United States: OIG Proposes Alternative Part B Payment Methodologies For 340B Drugs: Is This The End Of 340B As We Know It?

Last Updated: December 3 2015
Article by Ellyn Sternfield

Last week, under the cover of the impending Thanksgiving Holiday, OIG lobbed another grenade at the 340B Drug Discount Program.  The means of delivery was an OIG Report on Medicare Part B payments for 340B drugs which found:

  • Nearly 1/5 of Medicare Part B drug expenditures in 2013 went towards purchasing 340B drugs, much of those purchases involving cancer drugs.
  • In the aggregate Medicare Part B and its beneficiaries spent $3.5 billion for 340B drug purchases in 2013.
  • Those Medicare Part B payments exceeded 340B ceiling prices by an average of 58% — meaning that in the absence of subceiling agreements, covered entities potentially reaped approximately $1.3 billion in profits on the purchase of those drugs.

OIG went on to propose three different Medicare Part B payment scenarios for 340B drugs.

This is not the OIG's first proposal regarding statutory changes to the 340B Program.  As we noted in March 2015, at the U.S. House of Representatives Energy and Commerce Subcommittee on Health hearing Examining the 340B Drug Pricing Program, OIG specifically recommended that state Medicaid Programs have access to 340B ceiling prices.  Multiple state Medicaid Programs require that covered entities make 340B drugs available to Medicaid patients and that those drugs be billed to Medicaid at the ceiling or 340B acquisition price.  But without access to ceiling price information, the respective Medicaid Programs cannot audit for compliance with the applicable state requirements.  At the time of the hearing, HRSA representatives stated that such a change would require Congressional action.

Now OIG is proposing additional Congressional action to allow Medicare and its beneficiaries to share in the savings generated by use of 340B drugs.  The OIG characterized its report as follows:

"As stakeholders debate the nature of 340B discounts and whether statutory changes should be made to enable Medicare and/or Medicaid to share in these savings, this report presents an independent analysis to inform the ongoing discussion and to support Congressional and Administration decision makers' efforts."

The OIG Report Rationale and Recommendations

Anyone who follows 340B knows that the program has been under attack from all sides, and questions have been raised as to whether the profits generated by the program have overshadowed the original, altruistic purpose of the program to provide safety net services to needy individuals.  As stated by OIG:

The 340B Drug Discount Program enables eligible health care providers – generally those that serve a disproportionate share of needy patients- to purchase prescription drugs at statutorily discounted prices.  The Program does not address what eligible providers may charge, and many payers (including Medicare and, in some cases, Medicaid), reimburse at amounts that are much higher than the acquisition costs of the drugs.

OIG also noted that there is no requirement that 340B covered entities report how they use profits generated by 340B drug reimbursements from private or public payers.

The OIG goes on to echo the findings in the May 2015 MEDPAC Report and a separate 2014 Report by the Community Oncology Alliance that a disproportionate amount of increased Medicare Part B payments for drugs go to 340B  hospital outpatient settings,  mainly for expensive cancer drugs.  In some instances, the difference between the 340B ceiling purchase price and the Part B reimbursement was so large that the beneficiary's 20% copayment responsibility more than covered the acquisition cost for the drug.  The OIG also noted that when it comes to these drugs, the hospitals separately bill and are reimbursed for the treatment/administration of the drug.  The Part B reimbursement is specifically intended to reimburse the purchasing cost of the drugs.

OIG acknowledges that many State Medicaid Programs have adopted provisions on billing 340B drugs to Medicaid at the 340B ceiling or acquisition cost, so that Medicaid receives the benefit of the 340B discounts.  While proposals for restructuring 340B are debated, OIG reasons that Congress should also consider changes to the Medicare Part B methodology for reimbursing covered entities for 340B drugs, to redistribute the financial benefits of the 340B Program and allow Medicare and its beneficiaries to share in the savings.  Medicare Part B reimbursement is presently set at 106% of ASP, or the reported Average Sales Price of the drug, with the 6% intended to cover overhead costs for purchase and storage.  The three payment alternatives proposed by OIG are:

  1. Reduce Medicare Part B reimbursement for 340B drugs from 106% of ASP to 100% of ASP. For 2013, this change would have represented a $130 million reduction in Medicare payments and a $32 million reduction in beneficiary responsibility, while still affording covered entities a profit of $1.1 billion over acquisition cost.
  2. Reduce Medicare Part B reimbursement for 340B drugs from 106% of ASP to 85.6% of ASP, so that the benefits of 340B savings are approximately equally split between covered entities and Medicare and its beneficiaries. For 2013, this change would have represented a $510 million reduction in Medicare payments and a $128 million reduction in beneficiary responsibility, while still affording covered entities a profit of $638 million over acquisition cost.
  3. Instead of using ASP as the basis for reimbursement, change the Medicare Part B reimbursement methodology to reimbursement at the actual 340B ceiling price plus 6% of ASP to cover overhead costs. For 2013, this change would have represented a reduction in Medicare payments of over $850 million and a $213 million reduction in beneficiary responsibility, while still affording covered entities an additional $211 million over acquisition cost.

What Happens Next? 

As we've recently written, HRSA's has limited options to implement changes to the 340B Drug Discount Program absent Congressional action.  Indeed, given the recent Court ruling invalidating HRSA's 340B Orphan Drug Interpretive Rule, it is questionable whether the HRSA Draft Omnibus Guidance on 340B issued earlier this fall will ever be finalized.

Maybe the OIG knows something we don't know:  that Congress is really intending to restructure the 340B Drug Discount Program.  And if so, without blatantly saying so, the OIG Report seems to raise the question:  Should participants in a government-created safety net program be able to earn profits from other government-funded safety net programs and their beneficiaries, especially when those participants have no obligation to report how they use those profits?

And if Congress is willing to address that question, given the dollars at stake the result will likely be a radical change in the operations of the 340B Drug Discount Program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ellyn Sternfield
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