Three hearings before the House Energy and Commerce (E&C) Committee and its Oversight and Investigation Subcommittee[1] have culminated in an 80-page report (Report) containing the E&C Committee’s findings and review of the federal 340B drug discount program.[2]  The Report does not directly address 340B program contract pharmacies, though the E&C Committee might make additional recommendations once the Government Accountability Office (GAO) completes its report on how 340B program covered entities use pharmacies to provide access to discounted drugs to their patients.

The Report focuses on two primary areas – how HRSA administers and oversees the 340B program, and how covered entities use the 340B program.  The Report also includes a series of recommended changes – some that HRSA already has the authority to implement, and others that would require legislative action.

HRSA Oversight of the 340B Program

With respect to HRSA, the Report recommends that HRSA finalize the long-overdue regulations called for under the Affordable Care Act that would establish an Administrative Dispute Resolution process for manufacturers and covered entities, impose civil monetary penalties on manufacturers that overcharge covered entities, and improve 340B ceiling price calculation and transparency.[3]  The Report notes that HRSA still has yet to release a 340B price verification tool as required under the Affordable Care Act, which means covered entities still have no means of verifying that they are being accurately charged for 340B drugs.[4]

The Report also recommends that Congress provide HRSA with authority to issue regulations that clarify 340B program requirements, citing testimony and reports from the GAO and Office of the Inspector General (OIG) that found HRSA’s guidance to be too ambiguous.[5]  The Report cites the definition of a patient, and the mechanisms for identifying 340B drugs billed to Medicaid managed care organizations as specific areas of concern.[6]  As part of that increased authority, the Report recommends that HRSA be given the ability to conduct more audits and audit for a wider range of issues, including possibly how contract pharmacies are compensated and how program savings are used.[7]  The Report also recommends that HRSA audit drug manufacturers at the same rate it audits covered entities.[8]

Covered Entity Use of the 340B Program

The Report also focuses on the ways in which covered entities use the 340B program.  The Report cites the intent of the 340B program described in the committee report preceding its passage – to enable covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services – but questions whether that intent is still relevant 25 years after the program was enacted.[9]  The Report raises the issue of whether the program should be more focused on ensuring that patients have access to 340B drugs than on whether covered entities benefit from the program.[10]

With respect to 340B program savings, the Report notes that grantees (including, among others, federally qualified health centers, Ryan White HIV/AIDS clinics, and hemophilia treatment centers) are subject to restrictions on how they can use revenues generated from their federally supported programs, but hospitals are not subject to federal grant restrictions.[11]  The Report suggests that there should be a uniform way to calculate 340B savings, and a uniform way to measure “charity care.”[12]

The Report specifically addresses three areas that are of unique importance to hospitals participating in the 340B program.  The Report alleges that there is a financial incentive for 340B hospitals to use more expensive drugs when Medicare Part B is responsible for payment.[13]  It also references allegations made by private oncologists that 340B program financial incentives have contributed to the acquisition of oncology clinics by hospitals.[14]  Lastly, the Report questions whether the current method of determining which hospitals are eligible for the 340B program – the disproportionate share hospital adjustment percentage, which focuses on inpatient days attributable to Medicaid and low-income Medicare beneficiaries – remains appropriate.[15]

Recommendations of the Report

The Report makes 12 separate recommendations, including two for HRSA, nine for Congress, and one that is not directed to either.[16]

The Report recommends that HRSA should:

• Finalize and begin enforcing the Administrative Dispute Resolution, manufacturer overcharge civil monetary penalty, and 340B ceiling price calculation regulations called for the in Affordable Care Act; and
• Ensure that covered entities and manufacturers are audited at the same rate.

The Report recommends that Congress should:

• Give regulatory authority to HRSA, including authority to clarify program requirements, monitor and track program use, and ensure that patients directly benefit from the 340B program;
• Require “certain” covered entities to conduct independent audits of program compliance;
• Equip HRSA with additional resources and staff to conduct oversight;
• Take steps to identify and reduce duplicate discounts on drugs paid for by Medicaid managed care organizations;
• Evaluate whether HRSA’s audit scope should be increased;
• Clarify the intent of the 340B program and ensure HRSA administers the program consistent with that intent;
• Promote transparency in the program, including around 340B ceiling prices and covered entity use of 340B program savings;
• Establish a mechanism to monitor charity care provided by covered entities; and
• Reassess whether disproportionate share adjustment percentage is still the appropriate measure for hospital eligibility.

The final recommendation, that all covered entities perform annual independent audits of their contract pharmacies, is not directed to HRSA or Congress.  However, HRSA already encourages covered entities to conduct annual independent audits of their contract pharmacy arrangements.

Next Steps, Including Contract Pharmacies

The Report comes in the wake of two 340B program bills introduced in the last two months, including one that would reverse the Medicare Part B cuts to 340B reimbursement and one that would impose a moratorium on new hospital registrations.[17]  The GAO also is expected to release a report regarding its review of 340B contract pharmacy arrangements, and the E&C Committee may choose to hold an additional hearing depending on the findings of that report.[18]

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If you would like to learn more, including what these changes could mean for your organization, contact Michael Glomb at mglomb@feldesman.com or the Feldesman Tucker attorney with whom you typically work.

[1] FTLF described the most recent two hearings here and here.

[2] House Energy and Commerce Committee, Review of the 340B Drug Pricing Program (Jan. 10, 2018), at https://energycommerce.house.gov/wp-content/uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.

[3] Report at 20-24.  See also FTLF’s most recent blog post on the civil monetary penalty rule and its frequent delays.

[4] Id. at 42-43.

[5] Id. at 25-29.

[6] Id. at 25-41.

[7] Id. at 30-35.

[8] Id. at 4.

[9] Report at 48-51.

[10] See, e.g., id. at 48-52, 76.

[11] Id. at 48-57.

[12] Id. at 56-65.

[13] Id. at 65-66.  CMS recently finalized Medicare Part B reimbursement cuts that eliminate nearly all profit margin on 340B drugs billed by hospitals to Medicare Part B under the outpatient prospective payment system.  FTLF described those cuts, and the efforts to stop or reverse them, here, here, and here.

[14] Id. at 66-70.

[15] Id. at 70-74.

[16] Report at 76-77.

[17] FTLF covered those bills here.

[18] Report at 11.