On February 4, 2014, the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) sent a Memorandum Report, titled Contract Pharmacy Arrangements in the 340B Program, to Mary Wakefield, Administrator for the Health Resources and Services Administration (“HRSA”). The purpose of the Memorandum Report was to inform HRSA about OIG’s study findings concerning 1) the oversight of contract pharmacies to prevent 340B Drug Pricing Program (“340B Program”) violations, 2) the diversion of 340B Program-purchased drugs (“340B drugs”) to ineligible patients and 3) duplicate discounts through Medicaid.
The 340B Program was established by the Veterans Health Care Act of 1992 in section 340B of the Public Health Service Act. The 340B Program requires that drug manufacturers participating in Medicaid provide discounted covered outpatient drugs to certain eligible health care entities (“covered entities”), which include community health centers and disproportionate share hospitals.
Covered entities participating in the 340B Program may contract with pharmacies to dispense 340B drugs. According to HRSA guidance, those covered entities must oversee the pharmacies to prevent diversion of 340B drugs and duplicate Medicaid discounts, which are statutorily prohibited. Duplicate discounts occur when a drug manufacturer pays a State Medicaid agency a rebate under the Medicaid drug rebate program on a drug sold at the already-discounted 340B price.
The OIG’s findings showed that the extent of the monitoring by covered entities varied and most covered entities did not conduct all of the oversight activities recommended by HRSA. Specifically, few covered entities reported retaining independent auditors for their contract pharmacy arrangements as recommended. The OIG’s findings also showed that covered entities participating in the 340B Program used different methods to identify 340B-eligible prescriptions to prevent diversion to ineligible patients at their contract pharmacy. As a result, there were different determinations across covered entities as to which prescriptions filled at contract pharmacies were treated as 340B-eligible.
Further, the OIG found that administrators had difficulty identifying beneficiaries covered by Medicaid managed care organizations. Therefore, 340B drugs were dispensed to Medicaid beneficiaries and resulted in duplicate Medicaid discounts. In some cases, the OIG found covered entities knowingly dispensed 340B-purchased drugs to Medicaid beneficiaries without a reported method to avoid duplicate discounts.
Additionally, the OIG found that some covered entities did not offer discounted 340B Program prices to uninsured patients in any of their contract pharmacy arrangements. The OIG noted that although neither the 340B statute nor HRSA guidance addresses whether covered entities must do so, if the covered entities do not, uninsured patients pay the full non-340B price for prescriptions filled at those contract pharmacies.