The agency that oversees the 340B Drug Discount Program (340B program) is seeking review by the White House Office of Management and Budget (OMB) of a proposed rule that would use civil monetary penalties to enforce ceiling price regulations. The Rule, proposed by the Health Resources and Services Administration (HRSA), rule seeks to enforce the 340B program’s requirement that drug manufacturers not charge more than a certain amount permitted for drugs purchased under the program – the ceiling price.

Created in 1992, the 340B program requires drug manufacturers to provide discounts on outpatient prescription drugs to qualifying safety-net healthcare organizations serving low income, vulnerable populations known as “covered entities.” It is estimated that one-third of all U.S. hospitals are covered entities that participate in the 340B program.

The proposed rule is required by the Affordable Care Act (ACA) and seeks to impose civil monetary penalties against drug manufacturers who intentionally overcharge covered entities. The rule responds to findings by the U.S. Government Accountability Office (GAO) and U.S. Department of Health and Human Services Office of the Inspector General (HHS OIG) raising concerns that, among other problems with the 340B program, there is a need for more transparency of 340B ceiling prices to ensure that drug manufacturers are not overcharging covered entities. The rule will become available to the public after OMB completes its review process.

In November 2014, HRSA officially withdrew a proposed rule for the regulatory review process that would address a wide range of issues affecting the 340B program following litigation surrounding HRSA’s limited rulemaking authority. In May 2014, in Pharmaceutical Research and Manufacturing of America (PhRMA) v. HHS, the U.S. District Court for the District of Columbia determined that HRSA does not have broad rulemaking authority such as issuing a rule to exclude orphan-drug purchases from the 340B program. Rather, the court determined that HRSA’s authority is limited to establishing standards to impose civil monetary penalties on drug manufacturers participating in the program, the calculation of the 340B ceiling prices, and implementation of an administrative dispute resolution process. In response, HRSA reissued the orphan drug rule as a nonbinding “interpretative” rule, which has resulted in a second lawsuit that is pending in the same court.

In March 2015, the House Energy and Commerce Health Subcommittee heard testimony on the 340B program’s functionality, impact on stakeholders and concerns raised by GAO and HHS OIG. HRSA’s Deputy Administrator, Diana Espinosa, stated that HRSA expects to release guidance on the three areas within its authority for public comment later this year.

Despite pending litigation and the shift in control of Congress following the 2014 midterm elections, HRSA’s proposed rule for civil monetary penalties marks its first step toward comprehensive reform of the 340B program.