase and dispense 340B drugs, and
manufacturers must ensure that they properly calculate the 340B price
of their drugs. In both cases, program participants must keep
auditable records that can show that they have complied with program
requirements and produce that documentation if requested by HRSA.
HRSA officials told us that covered entities and manufacturers can
also monitor each other's compliance with program requirements, but in
practice, participants may face limitations to doing so. For example,
two covered entities we interviewed reported that it is difficult to
determine whether they have been charged correctly for drugs because
manufacturers' calculations of 340B prices are not transparent--
namely, there is no centralized list of 340B prices.[Footnote 51] An
organization representing covered entities also told us that its
members had reported this difficulty. Similarly, three drug
manufacturers we interviewed reported that, although they sometimes
have suspected covered entities of diverting 340B drugs, it is
difficult to prove diversion took place. An organization representing
some manufacturers explained that, although manufacturers have the
authority to audit covered entities, they have only conducted them in
egregious circumstances, because agency requirements for these audits--
such as a requirement to hire an independent third party to conduct
the audits--are costly and administratively burdensome.
HRSA's guidance on key program requirements often lacks the necessary
level of specificity to provide clear direction, making it difficult
for participants to self-police or monitor others' compliance and
raising concerns that the guidance may be interpreted in ways that are
inconsistent with its intent.[Footnote 52] For example, HRSA's current
guidance on the definition of a 340B patient is sometimes not specific
enough to define the situations under which an individual is
considered a patient of a covered entity for the purposes of 340B and
thus, covered entities could interpret it either too broadly or too
narrowly. Stakeholders we interviewed, including those representing
covered entities and drug manufacturers, raised concerns that the
guidance will be interpreted too broadly leading to cases of
unintended diversion--that is, using 340B drugs for individuals who
HRSA did not intend as eligible patients, but who may not be clearly
prohibited in the guidance. However, one of these stakeholders
representing covered entities also noted that, in order to ensure
compliance, some entities may adhere to a narrow interpretation of the
guidance and thus, limit the benefit of the program for their
organization. The agency itself has recognized the need to further
specify the definition of a 340B patient to ensure that it is
interpreted correctly. For example, HRSA officials told us that the
definition currently includes individuals receiving health care
services from providers affiliated with covered entities through
"other arrangements," as long as the responsibility for care provided
remains with the entity. However, HRSA does not define "other
arrangements," and officials told us that what is meant by
responsibility for care also needs to be clarified. As a result of the
lack of specificity in the guidance, the agency has become concerned
that some covered entities may be broadly interpreting the definition
to include individuals such as those seen by providers who are only
loosely affiliated with a covered entity and thus, for whom the entity
is serving an administrative function and does not actually have the
responsibility for care.
In addition, HRSA has not issued guidance specifying the criteria
under which hospitals that are not publicly owned or operated can
qualify for the 340B program.[Footnote 53] Rather, the agency bases
eligibility for these hospitals on the application of broad statutory
requirements that they are either formally delegated governmental
powers by a unit of a state or local government or have a contract
with a state or local government to provide services to low-income
individuals who are not eligible for Medicaid or Medicare. HRSA has
stated that the determination of whether hospitals meet the first
requirement is evaluated by the agency on a case-by-case basis. For
the second requirement, HRSA requires a state or local government
official and a hospital executive to certify that a contract exists to
meet the requirement, but does not require hospitals to submit their
contracts for review or outline any criteria that must be included in
the contracts, including the amount of care a hospital must provide to
these low-income individuals.[Footnote 54] Therefore, hospitals with
contracts that provide a small amount of care to low-income
individuals not eligible for Medicaid or Medicare could claim 340B
discounts, which may not be what the agency intended.
Moreover, HRSA's nondiscrimination guidance is not specific in the
practices that manufacturers should follow to ensure that drugs are
equitably distributed to covered entities and non-340B providers when
distribution is restricted. Some stakeholders we interviewed, such as
covered entities, have raised concerns about the way IVIG
manufacturers have interpreted and complied with the guidance in these
cases, because covered entities have sometimes had to purchase IVIG at
higher, non-340B prices. Additionally, given current guidance, one
stakeholder reported that manufacturers can offer a certain amount of
drugs at 340B prices, and while the distribution may not be equitable,
still contend that they are complying with the guidance. Although
PPACA included a provision prohibiting manufacturers from
discriminating against covered entities in the sale of 340B drugs,
officials told us they do not have plans to provide any additional
specificity to the nondiscrimination guidance.
Finally, in the case of HRSA's penny pricing policy, agency officials
told us that it is well understood by 340B stakeholders and
manufacturers we interviewed were generally aware of the policy.
However, the agency has never formalized guidance in writing and there
have been documented cases of manufacturers charging covered entities
more than a penny for drugs when the policy should have been in
effect.[Footnote 55]
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.[Footnote 56] 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.[Footnote 57] For example,
officials said that they do not verify whether covered entities have
systems in place to prevent diversion. Also, while HRSA encourages
manufacturers to work with the agency to develop processes for
restricting the distribution of drugs that are equitable to covered
entities and non-340B providers, 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.[Footnote 58]
HRSA's oversight activities are further limited because the agency
lacks effective mechanisms to resolve suspected violations and enforce
program requirements when situations of non-compliance occur. If
covered entities and manufacturers are not able to resolve conflicts
on their own, HRSA has had an informal dispute resolution process in
place since 1996 through which program participants can request that
HRSA review evidence of a suspected violation and the agency then
decides whether to initiate the process. However, despite reports by
program participants about suspected violations they were unable to
resolve on their own, HRSA officials told us that they have only
initiated the dispute resolution process twice since its
inception.[Footnote 59] Additionally, HRSA has not issued regulations
implementing monetary penalties for non-compliance established by
PPACA, and HRSA has rarely utilized the sanctions that existed prior
to PPACA. For example, participants found to be in violation of 340B
program requirements face termination from the program. Yet according
to HRSA officials, since the program's inception, only two covered
entities have been terminated from the program due to findings of
program violations and no manufacturer has ever been terminated for
this reason.[Footnote 60] Covered entities also are expected to pay
back manufacturers for discounts received while out of compliance, and
manufacturers are expected to pay back covered entities for
overcharges. However, HRSA has not enforced these expectations and
officials were unable to tell us the extent to which repayments have
occurred.
Because of HRSA's reliance on self-policing to oversee the 340B
program as well as its nonspecific guidance, the agency cannot provide
reasonable assurance that covered entities and drug manufacturers are
in compliance with program requirements and is not able to adequately
assess program risk. As a result, covered entities may be
inappropriately claiming 340B discounts from drug manufacturers or
qualifying for the program when they should not be, potentially
increasing the likelihood that manufacturers will offset providing
lower prices to covered entities with higher prices for others in the
health care system. Additionally, manufacturers may be charging
covered entities more than the 340B price for drugs, which would limit
the benefit of the program for these entities.
Changes in the Settings Where the 340B Program Is Used May Heighten
Concerns about HRSA's Inadequate Oversight:
Over time, the settings where the 340B program is used have shifted to
more contract pharmacies and hospitals than in the past. According to
HRSA officials, the number of covered entities using contract
pharmacies has grown rapidly since its new multiple contract pharmacy
guidance was issued in March 2010--as of July 2011, there were over
7,000 contract pharmacy arrangements in the program.[Footnote 61]
Hospitals' participation in the 340B program has also grown markedly
in recent years. In 2011, the number of hospitals participating in the
program was nearly three times what it was in 2005, and the number of
these organizations, including their affiliated sites, was close to
four times what it was in 2005 (see figure 2).[Footnote 62] Further,
although participation in the 340B program has increased among other
covered entity types over time, hospitals' participation in the 340B
program has grown faster than that of federal grantees. In 2005,
hospitals represented 10 percent of program participants, and as of
July 2011, they represented 27 percent.
Figure 2: 340B Program Participation among Hospitals and Their
Affiliated Sites, 2005 and 2011:
[Refer to PDF for image: vertical bar graph]
Hospitals:
2005: 591;
2011: 1,673.
Hospitals and affiliated sites:
2005: 1,233;
2011: 4,426.
Source: GAO analysis of HRSA data.
Note: 2005 was the earliest year data were reliable for hospitals
without their affiliated sites.
[End of figure]
Increased use of the 340B program by contract pharmacies and hospitals
may result in a greater risk of drug diversion, further heightening
concerns about HRSA's reliance on participants' self-policing to
oversee the program. Operating the 340B program in contract pharmacies
creates more opportunities for drug diversion compared to in-house
pharmacies. For example, contract pharmacies are more likely to serve
both patients of covered entities and others in the community; in
these cases more sophisticated inventory tracking systems must be in
place to ensure that 340B drugs are not diverted--intentionally or
unintentionally--to non-340B patients.[Footnote 63]
Also, for a number of reasons, operating the 340B program in the
hospital environment creates more opportunities for drug diversion
compared to other covered entity types. First, hospitals operate 340B
pharmacies in settings where both inpatient and outpatient drugs are
dispensed and must ensure that inpatients do not get 340B drugs.
Second, hospitals tend to have more complex contracting arrangements
and organizational structures than other entity types--340B drugs can
be dispensed in multiple locations, including emergency rooms, on-site
clinics, and off-site clinics. In light of this and given HRSA's
nonspecific guidance on the definition of a 340B patient, broad
interpretations of the guidance may be more likely in the hospital
setting and diversion harder to detect. Third, hospitals dispense a
comparatively larger volume of drugs than other entity types--while
representing 27 percent of participating covered entities, according
to HRSA, DSH hospitals alone represent about 75 percent of all 340B
drug purchases.
The increasing number of hospitals participating in the 340B program
has raised other concerns for some stakeholders we interviewed, such
as drug manufacturers, including whether all of these hospitals are in
need of a discount drug program. Nearly a third of all hospitals in
the U.S. currently participate in the 340B program, and HRSA estimates
that more may be eligible.[Footnote 64] The number of hospitals
eligible to participate may increase due to PPACA's Medicaid
expansion, because the number of Medicaid patients served by a
hospital affects its DSH adjustment percentage--one factor that
determines hospital eligibility. Further, one organization we
interviewed questioned whether the DSH adjustment percentage is the
best measure to determine hospitals' eligibility for the 340B program,
because of research indicating that it may not be an adequate proxy
for the amount of uncompensated care a hospital provides.[Footnote 65]
The DSH hospitals we interviewed reported a wide range of payer mixes--
with the percentage of Medicaid and uninsured patients ranging from
about 15 percent of total patient volume for one hospital to about 85
percent for another. However, payer mix may not be the only factor to
consider when identifying hospitals that provide care to the medically
underserved and are part of the health care safety net. There is no
established definition of a safety net hospital, and some researchers
have argued that it should include factors other than payer mix, for
example the disproportionate provision of critical services, that are
either too expensive or unprofitable for other hospitals to provide,
such as emergency room or trauma care.[Footnote 66]
HRSA's Plans to Improve Oversight of the 340B Program Are Uncertain
and May Not Address All Areas of Concern:
While PPACA's 340B program integrity provisions address many of the
deficiencies in HRSA's current approach to oversight, the agency has
taken few steps to implement these provisions. PPACA requires HRSA to
increase oversight of both covered entities and manufacturers, and
outlines specific steps for HRSA to take in accomplishing this goal.
(See table 2 for the 340B program integrity provisions included in
PPACA.) However, according to officials, the agency does not have
adequate funding to implement the integrity provisions. Officials also
noted that once funding is secured, it could take several years to
develop the systems and regulatory structure necessary to implement
them.
Table 2: Key 340B Program Integrity Provisions Included in PPACA:
Program participant: Covered entities;
Requirements for HRSA: Conduct annual recertification of eligibility
for all covered entity types;
Required start date: Not specified[A];
Implementation status as of August 2011: Developing implementation
plan[B].
Program participant: Covered entities;
Requirements for HRSA: Develop more detailed guidance on the
procedures covered entities can follow to avoid the Medicaid duplicate
discount;
Required start date: Not specified[A];
Implementation status as of August 2011: Not started.
Program participant: Covered entities;
Requirements for HRSA: Establish a standard identification system for
all covered entities by which each covered entity site can be
identified for the purposes of ordering, purchasing, and delivery of
340B drugs;
Required start date: Not specified[A];
Implementation status as of August 2011: Not started.
Program participant: Covered entities;
Requirements for HRSA: Impose certain sanctions on covered entities
that knowingly and intentionally divert 340B drugs, by one or more of
the following:
* requiring a covered entity to pay manufacturers interest on the
discounts they received for those drugs;
* if the violation was also systematic and egregious, terminating the
covered entity from the program and prohibiting re-enrollment for a
period of time; and;
* referral to federal authorities;
Required start date: Not specified[A];
Implementation status as of August 2011: Not started.
Program participant: Manufacturers;
Requirements for HRSA: Improve mechanisms to ensure manufacturers
charge the correct 340B prices on drugs, including:
* making 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;
Required start date: Not specified[A];
Implementation status as of August 2011: Not started.
Program participant: Manufacturers;
Requirements for HRSA: Impose civil monetary penalties on
manufacturers that knowingly and intentionally charge covered entities
more than the 340B price;
Required start date: Must issue regulations 180 days after enactment;
Implementation status as of August 2011: Issued advanced notice of
proposed rulemaking.
Program participant: Both;
Requirements for HRSA: Develop a formal dispute resolution process,
including:
* establishing procedures for covered entities to obtain information
from manufacturers,[C] and;
* requiring manufactures to audit covered entities prior to submitting
a request to initiate the dispute resolution process;
Required start date: Must issue regulations 180 days after enactment;
Implementation status as of August 2011: Issued advanced notice of
proposed rulemaking.
Source: GAO analysis of Pub. L. No. 111-148, § 7102, 124 Stat. 119,
823 and interviews with HRSA officials.
[A] PPACA provides that these activities are to be conducted from
amounts appropriated under a new authorization of appropriations. As
of August 2011, no such appropriations have occurred.
[B] HRSA officials told us that the Office of Pharmacy Affairs' fiscal
year 2011 budget allowed for the planning of a phased approach to
recertification of all entity types, which is scheduled to begin in
the fall of 2011. As of August 2011, officials were not able to tell
us which entity types would be phased in first.
[C] Prior to PPACA, covered entities did not have access to 340B
pricing data in order to monitor manufacturers because the Social
Security Act prohibited the disclosure of the data by HRSA and state
Medicaid agencies. 42 U.S.C. § 1396r-8(b)(3)(D). PPACA added a
provision to Section 340B requiring that covered entities be allowed
access to 340B pricing data. Pub. L. No. 111-148, § 7102(a), 124 Stat.
119, 824 (adding 42 U.S.C. § 256b(d)(1)(iii)).
[End of table]
Independent of the provisions in PPACA, HRSA also has recently
developed guidance to further specify the definition of a 340B
patient. While the Office of Management and Budget completed its
review of this definition in April 2011, as of August 2011, HRSA had
not yet released it for stakeholder comment. In 2007, HRSA also
proposed updating this guidance, but it was never finalized.[Footnote
67]
Even if HRSA implements PPACA's provisions and updates its definition
of a patient, these steps may not be sufficient to address all areas
of concern. For example, PPACA specifically requires HRSA to conduct
selective audits of manufacturers, but it did not establish the same
requirement for audits of covered entities. As such, the effectiveness
of HRSA's oversight of covered entities will, in part, be dependent on
what additional steps the agency takes to ensure program integrity.
Similarly, if in implementing PPACA's provision prohibiting
manufacturers from discriminating against covered entities in the sale
of 340B drugs, HRSA does not add specificity to the existing
nondiscrimination guidance, it may be inadequate to ensure that all
providers are able to equitably access drugs, particularly when
manufacturers restrict the distribution of drugs at 340B prices. Also,
as part of its 2007 proposed guidance on the definition of a patient,
HRSA requested stakeholder comment on the elements that should be
required in private, nonprofit hospitals' contracts with state or
local governments as well as the different situations in which
hospitals that are not publicly owned or operated should be formally
granted government powers. However, HRSA officials told us that they
have not issued additional guidance on these issues, and that they are
not addressed in the clarifying guidance on the definition of a
patient currently awaiting agency approval.
Conclusions:
The 340B program allows certain providers within the U.S. health care
safety net to stretch federal resources to reach more eligible
patients and provide more comprehensive services, and we found that
the covered entities we interviewed reported using it for these
purposes. However, HRSA's current approach to oversight does not
ensure 340B program integrity, and raises concerns 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 drug manufacturers. 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 that includes
the necessary specificity on how to comply with program requirements.
There also is evidence to suggest that participants may be
interpreting guidance in ways that are inconsistent with the agency's
intent. Finally, participants have little incentive to comply with
program requirements, because few have faced sanctions for non-
compliance. With the program's expansion, program integrity issues may
take on even greater significance unless effective mechanisms to
monitor and address program violations, as well as more specific
guidance are put in place. For covered entities, this may be
particularly true in settings where there is heightened concern about
the opportunities for the diversion of 340B drugs.
PPACA outlined a number of provisions that, if implemented, will help
improve many of the 340B program integrity issues we identified. For
example, PPACA requires HRSA to recertify eligibility for all covered
entity types on an annual basis, which would help ensure entities that
lose eligibility for the program do not remain enrolled. Additionally,
PPACA requires HRSA to develop a formal dispute resolution process,
including procedures for covered entities to obtain information from
manufacturers, and maintain a centralized list of 340B prices--
provisions that would help ensure covered entities and manufacturers
are better able to identify and resolve suspected violations. PPACA
also requires HRSA to institute monetary penalties for covered
entities and manufacturers, which gives program participants more
incentive to 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 require HRSA to audit
covered entities or further specify the agency's definition of a 340B
patient. While HRSA has developed new proposed 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 only purchase
them for eligible patients both by issuing more specific guidance and
by conducting audits of covered entities to prevent diversion.
Additionally, while PPACA included a provision prohibiting
manufacturers from discriminating against covered entities in the sale
of 340B drugs, HRSA does not plan to make any changes to or further
specify its related nondiscrimination guidance. Absent additional
oversight by the agency, including more specific guidance, access
challenges covered entities have faced when manufacturers' have
restricted distribution of IVIG at 340B prices may continue and
similar challenges could arise for other drugs in the future.
Also, current HRSA guidance may allow some entities to be eligible for
the program that should not be. Hospitals qualify for the 340B program
in part based on their DSH adjustment percentage. Even though the PHSA
establishes additional eligibility requirements for hospitals that are
not publicly owned or operated, these requirements are broad, and HRSA
has not issued more specific guidance to implement them. We found that
nearly a third of all hospitals in the U.S. are participating in the
340B program, more are currently eligible and not participating, and
more may become eligible as Medicaid is expanded through PPACA. As the
number of covered entities enrolled in the 340B program increases and
more drugs are purchased at 340B prices, there is the potential for
unintended consequences, such as cost-shifting to other parts of the
health care system. As such, it is important that HRSA take additional
action to ensure that eligibility for the 340B program is
appropriately targeted. While HRSA officials reported that the agency
does not have the resources to implement the PPACA provisions or
otherwise increase oversight of the 340B program, limited resources
could be prioritized to address areas of greatest risk to the program.
Recommendations for Executive Action:
PPACA contained several important program integrity provisions for the
340B program, and additional steps can also ensure appropriate use of
the program. Therefore, we recommend that the Secretary of HHS
instruct the administrator of HRSA to take the following four actions
to strengthen oversight:
* conduct selective audits of 340B covered entities to deter potential
diversion;
* finalize new, more specific guidance on the definition of a 340B
patient;
* further specify its 340B nondiscrimination guidance for cases in
which distribution of drugs is restricted and require reviews of
manufacturers' plans to restrict distribution of drugs at 340B prices;
and:
* issue guidance to further specify the criteria that hospitals that
are not publicly owned or operated must meet to be eligible for the
340B program.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, HHS stated that it agreed
with our recommendations. HHS also had additional comments on several
content areas of the report, and we made changes as appropriate to
address these comments. (HHS' comments are reprinted in appendix III.)
Finally, HHS provided technical comments, which we incorporated as
appropriate.
HHS stated that HRSA would continue to work on 340B program integrity
efforts and prioritize these efforts based on available funding. HHS
also outlined steps that HRSA plans to take in response to each of our
recommendations. While we appreciate HHS' commitment to improving
oversight of the 340B program, we are concerned that the steps are not
sufficient to ensure adequate oversight.
With regard to our first recommendation that HRSA conduct selective
audits of covered entities to deter potential diversion, HHS stated
that HRSA will continue working with manufacturers to identify and
address potential diversion and implement a plan to better educate
covered entities about diversion. However, HHS did not state that HRSA
will conduct its own audits of covered entities and we reiterate the
importance of the agency doing so as part of its ongoing oversight
responsibilities.
With regard to our second recommendation that HRSA finalize new, more
specific guidance on the definition of a 340B patient, HHS stated that
HRSA will review the draft of proposed guidance to update the
definition and revise this guidance in light of changes in PPACA.
While we agree that it may be important for HRSA to consider the
impact of PPACA on the definition, given that PPACA became law more
than a year ago, and the potential for broad interpretations of
current guidance, we encourage HRSA to complete its review in a timely
fashion.
With regard to our third recommendation, that HRSA further specify its
non-discrimination guidance for cases in which distribution of drugs
is restricted and require reviews of manufacturers' plans to restrict
distribution of drugs at 340B prices, HHS stated that HRSA will:
implement a plan to specify existing policy regarding 340B non-
discrimination and drug distribution; provide clearer guidance to
manufacturers for working with HRSA and develop specific allocation
plans where needed; and continue to work with the Department of
Justice when fair, voluntary allocation plans are not developed.
However, we are concerned that these steps do not require reviews of
manufacturers' plans to restrict distribution of drugs at 340B prices.
Without taking this step, HRSA may not know when manufacturers are
inequitably distributing drugs to covered entities and non-340B
providers.
With regard to our fourth recommendation that HRSA issue guidance to
further specify the criteria that hospitals that are not publicly
owned or operated must meet to be eligible for the 340B program, HHS
stated that HRSA will implement a plan to better educate covered
entities on existing criteria for hospital participation in the
program and initiate a phased approach to recertifying eligibility for
all participating covered entities. Here, we are concerned that these
steps do not include further specification of eligibility criteria for
hospitals that are not publicly owned or operated, because we
determined that additional specification of statutory requirements was
needed to ensure that the 340B program is appropriately targeted.
We are sending copies of this report to the Secretary of HHS and
appropriate congressional committees. In addition, the report is
available at no charge on the GAO web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-7114 or at draperd@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made key contributions
to this report are listed in appendix IV.
Signed by:
Debra A. Draper:
Director, Health Care:
[End of section]
Appendix I: Selection of Interviews with Program Stakeholders:
Type of stakeholder: Covered entities;
Number of stakeholders interviewed: 29;
Interview details: 27 were selected to take into account certain
criteria:
* Entity Type:
- We selected five types of covered entities and specifically
interviewed: 7 federally qualified health centers (FQHC), 5
disproportionate share hospital (DSH) hospitals, 5 hemophilia
treatment centers, 5 family planning clinics, and 5 AIDS Drug
Assistance Programs (ADAP). (See appendix II for a list of all
entities eligible to participate in the program);
* We picked these types based on:
- variation in operational structure;
- variation in services and drugs provided;
- high levels of 340B participation;
- experience with the program, and;
- potential difficulty accessing drugs at 340B prices;
* Location:
- We selected entities in five states: Illinois, Massachusetts,
Tennessee, Texas, and Utah;
- States were selected based on variation in a number of factors,
including: geography, percent of uninsured individuals, and Medicaid
reimbursement policies[A];
- We included Massachusetts to gain a better understanding of the
potential effect of the Patient Protection and Affordable Care Act
(PPACA) health insurance reforms on the 340B program[B];
* We used information provided by trade organizations representing
covered entities to help select individual covered entities to
interview;
2 additional DSH hospitals were selected based on concerns raised in
stakeholder interviews about how these entities were using the program.
Type of stakeholder: Drug manufacturers;
Number of stakeholders interviewed: 6;
Interview details: Selected based on market share and those that
produce drugs with reported challenges related to their distribution
at 340B prices.
Type of stakeholder: Organizations representing drug manufacturers and
others involved in drug distribution;
Number of stakeholders interviewed: 6;
Interview details: Includes 4 manufacturer trade organizations, 1
distributor, and 1 pharmacy benefits manager[C].
Type of stakeholder: Organizations representing providers;
Number of stakeholders interviewed: 16;
Interview details: Includes organizations representing providers,
including covered entities and non-340B providers:
* 9 organizations that represent covered entities, including 6 trade
organizations and 3 private companies that provide services and
information technology to help covered entities establish and manage
their 340B programs;
* 2 organizations representing non-340B providers, including 1 trade
organization and 1 non-340B provider;
* 5 organizations that represent both covered entities and non-340B
providers, including 3 trade organizations and 2 group purchasing
organizations (GPO)[D].
Type of stakeholder: Federal agencies and contractors;
Number of stakeholders interviewed: 4;
Interview details: HRSA, the contractors that help administer the 340B
program, and the Centers for Medicare & Medicaid Services.
Type of stakeholder: Total;
Number of stakeholders interviewed: 61.
Source: GAO.
[A] Medicaid is a joint federal-state program that finances health
care for certain categories of low-income individuals.
[B] In 2006, Massachusetts implemented comprehensive state-level
health insurance reform that was similar to PPACA's national-level
reform.
[C] Distributors manage the sale of drugs to purchasers on behalf of
manufacturers. Pharmacy benefit managers administer the prescription
drug benefits of health insurance plans on behalf of plan sponsors.
[D] GPOs contract with providers, such as hospitals, and, on behalf of
their members, aggregate purchasing volume to negotiate discounts on
drugs from drug manufacturers or distributors.
[End of table]
[End of section]
Appendix II: Select Information on Entities Eligible to Participate in
the 340B Program:
Federal Grantees:
Entity type: Federally-qualified health center (FQHC)[B,C];
How entity qualifies for 340B: Receives a section 330 grant under the
Public Health Service Act (PHSA) (42 U.S.C. § 254b); meets the
requirements to receive such a grant; or is an outpatient health
program or facility operated by certain tribal or urban Indian
organizations;
Description of covered entity type: Urban or rural health centers that
provide comprehensive community-based primary and preventive care
services to medically underserved populations;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 4,826;
Administering agency within the Department of Health Human Services
(HHS): Health Resources and Services Administration (HRSA).
Entity type: Urban Indian organizations[E];
How entity qualifies for 340B: Receives funds under title V of the
Indian Health Care Improvement Act (25 U.S.C. §§1651 et seq.);
Description of covered entity type: Provide a variety of health
programs to eligible individuals;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 26;
Administering agency within the Department of Health Human Services
(HHS): Indian Health Service.
Entity type: Family planning clinics (Title X);
How entity qualifies for 340B: Receives a grant or contract under
Section 1001 PHSA (42 U.S.C. § 300);
Description of covered entity type: Provide comprehensive family
planning services;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 3,868;
Administering agency within the Department of Health Human Services
(HHS): Office of Population Affairs.
Entity type: Sexually transmitted diseases grantee;
How entity qualifies for 340B: Receives funds under Section 318 of the
PHSA (42 U.S.C. § 247c) and is certified by the Secretary of HHS;
Description of covered entity type: Provide screening and treatment
for sexually transmitted diseases;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 1,472;
Administering agency within the Department of Health Human Services
(HHS): Centers for Disease Control and Prevention.
Entity type: Tuberculosis grantee;
How entity qualifies for 340B: Receives funds under Section 317E of
the PHSA (42 U.S.C. § 247b-6) and is certified by the Secretary of HHS;
Description of covered entity type: Provide treatment for tuberculosis;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 1,221;
Administering agency within the Department of Health Human Services
(HHS): Centers for Disease Control and Prevention.
Entity type: Native Hawaiian Health Centers;
How entity qualifies for 340B: Receives funds under the Native
Hawaiian Health Care Act of 1988 (42 U.S.C. §§ 11701 et seq.);
Description of covered entity type: Provide comprehensive health
promotion and disease prevention services to Native Hawaiians;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 11;
Administering agency within the Department of Health Human Services
(HHS): HRSA.
Entity type: State-operated Ryan White AIDS Drug Assistance Program
(ADAP);
How entity qualifies for 340B: Receives financial assistance under
title XXVI of the PHSA (42 U.S.C. §§ 300ff-11 et seq.);
Description of covered entity type: Serve as a "payer of last resort"
to cover the cost of providing HIV-related medications to low-income
individuals who are uninsured or underinsured and cannot afford to pay
for drugs or who cannot afford their health insurance coverage for
drugs;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 90[F];
Administering agency within the Department of Health Human Services
(HHS): HRSA.
Entity type: Other Ryan White grantees;
How entity qualifies for 340B: Receives a grant under Part C of title
XXVI of the PHSA or non-governmental grantees that receive any
financial assistance under title XXVI of the PHSA if certified by the
Secretary of HHS;
Description of covered entity type: Provide primary care and support
services to individuals with HIV or AIDS;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 520;
Administering agency within the Department of Health Human Services
(HHS): HRSA.
Entity type: Hemophilia treatment centers;
How entity qualifies for 340B: Receives a grant under section
501(a)(2) of the Social Security Act (42 U.S.C § 701(a)(2));
Description of covered entity type: Provide medical care to
individuals with hemophilia;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 99;
Administering agency within the Department of Health Human Services
(HHS): HRSA.
Entity type: Black lung clinics;
How entity qualifies for 340B: Receives funds under Section 427(a) of
the Black Lung Benefits Act (30 U.S.C. § 937(a));
Description of covered entity type: Provide medical treatment to
individuals disabled from pneumoconiosis (black lung) as a result of
their employment at U.S. coal mines;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 13;
Administering agency within the Department of Health Human Services
(HHS): HRSA.
Hospitals:
Entity type: Disproportionate share hospitals (DSH);
How entity qualifies for 340B: DSH as defined under Section
1886(d)(1)(B) of the Social Security Act (42 U.S.C. § 1395ww(d)(1)(B))
with a DSH adjustment percentage greater than 11.75[G];
Description of covered entity type: General acute care hospitals paid
under the Medicare inpatient prospective payment system;
Year added to 340B program: 1992[D];
Number of sites enrolled by entity type (July 1, 2011)[A]: 3,061;
Administering agency within the Department of Health Human Services
(HHS): Centers for Medicare & Medicaid Services (CMS).
Entity type: Children's hospitals;
How entity qualifies for 340B: Children's hospital as described under
Section 1886 (d)(1)(B)(iii) of the Social Security Act with a DSH
adjustment percentage greater than 11.75[G];
Description of covered entity type: Primarily provide services to
individuals under 18 years of age;
Year added to 340B program: 2006[H];
Number of sites enrolled by entity type (July 1, 2011)[A]: 147;
Administering agency within the Department of Health Human Services
(HHS): CMS.
Entity type: Critical access hospitals;
How entity qualifies for 340B: Critical access hospital as determined
under Section 1820(c)(2) of the Social Security Act (42 U.S.C. § 1395i-
4(c)(2)) (no DSH requirement)[G];
Description of covered entity type: Located in rural areas, provide 24-
hour emergency care services, and have no more than 25 inpatient beds;
Year added to 340B program: 2010[I];
Number of sites enrolled by entity type (July 1, 2011)[A]: 941;
Administering agency within the Department of Health Human Services
(HHS): CMS and HRSA.
Entity type: Sole Community Hospitals;
How entity qualifies for 340B: Sole community hospital as defined
under Section 1886(d)(5)(D)(iii) of the Social Security Act (42 U.S.C.
§ 1395ww(d)(5)(D)(iii))with a DSH adjustment percentage equal to or
greater than 8[G];
Description of covered entity type: Isolated from other hospitals by
distance, weather, or travel conditions;
Year added to 340B program: 2010[I];
Number of sites enrolled by entity type (July 1, 2011)[A]: 200;
Administering agency within the Department of Health Human Services
(HHS): CMS and HRSA.
Entity type: Rural Referral Centers;
How entity qualifies for 340B: Rural referral center as defined under
Section 1886(d)(5)(C)(i) of the Social Security Act (42 U.S.C.
§1395ww(d)(5)(C)(i)) with a DSH adjustment percentage equal to or
greater than 8[G];
Description of covered entity type: Large rural hospitals that provide
services for patients from a wide geographic area;
Year added to 340B program: 2010[I];
Number of sites enrolled by entity type (July 1, 2011)[A]: 72;
Administering agency within the Department of Health Human Services
(HHS): CMS and HRSA.
Entity type: Free-standing cancer hospitals;
How entity qualifies for 340B: Free-standing cancer hospital as
described under Section 1886 (d)(1)(B)(v) of the Social Security Act
(42 U.S.C. § 1395ww(d)(1)(B(v))with a DSH adjustment percentage
greater than 11.75[G];
Description of covered entity type: Not a unit of another hospital,
has a primary purpose of treating or conducting research on cancer;
Year added to 340B program: 2010[I];
Number of sites enrolled by entity type (July 1, 2011)[A]: 5;
Administering agency within the Department of Health Human Services
(HHS): CMS.
Total:
Number of sites enrolled by entity type (July 1, 2011)[A]: 16,572.
Source: GAO analysis of federal laws and regulations.
[A] Data are the most recent available from HRSA's covered entity
database and represent both covered entities and their associated
sites. Because a covered entity may enroll under any and all eligible
grant types it receives, it is possible that a site is reflected in
the database more than once. However, HRSA estimates that this overlap
represents less than 5 percent of all listings in the database.
[B] Not all FQHCs receive federal grants. Providers that meet all of
the requirements for the FQHC program but do not receive federal
grants are referred to as FQHC look-alikes and are eligible to
participate in the 340B program.
[C] This category includes: FQHC look-alikes; Consolidated Health
Centers; Migrant Health Centers; Health Care for the Homeless; Healthy
Schools/Healthy Communities; Health Centers for Residents of Public
Housing; and Tribal Organizations created under the Indian Self
Determination Act (Pub. L. No. 93-638) and administered by the Indian
Health Service.
[D] Eligible to participate in the 340B program from its inception.
See Pub. L. No. 102-585, § 602, 106 Stat. 4943, 4967.
[E] Section 1905(l)(2)(B) of the Social Security Act includes
outpatient health programs or facilities operated by an urban Indian
organization receiving funds under title V of the Indian Health Care
Improvement Act for the provision of primary health services in the
definition of FQHCs.
[F] According to HRSA, some states have both direct purchase and
rebate programs, which are counted separately in the 340B covered
entity database, which is the reason for the difference in the number
of ADAPs in the database versus the number of states that have ADAP
programs overall.
[G] Facility must also be (1) owned or operated by a state or local
government, (2) a public or private, nonprofit corporation that is
formally delegated governmental powers by a unit of state or local
government, or (3) a private, nonprofit hospital under contract with a
state or local government to provide health care services to low
income individuals who are not eligible for Medicaid or Medicare.
Medicaid is the joint federal-state program that finances health care
for certain low-income people, and Medicare is the federal health care
program for the elderly and disabled. Children's hospitals and free-
standing cancer hospitals do not receive payments under Medicare's
inpatient prospective payment system; however, they must have a payer
mix that would result in a DSH adjustment percentage greater than
11.75 percent. Facilities except critical access hospitals, Rural
Referral Centers, and Sole Community Hospitals, must not obtain
covered outpatient drugs through group purchasing.
[H] While PPACA explicitly added children's hospitals to the list of
covered entities under the 340B program in the PHSA, they were
originally made eligible under the Social Security Act through the
Deficit Reduction Act of 2005. Pub. L. No. 109-171, § 6004, 120 Stat.
4, 61 (2006).
[I] Became eligible to participate in the 340B program under PPACA.
Pub. L. No. 111-148, § 7101, 124 Stat. 119, 821 as amended by the
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-
152, § 2302,124 Stat.1029, 1082.
[End of table]
[End of section]
Appendix III: Comments from the Department of Health and Human
Services:
Note: Page numbers in the draft report may differ from those in this
report.
Department Of Health & Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
September 7, 2011:
Debra A. Draper:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street NW:
Washington, DC 20548:
Dear Ms. Draper:
Attached are comments on the U.S. Government Accountability Office's
(GAO) draft report entitled: "Drug Pricing: Manufacturer Discounts in
the 340B Program Offer Benefits, but Federal Oversight Needs
Improvement" (GA0-11-836).
The Department appreciates the opportunity to review this report
before its publication.
Sincerely,
Signed by:
Jim R. Esquea:
Assistant Secretary for Legislation:
Attachment:
[End of letter]
General Comments Of The Department Of Health And Human Services (HHS)
On The Government Accountability Office's (GAO) Draft Report Entitled,
"Drug Pricing: Manufacturer Discounts In The 340B Program Offer
Benefits, But Federal Oversight Needs Improvement" (GA0-11-836):
The Department appreciates the opportunity to review and comment on
this draft report. We offer the following general comments on several
content areas of the report:
The extent to which covered entities generate 340B revenue, factors
that affect their revenue generation, and how entities use the program:
On Page 16, the report states that in Massachusetts where the state
implemented universal health care, low-income patients gained private
insurance, but "these patients often could not afford associated
copayment or deductibles and the entity covered these costs". HRSA
requests that the report reflect that this finding is consistent with
the Health Resources and Services Administration's (HRSA) assessment
that low-income patients will continue to require such assistance and
the covered entities will provide valuable services to the safety net
community.
On Page 18, the report states that "Even though the uses of revenue
generated through the 340B Program were for similar purposes, some
covered entities relied on 340B revenue more than others." The report
goes on to state differences in revenue for FQHCs versus hemophilia
centers. HRSA requests that the following explanation be incorporated
into the report: Because each 340B entity type is unique in the types
of services it provides and the patients it treats, the drug purchases
of each entity type vary greatly (i.e., generics versus brand or
certain specialty drugs); therefore, their savings will also vary
greatly.
Regarding how manufacturers' distribution of drugs at 340B prices
affects providers' access to drugs, whether those providers are
covered entities or non-340B providers:
On Page 20, the report states that "One IVIG manufacturer reported
that it restricted its distribution of IVIG by allocating its supply
based on the amount of drug purchased by providers in 2004--allocating
95 percent of the projected monthly sales to non-340B providers and
the remaining 5 percent to covered entities at the 340B Price" and
"this manufacturer states that its distribution was fair and changing
the distribution plans to increase the amount of IVIG drugs available
at 340B prices could negatively affect non-340B providers' access to
the drugs." HRSA requests that the report be edited to include:
"HRSA does not believe that using the 2004 allocation of 95 percent to
non-340B providers and 5 percent to 340B providers for a critical life
saving drug is fair or sufficient. In 2005, there were 77 Hemophilia
Treatment Centers and 591 Disproportionate Share Hospitals (DSH)
purchasing IVIG through the 340B Program. This number has increased
significantly to 99 Hemophilia Treatment Centers and 1,673 hospitals
that now include children's hospitals, critical access hospitals,
disproportionate share hospitals, free standing cancer hospitals, and
rural referral centers. The allocation of IVIG drugs to 340B providers
needs to be correlated to the increase in the 340B hospitals, as many
of the same hospitals that purchased IVIG with no problems as non-340B
providers in 2004 are now having tremendous difficulty in purchasing
IVIG in 2011 as 340B providers. With 340B hospitals representing
almost 33 percent of the hospitals of in the U.S. in 2011, 5 percent
allocation for a life saving drug is not adequate."
On Page 21, the report states that some covered entities have
stockpiled drugs when the price of a drug dropped. HRSA recommends
that the report note that HRSA has worked with manufacturers in the
past during an expected drop in price to develop an allocation process
that is equitable across 340B and non-340B entities to prevent
stockpiling. In addition, HRSA also encourages manufacturers to work
with the agency to develop allocation processes to prevent issues with
stockpiling.
HRSA's oversight of the 340B Program:
On Page 24, the report states that HRSA has not issued guidance
specifying the criteria under which hospitals that are not publicly
owned or operated can qualify for the 340B program. HRSA requests that
the report reflect that while HRSA has not published formal guidance
in this area, HRSA has both criteria and a process in place to ensure
hospitals satisfy 340B requirements. These criteria are utilized
during the enrollment process and include:
* The criteria for hospital eligibility to participate in the 340B
Program is outlined in section 340B(a)(4)(L)(i) which states the
hospital "is owned or operated by a unit of State or local government,
is a public or private non-profit corporation which is formally
granted governmental powers by a unit of State or local government, or
is a private non-profit hospital which has a contract with a State or
local government to provide health care services to low income
individuals who are not entitled to benefits under title XVIII of the
Social Security Act or eligible for assistance under the State plan
under this title." This information is on the HRSA Office of Pharmacy
Affairs (OPA) website.
* Prior to enrolling a hospital into the Program, OPA verifies that
the hospital meets the three statutory requirements for participation
in the 340B program: 1) nonprofit status is verified by IRS
documentation; 2) DSH eligibility, if applicable, is verified by the
Medicare-cost report and 3) private hospitals must have a contract
with state or local governments to provide health care services to low
income individuals who are not entitled to benefits under Title XVIII
of the Social Security Act or eligible for assistance under the State
plan of Title XIX of the Social Security Act. As part of the
registration process, the hospital must submit a form that attests to
the aforementioned statement that is signed by both an authorized
public official and a hospital executive. Contracts are selectively
reviewed if further clarification is necessary.
* OPA provides hospitals a list of recommendations during the
enrollment process that can be used in developing a contract. HRSA
strongly recommends and encourages the covered entity to seek legal
counsel when preparing these contracts.
On page 24, the report states that some stakeholders expressed concern
about the application of the requirements against non-discrimination.
The conclusion of the report states that absent additional guidance,
"access challenges covered entities have faced when manufacturers'
have restricted distribution of certain drugs at 340B prices may
continue." The language in the conclusion suggests that several
challenges are known and identified; however, in its report the only
access challenges identified involved IVIG. HRSA has been working with
the Department of Justice (DOJ) to evaluate and improve access to IVIG
for 340B entities. HRSA recommends that GAO provide additional detail
regarding the access challenges found in order for HRSA to address
these concerns and take appropriate action.
On Page 25, the report states that HRSA verifies eligibility for 340B
at enrollment, but does not periodically recertify eligibility for all
covered entity types. HRSA requests that the report reflect that HRSA
has been meeting the statutory requirement; HRSA recertified and
continues to recertify STD, TB, and HIV/AIDS programs annually as
expressly required under section 340B (a)(7) of the Public Health
Services Act (42 U.S.C. 256b). These were the only entities that
required annual certification by the Secretary prior to the PPACA. In
addition, HRSA monitors DSH percentages and FQHC grant status on a
quarterly basis. Each quarter OPA verifies the proprietary status of
participating hospitals by matching its list of participating
hospitals with CMS's list of hospitals to ensure that ineligible
private hospitals are not participating. As a result of the PPACA,
HRSA is required to annually recertify all 340B covered entities.
OPA's FY2011 budget of $4.4M will allow for the planning of and
initiation of a phased approach to recertification to begin in fall of
2011.
On Page 31, footnote (a) states that no appropriation has occurred for
annual recertification. HRSA recommends that this statement be
replaced with the following, "HRSA program FY2011 budget of $4.4M will
allow for the planning and initiation of a phased approach to
recertification to begin in fall 2011."
On Page 32, the report states that the PPACA specifically requires
HRSA to conduct selective audits of manufacturers but it did not
establish the same requirement for audits of covered entities. HRSA
requests that the report clarify that the agency has had the authority
to audit covered entities under section 340B(a)(5)(C) of the Public
Health Service Act since the inception of the program.
GAO Recommendations:
HRSA agrees with the recommendations and will continue to build on
program integrity efforts and work to prioritize efforts based on
funding. Implementation of a cost recovery fee as outlined in the FY
2012 President's budget would allow for the initiation of the
implementation of all recommendations and program integrity provisions
outlined in PPACA. The 340B Drug Pricing program integrity risk
assessment is scheduled to begin in the fall of 2011.
GAO Recommendation #1: Conduct selective audits of 340E covered
entities to deter potential diversion.
HRSA Actions:
* HRSA and the manufacturers have the authority to audit 340B covered
entities. HRSA will continue to work with the manufacturers to
identify potential diversion and work with manufacturers to develop
audit plans where evidence suggests potential diversion may be
occurring.
* HRSA will develop and implement a comprehensive educational and
communication plan which will build on existing tools and resources,
such as targeted webinars on diversion, peer to peer learning, FAQs,
policy letters to covered entities, and more assistance to covered
entities in assessing risk.
GAO Recommendation #2: Finalize new, more specific guidance on the
definition of a 340B patient.
HRSA Actions:
* HRSA will review the draft of the proposed patient definition
guidelines in view of PPACA changes and develop revised guidelines for
publication.
Recommendation #3: Further specify its 340B non-discrimination
guidance for cases in which distribution of drugs is restricted and
require reviews of manufacturers' plans to restrict distribution of
drugs at 340B prices.
HRSA Actions:
* HRSA will develop and implement a comprehensive educational and
communication plan which will specify the existing policy regarding
340B nondiscrimination and drug distribution to include, webinars, and
policy letters to manufacturers regarding non-discrimination guidance.
* HRSA will continue to work with manufacturers to provide clearer
guidance for manufacturers on working with HRSA and develop specific
allocation plans where needed.
* HRSA will continue to work with DOJ when fair, voluntary allocation
plans are not developed.
Recommendation #4: Issue guidance to further specify the criteria that
hospitals that are not publicly owned or operated must meet to be
eligible for the 340B Program.
HRSA Actions:
* HRSA will further publicize its existing criteria for hospital
participation in the 340B program by placing the criteria and process
on the program website and issuing policy letters to affected covered
entities outlining these criteria.
* HRSA will initiate a phased approach to recertification for all
participating entities, including hospitals, beginning in fall of
2011. This recertification process will enable HRSA to verify that
hospitals continue to meet the statutory requirements for program
participation.
* HRSA will develop and implement a comprehensive educational and
communication plan which will build on existing tools and resources
such as targeted webinars on the hospital criteria, peer to peer
learning, FAQs, and letters to covered entities.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Debra A. Draper, (202) 512-7114 or draperd@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Gerardine Brennan, Assistant
Director; Jennie Apter; Kristin Ekelund; Kelli Jones; Dawn Nelson;
Rachel Svoboda; and Jennifer Whitworth made key contributions to this
report.
[End of section]
Footnotes:
[1] Outpatient drugs covered under the 340B program may include:
prescription drugs approved by the Food and Drug Administration;
certain over-the-counter drugs provided as prescriptions; biological
products, other than vaccines, that can be dispensed only by a
prescription; and insulin approved by the Food and Drug
Administration. 42 U.S.C. §§ 256b(b)(2), 1396r-8(k)(2). When payment
for an outpatient drug is bundled with payment for other services, the
drug is not covered by the 340B program.
[2] 42 U.S.C. § 256b.
[3] Medicaid is a joint federal-state program that finances health
care for certain categories of low-income individuals. Medicaid
programs vary from state to state.
[4] HRSA bases this view on language in a House Energy and Commerce
Committee Report pertaining to language similar to what eventually
became section 340B of the PHSA. See H. Rep. No. 102-384, Pt. 2, at 12
(1992) (discussing bill to amend the Social Security Act); See also
Veterans Health Care Act of 1992, Pub. L. No. 102-585, § 602(a), 106
Stat. 4943, 4967 (adding section 340B to the PHSA).
[5] For this report, we define 340B revenue as all monies received by
covered entities for drugs they purchase at the 340B price, whether or
not the revenue meets or exceeds the costs paid for the drugs.
[6] In 1996, HRSA issued a definition of a 340B patient that defines
the situations under which covered entities can use drugs purchased at
340B prices for their patients. While income and insurance status do
not dictate whether a patient is eligible under the program, certain
patients, such as those who do not receive health care services
consistent with the scope of a grant that made an entity eligible for
the program or those whose only service from the covered entity is the
dispensing of drugs, are prohibited from receiving drugs purchased at
the 340B price. Notice Regarding Section 602 of the Veterans Health
Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg. 55156
(Oct. 24, 1996).
[7] Data are the most recent available from HRSA's covered entity
database and represent both unique covered entities and all their
eligible sites, such as satellite clinics. According to HRSA, there
are about 3,200 unique organizations currently participating in the
program--the agency was unable to provide historical data on unique
organizations for all entity types. Additionally, because a covered
entity may enroll under any and all eligible grant types it receives,
it is possible that certain unique organizations and eligible sites
are reflected in the database more than once. However, HRSA estimates
that this overlap represents less than 5 percent of all listings in
the database.
[8] 42 U.S.C. § 256b(a)(5)(B).
[9] Notice Regarding Section 602 of the Veterans Health Care Act of
1992 Entity Guidelines, 58 Fed. Reg. 68922 (Dec. 29, 1993).
[10] According to HRSA, while there are no 340B-specific requirements,
all covered entities eligible for the program based on their grantee
status may be required to use 340B revenue in accordance with their
grant requirements.
[11] Entities that became eligible for the 340B program through PPACA
include certain critical access hospitals, sole community hospitals,
rural referral centers, and freestanding cancer hospitals. See Pub. L.
No. 111-148, § 7101, 124 Stat. 119, 821 (2010) as amended by the
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-
152, § 2302, 124 Stat. 1029, 1082.
[12] Pub. L. No, 111-148, § 7102(b).
[13] For this report, we consider providers as having access to a drug
if they are able to obtain the amount necessary to meet the needs of
their patients--for covered entities this includes being able to
obtain the drug at the 340B price.
[14] FQHCs are urban or rural health centers that provide
comprehensive community-based primary and preventive care services to
medically underserved populations and have received a "Federally
Qualified Health Center" designation from the Centers for Medicare &
Medicaid Services (CMS).
[15] General acute care hospitals are eligible for the 340B program
when they have a Medicare DSH adjustment percentage of greater than
11.75 percent and meet certain other requirements. Medicare is the
federally financed health insurance program for persons aged 65 or
over, certain individuals with disabilities, and individuals with end-
stage renal disease. The Medicare DSH adjustment percentage is an
additional Medicare payment to acute care hospitals paid under the
inpatient prospective payment system--a Medicare reimbursement method
based on a predetermined, fixed amount. A hospital's DSH adjustment
percentage is generally based on its DSH patient percentage, which is
a statutory formula created to identify hospitals that treat a
significantly disproportionate number of low-income Medicare and
Medicaid patients.
[16] While additional types of hospitals are eligible for the 340B
program, we only interviewed DSH hospitals because the remaining
hospital types had only recently started participating in the program.
[17] In 2006, Massachusetts implemented comprehensive state-level
health insurance reform that was similar to PPACA's national-level
reform.
[18] We conducted multiple interviews with certain organizations for a
total of 65 interviews.
[19] HHS agencies that administer the grants that make entities
eligible for the 340B program include HRSA, Indian Health Services,
Office of Population Affairs, and the Centers for Disease Control and
Prevention. CMS calculates Medicare DSH adjustment percentages for
hospitals.
[20] The Medicaid Drug Rebate Program was established through the
Omnibus Budget Reconciliation Act of 1990 and requires drug
manufacturers to pay rebates to states as a condition of having their
drugs covered by Medicaid. Pub. L. No. 101-508, § 4401, 104 Stat.
1388, 1388-143 (adding 42 U.S.C. § 1396r-8).
[21] The Pharmacy Services Support Center (PSSC) and the Prime Vendor
Program (PVP) assist HRSA with the administration of the 340B program
and are managed by contractors. The PSSC provides guidance and free
technical assistance to covered entities and helps ensure that
patients of covered entities receive comprehensive pharmacy services.
The PVP establishes a distribution network for pharmaceuticals to
covered entities and negotiates prices for a portfolio of drugs below
the 340B price. Participation in the PVP is free and voluntary for
covered entities.
[22] See GAO, Standards for Internal Control in the Federal
Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.:
November 1999).
[23] Not all FQHCs receive federal grants. Providers that meet all of
the requirements for the FQHC program but do not receive federal
grants are referred to as FQHC look-alikes and are eligible to
participate in the 340B program.
[24] See Pub. L. No. 111-148, § 7101, 124 Stat. 119, 821 as amended by
the Health Care and Education Reconciliation Act of 2010, Pub. L. No.
111-152, § 2302, 124 Stat. 1029, 1082. While PPACA explicitly added
children's hospitals to the list of covered entities under the 340B
program in the PHSA, they were originally made eligible under the
Social Security Act through the Deficit Reduction Act of 2005. Pub. L.
No. 109-171, § 6004, 120 Stat. 4, 61 (2006) (amending 42 U.S.C. §
1396r-8(a)(5)(B)).
[25] To be eligible for the 340B program, rural referral centers and
sole community hospitals must have a DSH adjustment percentage that is
equal to or greater than 8 percent, and DSH, children's, and free-
standing cancer hospitals must have a DSH adjustment percentage that
is greater than 11.75 percent. Although children's and free-standing
cancer hospitals do not receive payments under the Medicare inpatient
prospective payment system, they must have a payer mix that would
result in a DSH adjustment percentage of greater than 11.75 percent.
[26] According to HRSA, a hospital is said to be "formally granted
governmental powers" when the state formally delegates to the hospital
a type of power(s) usually exercised by the state, for the purpose of
providing health care services to the medically indigent population of
the state.
[27] Notice Regarding Section 602 of the Veterans Health Care Act of
1992 Outpatient Hospital Facilities, 59 Fed. Reg. 180, 47884 (Sept.
19, 1994).
[28] Notice Regarding 340B Drug Pricing Program--Contract Pharmacy
Services, 75 Fed. Reg. 10272 (March 5, 2010).
[29] In general, the 340B price for a drug is calculated quarterly by
subtracting the unit rebate amount used in the Medicaid Drug Rebate
Program from the drug's average manufacturer price. See 42 U.S.C. §
256b (a)(1). Average manufacturer price is the average price paid to a
manufacturer for drugs distributed to retail community pharmacies. It
includes direct manufacturer sales to retail community pharmacies, as
well as sales by wholesalers. 42 U.S.C. §§ 256b(b), 1396r-8(k).
[30] 42 U.S.C.§ 256b(a)(10).
[31] When a drug's average manufacturer price increases more quickly
than the rate of inflation, the government requires the manufacturer
to pay an additional rebate amount. This may cause the drug's unit
rebate amount to be greater than the drug's average manufacturer
price, which would result in a negative 340B price.
[32] GPOs contract with providers, such as hospitals, and, on behalf
of their members, aggregate purchasing volume to negotiate discounts
on drugs from drug manufacturers or distributors.
[33] For this report, we define 340B revenue as all monies received by
covered entities for drugs they purchase at the 340B price, whether or
not the revenue meets or exceeds the costs paid for the drugs. When
data provided by covered entities was used to determine revenue
generation, the most recent year of reported data was used.
[34] Even though 6 covered entities were unable to report the amount
of revenue they generated through the program, they were able to
report what factors affected overall revenue generation.
[35] Medicare reimburses outpatient prescription drugs either through
Medicare Part B or Part D. Part B covers drugs administered by
physicians, such as chemotherapy drugs, and payment for those drugs is
set by a fee schedule established quarterly by CMS. Part D sponsors
are typically private insurers that contract with CMS to cover
outpatient prescription drugs and negotiate reimbursement rates
directly with health care providers.
[36] A dispensing fee is typically a set dollar amount per
prescription that covers the overhead costs of dispensing a drug, such
as pharmacy staff time.
[37] State Medicaid agencies may reimburse entities at actual
acquisition cost, because when entities decide to use drugs purchased
at 340B prices for Medicaid patients, the state can no longer claim
Medicaid rebates for those drugs.
[38] These contractual agreements are commonly referred to as shared
savings agreements. Shared savings agreements provide covered entities
reimbursement above actual acquisition cost, for example, by paying a
higher dispensing fee to covered entities than the fee paid to other
providers. According to the HHS Office of Inspector General, states
may be interested in shared savings agreements with covered entities
because 340B prices can be considerably lower than states' standard
Medicaid reimbursement rates and entering into such agreements could
encourage entities to use 340B drugs for Medicaid patients while still
saving money for states.
[39] PPACA contains provisions to expand private health insurance and
Medicaid coverage to more Americans. See, e.g., Pub. L. No. 111-148, §
2001, 124 Stat. 119, 271.
[40] HRSA officials told us that this statement is consistent with
their belief that low-income patients will continue to require
assistance with health care costs after gaining insurance.
[41] Case management services facilitate access to appropriate health
care, and are not typically reimbursed by payers.
[42] The organizational structure of hemophilia treatment centers we
interviewed varied, and those that operated stand-alone programs were
more dependent on 340B revenue than those that were integrated into
hospitals.
[43] While stakeholders consistently reported two situations in which
manufacturers' distribution of drugs at 340B prices affected
providers' access to these drugs, some, such as covered entities,
reported other situations that had effects on access, but it was not
clear that the other situations were related to manufacturers'
distribution of drugs at 340B prices.
[44] IVIG is primarily used to treat patients with immune deficiency
diseases, a group of disorders in which the immune system fails to
produce enough antibodies, thereby predisposing individuals to
increased risk of infection. Factors inherent to the development and
distribution of IVIG limit its supply making it susceptible to
shortages, including that IVIG is made from human plasma, which is an
inherently scarce resource, and that IVIG takes between seven and 12
months to manufacture. Additionally, only a few manufacturers develop
and distribute these drugs in the United States.
[45] Hospitals are the primary purchaser of IVIG in the United States.
[46] Specialty pharmacies handle and distribute drugs that, among
other things, have a high acquisition cost and require special
handling practices.
[47] In general, 340B hospitals are prohibited from purchasing
outpatient drugs through GPOs. While no DSH hospital we interviewed
reported purchasing IVIG through GPOs, GPOs we interviewed told us
that 340B hospitals have purchased IVIG through this avenue when they
are unable to access it at the 340B price. During a December 2005
congressional hearing on the 340B program, an organization
representing 340B hospitals argued that in situations when hospitals
are unable to purchase IVIG at 340B prices, they are faced with either
violating federal law by purchasing IVIG through GPOs, buying IVIG at
cost-prohibitive retail prices, or denying their patients access to
these drugs. See "Oversight and Administration of the 340B Drug
Discount Program: Improving Efficiency and Transparency," Hearing
before the Subcommittee on Oversight and Investigations, Committee on
Energy and Commerce, U.S. House of Representatives, December 15, 2005.
While 340B hospitals can receive the benefits of group purchasing
through the PVP, the PVP does not have any contracts for IVIG.
[48] This manufacturer reported that it based its allocation of IVIG
on 2004 purchasing patterns, because this was the last period before
demand exceeded supply for the product and an allocation system became
necessary. While data on the number of hospitals participating in the
340B program in 2004 are not available, the number of 340B hospitals
has grown from 591 in 2005 to 1,673 in 2011.
[49] While certain 340B hospitals are prohibited from purchasing
outpatient drugs through GPOs, all 340B hospitals can purchase
inpatient drugs through GPOs.
[50] The Department of Justice is examining the IVIG market in the
United States, in part, due to concerns about the distribution of
these drugs at 340B prices.
[51] Prior to PPACA, covered entities did not have access to 340B
pricing data in order to monitor manufacturers because the Social
Security Act prohibited the disclosure of the data by HRSA and state
Medicaid agencies. 42 U.S.C. § 1396r-8(b)(3)(D). PPACA added a
provision to Section 340B requiring that covered entities be allowed
access to 340B pricing data. Pub. L. No. 111-148, § 7102(a), 124 Stat.
119, 824 (adding 42 U.S.C. § 256b(d)(1)(iii)).
[52] In May 2011, HRSA published its first proposed regulation on the
340B program, Exclusion of Orphan Drugs for Certain Covered Entities
Under the 340B Program, 76 Fed. Reg. 29, 183 (proposed May 20, 2011).
Until this point the agency had provided program guidance through
notices published in the Federal Register, which were typically
finalized after a notice and comment period, as well as more informal
guidance on its web site.
[53] We use the term hospitals that are not publicly owned or operated
to refer to public and private, nonprofit corporations as well as
private, nonprofit hospitals that may be eligible for the 340B
program. The term does not include private, for-profit hospitals as
these hospitals are not eligible for the 340B program.
[54] HRSA officials told us that contracts are selectively reviewed if
further clarification is necessary.
[55] In a 2006 report, the HHS Office of Inspector General found that
manufacturers did not always follow HRSA's penny pricing policy. Both
in this report and in a 2005 report, the Office of Inspector General
recommended that HRSA formalize its penny pricing policy in writing.
See HHS Office of Inspector General, Review of 340B Prices, OEI-05-02-
00073 (Washington, D.C.: 2006); and HHS Office of Inspector General,
Deficiencies in the Oversight of the 340B Drug Pricing Program, OEI-05-
02-00072 (Washington, D.C.: 2005).
[56] HRSA currently recertifies eligibility for sexually transmitted
diseases, tuberculosis, and Ryan White grantees, consistent with
requirements under the PHSA. In addition, HRSA verifies the grantee
status of FQHCs as well as hospitals' DSH percentages on a quarterly
basis. As resources allowed, HRSA has also periodically recertified
340B eligibility for other entity types. For example, HRSA recertified
eligibility for family planning clinics in 2010. PPACA added a
provision requiring HRSA to conduct annual recertification of
eligibility for all covered entity types. HRSA officials told us that
the Office of Pharmacy Affairs' fiscal year 2011 budget allowed for
the planning of a phased approach to recertification of all entity
types, which is scheduled to begin in the fall of 2011. As of August
2011, officials were not able to tell us which entity types would be
phased in first.
[57] HRSA officials told us that while they do not conduct audits, if
a potential violation of program requirements is brought to their
attention, they will refer the matter to the HHS Office of Inspector
General. Officials said that they have made two such referrals in the
past year related to the diversion of 340B drugs.
[58] HRSA previously operated a voluntary pilot program with
manufacturers to improve the integrity of 340B pricing calculations.
Twelve manufacturers participated in the program, which was
discontinued in March 2008 due to concerns regarding the
confidentiality of drug pricing data and a lack of funding to run the
program.
[59] For example, a covered entity we interviewed said that it
suspected certain drug manufacturers of implementing strategies to
avoid offering drugs at correct 340B prices, but because of the lack
of transparency in how 340B prices are calculated, could not determine
this on its own. According to the entity, when it contacted HRSA about
these strategies, agency officials said that they did not have the
resources to help. However, HRSA officials told us that they were
unaware of any instances where the agency has not helped a covered
entity under these circumstances. Officials from one manufacturer
reported that it provided HRSA with evidence that a covered entity had
engaged in multiple instances of diversion, and after attempting to
resolve the instances with the entity on its own, requested a hearing
through the dispute resolution process in January of 2010. HRSA
officials told us that the agency dismissed the manufacturer's request
to initiate the process, because the covered entity disputed the
manufacturer's claim that it had attempted to resolve the issue on its
own, and that the agency is currently considering the manufacturer's
appeal of this dismissal.
[60] In a 2005 report on the 340B program, the HHS Office of Inspector
General noted that terminating a manufacturer from the 340B program
also means that the manufacturer would be terminated from the Medicaid
program, making it a difficult sanction to put into practice, given
the effects on access to medications for Medicaid beneficiaries. See
HHS Office of Inspector General, Deficiencies in the Oversight of the
340B Drug Pricing Program, OEI-05-02-00072 (Washington, D.C.: 2005).
[61] HRSA was unable to provide the precise rate of growth of contract
pharmacies within the 340B program due to data limitations.
Specifically, HRSA currently only tracks contract pharmacy
arrangements and is working to develop the ability to capture
individual contract pharmacies. Data on the number of contract
pharmacy arrangements are the most recent available from HRSA's
covered entity database.
[62] One reason for hospital growth could be that more hospitals may
have become eligible as a result of state-level Medicaid expansions in
recent years. The number of Medicaid patients served by a hospital
affects its DSH adjustment percentage, which helps determine hospital
eligibility for the 340B program.
[63] Some covered entities have in-house pharmacies that also serve as
retail pharmacies for the broader community. However, among the
covered entities we interviewed, we found that this was not often the
case.
[64] According to HRSA, over 400 additional DSH hospitals may be
eligible for the 340B program based on their DSH adjustment
percentage. This estimate does not include the additional hospital
types made eligible for the program through PPACA.
[65] See MedPAC, Report to the Congress: Medicare Payment Policy
(Washington, D.C.: 2007), pp.78-79.
[66] See for example, Barbara Wynn, et. al., "Analysis of the Joint
Distribution of Disproportionate Share Hospital Payments," PM-1387-
ASPE (Washington, D.C.: 2002); and Megan McHugh, Raymond Kang, and
Romana Hasnain-Wynia, "Understanding the Safety Net: Inpatient Quality
of Care Varies Based on How One Defines Safety-Net Hospitals," Med
Care Research and Review, published online April 27, 2009.
[67] Notice Regarding Section 602 of the Veterans Health Care Act of
1992 Definition of a "Patient," 72 Fed. Reg. 1543 (Jan. 12, 2007).
[End of section]
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