The U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Health held a hearing on March 24, 2015 to review the functionality of the 340B Drug Pricing Program to understand how it impacts patients, providers, manufacturers, and other stakeholders.  At the hearing, entitled “Examining the 340B Drug Pricing Program,” Committee members heard from key witnesses from the Health Resources and Services Administration (HRSA), the Government Accountability Office (GAO), and the HHS Office of Inspector General (OIG).

The 340B Program provides discounts on covered outpatient drugs that are furnished to patients of eligible covered entities—predominantly nonprofit healthcare organizations that have certain Federal designations, or receive funding from specific Federal programs, and hospitals meeting certain specified criteria.  Highlights from the posted witness testimony are summarized below:

HRSA Testimony

In her statement, Diana Espinosa, Deputy Administrator at HRSA, reviews HRSA’s accomplishments to strengthen oversight of the 340B Program over the past four years.  She highlights accomplishments in FY 2014, including:

• Improved IT systems to track entity and manufacturer compliance more effectively;
• Increased numbers of covered entity and manufacturer audits; and
• Addition of more auditors and staff to implement new IT investments.

Ms. Espinosa also outlines HRSA’s progress with respect to recommendations for improvement made in GAO’s 2011 Report, Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement (GAO-11-836).  In that 2011 Report, GAO made four recommendations:

• Conduct selective audits of 340B covered entities to deter potential diversion;
• Further specify its 340B nondiscrimination guidance—i.e., prohibition of manufacturers’ discrimination against 340B providers when distribution of drugs is restricted—and require reviews of manufacturers’ plans to restrict distribution of drugs at 340B prices;
• Finalize new, more specific guidance on the definition of a 340B patient; and
• Further specify the eligibility criteria for non-publicly owned or operated hospitals that want to enroll in the 340B program.

According to Ms. Espinosa’s testimony, HRSA has already addressed the first two of these recommendations.  HRSA has been actively conducting selective audits since FY 2012, and HRSA published a clarification of its nondiscrimination policy in May 2012.  In addition, HRSA had planned to address GAO’s final two recommendations as part of its proposed omnibus regulation, which HRSA withdrew from OMB in November 2014 in light of a D.C. Circuit Court of Appeals ruling in May 2014 that HRSA lacked explicit statutory authority to issue it.  (Additional information on that court ruling is available here, and information regarding HRSA’s decision to withdraw its proposed omnibus regulation is available here.)  Ms. Espinosa reports that in place of the proposed omnibus regulation, HRSA intends to release proposed omnibus interpretive guidance for public notice and comment later this year.  Ms. Espinosa’s witness testimony is available by clicking here.

GAO Testimony

The witness statement by Debra A. Draper, Director of Health Care at GAO, describes the inadequacies in 340B Program oversight that GAO had previously identified in its 2011 Report, and HRSA’s progress in implementing GAO’s recommendations.  Ms. Draper summarizes the 2011 Report findings and the 340B Program context and background leading up to the 2011 Report.  Ms. Draper’s testimony is in line with HRSA’s testimony (summarized above), and is available by clicking here.

OIG Testimony

The testimony of Ann Maxwell, Assistant Inspector General at OIG, discusses “continuing challenges” faced by the 340B Program and recommends further improvements by (1) increasing transparency, and (2) clarifying program rules.  Specifically, OIG recommends that HRSA do the following:

• Share 340B ceiling prices with 340B providers and State Medicaid agencies—As part of the Affordable Care Act, Congress authorized HRSA to share 340B drug ceiling prices with providers, but HRSA has not implemented a mechanism to do so.  Confidentiality provisions in the Medicaid statute continue to prevent HRSA from sharing ceiling prices with States.  This lack of price transparency prevents 340B providers from verifying their payment amounts and prevents State Medicaid agencies from effectively enforcing their Medicaid payment policies for 340B-purchased drugs.
• Improve tools and guidance to help States and drug manufacturers identify which Medicaid claims have received the 340B discount—OIG cites accuracy problems with HRSA’s Medicaid Exclusion File upon which State Medicaid agencies must rely in order to identify which claims represent 340B-purchased drugs.  Without accurate information, the Medicaid agencies cannot appropriately reimburse providers for 340B and non-340B drugs, and cannot reliably exclude claims representing 340B-purchased drugs from invoices to manufactures for Medicaid drug rebates.  Moreover, the Medicaid Exclusion File cannot be used with Medicaid MCOs.  Prevention of duplicate discounts for drugs paid through Medicaid MCOs is an area of ongoing investigation at OIG.
• Clarify guidance on “patient” definition as it applies to different prescription-level transactions—OIG is particularly concerned about the rapid growth in contract pharmacy arrangements, and about the fact that HRSA’s current “patient” definition does not account for the operational realities of contract pharmacies, which generally have no way of identifying 340B-eligible patients and must rely on data matching and tools like patient and prescriber lists.  OIG notes that there are often inconsistencies in contract pharmacies’ determinations of 340B eligibility due to differences in their approaches to identifying 340B patients.
• Develop guidance on how 340B discounts should apply to uninsured patients at contract pharmacies—There are no requirements or guidance addressing how 340B providers must apply Program savings, or requiring that 340B discounts be passed along to uninsured patients.  OIG notes that some 340B providers have exercised their discretion to ensure that uninsured patients who fill prescriptions at contract pharmacies pay discounted prices, and others have not.  OIG notes, also, that even if providers wanted to implement such a policy, difficulties in identifying which contract pharmacy prescriptions are for 340B-eligible patients pose a major obstacle.

Ms. Maxwell’s testimony is available by clicking here.

Trade Association Comments

PhRMA, the national trade association serving the pharmaceutical industry, submitted a one-page letter to the Committee, available here, in which PhRMA expressed its growing concern about the impact of disproportionate share hospitals (DSH) on the 340B Program.  According to PhRMA, “DSH hospitals’ role in driving growth in the 340B program raises important questions about whether the program is serving its original goal of improving access to medicines for vulnerable or uninsured patients.”  PhRMA urged careful reexamination of the 340B Program.

Safety Net Hospitals for Pharmaceutical Access (SNHPA), the trade association of public and private nonprofit hospitals and health systems that participate in the 340B Program, submitted a written statement, which is available here.  SNHPA emphasizes that the longstanding mission of the 340B Program has been to “lower drug costs for safety net providers so they can provide more comprehensive services and reach more individuals.”  According to SNHPA, “[t]he 340B program is meeting that mission.” 

Additional information about the hearing, including a video of the hearing and links to opening statements and the witness testimony by witnesses from HRSA, GAO, and OIG are available on the Subcommittee’s website by clicking here.

Reporter, Susan Banks, Washington, D.C., +1 202 626 2953, sbanks@kslaw.com.