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From Health Law Daily, June 29, 2018

Oversight of 340B Program leaves room for noncompliance

By Patricia K. Ruiz, J.D.

Gaps in oversight of the 340B Drug Pricing Program (340B Program) by the HHS Health Resources and Services Administration (HRSA) impedes the ability of HRSA to ensure compliance with 340B compliance, the Government Accountability Office (GAO) concludes in a report detailing the use of contract pharmacies in the 340B Program. HHS concurred with most of the GAO’s recommendations for improving oversight but expressed concerns that additional oversight activities would slow down the audit process (GAO Report, GAO-18-480, June 21, 2018).

The 340B Program requires drug manufacturers to sell outpatient drugs at a discount to covered entities, such as certain hospitals and federally qualified health centers, so that the drugs may be covered by Medicaid. The covered entities can generate revenue by receiving reimbursement from the patients’ insurance. Between 2010 and 2017, the number of pharmacies covered entities have contracted with to dispense drugs (contract pharmacies) has increased from approximately 1,300 to almost 20,000. HRSA’s efforts to ensure compliance with 340B Program requirements at contract pharmacies. For this study, the GAO selected and reviewed a sample of 30 contracts between covered entities and pharmacies, 20 HRSA audit files, and 55 covered entities.

Findings. In its review, the GAO found that out of the 30 covered entities, all but one contract included provisions for the covered entity to pay the contract pharmacy a flat fee, ranging from $6 to $15, for each eligible prescription dispensed. The amount paid varied by factors such as the type of drug and the patient’s insurance status. Additionally, some covered entities paid contracting pharmacies a percentage of revenue generated by each prescription. Of the 55 covered entities reviewed, thirty reported providing discounts on 340B drugs to low-income, uninsured patients. Of the 30 covered entities, 23 passed on the full 340B discount on to patients, such that the patient paid the 340B price or less for drugs. Nearly half (14) of the cover entities determined eligibility for discount based on the patient’s income level, while 11 provided discounts to all patients, and 5 determined eligibility on a case-by-case basis.

Weaknesses in oversight. The GAO identified weaknesses in HRSA’s oversight impeding the ability to ensure contract pharmacies’ compliance with 340B Program requirements. The GAO found that, in focusing solely on Medicaid fee-for-service and not Medicaid managed care, HRSA audits do not fully assess compliance with the prohibition on duplicate discount drugs (such as a 340B discount paired with a Medicaid Drug Rebate Program rebate) prescribed to Medicaid beneficiaries. The GAO also found that, when requiring covered entities with identified noncompliance issues to assess the extent of the noncompliance, the HRSA does not require all covered entities to explain the methodology used in determining the extent of noncompliance. Finally, the GAO found that HRSA does not require covered entities to provide evidence of corrective action and evidence of compliance prior to closing the audit. These weaknesses show that HRSA does not have reasonable assurance that covered entities have adequately identified and corrected noncompliance with the requirements of the 340B program.

Recommendations. The GAO recommended that HRSA require covered entities to register each site for which a contract with a pharmacy exists; issue guidance to covered entities on the prevention of duplicate discounts; incorporate an assessment of covered entities’ compliance with the prohibition on duplicate discounts for managed care claims; issue guidance on the length of time covered entities must look back following an audit to identify the scope of noncompliance; require all covered entities to provide evidence of successful implementation of corrective action plans; and provide more specific guidance to covered entities regarding contract pharmacy oversight. The HHS concurred with four recommendations but did not concur with the recommendations regarding registration of contract pharmacies and the two recommendations requiring covered entities to specify methodologies for identifying the scope of noncompliance and to provide evidence of successful implementation of corrective action plans. HHS believes current practices may be sufficient and that the recommendations may delay the audit process.

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