A Health Care Bulletin

Recently, the Health Resources and Services Administration (HRSA) – Office of Pharmacy Affairs (OPA) in the Department of Health and Human Services published several notices clarifying existing regulations and indicating future enforcement and regulatory directions of HRSA involving the 340B Drug Pricing Program.

Background on 340B Program

The 340B program, created by the Public Health Service Act, and enacted by the Veterans Health Care Act of 1992, established a federal program that gives (a variety of “safety net” providers) access to significant pricing discounts on certain outpatient drugs. While all pharmaceutical manufacturers participating in Medicaid and Medicare Part B have to participate in the 340B program, only enrolled facility providers (referred to as covered entities) can take advantage of the discounts.

There has been increased action around and interest in the 340B program because in March 2010 the Affordable Care Act (ACA) expanded access to the 340B program by allowing, as of January 1, 2010, free-standing cancer hospitals, children's hospitals, critical access hospitals, sole community hospitals, and rural referral centers to participate. The ACA also introduced new program integrity provisions to allow HRSA to better monitor and enforce the rules of the program. As part of the increased integrity monitoring, HRSA has released over the last two months four notices regarding the 340B program and its operation. Below is a brief summary of these program notices and some reminders to 340B providers.

Bar to Group Purchasing Organization Participation

Certain 340B covered entities (disproportionate share hospitals, free-standing cancer hospitals, and children’s hospitals) are neither allowed to acquire drugs covered by the 340B program through a group purchasing organization (GPO) or other group purchasing arrangement nor have another organization transfer drugs purchased through a GPO to it. Release No. 2013-1 clarifies certain aspects of this prohibition.

However, certain off-site outpatient facilities of the covered entity may use a GPO for covered outpatient drugs if a facility meets all of the following criteria:

  1. Located at a different physical address than the parent entity;
  2. Not registered with the OPA as a site participating in the 340B Program;
  3. Purchases drugs through a separate pharmacy wholesaler account than the 340B-participating parent entity; and
  4. The covered entity maintains records that any covered outpatient drugs purchased through the GPO at these sites are not utilized with any facility registered in the 340B database.

A 340B covered entity subject to the prohibition must stop purchasing covered outpatient drugs through a GPO before the first day the covered entity is eligible to purchase 340B drugs and listed on the OPA 340B database. The remaining supply of GPO-purchased drugs may be used until expended, but may only be replenished with 340B drugs. Any replenishment of 340B drug stocks by a covered entity must not involve a GPO and the covered entity must maintain records sufficient to demonstrate such compliance.

Violation of the GPO prohibition will lead to a covered entity's exclusion from the 340B program. Additionally, violators may also be required to repay manufacturers the discount for the entire period of violation. If a GPO prohibition violation occurs at a parent site, all outpatient clinics, contract pharmacies, or sites enrolled that are related to the covered entity 340B ID will be removed from the 340B Program along with the parent.  

Clarification on Use of the Medicaid Exclusion File

Duplicate discounts (a covered entity receiving both a 340B discount price and a Medicaid drug rebate for the same drug) are prohibited. One of HRSA’s tools to enforce this prohibition is the Medicaid Exclusion File (File), which is available on HRSA’s web site, and lists whether each covered entity has elected to use the 340B discount or the Medicaid rebate for Medicaid patients billed under a specific Medicaid number. Release No. 2013-2 clarifies the operation of the Medicaid exclusion and the use of the File.

In order for a covered entity with multiple outpatient clinics to select which discount it will use for each clinic, each clinic must have a separate Medicaid provider number. For those covered entities in states where multiple enrollments are not possible, it is the responsibility of the covered entity to work out an alternate arrangement with the state Medicaid provider. It is the covered entity's responsibility to keep its information up to date in the File. HRSA is also urging state Medicaid agencies to be more proactive in their use of the File for verification purposes.

Increased Audits of 340B Covered Entities

Since the inception of the 340B Program, both HRSA and manufacturers have had the authority to audit covered entities for compliance with 340B program requirements, including the bar on GPO participation and the use of duplicate discounts. Recently, however, and partially in response to a September 2011 report from the Government Accounting Office (GAO-11-836), HRSA began more aggressively exercising this audit power. Release 2012-1.1 announces HRSA’s plan to conduct risk-based and targeted audits going forward to provide additional program oversight, monitor for program violations, and prevent diversion and duplicate discounts.

Risk-based audits will be performed on covered entities randomly chosen from entities determined to be higher risk based on: (1) volume of purchases; (2) increased complexity of provider-type administration; and (3) use of contract pharmacies. Eventually, the risk-based audits will include covered entities determined to be at lesser risk.

Covered entities selected for targeted audits will undergo a more thorough investigation and review of policies and procedures, auditable records, and system compliance. Targeted audits may be triggered by allegations of violating 340B requirements, but are not limited to allegations made by whistleblowers, manufacturers, or self-reporting by covered entities. The findings of these audits may be used to refer matters to the Office of Inspector General (OIG) or the Department of Justice (DOJ).

Requirements for Non-Governmental Hospital Participation

In order to enroll in the 340B program all disproportionate share hospitals, children’s hospitals, free-standing cancer hospitals, critical access hospitals, sole community hospitals, and rural referral centers must be:

  1. Owned or operated by a state or local government;
  2. A public or private non-profit corporation formally granted government powers by a unit of state or local government; or
  3. A private non-profit hospital which has a contract with a state or local government to provide health care services to indigent individuals who do not qualify for Medicare or Medicaid.

These requirements are meant to ensure that the 340B discounts benefit medically needy populations and do not simply enrich for-profit health care providers. Release 2013-3 clarifies what a provider must do to meet criterion 2 or 3 above.

Examples of a state or local government formally granting a hospital power usually reserved to a government entity (e.g., power to tax, issue government bonds, act on behalf of the government, etc.) can be accomplished through state or local statute or regulation, an express contract for such delegation by state or local government, creation of a public corporation, or development of a hospital authority or district to provide community healthcare on behalf of the government. Such grants will be dependent on individual state laws and constitutional provisions, and documentation of the grant must be submitted as evidence to HRSA. HRSA notes, however, that the granting of a state license to practice medicine or provide healthcare services does not by itself constitute a governmental grant of power. HRSA requires hospitals entering into a contract with government to provide indigent care to certify to the existence of such a contract, and may require a copy of the actual contract, signed by an appropriate governmental official.

Reminders for Covered Entities

While the 340B program offers substantial financial savings on certain outpatient drugs, the heightened enforcement efforts of all government agencies, including the HRSA, mean that participants must continue to ensure strict compliance with program requirements, as failure to do so can expose a covered entity not just to 340B program exclusion, but to possible investigations by and sanctions from the OIG or the DOJ.

Covered entities need to also remember that the government will hold them responsible for any violations of 340B program rules, even if the violation occurs because of the action of an affiliated contract pharmacy or other vendor facilitating the covered entity’s participation.

While the recent notices released by HRSA have not dealt explicitly with the definitions of patients and individual providers allowed to receive and prescribe, respectively, 340B-covered drugs, HRSA has suggested that future rule-making or administrative publications will focus on these issues, as provider audits and other government research has shown non-compliance in these areas. Covered entities should continue to be vigilant in ensuring compliance in these areas.