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July 2018: Where Are We Now With 340B?

It seems like every week, there are multiple new developments in the 340B program.  While it has just been a few weeks since my last 340B blog post, since that time we have had another Senate hearing, a new GAO Report, a new House hearing, and introduction of more than a dozen new bills in Congress.  But why, despite all these developments, does it feels like little has actually changed in the 340B world since January? 

Senate Hearing and the 340B Database

On June 19, 2018 the Senate Committee on Health, Education, Labor & Pensions (HELP) held another hearing on 340B.  The only witness to testify was Captain Christa Pedley of HRSA.  Captain Pedley’s testimony largely mirrored her testimony to the House in July 2017, reciting HRSA’s Program Integrity efforts while stating that “specific legislative authority to conduct rulemaking for all provisions in the 340B statute would be more effective for facilitating HRSA’s oversight over, and management of, the 340B Program.” 

There was, however, one bombshell at the June 2018 hearing.  In her July 2017 testimony, Captain Pedley was asked about the HRSA 340B ceiling price verification system for covered entities that was mandated by ACA. Captain Pedley testified that HRSA was “getting close” to implementing the requisite system, but would not commit to it being fully operational before the end of 2017.  At the June 2018 hearing, Senator Murray asked about the status of that ceiling price verification system.  Captain Pedley testified that the system was now fully operational but is currently only available for internal HRSA use.

In addition to the ceiling price verification system, ACA also requires HRSA to adopt rules related to ceiling price penalties.  Those rules were finalized as of January 5, 2017 but the Trump Administration has delayed the effective date of the penalty rules multiple times.  The earliest effective date for the penalties is now July 2019.  According to Captain Pedley’s testimony at the June 2018 hearing, HRSA views these two ACA legislative mandates in tandem and will not release the ceiling price verification system for covered entity use until the ceiling price penalty rules take effect.

The GAO Report on Contract Pharmacies

A June 2018 GAO Report regarding federal oversight of 340B contract pharmacies found that hospital systems are more likely to use contract pharmacies than other types of 340B covered entities. While some hospitals use only a handful of contract pharmacies, some contract with hundreds of individual pharmacies – the average number of contract pharmacies per hospital is twelve.

In the Report, GAO is critical of HRSA’s oversight of 340B contract pharmacies and focuses on the lack of specific guidance regarding the extent to which covered entities must pass on the discounted purchase price of 340B drugs to low-income or uninsured patients – a concern that is exacerbated when drugs are dispensed through a contract pharmacy.  GAO acknowledged that most covered entities surveyed passed on 340B discounts to low-income patients in some manner, but the extent and procedures varied.  For covered entities whose contract pharmacies do not offer discounts on 340B drugs to low-income patients, GAO acknowledged that the entities provide other types of charity care services.

GAO was also critical of HRSA’s lack of specific guidance on the risk of prohibited duplicate discounts on contract pharmacy arrangements involving drugs provided through Medicaid Managed Care plans.  Given that an overwhelming majority of Medicaid beneficiaries now receive services through Medicaid Managed Care, and given that federal law mandates that states invoice drugs provided through Medicaid Managed Care for Medicaid Drug Rebates, GAO seems to have little patience for the lack of federal guidance on this point.

GAO had specific recommendations for HRSA to increase oversight of the 340B Program, including imposing data collection requirements on contract pharmacy arrangements and more comprehensive compliance auditing protocols.  HRSA did not concur with a number of the GAO recommendations, believing the requirements would be overly burdensome to the covered entities and to HRSA.

340B Legislative Proposals

In advance of a July 11, 2018 hearing, the House Energy & Commerce Committee released more than a dozen bills and “discussion drafts” of legislation specific to the 340B. A number of the bills have common themes, including giving HRSA regulatory authority over 340B, and imposing some type of reporting obligations on HRSA and 340B covered entities.  Some of the more controversial proposals include:

  • R. 2889 would legislatively limit the “orphan drug exclusion” from 340B discounts to drugs prescribed or used for the rare, orphan condition.
  • R. 4392 would legislatively rescind the Medicare Part B reimbursement cut for 340B drugs paid for through the Outpatient Prospective Payment System.
  • discussion draft proposed by Representative Burgess would prohibit covered entities from directly, or indirectly through a third party, such as a contract pharmacy, charging low-income or uninsured persons a price above the 340B ceiling price for the drug.
  • The most controversial proposal is a discussion draft from Representative Collins that would adopt a new, limited definition of a 340B “patient.” Specific provisions in the bill would clearly exclude from the definition of an eligible patient the inmates of a correctional facility, as well as where “the primary relationship between the individual and the covered entity is one of employment.”

House Energy and Commerce Committee Hearing

On July 11, 2018 the House Energy and Commerce Committee convened a hearing entitled Opportunities to Improve the 340B Drug Pricing Program.  The Committee heard from Dr. Debra Draper of GAO, who reiterated her concerns about oversight of 340B contract pharmacy arrangements.  The Committee also heard from witnesses associated with an assortment of covered entities, and received statements from many more.

The hearing included a number of legislators touting their individual proposals to reform 340B.  But listening to the questions posed by the legislators, and the tone of those questions, left one with a sinking feeling.  In light of what is going on in the Capitol, it is hard to see any sort of bipartisan consensus for legislative changes to 340B moving forward.

Where Does that Leave Us?

There is still one more shoe to drop.  On May 4, 2018, the U.S. Court of Appeals heard oral arguments in the expedited appeal of American Hospital Association v. Azar, challenging the 30% CMS Medicare Part B OPPS reimbursement cut for many outpatient drugs purchased through 340B.  We are all awaiting that decision

previously commented that the Trump Administration’s Blueprint to Lower Drug Prices and Secretary Azar’s accompanying Request for Information (RFI) claim that Medicare Part B reimbursement cut as a “victory” against high drug prices.  I also postulated that Medicare, and to a lesser extent Medicaid reimbursement, may well be the vehicle for future attempts at 340B reform. But, I also said that we would likely not see any specifics on that vehicle until there is a decision from the Court of Appeals on the pending legal challenge to CMS’ 340B reimbursement cut.

The Comment Period on that RFI is now closed.  If CMS wins at the Court of Appeals, will CMS show its hand on rule changes that may further affect the future of 340B?   If that happens, you will likely hear from me again.  Stay tuned.

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About this Author

Ellyn Sternfield, Mintz Levin, Law Firm, Washington DC, Health Care Law Attorney
Special Counsel

Ellyn has more than 30 years of legal experience, with an extensive background in the field of government health care enforcement.

Ellyn’s experience enables her to provide valuable insight to clients facing potential state or federal investigations, or who have general compliance concerns. Ellyn currently represents a variety of health care product and service providers in federal and state administrative, civil, and criminal matters around the country. She conducts internal reviews and investigations for clients concerned about potential compliance issues. Ellyn advises clients on...

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