Healthcare Systems

Office of Pharmacy Affairs/340B Drug Pricing Program

Authorizing Legislation - Title III, Section 340B of the Public Health Service Act

FY 2008 Authorization.......................................................................................................Indefinite

Statement of the Budget Request - The FY 2008 Budget of $2,940,000 is an increase of $2,940,000 above the FY 2007 Continuing Resolution (CR).

Program Description - The 340B Drug Pricing Program (340B Program), established under Section 340B of the Public Health Service Act, requires drug manufacturers to provide discounts or rebates to a specified set of HHS assisted programs and hospitals that meet the criteria in the Social Security Act for serving a disproportionate share of low income patients. The following clinics and hospitals are eligible to purchase outpatient drugs at 340B prices: all HRSA-assisted health centers; Ryan White HIV/AIDS programs including AIDS Drug Assistance Programs; Comprehensive Hemophilia Treatment Centers; Indian Health Service (IHS) tribal organizations and Urban Indian programs; Centers for Disease Control and Prevention (CDC) assisted sexually transmitted disease (STD) and tuberculosis (TB) clinics; Title X Family Planning Clinics; certain disproportionate share hospitals; and Federally Qualified Health Center Look-Alikes. In addition, the Deficit Reduction Act (DRA) of 2005 contained a provision to add Children’s Hospitals to the 340B Program. HRSA will issue proposed guidance in 2007 that, if implemented, is expected to result in eligibility for approximately 80 Children’s Hospitals. The addition of a new type of covered entity will result in the need to allocate additional resources to adapt current systems and address their unique needs for technical assistance. Furthermore, the DRA modified the definition for average manufacture price (AMP) utilized by the Centers for Medicare and Medicaid Services (CMS) by exempting prompt payment discounts. The DRA did not amend section 340B of the PHS Act therefore drug companies are required to use a different AMP (340B AMP) for calculation of the 340B ceiling price. HRSA obtains much of its pricing data from CMS. These changes are expected to add complexity to HRSA’s utilization of that data needed to calculate 340B prices and collaborate with manufactures on verifying the pricing.

The 340B Program requires drug manufacturers to give covered entities a discount that is at least 15.1 percent below average manufacturer prices for brand name drugs and 11 percent for generic drugs. The Prime Vendor Program (PVP), established under Section 340B (a)(8) provides drug distribution and price negotiation services for entities participating in the 340B Program. An additional $8 million in discounts below the statutory minimum were made available through the PVP for more than 2,000 brand name and generic drugs in 2006. During FY 2008, covered entities are expected to save $2 to $2.5 billion on their estimated $4 to $5 billion outpatient drug expenditures by participating in the 340B Drug Pricing Program.

Program Growth 2005-2007 - As of January 2007, 12,221 safety-net health care providers are registered in the 340B Program as covered entities, this represents a growth of 2.6 percent since January 2006. From January 2005 to January 2007, the 340B Program experienced an increase of 2,797 new covered entity sites.
Barriers to current and potential covered entities to determine the financial benefits of 340B for their health care programs. - Funds would be used to develop a Web-based program to compute savings estimates for eligible entities deciding whether to register for 340B or for covered entities concerned that they may not be obtaining the full 340B savings. Entities would be able to enter a market basket of their most frequently prescribed outpatient drugs and the program would compute their bottom line acquisition cost using 340B ceiling prices. The entities would then compare that total with their current cost for those drugs. Eligible entities could get a good estimate of the financial impact of joining the program and covered entities could determine whether the overall prices they were paying were at or below the 340B ceilings prices. HRSA currently relies on the referral of fraud, waste and abuse issues to the Office of Inspector General OIG. Consistent with OIG recommendations, HRSA will assess the need for additional authority and resources to perform audits and to impose fines and civil monetary penalties for violations of Section 340B of the Public Health Service Act.

Rationale for the Budget Request - From the inception of the 340B Drug Pricing Program in 1992, the entire cost of administering the program, including the development of guidelines and the provision of technical assistance, has been borne by HRSA program management funds and other agency-wide funding sources available to the Administrator. Because of the need to make major improvements in program operations, primarily identified by audits and evaluations conducted by the OIG, the FY 2008 Budget requests a $2,940,000 line item to help resolve identified deficiencies which cannot be addressed within resources available for normal administrative operations.

Several OIG reports, including “Review of 340B Prices” (OEI-05-02-00073, July 2006), documented the problems that will be addressed through a combination of HRSA staff and contracts administered by HRSA. HRSA’s actions will be confined to the limits of the confidentiality requirements surrounding the information used to calculate 340B ceiling prices. The OIG’s recommendations to train manufacturers, wholesalers and other external stakeholders along with the Administrator’s mandate for broad based 340B Program training for HRSA’s project officers and regional personnel require program development and implementation funding.

1. Non-compliance with the 340B pricing requirements. The pricing errors are caused by a variety of problems including errors in data submitted by manufacturers, omissions in data needed to compute 340B ceiling prices, and mistakes in 340B prices offered by drug wholesalers. As a first step in correcting these problems, HRSA negotiated a revised Intra-Agency Agreement with CMS permitting HRSA to compute the 340B ceiling prices using manufacturers data supplied by CMS. Funds from the FY 2008 appropriation request will support publication of policies regarding the computation of 340B ceiling prices; a systematic quarterly comparison of 340B ceiling prices with the selling prices offered by manufacturers and drug wholesalers; and followup efforts to resolve problems wherever they arise in the data supply chain. HRSA will request covered entities to submit samples of invoices that will be checked to assure that drug prices do not exceed the 340B ceiling prices. If necessary, the funds would also support audits undertaken by OIG-approved public accounting firms. A proposed Pilot Program involving a small group of pharmaceutical manufactures will allow HRSA to build upon an OIG and drug manufacturer recommendation that manufacturers voluntarily share 340B price data with HRSA and work more collaboratively to identify and resolve pricing discrepancies. HRSA will evaluate the Pilot to determine the cost of implementation throughout the 340B Program in FY 2008. Should it prove successful, this program is expected to result in greater integrity of the 340B prices in the market place. Major drug wholesalers will continue to share their 340B price files with HRSA through the 340B Prime Vendor. Drug manufacturers will also be requested to voluntarily permit their 340B prices to be available to covered entities, participating in the PVP, on the Prime Vendor’s secure web site.

2. Errors and omissions in HRSA’s covered entity database. HRSA’s staff and its contractors have continued to take a number of steps to improve the reliability of the database of participating covered entities, including purging duplicate and obsolete entries and adding updated entity information. However, the definitive action needed to assure the accuracy of the database is to eventually conduct an annual verification of all data supplied by covered entities. Data submitted by STD, TB, Title X Family Planning programs and Ryan White Titles I and II are currently verified annually . This process provides current names, addresses and other necessary information and purges obsolete data. Entities that no longer provide a drug benefit would be deleted from the database.

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