The WasteWatcher: The Staff Blog of Citizens Against Government Waste

GAO Releases Another Troubling Report on 340B Drug Discount Program

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Citizens Against Government Waste (CAGW) has been concerned with the 340B Drug Discount program for some time.  On June 28, 2018, the Government Accountability Office (GAO) released, “Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement.”  The report adds to the growing mountain of evidence that the discount program is out of control and is in dire need of restructuring.

On Wednesday, July 11, the House Energy and Commerce Subcommittee on Health will hold another hearing on the program entitled, “Opportunities to Improve the 340B Drug Pricing Program.”  The GAO report will be a topic of discussion, as will numerous bills that have been introduced to fix the drug discount program and return it to its original intent of helping indigent, uninsured Americans get access to low cost out-patient pharmaceuticals.  CAGW’s lobbying arm, the Council for Citizens Against Government Waste, has already announced support for some of these bills, such H.R. 4710, the “340B Protecting Access for the Underserved and Safety-Net Entities Act,” or 340B PAUSE Act, and S. 2312, the “Help Insure Low-income Patients Have Access to Care and Treatment,” or HELP Act.

The 340B program was created in 1992 and is administered by the Department of Health and Human Services (HHS) Health Resources and Services Administration (HRSA).  Health providers that participate in the program on behalf of their patients are called “covered entities” and include federal grantees, such as federally-qualified health centers, and certain hospitals, such as disproportionate share hospitals (DSH).  Pharmaceutical companies are required to participate in the 340B drug discount program if they wish to have their drugs covered by Medicaid.  The discounts for the drugs can be substantial, ranging from 25 to 50 percent of the average wholesale price for covered outpatient drugs.

The program has seen most of its growth due to changes made in the Patient Protection and Affordable Care Act (ACA), better known as Obamacare.  According to a July 2017 GAO report, the number of hospital-eligible sites participating in the program has grown from 7,806 in 2013 to 21,554 in 2017.  CAGW has argued for some time that many hospitals are misusing the program, utilizing it to boost revenues, while indigent beneficiaries do not get the drug discounts they should be receiving.

The GAO report focuses on contract pharmacies, which have grown exponentially just as covered entities have, from 1,300 in 2010 to nearly 20,000 in 2017.  Covered entities contract with pharmacies to dispense the 340B drugs to their patients.  This is an amazing statistic since the 340B statute never gave the government authority to permit contract pharmacies to participate.  HRSA issued guidance in 1996 to allow covered entities that did not have an on-site pharmacy to contract with one off-site pharmacy.  In 2010, subsequent HRSA guidance removed that limitation and the result was an explosion of pharmacy private contracts.

The contract pharmacies are making a great deal of money off the 340B program.  According to the GAO, about one-third of the more than 12,000 unique covered entities in the program have one or more contract pharmacies.  Sixty-nine percent of participating hospitals have at least one contract pharmacy, while 22.8 percent of federal grantees have at least one contract pharmacy.  Most of the pharmacies, or 75 percent, are chain pharmacies, while 20 percent are independent pharmacies, and five percent fall into another category, such as a physician’s office.

Disturbingly, the 340B discount is not being passed on to low-income patients in too many instances.  The GAO reviewed 55 covered entities and 30 of them, or 54 percent, reported providing low-income, uninsured patients discounts at some or all their contract pharmacies.  Of the 30 entities that did provide discounts, 23, or 77 percent, indicated they passed on the full 340B discount to their patients.

Looking more closely at the data, of the 55 entities the GAO looked at, 27 were federal grantees and 28 were hospitals.  Of the 27 federal grantees, 9, or 33 percent, provided no discount at all to low-income people.  Of the 28 hospitals, 16, or 57 percent did not pass along the discounted price to low-income, uninsured patients.

The GAO found numerous other issues that taxpayers should be concerned about.  For example, HRSA audits do not fully assess compliance with the 340B program’s prohibition on duplicate discounts.  Duplicate discounts occur when 340B discounts and Medicaid rebates are both applied to one prescription, which is prohibited by law.  The agency only considers the potential of duplicate discounts in the Medicaid fee-for-service program but not in the Medicaid managed care program.  HRSA does not assess the potential for duplicate discounts in Medicaid managed care because the agency has not issued guidance as to how covered entities should prevent the discounts, even though manufacturer rebates in Medicaid managed care have been required since 2010.  Considering there are more patients and prescriptions issued under Medicaid managed care than Medicaid fee-for-service, this is a serious problem that should have been addressed years ago.

In addition, because of the number of contract pharmacies, it is difficult for HRSA to prevent diversion, or pharmacies selling drugs to patients who are not receiving care from a 340B covered entity.  Even worse, like the fox guarding the henhouse, covered entities are responsible for making sure their contract pharmacies are in compliance with the 340B program, but HRSA has provided no clear guidance on how covered entities should make this assessment.

The GAO makes seven recommendations to improve the HRSA oversight of contract pharmacies and no doubt there will be calls for more resources to assist the agency in doing its job.  However, throwing more money at the problem is a vacant gesture, since what is called for is a top to bottom revamping of the entire program.

CAGW hopes the hearing on Wednesday will highlight the numerous problems dogging the program and that a vigorous discussion ensues of the pending bills that could make the changes desperately needed.  Some changes CAGW has been calling for are the establishment of a clear definition of a 340B patient and requiring hospitals and other covered entities to report how many uninsured, low-income patients are served under the program.

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