340B Drug Program Under Scrutiny

Hospitals, community health centers, and clinics that participate in the federal 340B drug pricing program are finding themselves under scrutiny from some members of Congress and the pharmaceutical industry because of recent expansion of the Affordable Care Act (ACA). In addition, oncology practices are casting a wary eye because the additional revenue hospitals save by participating is not subject to oversight, and could lead to more acquisitions of community oncology practices by hospitals.

A study from the Berkeley Research Group found that acquisitions of physician-based oncology practices by 340B covered entities have increased significantly over the 2009—2012 time period; preliminary data in 2013 indicate this trend continuing.

Those health care entities that participate in the program can buy outpatient prescription medication from drug manufacturers at a discount of 25% to 50%. Hospitals can then charge higher rates to insured patients and keep the extra revenue. Critics contend that the revenue from the discounts are not always used to improve patient care.

An article by Kaiser Health News says the Obama administration has promised to propose “clearer rules for the [340B] program, which had been expected earlier this month, but a recent federal district court ruling has questioned whether they have that authority.”

Hospitals and clinics wishing to participate must meet federal requirements, including non-profit status, serve a percentage of low-income or uninsured patients, or receive federal grant funding. Under the ACA, the program was broadened to include more facilities that can qualify, including facilities located in rural areas and have no more than 25 inpatient beds.

The Health Resources and Services Administration (HRSA) runs the discount drug program and in 2011, the Government Accountability Office called HRSA’s oversight inadequate because it relied on self-policing by participating entities. HRSA addressed those concerns with greater auditing of some participants.

This past May the US District Court for the District of Columbia struck down an HRSA regulation that governed sales under 340B, saying the agency did not have the authority to issue the regulation. According to the KHN article, the ruling “has thrown into question the HRSA’s ability to issue broad regulations” about the program, said Ellyn L. Sternfield, an attorney with the firm Mintz Levin. The suit was brought by the Pharmaceutical Research and Manufacturers of America (PhRMA).

A posting on the agency’s website contends that the agency continues to stand by its interpretation described in the published final rule, which allows the 340B covered entities affected by the orphan drug exclusion to purchase orphan drugs at 340B prices when orphan drugs are used for any indication other than treating the rare disease or condition for which the drug received an orphan designation.