A drug pricing program authorized under a 1992 amendment to the Public Health Service Act (Pub. L. 102-585 (1992); 42 U.S.C. § 256b), named 340B, requires drug manufacturers, in exchange for having its drugs covered by Medicaid, to sell outpatient drugs at discounted prices to individual hospitals. The 340B Drug Pricing Program helps hospitals extend limited federal resources to more patients and provide low-income individuals with affordable, life-saving drugs. But the program is under fire from drug manufacturers and the federal government. Pharmaceutical companies, including AstraZeneca, Eli Lilly, Merck, Novartis, and Sanofi, notified hospitals that they would no longer provide 340B program drug discounts if hospitals do not adhere to their requirements. The pharmaceutical companies want more detailed reporting from hospitals on distributing 340B drugs from contract pharmacies. The pharmaceutical manufacturers want to verify they are not paying duplicate discounts under both the 340B Program and the Medicaid Drug Rebate Program (MDRP) in violation of 42 U.S.C. 256b(a)(5)(B). In fact, covered entities [hospitals] must have mechanisms in place to prevent duplicate discounts in order not to violate the Duplicate Discount Rule. AstraZeneca and Eli Lilly stated they would cease distributing 340B drugs to contract pharmacies if hospitals have an in-house pharmacy.
The U.S. Department of Health and Human Services (HHS) cut the reimbursement rate for certain covered outpatient drugs under the 340B Program by approximately 30 percent. The Department’s final rule changed the formula to determine hospital outpatient reimbursement rates for covered drugs from average sales price plus 6 percent to average sales price less 22.5 percent.
Critics of the 340B program argue that hospitals use the Program to boost profits by obtaining inappropriate discounts. A 2019 report by the Government Accountability Office found that the program lacked oversight, providing deep discounts to hospitals ineligible to participate in the 340B Program.
Participating hospitals include those empowered by state or local governments and those with state and local government contracts to provide services to low-income people not eligible for Medicaid or Medicare. Approximately 2,500 hospitals participate in the 340B program, of which 1,700 are nongovernmental hospitals. The Health Resources and Services Administration (HRSA), an agency of the HHS, administers and oversees the 340B Program. It approves hospitals to participate in the 340B Program and ensures they perform a government function to provide care to low-income, medically underserved patients. But HRSA primarily relies on hospitals and manufacturers to self-police their compliance with program requirements. In March 2010, HRSA issued guidelines for contract pharmacy services.
HRSA requires state or local governments to certify that written agreements exist for a hospital to provide services to low-income patients, but does not require hospitals to submit agreements for review. The Agency expects manufacturers to ensure they correctly calculate the 340B drug prices and expects hospitals to develop adequate safeguards to prevent the resale of 340B drugs to persons who are not patients of the hospital (diversion) in violation of 42 U.S.C. 256(a)(5)(A). It is the responsibility of the covered entity to ensure against diversion and duplicate discounts.
Pharmacies under contract with 340B hospitals should develop procedures to ensure they dispense discounted drugs to eligible patients, maintain auditable records that demonstrate their compliance with the program, and inform hospitals or HRSA if violations occur. Contract pharmacies and covered entities should be aware of the potential for civil or criminal penalties if the contract pharmacy violates Federal or State law. In negotiating a contract pharmacy service agreement pursuant to HRSA guidelines, contract pharmacies and covered entities should take into consideration the federal Anti-Kickback Statute.
How Frier Levitt Can Help
Frier Levitt works with all stakeholders and participants, including hospitals, drug manufacturers, and pharmacies. Frier Levitt life sciences attorneys have extensive experience with navigating the 340B Drug Pricing Program, HRSA guidelines, and Medicaid Drug Rebate Program. We will continue to monitor developments in the law relating to issues surrounding 340B. Please contact us for more information.
