On February 5, 2014, the Office of the Inspector General (OIG) for the Department of Health and Human Services (HHS) published a report (OIG Report) describing the results of a survey it had conducted of the use of contract pharmacies by 340B drug pricing program (340B program) covered entities.1 The survey was undertaken in response to a Congressional request, and comes as the Office of Pharmacy Affairs (OPA) within the Health Resources and Services Administration (HRSA), the HHS component which is responsible for administration of the 340B program, is developing regulations that are expected to address and clarify requirements for 340B program contract pharmacy arrangements, as well as other important 340B program issues such as the definition of an eligible patient. OPA will consider the OIG’s comments as it develops the anticipated regulations.

Issues Identified in OIG Report

The OIG interviewed 15 community health centers and 15 disproportionate share hospitals that utilize one or more contract pharmacies to dispense 340B program drugs to their patients, as well as eight administrators that work with covered entities to administer their 340B programs. The OIG identified multiple “discrepancies” in the policies of the covered entities, which are described below. The OIG did not offer any opinion as to whether the covered entities it interviewed had violated 340B program rules or had adequate methods to ensure compliance with 340B program requirements. The OIG identified the following issues in its report:

1. Inconsistent Determinations of 340B Program Eligibility. The covered entities reviewed used a variety of methods to determine whether a prescription presented to a contract pharmacy is 340B-eligible, and in some cases different covered entities would take a different position with regard to a similarly situated prescription, resulting in inconsistencies within the 340B program. Specific examples of situations the OIG identified in which the covered entities did not have uniform determinations included:

    • Prescriptions written by a prescriber who had a non-exclusive arrangement with the covered entity (for example, a prescriber who also works part-time in a private practice and writes prescriptions for patients in that setting);
    • Refills of prescriptions when the patient had not been seen by the covered entity for several months;
    • Prescriptions written by a specialist after a referral from the covered entity; and
    • Prescriptions written for conditions that did not relate to the diagnosis or procedure code for the patient’s most recent visit to the covered entity.

In its conclusion, the OIG Report states that the discrepancies among covered entities suggest a lack of clarity on how the 340B program’s definition of patient should be applied in the context of contract pharmacy arrangements.

2. Treatment of Medicaid Managed Care Enrollees. The OIG identified variation in the treatment of patients enrolled in a Medicaid managed care plan. The 2010 health care reform legislation expanded the Medicaid drug rebate program to require drug manufacturers to provide rebates for the federal government on the price of drugs dispensed to patients of a Medicaid managed care plan. As a result of this expansion, the potential now exists for drug manufacturers to be subject to a “duplicate discount” if the Medicaid rebate is claimed and the 340B program discount is also provided. According to the OIG Report, administrators that work with covered entities reported difficulties identifying which patients were beneficiaries of a Medicaid managed care plan when the patients present a prescription to a contract pharmacy. In addition, while the majority of covered entities did not extend 340B program discounts to Medicaid patients presenting prescriptions to a contract pharmacy, some of the covered entities either did not know whether this “carve out” also applied to beneficiaries of a Medicaid managed care plan, or did not have procedures in place to ensure that a duplicate discount was not provided. OPA has not issued guidance specific to enrollees of a Medicaid managed care plan.

3. Discounts for Uninsured Patients. Eight of the thirty covered entities interviewed did not offer discounts on the price of drugs to uninsured patients. Such discounts are not required by the 340B program statute or by OPA guidance. However, some stakeholders and members of Congress have emphasized that the intent of the 340B program is to benefit those entities that serve low-income and uninsured individuals. In some cases, covered entities may reinvest savings achieved by the 340B program in expanded services or other programs that benefit the uninsured, without providing a discount on individual services.

4. Variation in Oversight of 340B Contract Pharmacies. The covered entities conducted varying levels of oversight activities with respect to their contract pharmacy arrangements. OPA guidance on the use of contract pharmacies requires the covered entities to monitor the contract pharmacy to detect 340B program violations. While the guidance allows covered entities discretion to implement an effective oversight program, the OPA has expressed an expectation that the covered entity would retain an independent auditor at least once a year to review the activities of the contract pharmacies. According to the OIG Report, only 7 of the 30 covered entities interviewed had retained independent auditors. The majority of the remaining covered entities monitored contract pharmacies on either an ad hoc basis or on a regular schedule.

The OIG report was prepared based on a purposive (non-random) sample of interviews with covered entities of a certain type, as well as interviews with selected administrators, and the results of the survey are not generalizable to the entire population of 340B covered entities with contract pharmacy arrangements. The OIG Report also found that only a minority of covered entities (approximately 20%) utilizes contract pharmacies. However, many of the issues identified in the OIG Report raise questions that are relevant for all covered entities, even those that do not utilize a contract pharmacy. For example, the treatment of patients of a Medicaid managed care plan, the specific instances where there is an uncertainty in the 340B program definition of patient, and the availability of discounts for uninsured patients are not specific to covered entities that dispense 340B program drugs through a contract pharmacy. As a result, all covered entities should be aware of these issues and the potential for the anticipated regulations or legislative changes to modify or clarify current requirements.

The OIG Report did not include a review of the compliance of the covered entities it interviewed, and did not make any recommendations with respect to the issues it identified. As noted, in some cases the OIG concluded that the discrepancies it identified in its survey may suggest a lack of clarity in OPA’s guidance, particularly with regard to the definition of patient, implicitly suggesting that the OPA or Congress consider whether to clarify the appropriate treatment of these issues.

HRSA Response and Potential Impact of OIG Report

On February 5, 2014, OPA issued a brief response emphasizing its commitment to strengthening 340B program integrity, and in particular its focus on contract pharmacy arrangements.2 As part of this response, the OPA provided a chart of requirements for ensuring 340B program compliance in a contract pharmacy, as well as resources to assist covered entities in implementing these requirements. As part of its response, the OPA indicated that it lacked statutory authority to require covered entities to provide discounts on drugs purchased by uninsured patients.

The OPA response did not disclose the content or scope of the forthcoming regulations, which are expected in June 2014. OPA has previously stated that it would address both contract pharmacies and the definition of patient in the regulations, but is unknown the extent to which OPA will institute new requirements on covered entities related to the oversight of contract pharmacy arrangements or the screening of patients. However, covered entities and drug manufacturers involved in the 340B program should be aware of the findings in the OIG Report, as they are likely to inform OPA as it drafts the 340B program regulations. Moreover, the OIG Report may inform members of Congress with regard to important areas of concern or uncertainty.