Executive Summary

On Tuesday, March 24, 2015, representatives from the Government Accountability Office (“GAO”), the Department of Health and Human Services Office of the Inspector General (“OIG”) and the Health Resources Services Administration (“HRSA”) testified regarding the drug discount program authorized by Section 340B of the Public Health Services Act (“340B Program”).  The testimony took place in front of the United States House of Representatives Committee on Energy and Commerce Subcommittee on Health (the “Subcommittee”) and produced some interesting insights addressed in greater detail below. 

Although some notable insights arose out of the hearing, 340B Program stakeholders including both manufacturers and purchasing Covered Entities (defined below) will ultimately need to wait until HRSA’s eagerly anticipated comprehensive 340B Program guidance (“Omnibus Guidance”) is released later in 2015 for actionable guidance regarding key 340B Program issues.  These issues include “Eligible Patient” definition clarity, possible contract pharmacy implementation limitations, acquisition cost reporting requirements and non-governmental hospital eligibility requirements.

In discussing the implications of the Subcommittee hearing below, we first detail the major 340B Program stakeholder takeaways.  We then provide a brief overview of the 340B Program and discuss some of the major outstanding implementation issues likely to be addressed in the Omnibus Guidance.  Finally, we provide a high-level summary of the Subcommittee testimony and question-and-answer session before contemplating the practical effects that the hearing may have on participating 340B Program manufacturers and Covered Entities.

Key Takeaways

At a high level, the Subcommittee testimony yielded the following insights:

  • HRSA plans on releasing a tool making 340B Ceiling Prices (defined below) available to Covered Entities by late 2015;
  • The proposed Omnibus Guidance is expected to be made publicly available in proposed form for notice and comment later this year, likely sometime between June and the end of this federal fiscal year (prior to October 1, 2015);
  • Given the significant implications for all 340B Program stakeholders, HRSA will be actively seeking formal comments on proposed Omnibus Guidance before it is finalized; and
  • HRSA intends to continue audits of 340B Covered Entities and to increase manufacturer audit activity.


340B Program participating health care providers (“Covered Entities”) may purchase drugs at discounted rates from manufacturers for dispensation to certain qualified patients (“Eligible Patients”).  Drug manufacturers must set those rates at or below a statutorily defined maximum price (“Ceiling Price”) in order to have their drugs paid for by Medicaid.

In 2011, GAO issued a report (“2011 GAO Report”) indicating that HRSA had failed to adequately monitor Covered Entity and  manufacturer 340B Program compliance and recommended that HRSA adopt four specific changes to achieve better oversight. Specifically, GAO recommended that HRSA: (i) conduct selective audits of Covered Entities to deter potential diversion; (ii) clarify 340B Program pricing nondiscrimination guidance in light of more frequent distribution restrictions; (iii) finalize new, more specific guidance on the definition of an Eligible Patient; and (iv) issue guidance to further specify the criteria that non-publicly owned hospitals must meet to be eligible for 340B Program participation. Members of the Subcommittee and the participating agencies all acknowledged that HRSA has acted on the first and second of these reforms (Covered Entity audits and non-discrimination guidance) but has not yet addressed the other two (Eligible Patient definition and non-public hospital 340B Program participation requirements).

Witnesses’ Testimony

In an effort to understand what might be included in the Omnibus Guidance, we next turn to a discussion of the key hearing testimony takeaways.

Dr. Debra A. Draper, Director of Health Care for the GAO

Dr. Draper reiterated the basis for recommendations set forth in prior GAO issuances and provided a status report  on HRSA Office of Pharmacy Affairs efforts to implement these  recommendations.  In particular, she noted that since 2012, HRSA has systematically audited numerous 340B Covered Entities and has adopted updated nondiscrimination guidance. Dr. Draper also explained that HRSA has not yet acted on the two other primary recommendations due to a 2014 decision issued by the U.S. District Court for the District of Columbia (PhRMA v. HHS).  This decision held that HRSA lacks statutory authority to issue regulations in all but a few areas pertaining to the 340B Program. As a result, HRSA withdrew proposed comprehensive 340B Program regulations just prior to their release that would have addressed a number of outstanding 340B Program topics.  Instead, HRSA plans to release the proposed Omnibus Guidance later this year addressing these and other issues.

Ann Maxwell, Assistant Inspector General for OIG

Ms. Maxwell reiterated OIG concerns regarding 340B Program oversight raised in prior OIG issuances.  In particular, she noted that Covered Entities may at times be overpaying for 340B-eligible drugs due to the fact that Ceiling Prices on those drugs are confidential.  She also noted OIG’s belief that states may also sometimes overpay for 340B-priced drugs through their Medicaid programs.  This is the case since they cannot easily distinguish prescriptions filled using 340B-priced drugs and those that are not.  In order to address these issues, OIG reiterated its recommendation that HRSA share 340B Ceiling Prices with Covered Entities and implement improved tools and guidance to help states and manufacturers accurately identify 340B claims.

Finally, Ms. Maxwell suggested that HRSA should: (i) clarify its Eligible Patient guidance, particularly in the contract pharmacy setting; and (ii) issue additional guidance on how 340B discounts should be applied to uninsured patients in the contract pharmacy setting.  Both of these issues are expected to be addressed in the forthcoming Omnibus Guidance.

Diana Espinosa, HRSA Deputy Administrator

Like the other witnesses before her, Ms. Espinosa provided a general overview of the 340B Program.  She then discussed how HRSA implemented the key recommendations contained in the 2011 GAO report on 340B Program oversight before discussing the impact of the D.C. District Court decision in PhRMA v. HHS on the release of comprehensive 340B Program regulations.

In discussing the recharacterization of the comprehensive 340B Program regulations as Omnibus Guidance, Mr. Espinosa notably stated that HRSA:

  • Will use a notice-and-comment process for proposing and finalizing the Omnibus Guidance; and
  • Expects to have a new system that will provide Covered Entities with access to Ceiling Price data operational prior to October 1, 2015.

Finally, while much of the Subcommittee testimony confirmed what many already suspected about the pending Omnibus Guidance, it did offer some insight as to HRSA’s tentative publication timeline.  While Ms. Maxwell of the OIG indicated that she believes HRSA may issue the proposal in June 2015, Dr. Draper of the GAO stated that she believed it would be released sometime this federal fiscal year. Finally, Ms. Espinosa indicated that HRSA would propose the Omnibus Guidance “this year.”

Question-and-Answer Session

The members of participating in the hearing were clearly interested in better understanding the purpose, goals and future face of the 340B Program.  In response to a question from Representative Frank Pallone (D-NJ), Ms. Espinosa indicated that the Omnibus Guidance will cover at least three broad topics. First, the Omnibus Guidance will offer a more clear Eligible Patient definition.  Second, it will establish guidelines on hospital eligibility for the program. Third, it will contain more detailed guidelines for contract pharmacies.  Though not particularly surprising, Ms. Espinosa’s statements serve to confirm the anticipated key areas of focus for the Omnibus Guidance.

Also of note was a statement by Representative Morgan Griffith (R-VA), who again noted that HRSA has yet to issue comprehensive 340B Program regulations or guidance.  In response to Ms. Espinosa’s comments that HRSA does not have the authority to issue comprehensive regulations regarding many key 340B Program issues due to the D.C. Circuit Court’s decision in PhRMA v. HHS, Mr. Griffith indicated that he believes that Congress would be willing to expand the HRSA’s rulemaking authority, at least with respect to the definition of an Eligible Patient.

Practical Takeaways

Although little actionable information related to the pending Omnibus Guidance arose out of the Subcommittee hearing, the testimony did reveal that: (i) HRSA expects to make 340B Ceiling Prices available to Covered Entities during federal fiscal year 2015; (ii) Ceiling Price data will not be made available to state Medicaid agencies; and (iii) the Omnibus Guidance should be released sometime this year.

As such, 340B Program stakeholders should expect more state-based focus on ensuring that actual acquisition cost reporting is being implemented where required by state Medicaid programs.  340B Program stakeholders should also closely watch for the release of the proposed Omnibus Guidance so that they may submit comments to HRSA regarding items they support, oppose or wish to clarify.  Stakeholders will also want to closely monitor this issue since the Omnibus Guidance will almost certainly impact 340B Program operations for both manufacturers and Covered Entities.