Update on Successes and Hurdles in Improving 340B Program Oversight

On July 18, 2017, the Government Accountability Office (GAO) issued a follow-up report entitled “Update on Agency Efforts to Improve 340B Program Oversight.” In its initial report in 2011, the GAO highlighted the inherent weakness of federal 340B Drug Pricing Program (referred to as the “340B Program”) oversight, which is administered by the Health Resources and Services Administration (HRSA), Office of Pharmacy Affairs (housed within the U.S. Department of Health and Human Services). In the most recent report, the GAO indicates that HRSA has had mix success in adopting GAO’s oversight recommendations.

The federal 340B Program was established in 1992 and mandates that pharmaceutical manufacturers that wish to participate in the Medicaid program must discount outpatient drugs to certain qualifying healthcare providers, known as covered entities. Among such covered entities, there are currently several types of hospitals that can participate in the program, provided they meet all applicable requirements. These eligible participants include disproportionate share hospitals, children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, and hospital outpatient facilities.

In September 2011, the GAO issued its first report to Congress regarding the 340B program, entitled “Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement.” This report concluded that HRSA’s oversight of the 340B Program (1) did not provide adequate assurances that covered entities and drug manufacturers were in compliance with Program requirements; (2) lacked adequate specificity to provide clear direction to ensure participant compliance; and (3) failed to confirm eligibility of covered entities or conduct an audit. It also pointed out that the Program is increasingly used in hospital settings, where the risk of drug diversion is greater because hospitals serve both eligible and ineligible patients. The GAO Report further noted that drug manufacturers have questioned whether the Program is even needed, as health reform extends health insurance coverage to more individuals.

The 2011 GAO Report recommended several specific actions to improve oversight, including (1) conducting audits of 340B covered entities to deter diversion; (2) finalizing more specific guidance on the definition of a patient; (3) issuing guidance to further specify the criteria that non-publicly owned hospitals must meet to be eligible for the Program; and (4) issuing guidance for manufacturers when handling cases where drug distribution is restricted. Now, in its 2017 report, the GAO provides a status update on HRSA’s success rate in adopting its suggested improvements to the 340B Program.

The GAO specifically noted that HRSA has taken affirmative steps to address two of the GAO’s four primary recommendations:

• First, HRSA adopted the GAO recommendation to conduct audits of covered entities to ensure compliance with the program. HRSA now conducts 200 audits a year, which have discovered instances of non-compliance, including dispensing of drugs to ineligible patients. Therefore, HRSA no longer solely relies on covered entities and manufacturers to self-police to ensure program integrity.
• Second, in May 2012, HRSA clarified its policy for when manufacturers may restrict distribution of a drug and provided additional detail on the type of information that manufacturers should include in their restricted distribution plans.

However, HRSA has yet to implement changes to address the GAO’s remaining recommendations, such as (i) to issue guidance and clarification to the definition of an eligible patient and (ii) hospital eligibility criteria for program participation. HRSA agreed that additional specificity was needed on these action items and released proposed guidance in 2015 to address the issue. But these guidance updates hang in the balance as the agency was forced to withdraw its draft pursuant to the Trump administration’s “Freeze Memo,” which halted all pending federal guidance. Therefore, for the foreseeable future, 340B program participants must continue to fend for themselves in interpreting these vague program requirements.

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