Federal Agency Too Weak to Regulate 340B Drug Discount Program

A fresh study of the much exploited 340B Drug Discount Program says that draft guideline revisions under consideration would likely not be successful because the Health Resource and Services Administration (HRSA) does not have the statutory authority to impose or to enforce them.

The report, which appeared in the Food and Drug Law Journal in January, says that adequate rulemaking authority must be delegated to the HRSA in order to correct the abuses by “thousands” of healthcare institutions and contract pharmacies that are enriching themselves at the expense of indigent patients.

“Congress’ initial mistake was vesting HRSA with responsibility to administer the 340B Program [and] failing to delegate administrative authority to create, implement and enforce the program in the manner that would achieve congressional intent,” the report says.

The 340B program allows healthcare institutions to purchase drugs at 20% to 50% discounts from drug manufacturers and receive full compensation from payers. The report charges that these health institutions are pocketing the spread between the covered price and the discounted price, while contract pharmacies are profiting by dispensing 340B discounted drugs without the ability to determine patient eligibility.

There are now 11,000 covered health institutions enrolled in 340B, triple the number of participating providers in 2005 and representing one-third of US hospitals. In 2014, $7 billion of 340B drugs were purchased, an amount forecast to reach $12 billion by 2016, according to the report.

It calls for a redefinition of a patient who is eligible to benefit from the program, contending that “covered entities have interpreted patient eligibility very broadly to include all patients regardless of income or insurance status, as neither the 340B law nor HRSA guidance has proscribed them from doing so.”

Duke University Hospital purchased $65.8 million in 340B drugs in 2012 and sold those to patients for $135.5 million, resulting in a profit of $69.7 million, the report states, citing an investigation by Senator Charles Grassley (R-Iowa). Duke admitted that it dispensed 70% of the drugs to commercially insured patients and only 5% to its uninsured patients, the report states.

Without a more restrictive definition of an eligible patient, those institutions that are currently abusing 340B will likely continue to argue that the revenues they are able to pocket reflect congressional intent that the savings on drug purchases do not need to be reinvested for the benefit of uninsured patients, the report says.

“Absent more specific parameters, covered entities will likely follow Duke University Hospital’s model of dispensing the majority of discounted drugs to commercially insured patients,” the report states.

The report also advises that 340B financial incentives be restructured so that hospitals and other participating institutions must first purchase the drugs at the normal price and then apply for rebates; as opposed to the current system, where the drugs are obtained at a discount and payers are billed at the going rate.

“Covered entities would submit requests for reimbursement to HRSA to be reviewed and approved (after the services have been rendered to the patient), and then drug manufacturers would issue a rebate to covered entities reflecting the discount amount,” the report says.

The hoped-for result of restructuring the incentive process is that windfalls to covered institutions would be limited and the cost of the drug to the patient would be limited to the balance after the drug rebate, the report says.

The report charts two decades of exploitation of 340B as it has rapidly grown both in terms of dollar amounts and in the number of participating entities, among them pharmacy companies like Walgreens, which the report notes was criticized by Grassley for having coached its staff on ways to maximize 340B activity to achieve better returns.

Zeta LM. Comprehensive legislative reform to protect the integrity of the 340B Drug Discount Program. Food Drug Law J. 2016;70(4):480-499.