United States: HHS OIG Reports Findings On 340B Contract Pharmacy Program

Last Updated: February 25 2014
Article by Donna Lee Yesner

Program often fails to pass through savings to uninsured patients and creates risk of diversion and duplicate discounts.

As a condition of payment for covered outpatient drugs by Medicaid, manufacturers must enter into a contract with the Department of Health and Human Services (HHS) to sell their drugs to eligible safety net hospitals and clinics, called "covered entities," at a deeply discounted statutory price, referred to as the 340B price after the section of the Public Health Service Act that created this program.1 In order to make it easier for patients of covered entities to receive 340B drugs, the Health Resources and Services Administration (HRSA) permits covered entities to contract with outside pharmacies to dispense prescriptions on behalf of the covered entities.2 On February 4, 2014, the HHS Office of Inspector General (OIG) issued a report of its review of the 340B contract pharmacy program.3

The OIG Report includes four key findings:

  • The contract pharmacy program has increased the volume of drugs purchased by covered entities at 340B prices, but has frequently failed to provide discounted drugs to uninsured patients.
  • The complicated arrangements between covered entities and outside pharmacies make it more difficult for covered entities to comply with the statutory prohibition against diversion of 340B drugs, i.e., providing 340B drugs only on an outpatient basis to persons who are eligible patients.
  • The arrangements also create risk of noncompliance with the statutory requirement that covered entities prevent duplication of discounts when the drugs are paid for by the Medicaid program and subject to manufacturer rebates.
  • Most covered entities do not conduct all the oversight activities recommended by HRSA.

Since HRSA dramatically expanded the contract pharmacy program in 2007, the pharmaceutical industry has expressed concerns about the program's lack of controls intended to prevent diversion and duplicate discounts; the OIG Report echoes those concerns.

REPORT FINDINGS

Uninsured Patients

The 340B discounts were intended to help covered entities reduce costs and use the savings to provide more care to indigent and uninsured patients. Covered entities are also allowed to generate profits from the sale of 340B drugs to insured patients in order to help uninsured patients access needed medication. However, that fundamental program goal is not always being achieved under the contract pharmacy program. According to the OIG Report, a majority of contract pharmacies dispense prescriptions from their own stock and adjudicate managed-care claims at the point of sale, and then determine after the pharmacy has been paid by the customer and third-party payer whether the dispensed drugs need to be replenished with 340B drugs.4 In this claim adjudication model, the OIG Report notes, unless a patient has a pharmacy benefit card from the covered entity, which would necessitate adoption of cumbersome and costly procedures, an uninsured cash-paying customer will not be identified as a patient of that covered entity until after the transaction is complete and the patient has paid the contract pharmacy's undiscounted rate.5 Additionally, pharmacies must be willing to charge a discounted price for drugs dispensed to uninsured patients.6 To date, many retail pharmacies have been unwilling or unable to adapt their operations to recognize and honor covered entities' patient assistance programs.

The irony of the contract pharmacy program is that it is supposed to make it more convenient for patients of covered entities to access 340B drugs, but that does not mean that pharmacies provide such patients with discounts on drugs purchased under the 340B program. Insured patients of covered entities do not benefit from 340B prices when their prescriptions are filled by contract pharmacies—health plans pay pharmacies the rate established by agreement between the plan or its pharmacy benefit manager and the pharmacy. And though uninsured patients often receive free or discounted drugs from covered entities' in-house pharmacies, retail pharmacies typically charge cash payers a higher rate than their insured customers. Consequently, the most vulnerable patients of covered entities may pay more when they take their prescriptions to their neighborhood pharmacies.

Passing through 340B savings to uninsured patients can create operational challenges for contract pharmacies; these pharmacies are also commercial ventures and may have little business reason to adjust their operations to identify 340B prescriptions before the drugs are dispensed. Pharmacies often participate in this program only to the extent that the administrative fee or share of the resale price for 340B drugs (deducted from the amount remitted to the covered entity) is more profitable than the sale of their own stock. For example, contract pharmacy arrangements sometimes omit prescriptions of generic drugs because the retail margin over cost is greater than brand drugs. As a result, the parties to contract pharmacy arrangements may profit more on the resale of 340B drugs to an uninsured patient than they would on the resale to a patient covered by insurance, which pays the pharmacy a lower negotiated rate.

Diversion

A covered entity may provide 340B drugs only to its patients. Although this statutory provision seems simple, the point at which a person is considered a patient is not clearly understood. The OIG Report found significant discrepancies regarding prescriptions written by medical professionals not on the covered entity's staff or under contract, prescriptions written for medication unrelated to a patient's treatment, and the length of time after a patient encounter that a covered entity will consider a prescription eligible to be filled with 340B drugs.7 Some covered entities consider prescription refills eligible for a year after the initial encounter. Unless the definition of a patient is tightened up, covered entities can effectively become dispensers of chronic care drugs through contract pharmacies, earning significant revenue from their patients' medications for long periods of time and taking business from traditional pharmacies.

Duplicate Discounts

Both Medicaid fee-for-service and managed-care plans pay pharmacies for drugs dispensed to their beneficiaries on an outpatient basis; the states also collect rebates from manufacturers on those prescriptions. The 340B statute requires covered entities to ensure that rebates are not paid on the discounted drugs they purchase under the program.8 Otherwise, manufacturers can pay triple discounts: a discounted purchase price to the covered entity, a base rebate to Medicaid, and an additional rebate to the Medicaid managed-care organization or a supplemental rebate to the state Medicaid program. This combination of discounts and rebates could easily create a below-cost sale for the manufacturer. According to the OIG Report, however, many contract pharmacies cannot determine when a managed-care plan is covering a Medicaid patient of a covered entity, and thus replenish such prescriptions with 340B drugs without notifying the state.9 Others notify the state when they dispense 340B drugs to Medicaid beneficiaries but lack a method to prevent duplicate discounts. As a result, a significant percentage of Medicaid prescriptions are being subjected to double and triple discounts.

The OIG Report notes that some covered entities instruct their contract pharmacies to use the covered entity's unique number when adjudicating Medicaid prescriptions to enable the states to locate the covered entity in HRSA's database and identify 340B utilization to be excluded from rebate claims.10 Requiring the use of these identifiers in connection with all 340B patient prescriptions would help prevent duplicate discounts and enable manufacturers to verify claims. As discussed below, it would also prevent improper inclusion of 340B utilization in rebate claims submitted to the Department of Defense (DoD) under the Tricare program and could facilitate enforcement of duplicate discounts provisions in Medicare Part D agreements. However, covered entities and contract pharmacies do not like to use identifiers because pharmacy benefit managers that can identify 340B prescriptions may want to use their leverage to reduce their health care plans' costs and insist on paying less for the discounted drugs.

CONCERNS NOT ADDRESSED IN THE REPORT

Orphan Drug Rule

The Affordable Care Act expanded the number of covered entities eligible to purchase 340B drugs by adding several new categories of hospitals to the list of covered entities in section 340B, and at the same time, for those newly eligible entities, excluded drugs designated as orphan drugs under section 526 of the Federal Food, Drug, and Cosmetic Act from the program.11 In 2013, HRSA promulgated a final rule that significantly limited the application of this statutory provision by interpreting it as limited to purchases of drugs designated as orphan drugs only when the hospitals use them for orphan indications.12 Hospitals subject to the rule have to develop system controls to ensure that they can identify and segregate purchases of 340B drugs by treatment in order for the exclusion to apply. Industry comments on the rule raised issues presented by contract pharmacy arrangements because prescription data needed to identify 340B patients typically does not include diagnosis or procedure codes indicating an orphan or non-orphan indication. The OIG apparently did not review whether newly eligible hospitals' contract pharmacies could determine whether drugs they dispense are used to treat an orphan disease or condition, which would make the drugs ineligible for 340B prices.

Tricare Retail Pharmacy Regulation

Pursuant to 32 C.F.R. § 199.21(q), DoD is entitled to mandatory rebates on prescriptions of innovator drugs dispensed by retail pharmacies within the Tricare network, except for prescriptions filled with 340B drugs. This prohibition against duplicate discounts is thus established by DoD regulation, rather than the 340B statute. Nevertheless, transactions with covered entities are by law excluded from Tricare rebate claims. Unlike the 340B statute, the Tricare regulation imposes no obligation on covered entities to ensure that they are notifying DoD when 340B drugs are dispensed to Tricare beneficiaries. As a result, Tricare cannot identify when a prescription adjudicated by a retail pharmacy is dispensed on behalf of a covered entity, and manufacturers usually lack data to dispute the Tricare claim. Use of an identifying number on prescriptions, as some pharmacies are doing with Medicaid managed-care organizations, would resolve this issue.

CONCLUSION

The OIG Report exposes multiple problems with the contract pharmacy program, which has expanded the 340B program beyond the borders of participating institutions and grown exponentially over the last three years.13 Although HRSA created this program to make it more convenient for patients of covered entities to get their medications at neighborhood pharmacies, there has never been a restriction on which pharmacies can dispense prescriptions generated by these hospitals and clinics. Moreover, the only patient benefit to receiving drugs that were purchased under the 340B program is if the contract pharmacy arrangement provides the drugs to the patients at a discount. However, insured patients pay the same rate to a pharmacy regardless of whether the pharmacy is dispensing 340B drugs, and, unfortunately, as the OIG Report found, uninsured patients often receive no discount on drugs purchased under the 340B program when dispensed by contract pharmacies. The OIG Report also revealed compliance problems that have been the subject of pharmaceutical industry concerns for many years. Some of these issues could be resolved if unique covered entity identifiers were required to be included in the prescription data when 340B drugs are dispensed, and if this data were available to the contract pharmacy administrator, Medicaid, Tricare, and manufacturers that need to validate rebate claims.

In the meantime, covered entities remain responsible for contract pharmacy compliance with the 340B program. Accordingly, those participating in contract pharmacy arrangements should consider the adequacy of their oversight and ensure that they have robust policies and procedures in place. In addition, covered entities may wish to consider how they can work with contract pharmacies to implement the covered entity's pharmacy assistance program for indigent and uninsured patients and to enlist HRSA's help by including a requirement to provide such assistance to these patients as an element of the contract pharmacy program.

Footnotes

[1]. 42 U.S.C. § 1396r-8(a)(5); 42 U.S.C. § 256b.

[2]. 75 Fed. Reg. 10,272 (Mar. 5, 2010)

[3]. Contract Pharmacy Arrangements in the 340B Program (OIG Report), OEI-05-13-00431

[4]. Id. at 5.

[5]. Id. at 14. If covered entities identify 340B prescriptions as written, contract pharmacies can charge a discounted price if they are willing to do so.

[6]. Id. The OIG Report found that about half of the covered entities in the OIG's survey offered discounted 340B prices to uninsured patients in at least one of their contract pharmacy arrangements, suggesting that only certain pharmacies are willing to do offer a discounted rate. Some of these charge uninsured patients on a sliding-scale basis.

[7]. Id. at 9–12.

[8]. 42 U.S.C. § 256b(a)(1)(5).

[9]. Id. at 13.

[10]. Id. at 13–14.

[11]. 42 U.S.C. § 256b(e).

[12]. 78 Fed. Reg. 44,016 (July 23, 2013).

[13]. From March 5, 2010 to May 31, 2013, the number of unique pharmacies participating in the program has increased by 770% and the total number of contract pharmacy arrangements has increased by 1,245%. OIG Report at 2.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions