Republicans Probing Drug Discount Program’s Rapid Growth

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By Bronwyn Mixter

Republican leaders of the House Energy and Commerce Committee are investigating the recent expansion of a federal drug pricing program that offers discounts to hospitals and other providers.

The lawmakers June 1 sent a letter to the Health Resources and Services Administration, saying they are concerned about the 340B drug pricing program’s “rapid growth without additional oversight” and asked HRSA to provide information on its audits of the hospitals and other covered providers participating in the program. HRSA is the part of the Health and Human Services Department that administers the 340B program. The lawmakers, including committee Chairman Greg Walden (R-Ore.), noted that drug sales under 340B more than doubled from 2010 to 2015.

The 340B program requires drug manufacturers to provide outpatient drugs to eligible safety-net hospitals and other health-care providers at reduced prices. Drugmakers must provide the discounts in order to remain eligible for reimbursements through Medicare and Medicaid. The Affordable Care Act expanded the 340B program to include new types of providers, including free-standing cancer, community, and critical access hospitals.

Martin A. Kramer, director of communications for HRSA, told Bloomberg BNA in a June 1 email HRSA doesn’t comment on correspondence from Congress and “we will respond directly to the committee.”

Additional Oversight

The lawmakers said HRSA doesn’t always follow up on audits of covered entities when it finds violations.

“HRSA’s lack of follow-up audits when it finds violations is troubling, and combined with the high rate of noncompliance, indicates a need for additional oversight of this program,” the letter said.

The Trump administration also has called for changes to the 340B program.

The president’s budget request for fiscal year 2018 released May 23 directs the HHS to work with Congress to develop a legislative proposal to improve the 340B drug pricing program’s “integrity and ensure that the benefits derived from participating in the program are used to benefit patients, especially low-income and uninsured populations.”

Use of Program Savings, Duplicate Discounts

The House lawmakers also said they are concerned that HRSA doesn’t track how much covered entities make through the 340B program and how the covered entities use program savings.

“Given the program’s ability to generate revenue for covered entities, HRSA has a vested interest in ensuring that those funds are used to benefit patients,” the letter said. “The committee is concerned about reports that uninsured and underinsured patients at 340B hospitals often pay the full list price for a drug while the hospital receives that same drug at a severely discounted price.”

Another concern the lawmakers cited is when covered entities receive duplicate discounts on the same drug. Duplicate discounts occur when a covered entity purchases a drug with a 340B discount and is credited with a Medicaid rebate.

HRSA found that about 23 percent of covered entities audited had duplicate discounts each year from 2012 to 2016, the letter said. HRSA’s audits also found that covered entities violated program requirements by reselling or transferring 340B drugs to ineligible patients.

Hospitals Support Program Oversight

340B Health, a group that represents more than 1,300 hospitals and health systems in the 340B program, said in a statement to Bloomberg BNA it supports 340B program integrity and oversight.

“We welcome balanced congressional oversight of all stakeholders—healthcare providers and drug manufacturers,” 340B Health said. “Hospitals are among the most transparent of all organizations. They have to report their costs and charges to the Department of Health and Human Services. They likewise must report various categories of revenue spent to serve low-income patients and communities at large to the Internal Revenue Service.”

The 340B program “gives hospitals relief from high drug prices,” the group said. “Hospitals rely on the savings to fund critical programs for their low-income, Medicaid, uninsured, and underinsured patient populations.”

Letter Doesn’t Address All Problems

The letter “reflects many of the concerns with noncompliance that industry has raised for a long time, but does not address a couple of the primary reasons for growth of the program: explosion of the number of retail contract pharmacies filling prescriptions for patients of covered entities and sharing in the revenue from the resale, and physician practices acquired by covered entities that benefit from low prices on expensive oncology drugs and other physician-administered drugs reimbursed at” average sales price (ASP), Donna Lee Yesner, an attorney at Morgan, Lewis & Bockius in Washington, told Bloomberg BNA in a June 1 email. Yesner represents clients in the pharmaceutical, biological, and medical device industries.

Yesner said the letter does address “one of the policy problems at the core of the program, which is the unfettered discretion of covered entities to use the profits from the resale of 340B drugs any way they like.”However, “because the letter is primarily focused on audit results and oversight, it does not address other fundamental problems with the program, such as the failure to pass through any of the savings to Medicare and to Medicaid where covered entities carve out those prescriptions, the incentive to buy and bill drugs that produce more profit rather than cheaper alternatives, and the huge administrative burden the program imposes on manufacturers as implemented by HRSA,” Yesner said.

“The committee’s concerns are very valid. The 340B program has grown astronomically since its inception in 1992,” Stephanie Trunk, a health-care attorney with Arent Fox LLP in Washington, told Bloomberg BNA in a June 1 email.

“The committee appears concerned that 340B covered entities are profiting from participating in the program to the detriment of the Medicare program and uninsured patients,” she said. Trunk counsels pharmaceutical and device manufacturers, distributors, and their customers, including pharmacy benefit managers, on regulatory, reimbursement, and compliance matters.

Trunk also said the committee’s “inquiry seems to be aimed at exploring HRSA’s current audit methodology and practices; specifically ensuring that such practices are sound and include appropriate follow-up review and audit to ensure covered entities are implementing mandated corrective action plans.”

The Trump administration “seems to share the committee’s concerns since one aim in the budget was to provide additional resources to HRSA for 340B program integrity efforts, presumably aimed at covered entity compliance,” Trunk said.

Yesner and Trunk are Bloomberg BNA advisory board members.

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

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

For More Information

The letter is at

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