Late last month the Government Accountability Office (GAO) released a report entitled, “Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement”. The 60-page Report details a number of weaknesses in the 340B Drug Pricing Program, particularly as it regards the oversight of contract pharmacies by the Department of Health and Human Services (HHS) Health Resources and Services Administration (HRSA).

The 340B Program requires participating drug manufacturers to sell outpatient drugs at a discount to covered entities (generally certain hospitals and federal grantees such as federally qualified health centers) so that Medicaid can cover their drugs. The discounts for the drugs generally range anywhere from 25 to 50 percent of the average wholesale price. The program, first enacted in 1992, was designed to enable covered entities to stretch scarce resources in order to reach more Medicaid-eligible patients and provide more comprehensive care and services.

However, the 340B Program has long been criticized by a number of entities and from a number of directions—from health care advocates for the poor who claim that the program does more to benefit drug manufacturers and hospitals than Medicaid recipients to government watchdog groups that have long claimed that the 340B Program is mismanaged and wasteful of taxpayer dollars. The GAO Report lends credence to both of those contentions.

The explosion in the use of contract pharmacies by covered entities to dispense 340B Program drugs (from only 1,300 pharmacies in 2010 to almost 20,000 in 2017) drew the attention of Congress, which requested information from the GAO on the phenomenon and its impacts on the 340B Program. In order to gather data for the Report, GAO selected and reviewed a sample of 30 contracts between covered entities and pharmacies, 20 HRSA audit files, and 55 covered entities. GAO also interviewed officials from HRSA and 10 covered entities.

The GAO found a number of issues, including:

• HRSA audits do not fully assess compliance with the 340B Program prohibition on duplicate discounts for drugs prescribed to Medicaid beneficiaries. HRSA only assesses the potential for duplicate discounts in Medicaid fee-for-service and not Medicaid managed care.

• HRSA requires covered entities that have noncompliance issues identified during an audit to assess the full extent of noncompliance. However, because HRSA does not require all the covered entities to explain the methodology they used for determining the extent of the noncompliance, it does not know the scope of the assessments and whether they are effective at identifying the full extent of noncompliance.

• HRSA does not require all covered entities to provide evidence that they have taken corrective action and are in compliance with program requirements prior to closing the audit. Instead, HRSA generally relies on each covered entity to self-attest that all audit findings have been addressed and that the entity came into compliance with 340B Program requirements.

In light of these issues and other data points that suggest serious problems in the 340B Program, the GAO Report makes seven recommendations:

1. The Administrator of HRSA should require covered entities to register contract pharmacies for each site of the entity for which a contract exists.

2. The Administrator of HRSA should issue guidance to covered entities on the prevention of duplicate discounts under Medicaid managed care, working with CMS as HRSA deems necessary to coordinate with guidance provided to state Medicaid programs.

3. The Administrator of HRSA should incorporate an assessment of covered entities' compliance with the prohibition on duplicate discounts, as it relates to Medicaid managed care claims, into its audit process after guidance has been issued and ensure that identified violations are rectified by the entities.

4. The Administrator of HRSA should issue guidance on the length of time covered entities must look back following an audit to identify the full scope of noncompliance identified during the audit.

5. The Administrator of HRSA should require all covered entities to specify their methodology for identifying the full scope of noncompliance identified during the audit as part of their corrective action plans, and incorporate reviews of the methodology into their audit process to ensure that entities are adequately assessing the full scope of noncompliance.

6. The Administrator of HRSA should require all covered entities to provide evidence that their corrective action plans have been successfully implemented prior to closing audits, including documentation of the results of the entities' assessments of the full scope of noncompliance identified during each audit.

7. The Administrator of HRSA should provide more specific guidance to covered entities regarding contract pharmacy oversight, including the scope and frequency of such oversight.

HHS responded to the above by concurring with recommendations 2, 3, 4 and 7, and recording its “non-concurrence” with recommendations 1, 5 and 6, primarily citing the administrative burdens of implementation, among other arguments.

On July 11 the House Energy and Commerce Subcommittee on Health took testimony on the Report from two panels of witnesses and discussed a number of potential fixes to the 340B Program and the issues surrounding the use of contract pharmacies. Predictably, however, given the current political climate, Capitol Hill lawmakers were divided on how best to address the problems brought to light in the GAO Report.

The Health Care and Pharmacy law team at FisherBroyles will continue to follow developments in contract pharmacy oversight under the 340B Program and other issues related to the Program as it affects those in the health care industry.