A report recently released by the United States Government Accountability Office (GAO) reveals that some contracting practices for 340B pharmacies may actually create incentives to use higher-cost drugs when a cheaper alternative may work just as well. In drafting the report, the GAO looked at how 340B facilities paid pharmacies and found that some fees were paid per drug dispensed. In some instances, facilities paid more for branded drugs and in other instances excluded generics altogether from being purchased at the 340B price.
The 340B Program is administered by the United States Department of Health and Human Services (HHS) Health Resources and Services Administration (HRSA) and requires drug manufacturers to sell outpatient drugs at a discount to covered entities so that their drugs can be covered by Medicaid.
GAO’s review of 30 contracts found that all but one contract included provisions for the covered entity to pay the contract pharmacy a flat fee for each eligible prescription. The flat fees generally ranged from $6 to $15 per prescription, but varied by several factors, including the type of drug or patient’s insurance status. Some covered entities also agreed to pay pharmacies a percentage of revenue generated by each prescription.
Thirty of the 55 covered entities GAO reviewed reported providing low-income, uninsured patients discounts on 340B drugs at some or all of their contract pharmacies. Of the 30 covered entities that provided discounts, 23 indicated that they pass on the full 340B discount to patients, resulting in patients paying the 340B price or less for drugs. Additionally, 14 of the 30 covered entities said they determined patients’ eligibility for discounts based on whether their income was below a specified level, 11 reported providing discounts to all patients, and 5 determined eligibility for discounts on a case-by-case basis
In the end, GAO made seven recommendations, including the recommendation that HRSA’s audits assess for duplicate discounts in Medicaid managed care, and HRSA require information on how entities determined the scope of noncompliance and evidence of corrective action prior to closing audits.
Recommendations
The seven recommendations to HRSA were:
- The Administrator of HRSA should require covered entities to register contract pharmacies for each site of the entity for which a contract exists. (Recommendation 1)
- 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. (Recommendation 2)
- 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. (Recommendation 3)
- 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. (Recommendation 4)
- 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. (Recommendation 5)
- 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. (Recommendation 6)
- The Administrator of HRSA should provide more specific guidance to covered entities regarding contract pharmacy oversight, including the scope and frequency of such oversight. (Recommendation 7)
HHS Response
HHS agreed with four of the recommendations, but disagreed with three recommendations, which GAO continues to believe are warranted to improve HRSA’s oversight.
Among the recommendations with which HHS did not concur was the recommendation to require covered entities to register contract pharmacies for each site of the entity for which a contract exists. HHS stated that its current registration process is responsive to the GAO’s concerns for all covered entity types other than hospitals and health centers. Rather than implementing the GAO recommendation, HHS stated that HRSA will make changes to its audit selection process; HRSA will assume that all contract pharmacies registered with the parent site would also be used by all sites of the covered entity prior to selecting entities for risk-based audits.
HHS also did not concur with two recommendations to require covered entities to specify their methodologies for identifying the full scope of noncompliance identified during their audits as part of their corrective action plans, and to provide evidence that these plans have been successfully implemented prior to HRSA closing audits. In its response, HHS noted that on April 1, 2018, HRSA implemented these requirements for entities subject to targeted audits (including re-audits), which represent 10 percent of all entities audited. HHS also expressed concern that these additional steps would significantly delay the audit process and repayments to manufacturers.
Reactions and Responses
Rena Conti, a 340B expert at the University of Chicago, said that 340B facilities and the contract pharmacies often have agreements that allow them to share in the savings that come from distributing the drugs. Though the medicines come with steep discounts from drug companies, pharmacies can bill an insured patient’s carrier at the full reimbursement price for the drug without considering the 340B discount. This means there is typically more revenue to share when administering a more expensive branded drug than a generic.
Out-of-pocket costs can be higher with a brand, though, as can the costs to the payers. “Here’s a policy that is maximizing revenue for hospitals and contract pharmacies and perversely going against the intent of the program, which is to provide accessible and affordable health care for vulnerable people,” Conti said. This can also have “an important spillover effect” on the demand for generic medicines, particularly specialty drugs, eroding some of the incentive for companies to enter the market.
While the 340B Program does not require health centers to pass on the discount to patients, the purpose of the program is to help support facilities that are serving a disproportionate share of lower-income and uninsured patients, by allowing those facilities to stretch federal resources to reach more patients. 340B Health noted that, in reality, the GAO findings pertain to very few contracts.