On Sept. 28, 2012, Sen. Chuck Grassley (R-Iowa), the ranking member of the Senate Committee on the Judiciary, sent letters to three North Carolina nonprofit hospitals requesting information regarding the hospitals' participation in the 340B Drug Pricing Program (340B Program). The 340B Program is a federal program enacted by the Public Health Service Act (the Act) that provides certain covered entities qualifying under the Act with access to significant discounts on covered outpatient drugs. Qualifying hospitals include disproportionate share hospitals, critical access hospitals, rural referral centers, and sole community hospitals.

The letters were triggered in part by a recent article in the News & Observer, a Raleigh newspaper, suggesting that certain North Carolina nonprofit hospitals are making excessive profits from markups on cancer drugs. The newspaper article and letters from Sen. Grassley highlight examples of significant differences between the amounts hospitals paid for cancer drugs compared to the amounts billed by those hospitals for the drugs and the payment amounts allowed by Medicare. The key question being raised by Sen. Grassley is whether the savings hospitals realized from the 340B Program are being passed on to patients as intended by the Act or whether they are simply being used to subsidize hospital operating margins.

For any hospital or other organization that is a 340B participant, the requests for information included in the letters are instructive in detecting those areas of their 340B programs that could subject them to scrutiny by the government. These include:

  1. Total revenues received by the participant from participation in the 340B Program.
  2. The amount of reinvestment of 340B savings in benefits for the uninsured.
  3. Differences in pricing of drugs across different third-party payers.
  4. The characteristics of a hospital?s indigent care population and composition and its policies on charitable care.
  5. The frequency of Health Resources and Services Administration (HRSA) audits of the 340B Program.

The letter comes on the heels of a recent announcement by the HRSA Office of Pharmacy Affairs, the federal agency charged with managing the 340B Program, that it will begin audits of 340B Program participants, focusing on 340B eligibility status, preventing diversions and duplicate discounts, and other program violations. Hospitals and other organizations that are 340B Program participants should anticipate possible audits and ongoing oversight of these programs by regulators.