CONGRESSIONAL REPORT RECOMMENDING CHANGES TO 340B PROGRAM

The House Energy and Commerce Committee issued a report (E&C Report) on January 11 that calls for legislative and administrative changes to the 340B program.  The report, titled “Review of the 340B Drug Pricing Program,” was released following the Committee’s two-year investigation into the operation and oversight of the 340B program.  Although the E&C Report acknowledges the importance of the program for safety net providers, it also recommends that Congress “clarify” the program’s intent.  The report makes a total of twelve recommendations, including increased administrative oversight of both covered entities and manufacturers and increased regulatory authority over the 340B program for the Health Resources and Services Administration (HRSA).  We have summarized the Committee’s recommendations below.

Intent of the 340B Program

The E&C Report recommends that Congress clarify the intent of the 340B program.  While the Committee notes the original intent of the program was to enable covered entities to stretch scarce Federal resources, it states that this intent may no longer be relevant given changes in the healthcare industry.  The Committee does not give any specific recommendations on a clarification, but the report notes that covered entities receive significant revenue from private insurance reimbursement on 340B drugs and that they may charge an uninsured patient the full price for a 340B discounted drug.  The fact that the Committee highlighted these two issues is concerning because it indicates that Congress may change the focus of the 340B program to one that benefits only underinsured or uninsured patients.  It may also reflect a belief by the Committee that 340B savings should be used solely to reduce the cost of drugs and should not be used to support non-pharmacy services.

HRSA’s Regulatory Authority

The Committee recommends that HRSA issue and enforce regulations in each of the three areas in which the agency has regulatory authority:  (1) establishment of an administrative dispute resolution (ADR) process, (2) imposition of civil monetary penalties (CMPs) against manufacturers that overcharge covered entities, and (3) calculation of ceiling prices.  The report notes that HRSA still has not finalized regulations pertaining to the ADR process and CMPs despite being required to do so under the Affordable Care Act, which was passed more than seven years ago.

The E&C Report also recommends that Congress give HRSA greater authority to issue regulations to promote compliance and ensure program integrity.  The Committee asserts that HRSA’s limited regulatory authority creates a risk that covered entities will misuse the program.

Independent Audits of Covered Entities and Contract Pharmacies

The E&C Report recommends that Congress require certain covered entities to hire independent auditors to assess program compliance, but does not specify the types of covered entities that should be subject to this requirement.  This recommendation is based on the Committee’s finding that the “rapid growth of the 340B program” and HRSA’s limited resources “pose challenges to HRSA’s ability to effectively oversee the program.”

In addition, the report recommends that all covered entities be required to hire independent auditors to review their contract pharmacy arrangements.  The Committee notes that HRSA “expects” that all covered entities perform annual independent audits of their contract pharmacies, but this expectation is not binding.  The E&C Report focuses on the growth in contract pharmacies arrangements since 2010 and states that independent audits of contract pharmacies would aid HRSA in oversight of the program.

HRSA’s Oversight of Covered Entities

The Committee urges Congress to provide HRSA with resources to conduct more rigorous oversight and more effective management of the 340B program.   The E&C Report finds that the number of participating entities more than quadrupled over the past decade and notes substantial increases in child sites and contract pharmacies.   The report sees this growth as challenging HRSA’s ability to oversee the program, and suggests that the current rate of audits (less than two percent of all covered entities) is insufficient.

The Committee also recommends that steps be taken to identify and reduce duplicate discounts on 340B drugs paid for under Medicaid managed care claims.  The E&C Report raises concerns about the level of duplicate discount findings in audits and the lack of a mechanism to prevent duplicate discounts for Medicaid managed care claims.

The Committee recommends that Congress evaluate whether the scope of HRSA’s audits should be expanded to cover issues other than eligibility, database accuracy, diversion and duplicate discounts.  The Committee does not state what additional issues HRSA should cover, but notes that HRSA does not currently review the level of charity care that covered entities provide or whether covered entities share revenue with contract pharmacy arrangements.

HRSA’s Oversight of Manufacturers

The Committee recommends that HRSA should endeavor to audit covered entities and manufacturers at the same rate.  The report notes that HRSA has audited manufacturers at a lower rate than covered entities to date.

Transparency

The E&C Report also recommends transparency requirements, including requiring covered entities to disclose 340B program savings and/or revenue.  The report notes that federal grantees must track their savings under federal grant requirements.  The E&C Report also recommended that ceiling prices be made available to covered entities and other stakeholders.  The E&C Report recommends a statutory change to monitor charity care provided by covered entities.  The focus on charity care reflects manufacturers’ perspective on how covered entities should qualify for the program.  Covered entities, by contrast, believe program eligibility should be based on broader criteria such as total uncompensated care and an applicant’s unique role in serving vulnerable populations.

DSH Percentage As Eligibility Requirement

Finally, the E&C Report recommends that Congress reassess whether the disproportionate share hospital (DSH) percentage is an appropriate metric to measure hospital eligibility for the program.  The report notes that the DSH percentage is a measurement of the amount of inpatient care that hospitals provide to certain Medicaid and Medicare beneficiaries and indicates that it may be more appropriate to focus on a hospital’s outpatient care to underinsured and uninsured patients.

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For more information, please contact any member of the Powers 340B practice or call (202) 466-6550.