Drug Discount Program Is Broken, GOP Says, Promising Fixes

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By Bronwyn Mixter

A federal drug discount program for hospitals has major problems, and a legislative solution is on the way, House Republicans said.

At issue is the 340B discount program, which pharmaceutical companies and congressional Republicans say has grown beyond its original intent of helping indigent patients with their drug costs. Congress didn’t clearly identify the intent of the program when it was created in 1992, Rep. Greg Walden (R-Ore.) said Jan. 9 during a call with reporters.

Walden’s press call was in advance of the Jan. 10 release of a report by the House Energy and Commerce Committee, which provides recommendations for how the program could be improved. Walden is the chairman of that committee.

“Everyone has a different idea of what Congress meant with the language that created the program,” Walden said. “It’s time for Congress to do its job and step up and give definition, transparency, and accountability to the 340B program.”

Support for Program

Meanwhile, the leading Democrat on the committee offered support for the 340B program.

The committee’s investigation “has shown the 340B program to be an essential source of cost savings for covered entities such as safety net hospitals, children’s hospitals, community health centers, and Ryan White HIV/AIDS Program Grantees,” Rep. Frank Pallone Jr. (D-N.J.) said in Jan. 10 statement provided to Bloomberg Law. He noted that the 340B program has strong bipartisan support in Congress.

The report “provides additional evidence that all around the country, providers make good use of their 340B savings to provide extremely important healthcare services to the most vulnerable among us,” Pallone said.

A statement from 340B Health, a group that represents hospitals and health systems that participate in the program, thanked “the committee for its recommendations regarding greater oversight of pharmaceutical manufacturers” and said it supports “having a thoughtful conversation about the transparency of the 340B program.”

“We are concerned, however, by recommendations that could limit the scope of the program, cause unnecessary burdens, and hinder the ability of hospitals to provide care to low-income and rural Americans,” 340B Health President and Chief Executive Officer Ted Slafsky said in the statement. “We look forward to reviewing the report in detail and discussing its findings and recommendations with policymakers from both parties.”

Program’s Growth

The program has grown dramatically since 1992, especially when the Affordable Care Act expanded its scope by expanding eligibility to more types of hospitals and by expanding Medicaid eligibility.

Covered hospitals and clinics saved approximately $3.8 billion on their outpatient drugs in fiscal 2013, then $4.5 billion in FY 2014, and $6 billion during calendar 2015 through the program, the congressional report said.

The discounts 340B covered entities receive on outpatient drugs range between 25 percent to 50 percent of the average wholesale price, a benchmark that Medicare and other payers use to determine payment levels for prescription drugs.

Legislation Coming

Walden said his committee will be advancing legislation in the first few months of 2018 and it’s one of his top priorities.

The original intent of the 340B program was to allow covered entities to stretch federal resources as far as possible to reach more eligible patients and provide more comprehensive services.

It isn’t clear whether Congress meant for low-income and uninsured individuals to directly benefit from the reduced 340B drug prices, the committee’s report said.

Walden said the legislation should clarify the intent of the program. He also said it should clearly define how covered entities should use the savings they receive from the program and establish uniform reporting requirements.

Lack of Authority

Congress also should give the Health Resources and Services Administration, the agency at the Department of Health and Human Services that oversees the 340B program, more authority to adequately oversee the program and clarify program requirements., Walden said.

The report said HRSA lacks sufficient regulatory authority.

A federal court ruled in 2014 that HRSA’s regulatory authority is limited to three areas: establishing and implementing an administrative dispute resolution process; imposing civil monetary penalties against manufacturers that knowingly and intentionally overcharge a covered entity for 340B drugs; and issuing standards for calculating drug ceiling prices. The report says HRSA should issue final regulations in each of these three areas.

Any prospective legislation should give HRSA more authority to conduct audits of program participants, Walden said. He said HRSA conducts about 200 audits of covered entities annually, but there are 12,722 covered entities in the program.

The report said HRSA can only conduct limited audits of covered entities due to its lack of authority.

Congress should evaluate whether the scope of HRSA’s audits should be expanded and should give HRSA more resources and staff to oversee the program, the report said.

Reimbursement Cuts

Walden also said a final rule that cut Medicare payments to covered entities for 340B drugs will be part of the committee’s discussion on the program.

That rule has been opposed by hospitals because it reduces by nearly 30 percent, or $1.6 billion, the Medicare payments for 340B drugs. On Jan. 9, the American Hospital Association and other hospital industry groups said they are appealing a district court decision dismissing their lawsuit to prevent the cuts.

The U.S. District Court for the District of Columbia Dec. 29 said the lawsuit had to be dismissed because there was a fundamental jurisdictional impediment to review at the present time: The plaintiffs failed to present “any concrete claim for reimbursement” to the HHS or a final agency decision on such a claim.

The hospital groups said while the court ruled that the lawsuit was brought prematurely, it didn’t rule on the merits of their claim.

Drug Industry Weighs In

The Energy and Commerce Committee’s report “reaffirms much of what has been raised in recent years by independent economists, [the Government Accountability Office] and [the HHS Office of Inspector General] who have looked at the program and determined that 340B and its perverse incentives are distorting the entire health-care marketplace and, ultimately, contributing to higher costs for patients,” Nicole S. Longo, a spokeswoman for the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a Jan. 10 statement provided to Bloomberg Law.

“We look forward to reviewing the report more closely and working with the Committee on next steps,” Longo said.

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

For More Information

The report is at http://src.bna.com/vw1.

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

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