Restructuring the 340B Drug Discount Program and Part B payment rules could reduce Medicare drug expenditures by up to $1.1 billion, the HHS Office of Inspector General (OIG) reported last week.  The 340B Program requires that, in order for pharmaceutical manufacturers’ drugs to be covered by Medicaid, manufacturers must agree to sell covered outpatient drugs at statutorily defined discount prices to certain providers, or covered entities, serving vulnerable patient populations.  The acquisition costs for 340B-purchased drugs are typically lower than drugs purchases through other channels.  Under current Medicare policy, covered entities get to keep any Part B reimbursement amounts received that exceed the 340B purchase price for the drug(s) at issue.

OIG found that in 2013, Medicare spent $3.5 billion on discounted drugs that covered entities bought.  Covered entities, meanwhile, spent only $2.2 billion to acquire those drugs.  In its report, OIG developed three scenarios to return to the Medicare program a portion of those savings.

Under scenario one, Part B would reimburse at 100 percent of the average sales price (ASP), rather than the 106 percent rate currently paid to adequately reimburse providers for drug costs.  This would have reduced Medicare expenditures by $162 million in 2013.  The second scenario would split the 340B discount equally between Medicare and covered entities, which OIG estimated would have reduced Medicare expenditures by $638 million in 2013.  The third scenario would give covered entities a comparable margin on 340B drugs as they would receive on non-340B drugs.  OIG estimated this scenario would have reduced Medicare expenditures by $1.1 billion in 2013 and left covered entities with $22 million in discounts.

The OIG report noted it was purely a financial exercise and did not analyze how those changes could affect covered entities’ capability to serve their communities.  The report also cautioned that covered entities must retain sufficient financial incentive to purchase Part B drugs through the 340B Program.  The report was intended to inform the debate regarding whether the 340B program should be restructured.

The full report can be found here.