Improved Oversight Needed to Ensure Drug Program's Integrity, Stakeholders Say

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By Bronwyn Mixter

March 24 — House members and other stakeholders March 24 cited the need for greater oversight and transparency to ensure the integrity of the 340B drug discount program, during a House Energy and Commerce Health Subcommittee hearing.

Ann Maxwell, assistant inspector general for evaluation and inspections at the Department of Health and Human Services Office of Inspector General, said the HHS should increase transparency by sharing 340B drug ceiling prices with providers and state Medicaid programs. A ceiling price is the maximum amount a manufacturer can charge for a drug. Maxwell said that without access to information on ceiling prices, 340B providers can't ensure that they are being charged the appropriate amount, and state Medicaid agencies can't effectively enforce their payment policies for 340B drugs.

The 340B program, created in 1992, requires pharmaceutical manufacturers participating in the Medicaid program to have an agreement with the HHS under which the manufacturer provides discounts on covered outpatient drugs purchased by safety-net providers.

“One thing I hope we can all agree on, is that to preserve the 340B program and ensure that it is serving those who most need help, greater oversight and transparency is needed to increase the program’s accountability,” subcommittee Chairman Joe Pitts (R-Pa.) said.

The Government Accountability Office and the HHS OIG “have reported that unclear program guidelines and inconsistent oversight is partially responsible for some of the challenges the program currently faces in being accountable to taxpayers, patients and stakeholders,” Pitts said. “Covered entities and manufacturers understandably cannot comply with rules that are unclear.”

“It is in the interest of good government to see program integrity strengthened, the program's operating parameters clarified and the program's rules consistently enforced,” Rep. Fred Upton (R-Mich.), chairman of the full committee, said. Upton also said the committee hasn't held a hearing on the 340B program since 2005.

While they didn't testify at the hearing, the pharmaceutical industry and a hospital group submitted written testimony.

OIG's Recommendations 

The OIG's Maxwell said that the Health Resources and Services Administration should increase transparency by sharing 340B drug ceiling prices with providers and state Medicaid programs.

“Because of confidentiality provisions in the Medicaid statute that protect manufacturing data, HRSA previously could not share ceiling prices with 340B providers,” Maxwell said. “Consistent with an OIG recommendation, Congress, as part of the Affordable Care Act, authorized HRSA to share ceiling prices with 340B providers; however, HRSA has not yet established a mechanism to do so.”

Maxwell said the confidentiality provisions continue to prevent HRSA from sharing 340B ceiling prices with state Medicaid programs, which pay for 340B drugs when 340B providers dispense them to Medicaid patients. She said additional legislative authority would be required for HRSA to share these prices with state Medicaid programs.

“Without access to ceiling prices, 340B providers cannot ensure that they are being charged the appropriate amount by drug manufacturers,” Maxwell said. “Lack of access to 340B ceiling prices also prevents state Medicaid agencies from effectively enforcing their Medicaid payment policies for 340B-purchased drugs.”

Maxwell also said HRSA needs to strengthen and clarify rules regarding how the 340B discount should be applied. “Without clear rules, HRSA oversight is compromised, interpretations of program rules vary and vulnerabilities in 340B program integrity will persist,” she said.

GAO's Recommendations 

Debra A. Draper, director of health care at the GAO, said HRSA has implemented two of the four recommendations from a 2011 GAO report.

In September 2011, the GAO issued a report recommending that HRSA take the following actions to improve oversight of the 340B program:

• 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 the 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 aren't publicly owned or operated must meet to be eligible for the 340B program.


Draper said HRSA has implemented a system for conducting audits of covered entities and also issued an updated nondiscrimination guidance in May 2012.

HRSA had planned to address the GAO's two remaining recommendations in a comprehensive 340B regulation that it submitted to the Office of Management and Budget for review in April 2014, Draper said. However, HRSA withdrew this proposed regulation in November 2014 following a May 2014 federal district court ruling that said the agency didn't have the authority to issue a regulation concerning the ineligibility of certain drugs for 340B pricing. HRSA now plans to issue a proposed guidance in 2015 in which it will address the definition of a patient and hospital eligibility, Draper said.

HRSA Weighs In 

Diana Espinosa, deputy administrator of HRSA, said “HRSA places the highest priority on the integrity of the 340B program and has strengthened oversight of this program, particularly in the last four years.”

Espinosa said HRSA has moved forward with recommendations from the GAO and the OIG, and has requested an increase in the president's fiscal year 2016 budget for 340B oversight activities.

“Opportunities for enhanced program integrity are outlined in the president's FY 2016 budget,” Espinosa said. “These proposals would allow HRSA to further implement comprehensive integrity efforts, including program audits and entity recertification; invest in improvement of the 340B public database, which provides information on covered entities and participating manufacturers to external stakeholders; and increase compliance of manufacturers.”

In past reports, the OIG recommended that HRSA develop a system to allow entities to access secure pricing data to ensure that they are charged at or below the 340B ceiling price. Espinosa said HRSA expects this pricing system to be operational by late FY 2015.

Espinosa also said there are three areas of the 340B statute where HRSA has explicit regulatory authority, including the calculation of 340B ceiling prices, civil monetary penalties for manufacturers and implementation of a dispute resolution process. She said HRSA expects to release in 2015 a proposed rule on manufacturer civil monetary penalties and calculation of the ceiling prices, as well as a rule on dispute resolution. HRSA also will release a “proposed omnibus guidance” later this year, Espinosa said.

Hospitals Welcome Interest 

In a statement on the hearing, the Safety Net Hospitals for Pharmaceutical Access (SNHPA) said “we welcome congressional interest in this vital program that helps safety-net hospitals and other providers improve access to high quality affordable health care.”

“We agree that there needs to be more clarity in the rules and we look forward to the upcoming guidance,” SNHPA said. “We encourage Congress to let the administrative process work so that hospitals that serve our most vulnerable citizens can continue this mission to serve all patients regardless of ability to pay. In addition, it was helpful today that government witnesses and members of Congress reiterated that the program was never intended to be limited to a certain patient population.”

SNHPA said the 340B program “allows hospitals to help millions of Medicaid and other underserved patients each year.”

“There is robust oversight of hospitals in the 340B program,” SNHPA said. “In fact, there have been more than 250 government audits of hospitals and other providers just in the past few years, with 200 more expected in 2015. During that time, there has been only one audit of a drug manufacturer and we ask for more balance in the oversight process.”

SNHPA also submitted written testimony for the hearing.

PhRMA's Views 

John J. Castellani, president and chief executive officer of PhRMA, said in written testimony that the 340B program's “dramatic growth raises questions about its sustainability, whether it is appropriately targeting the facilities that serve vulnerable or uninsured patients, and whether patients are truly benefiting directly from the program as Congress intended.”

“PhRMA is particularly concerned about the increasing impact of disproportionate share hospitals (DSH) on the 340B program,” Castellani said. “DSH hospitals are also aggressively expanding the program through expansive contract pharmacy networks and the acquisition of physician practices. These expansions by hospitals often have no direct benefit for patients and, in the case of physician practice acquisitions, can increase costs for the overall health system.”

Castellani said PhRMA “hopes that this hearing is the start of a reexamination of the 340B program that strengthens and sustains the program by refocusing it on true safety net facilities that use the program to directly benefit vulnerable or uninsured patients.”

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Brian Broderick at

More information on the hearing is available at