Glitches in the law that created the 340B drug discount program for safety net health care providers are creating oversight problems and raising questions about the intent of the program.

"This is a program set up by the federal government, yet the federal government doesn't know where the money is going," Rep. Renee Ellmers (R-N.C.) said Tuesday at what was said to be the first House hearing on the program since 2005.

To participate in Medicaid, drugmakers must offer drug discounts ranging from about 25 percent to 50 percent to 340B health care providers for eligible outpatients. The providers can then charge full price for the drugs, using the revenue generated to expand patient access and support their overall mission.

The problem is that the Health Resources and Services Administration (HRSA), which is charged with overseeing the program, has yet to clearly define eligible patients. And the law that created the program in 1992 included no language on how participants have to use the drug savings.

That glitch has magnified with the growth of the program under the Affordable Care Act (ACA), which expanded 340B from Public Health Service clinics to children's hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. Today, one-third of all hospitals in the U.S. participate in the program, Rep. Joseph Pitts said in opening the hearing before the House Energy and Commerce Subcommittee on Health.

With few restraints on the program, Ellmers pointed out that some providers are charging more for the discounted drugs than what an independent doctor's office would charge. She also noted that a number of private hospitals are participating in 340B even though they provide little charity care. And some providers may pass the savings on to insured patients while others could charge an uninsured patient the full price of the drug.

If 340B is supposed to be a safety net for the most vulnerable patients, more transparency is necessary, Ellmers said.


Rep. Larry Buschon (R-Ind.) agreed. While 340B is a critical program, he said, more aggressive oversight, and possibly congressional action, is needed. He's been told that some 340B participants budget to profit from it. "That's not the intent of the program," Buschon said.

Sen. Chuck Grassley (R-Iowa) called attention to similar problems a few years ago in a letter to HRSA. He found that some hospitals were "reaping sizeable 340B discounts on drugs and then turning around and upselling them to fully insured patients covered by Medicare, Medicaid or private health insurance in order to maximize their spread." (See BioWorld Today, April 9, 2013.)

In a sampling of three North Carolina hospitals, Grassley noted the revenue the hospitals generated from the program had grown considerably since 2009. The University of North Carolina (UNC), for instance, had a 98 percent increase in revenue from 340B drugs, going from about $33.1 million in 2009 to nearly $65.4 million in 2012. Meanwhile, the percentage of uninsured patients given the discounted drugs at UNC dropped from 20 percent in 2009 to 13.7 percent in 2012.

Having information on how providers use the drug savings would be valuable in determining whether the program is working as intended, Rep. John Shimkus (R-Ill.) said at Tuesday's hearing.

Since 340B was established, "much has changed in the health care landscape," Debbie Draper, director of health care at the Government Accountability Office (GAO), testified. Thus, there's a lot of uncertainty today about the intent of the program.

HRSA has said that 340B is to enable providers to stretch their limited resources so they can continue to serve everyone who walks through their doors. Others believe it's to benefit low-income patients, but Draper said there's nothing in the law that limits the use of the benefits to income. "What is it intended to do?" she asked the lawmakers.

Answering that question requires more clarity and specificity for the program, she said.


That's another glitch. HRSA issued an omnibus regulation last year to provide some clarity, but the omnibus went too far for drugmakers when it diluted an exemption, provided by the ACA, for orphan drugs. The Pharmaceutical Research and Manufacturers of America (PhRMA) challenged HRSA's authority to issue the rule in federal district court. (See BioWorld Today, Oct. 4, 2013.)

The court ruled in PhRMA's favor, saying HRSA didn't have the authority to make such a sweeping regulation. Unless Congress grants it more authority, the agency's rulemaking is limited to three areas: civil penalties, dispute resolution and the ceiling price of drugs, HRSA Deputy Administrator Diana Espinosa told the subcommittee.

In lieu of the regulation, HRSA plans to issue an omnibus draft guidance later this year that will define patient and address hospital eligibility and contract pharmacies, Espinosa said. While the guidance will give some clarity, it won't provide the specificity needed, she added. The agency also has begun risk-based audits of participating 340B providers and plans to begin auditing drugmakers.

The actions are in response to a 2011 GAO report critical of the agency's oversight and a bump in HRSA funding last year that provided the resources for audits and information systems.

Acknowledging the shortcomings in the 340B program, Pitts said, "It looks like Congress has some follow-up responsibilities."

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