340B: A Small Program with Big Problems

A humble prediction: Policymaker awareness of the 340B drug program and all its complexities will grow exponentially in the next six to 12 months. Although covered entities spend only an estimated $6 billion annually on drug purchases (reportedly less than 2 percent of the total pharmaceutical market), the 340B program will face increasing scrutiny on a number of fronts, including from Capitol Hill, participating manufacturers, the press and an assortment of competing interest groups. Ready or not, this well-intended program is about to face its greatest challenge.

Congress enacted the 340B program in 1992 to provide outpatient drugs to eligible healthcare organizations/covered entities at significantly reduced prices, and to enable covered entities to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” The substantially reduced price for covered outpatient drugs is sometimes referred to as the “340B price.” Limited to outpatient drugs, the 340B program entails the following:

  • Drug manufacturers participating in Medicaid must provide discounts on covered outpatient drugs to covered entities.
  • The program is overseen by Health Resources and Services Administration (HRSA).
  • The program is administered by the Office of Pharmacy Affairs (OPA) and supported by contractors.
  • Manufacturer participation is required for those manufacturers whose drugs are covered under Medicaid and Medicare Part B.
  • Manufacturers enter into “Pharmaceutical Pricing Agreements” (PPAs) with HRSA.

Several critical issues must be determined regarding program eligibility.

  • Is the outpatient healthcare entity considered a participant in the program? Covered entities must be Disproportionate Share Hospitals (11.75 percent of patients must be Medicaid eligible).
  • Is the entity registered or has it been recertified on an annual basis?

Next, the 340B statute defines “covered outpatient drug” by referring to the definition in the Medicaid statute for rebate purposes, which generally includes:

  • FDA-approved prescription drugs.
  • OTC drug written on prescription.
  • Biological product that can be dispensed only with a prescription.
  • FDA-approved insulin.

The definition generally does not include vaccines, inpatient drugs and OTC drugs not written on a prescription.
One of the concerns with the program, however, has to do with the fact that the answer to the question, “What is a covered outpatient drug?” is not always clear.

The Patient Protection and Affordable Care Act (PPACA) expanded the types of hospitals eligible to participate in the 340B program and instituted new programs for ensuring that both pharmaceutical manufacturers and covered entities comply with 340B program requirements. The expansion included hospitals previously excluded from the program, including children’s hospitals, cancer hospitals and critical access hospitals (CAHs). One thing that the legislation did not do, as some expected, was to expand the 340B program to cover inpatient drugs.

More recently, the U.S. General Accountability Office (GAO) issued a report entitled, “Drug Pricing Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement.” The September 2011 report opened the door to further Congressional action, including hearings and demands for subsequent program reviews. Republican members appear particularly interested in examining the program. In January, Senators Chuck Grassley (R-Iowa), Lamar Alexander (R-Tenn.), Orrin Hatch (R-Utah), and Mike Enzi (R-Wy.); and Reps. Joe Pitts (R-Pa.) and Bill Cassidy (R-La.) wrote to HRSA requesting more information about the audits HRSA conducted to certify that covered entities are still eligible for the 340B program.

A new coalition called Alliance for Integrity and Reform of 340B, or Air340B, has also entered the debate. Launched in February, the organization has a website (www.340Breform.org) and published a white paper calling on Congress to conduct a “thorough examination of the 340B program to ensure it is meeting its original goals.” One of the stated goals of the coalition is to refocus the program on patient access rather than expanding to the inpatient setting.

HRSA issued a Program Notice (2013-1) in February intended to ensure 340B program integrity, particularly with respect toGPO prohibition compliance by 340B-program-covered entities. Despite its intentions, however, the Program Notice has caused substantial confusion and uncertainty regarding whether it is possible in practice for a 340B-program-covered entity to comply with the Program Notice without maintaining separate physical inventories for drugs purchased through the 340B program and those purchased through GPOs. The effective date of the Program Notice has already been extended from April 7, 2013, to August 7, 2013. If hospitals can’t comply because of billing software issues, they will need another deadline extension, which they may or may not receive.

The important yet highly complex 340B program has come under the microscope. Most would agree that assisting appropriate patient populations is an important and worthy goal and that government program integrity must be maintained. What is less clear, however, is how the 340B program will hold up in the coming months to the intense scrutiny it will face from both legislators and industry.

Curtis Rooney is president of the Healthcare Supply Chain Association, www.supplychainassociation.org.

About the Author

Curtis Rooney
Curtis Rooney is president of the Healthcare Supply Chain Association, www.supplychainassociation.org