Industry Insights

Potential 2017 340B Program Changes

February 2017
Author:  Benjamin Schmitz

Benjamin Schmitz

Senior Associate

Audit

1201 Walnut Street, Suite 1700
Kansas City, MO 64106-2246

Kansas City
816.221.6300

The first of many potential 340B drug pricing program (340B program) changes in 2017 occurred in January 2016: The Office of Management and Budget finalized a Health Resources & Services Administration (HRSA) rule requiring civil monetary penalties on pharmaceutical companies that overcharge for 340B program drugs. Penalties are capped at $5,000 and can be levied on drug manufacturers “who intentionally charge a covered entity a price above the ceiling price established under the procedures of the 340B program,” per the HRSA. The rule also defines standards and methodology for the calculation of said prices.

Despite being established in 1992, most 340B program expansion occurred after the Affordable Care Act (ACA) passage in 2010. In addition to disproportionate share hospitals (DSH), the ACA made five hospital types eligible for the 340B program:  pediatric hospitals (PED), freestanding cancer centers (CAN), critical access hospitals (CAH), rural referral centers (RRC) and sole community hospitals (SCH). Each organization type is subject to a minimum Medicare disproportionate share adjustment percentage (DSA), with the exception of CAH.

The number of health care organizations participating in the 340B program has dramatically increased since the ACA. These eligible entities are considered health care safety net providers, as they assist a significant portion of rural and underserved populations in the United States.

Recently, Congress discussed repealing the ACA—this could have a serious financial effect on safety net providers using the 340B program. Safety net providers got through continued Medicare and Medicaid funding cuts, rising costs and increased drug prices by using the 340B program to help meet the volume and maintain the quality of services their communities require.

In addition, 2010 HRSA guidance through the Federal Register allowed eligible 340B entities to contract an unlimited number of third-party pharmacies to dispense 340B drugs, rather than using one pharmacy as previously required. This guidance increased the 340B program’s reach and benefits for eligible organizations. Opponents claim this change has led to eligible organizations and contract pharmacies taking inappropriate benefits from 340B program drug prices. Potential guidance modifications could come from Congress in the form of limiting the role of contract pharmacies and/or imposing geographic limitations; this would further restrict operations and budgets of safety net providers.

Both sides of the 340B program debate question who qualifies for discounted drugs. The 340B statute states, “a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity.” This has been disputed through the years, with some arguing Congress intended to be broad and inclusive, while others argue it was to limit discounts to truly indigent patients.

On January 30, 2017, the HRSA withdrew its 340B Program Omnibus Guidance (Mega-Guidance), adding further 340B program uncertainty. The Mega-Guidance was intended to clarify the 340B program for covered entities, drug manufacturers and others. It’s unknown if clarifying guidance will be released. Possible communication methods include HRSA audit findings, Apexus communications or other outlets.

Individuals and organizations using the 340B program should be prepared for changes in 2017. Contact your BKD advisor if you have questions.

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