January 9, 2013—Health care providers in the federal 340B drug discount program came under intense scrutiny in 2012 and the focus is likely to remain sharp in the year ahead.
In the coming months, stakeholders can expect to see bills to reform 340B introduced by both champions and detractors of the program in Congress.[ms-protect-content id=”2799″] They also can expect continued debate over drug shortage legislation that would curtail the program, which is entering its 20th year in 2013.
On the regulatory front, there will be a substantial increase in government audits of 340B covered entities and more manufacturer audits of providers. The second annual recertification of 340B providers’ eligibility for discounts will also get underway. In addition, federal regulators possibly will issue long-awaited rules on 340B discounts on orphan drugs for certain hospitals and on the definition of patient for 340B purposes.
Congressional Inquiry
Spurred by the Government Accountability Office’s (GAO) fall 2011 finding that the 340B program needed more oversight, key GOP Senate and House members began sending letters to federal regulators, contractors, provider groups, and a handful of hospitals asking pointed questions about how 340B operates. At the same time, the lawmakers invited drug manufacturers and biotech companies to come forward with any evidence of diversion of 340B drugs to ineligible patients, lack of provider safeguards to prevent the payment of Medicaid rebates on top of 340B discounts, and stockpiling of 340B discounted drugs. It is understood that Congressional staff members are writing up their findings for the lawmakers. Legislation to narrow 340B’s scope and otherwise address alleged program misuse could be introduced.
The two GOP senators spearheading the inquiry into covered entities’ use of 340B discounts, Sen. Chuck Grassley (R-Iowa) and Sen. Orrin Hatch (R-Utah), have retained their committee leadership positions, Grassley as Ranking Member of the Judiciary Committee and Hatch as Ranking Member of the Finance Committee. Meanwhile, Sen. Lamar Alexander (R-Tenn.) is taking over from Sen. Mike Enzi (R-Wyo.) as Ranking Member of the Health, Education, Labor, and Pensions (HELP) Committee. Sen. Tom Harkin (D-Iowa), a long-time champion of 340B, is returning as HELP Committee Chairman. Another 340B champion, Sen. John Thune (R-S.D.), will remain Chairman of the Senate Republican Conference, the party’s third-highest-ranking leadership post in the chamber.
On the House side, Rep. Cathy McMorris Rodgers (R-Wash.) has been chosen to chair the House Republican Conference, making her the fourth-highest-ranking House GOP member. Rep. McMorris Rodgers has been the primary sponsor of legislation to expand 340B drug discounts to the inpatient setting and lift the restriction on rural and free-standing cancer hospitals’ access to 340B pricing on orphan drugs.
Rep. Fred Upton (R-Mich.) remains Chairman of the House Energy and Commerce Committee, which has primary jurisdiction over the 340B program. Rep. Henry Waxman (D-Calif.) returns as the panel’s Ranking Member. Rep. Joe Pitts (R-Pa.) remains Chairman of the E&C Subcommittee on Health and Rep. Frank Pallone (D-N.J.) is expected to remain the panel’s senior Democrat. Rep. Pitts has led the 340B inquiry in the House.
Drug Shortage Legislation
340B discounts also figured in the Congressional debate last year on causes of and possible solutions to drug shortages, particularly those of generic injectable cancer therapies. Some health care policymakers argue that 340B drug pricing distorts markets and contributes to shortages. However, the majority of drug shortage experts say there is no link between 340B pricing and shortages.
In late November, Rep. Bill Cassidy (R-La.), who will be a returning member of the House E&C health subcommittee, introduced legislation that would exempt generic injectable drugs with three or fewer manufacturers from 340B discounts and Medicaid rebates through the year 2020. Sen. Hatch, who serves on the Senate HELP Committee, has circulated a similar draft bill in Congress’ upper chamber.
Rep. Cassidy’s bill, H.R. 6611, lapsed when the 112th Congress ended, but he is widely expected to reintroduce it.
Patient Definition & Orphan Drugs
Rep. Cassidy is also seeking to limit the 340B program on the regulatory front. Last July, he and Rep. Pitts asked the Health Resources and Services Administration (HRSA) to issue an updated 340B definition of patient “that ensures the program’s eligibility is for those truly in need and curbs any misuse of the program.”
In January 2011, HRSA sent the White House Office of Management and Budget (OMB) a new patient definition for review. OMB returned it to HRSA with unspecified changes in May 2011. It has not been issued since then and its contents are unknown.
340B stakeholders are also awaiting HRSA’s final rule to clarify the Affordable Care Act’s (ACA) limit on 340B discounts for orphan drugs purchased by hospitals that became eligible for 340B under health care reform. In May 2011, HRSA published a proposed rule that would allow rural and freestanding cancer hospitals new to 340B to buy orphan drugs at 340B-discounted prices when they use the medicines to treat non-orphan diseases or conditions. Rural and cancer hospitals support HRSA’s proposed rule as a reasonable interpretation of the law. Drug manufacturers argue that ACA’s limit on 340B pricing for new covered entity types should apply to all pharmaceuticals with an orphan designation that are approved to be marketed in the United States and without regard to how they are used.
In its latest semiannual regulatory agenda issued in late December, OBM indicated that the timetable for issuing the orphan drug final rule was March 2013. These projected timelines published by OMB are often missed.
OMB’s regulatory agenda drops all mention of two other 340B rules that HRSA is supposed to issue under ACA—civil monetary penalties (CMPs) for manufacturers and mandatory dispute resolution. Nor does the agenda mention rules to implement language in health care reform calling for standards and methods for the calculation of 340B ceiling prices and for the establishment of CMPs for covered entities. HRSA issued advanced notices of proposed rulemaking for manufacturer CMPs and mandatory dispute resolution back in September 2010 but has taken no action on either since, saying it lacks funds to carry the regulations out. It is not known whether the Obama administration will ask Congress once again to finance OPA through a user fee on 340B drug purchases.
Audits & Recertification
In 2012, HRSA also audited more than four dozen providers, most of them hospitals, to see if any gave 340B-discounted drugs to ineligible patients and to ensure that drug manufacturers are not paying Medicaid rebates on drugs that have already been subject to a 340B discount. At the American Society of Health System Pharmacists (ASHP) Midyear Conference in December, OPA Director Cmdr. Krista Pedley said a number of the 340B entities that were audited have received their final reports from HRSA but others are still pending.
Pedley also said at the ASHP meeting that her office planned to conduct about 200 to 400 covered entity audits during 2013. Meanwhile, during another session at the ASHP meeting, it emerged that HRSA may be preparing for its first audit of a drug manufacturer to determine whether it is charging 340B entities the correct prices.
Manufacturers, meanwhile, are beginning to audit their customers’ use of the 340B program. The biotech company Genentech began auditing at least one 340B covered entity this summer, making it the first drug maker to exercise its power to do so since regulations governing manufacturer audits were published in 1996. In mid-December, the pharmaceutical industry consulting firm Compliance Implementation Services noted in its blog that it was auditing 340B covered entities for a client and had issued its first audit report.
Audits are just one part of HRSA’s push to enhance 340B program oversight. For the first time last year, HRSA required all 340B providers to certify that they were in fact eligible for discounts and in compliance with all program requirements. This first soup-to-nuts recertification is just wrapping up, with 340B authorizing officials at federal qualified health centers and hemophilia treatment centers completing the online process next month. Hospitals, which make up about one-quarter of all 340B covered entities, recertified their eligibility last spring. HRSA’s Office of Pharmacy Affairs (OPA) says they will need to recertify their eligibility again in late spring or early summer.[/ms-protect-content]