OIG Testifies Before Congress on Key Improvements to the 340B Program.

Date posted: November 3, 2017

The Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently testified before Congress on ways to protect the 340B Drug Pricing Program’s (“340B program” or “340B”) integrity.  In 1992, the United States Congress established the 340B program, which is managed by the Health Resources and Services Administration (HRSA).  Congress created 340B to allow certain safety-net health care providers to purchase outpatient drugs at a discount.  Community health centers or certain hospitals serving a disproportionate number of low-income patients are among the safety-net providers benefiting from 340B.  After the Affordable Care Act expanded the types of eligible program providers, the 340B program grew to include 12,148 providers and 25,348 associated sites, totaling 37,496 registered sites as of October 1, 2016.  The OIG has oversight responsibility over HRSA’s operation of the 340B program to identify vulnerabilities and offer recommendations to protect its integrity.  HRSA and subsequent legislation have addressed some of the vulnerabilities identified and recommendations made from previous OIG reviews.  Despite such efforts, HRSA has not fully addressed the other long-standing challenges identified.

Previous OIG work identified the following long-standing and fundamental vulnerabilities in the 340B program:

1.       Lack of transparency in 340B drug ceiling prices.

  • Under the Public Health Service Act, drug manufacturers are required to sign a Pharmaceutical Pricing Agreement stating that they will charge certain health care providers, known as 340B providers, at or below specified maximum prices, known as ceiling prices.  The lack of ceiling price transparency, however, impedes 340B program providers and state Medicaid programs’ from ensuring that they are paying the correct amount for 340B-purchased drugs.  Additionally, it prevents state Medicaid programs from knowing which Medicaid claims are for 340B-purchased drugs, to ensure they make correct payments to 340B providers.  Further, by identifying which Medicaid claims are for 340B-purchased drugs, state Medicaid programs can ensure that they receive appropriate drug rebates and that manufacturers do not provide duplicate discounts.  In 2010, Congress authorized HRSA to share confidential ceiling prices with 340B program providers; however, HRSA has yet to do so.  HRSA has begun to develop a secure system to share ceiling prices with 340B program providers and provide a single point of reference to calculate, verify, and display 340B ceiling prices.  Yet, until the system is operational, 340B providers cannot ensure that they are paying the correct amount for these drugs.  Although the 2010 legislation addressed access to ceiling prices for 340B providers, it did not address such access for state Medicaid agencies.  Consequently, state Medicaid agencies are prevented from effectively enforcing Medicaid payment policies for 340B-purchased drugs.
  1. Lack of clarity regarding 340B program rules.
  • The OIG has identified numerous challenges and inconsistencies arising from the widespread use of contract pharmacy arrangements. These pharmacies typically dispense both 340B-purchased drugs on behalf of 340B providers and non-340B drugs.  For contract pharmacies, the 340B program’s operational complexity often leads to variations in eligibility determinations for 340B providers and inconsistencies with 340B program benefits for uninsured patients.  HRSA’s current eligible patient definition guidance does not account for the complexity of contract pharmacy arrangements.  Diversion, which is prohibited by law, is the dispensing of a 340B-purchased drug to an ineligible patient.  To prevent diversion, providers and contract pharmacies must make appropriate patient eligibility determinations for 340B-purchased drugs.  The OIG previously recommended that HRSA clarify these ambiguities and  To that end, HRSA updated and provided clarifications for patient definitions, contract pharmacy arrangements, and other program integrity provisions in its 2015 proposed omnibus 340B guidance.  However, as HRSA never finalized that proposed guidance, these issues remain unaddressed.  HRSA may need additional statutory authority to address these issues through rulemaking.
  • The OIG further noted that retail contract pharmacies are often unable to distinguish between 340B patients and other customers filling prescriptions. As such, many contract pharmacies dispense drugs to all of their customers and determine which prescriptions were given to 340B-eligible patients at a later time.  To determine patient eligibility, contract pharmacies often match their dispensing data with information they received from the 340B providers.  The OIG found wide variations in these eligibility determinations, with some determinations considered to be diversions.  HRSA’s current guidance on eligible patient definition does not account for many of the 340B eligibility decisions arising from contract pharmacy arrangements.
  • The 340B program’s goal was to increase access to and provide more comprehensive care. However, neither the statute nor the HRSA guidance explained how providers must use savings from the 340B program, or that the discounted 340B price must be passed on to uninsured patients.  Some 340B providers instituted extra measures to ensure that uninsured patients benefit through lower drug costs when filling prescriptions at contract pharmacies.  If they did not institute these measures, uninsured patients would have to pay full price for their drugs and would not benefit from the 340B discount.  The OIG advocated that guidance on the 340B program’s application to uninsured patients in these scenarios should be clarified and its operations should align with the program’s intent.

To address the 340B program’s continuing vulnerabilities, the OIG made the following key recommendations during its congressional testimony:

  1. Increase transparency to allow payment accuracy.
  • The OIG recommended that the Centers for Medicare and Medicaid Services (CMS) require states to use claim-level methods to identify 340B claims. Although CMS did not concur with that recommendation, citing the lack of such a statutory requirement, it did acknowledge the importance of claim-level identification methods.  Further, the OIG recommended that Congress take action if CMS determines that it does not have sufficient statutory authority to implement this requirement.
  1. Clarify 340B program rules to ensure that the program operates as intended.
  • The OIG recommended that HRSA update its patient definition guidance to account for the complexity of contract pharmacy arrangements. 340B providers are only allowed to dispense 340B-purchased drugs to their patients but the law does not define what constitutes a “patient”.  HRSA’s definition of “patient” comes from guidance that was issued prior to when 340B providers were able to contract with retail pharmacies.  Therefore, patient eligibility determinations must be made prior to prescription dispensation, to ensure 340B-purchased drugs are being provided to the correct patients.

The OIG further recommends the following:

  • HRSA should fully implement its authority to share ceiling prices with 340B providers;
  • HRSA should work with CMS and Congress to obtain any required authority to share ceiling prices with state Medicaid agencies;
  • CMS should require Medicaid programs to use claims-level methods to identify claims for 340B-purchased drugs and require HRSA to update its related guidance;
  • HRSA should clarify the definition of “eligible patient” and address whether 340B providers must offer discounted 340B prices to uninsured patients; and
  • Congress should consider statutory changes to support increased clarity in 340B program goals, requirements, and oversight.

The OIG’s congressional testimony transcript is available at:


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