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Congress Boosts Funding to Improve 340B Program Integrity

Reg Pulse

Congress recently appropriated an additional $6 million to enable the Health Resources and Services Administration (HRSA) and Office of Pharmacy Affairs (OPA) to expand existing program integrity efforts for 340B drug pricing. During a time of widespread budget cuts, the fact that lawmakers provided more than twice the funding requested by the Obama administration sends a clear message that the 340B program will soon be subjected to much greater oversight and enforcement after decades with little scrutiny.

The bill requires the OPA to brief the House and Senate Appropriations Committees about its plans to “strengthen program oversight to ensure compliance with existing requirements,” and to provide a “timetable for issuing new regulations that address compliance concerns” raised by both the Department of Health and Human Services (HHS) and the Government Accountability Office (GAO).

The OPA’s Commander Krista Pedley communicated at the February 5-7, 2014 340B Coalition Winter Conference that the OPA is formulating its plan to use the increased appropriations to benefit both 340B covered entities and manufacturers. Some of the funding may be used to expand the set of 340B regulations expected to be released in June 2014. The “mega-regulations” may be expanded to address topics beyond the four key areas announced by the OPA in January: definition of an eligible patient, compliance requirements for contract pharmacy arrangements, hospital eligibility criteria and eligibility of off-site facilities. Although the “mega-regulation” is still being defined by the OPA, provisions and impacts could include:

  • Patient eligibility. A clearer and more specific definition of a 340B eligible patient, including referral arrangements.
  • Contract pharmacy oversight. On February 5, 2014 HRSA issued policy guidance stating it, “expects Covered Entities to conduct annual audits of contract pharmacies that are performed by an independent auditor”. The mega-regulation may establish a cap on the number of contract pharmacy arrangements a covered entity can enter into with pharmacy retailers.
  • Hospital eligibility criteria. On March 7, 2013, HRSA issued a policy notice restating the criteria that hospitals which are not publicly owned must meet in order to participate in the 340B program. Expect the mega-regulation to expand upon the guidance provided to date.
  • Eligibility of hospital off-site facilities. In February 2013, HRSA released policy guidance on the GPO prohibition and provided clarification on the treatment of off-campus clinics, including provider-based entities. The guidance provided specific criteria which, if met, allowed a covered entity to exclude off-campus sites from the 340B program. This clarification will likely carry forward to the mega-regulation.
  • Medicaid Managed Care Organizations (“MCO Medicaid”). Clarification of HRSA’s previous guidelines, and stipulating that the statute prohibits covered entities from subjecting manufacturers to duplicate discounts for both Fee-for-Service Medicaid and MCO Medicaid.
  • Accurate 340B ceiling pricing. Development of a system for HRSA/OPA to verify the accuracy of 340B ceiling prices charged by manufacturers to 340B covered entities, with HRSA/OPA conducting spot checks and/or audits to assess manufacturer compliance.
  • Transparency in 340B price information. A requirement that manufacturers’ 340B ceiling prices be published on the HHS website for access by 340B covered entities.
  • Mandatory manufacturer credit or refund process. Establishment of procedures requiring manufacturers to retroactively issue refunds in cases where covered entities were overcharged, both in routine instances of adjustments to relevant underlying Medicaid pricing data and in cases of errors or intentional overcharges.
  • Program intent. Greater clarity and direction about program intent.
  • Covered outpatient drug. Clarification on the definition of a covered outpatient drug and the use of a drug exclusion file.
  • Contracted and employed physicians. A clearer definition of the relationship between physician and covered entity, and who has responsibility for the care of the patient.
  • Penny pricing policy. Delineation of HRSA’s penny pricing policy with guidance formalized in writing.
  • Penalties for non-compliance. Regulations implementing penalties for non-compliance and delineating sanctionable events.

Pharmaceutical manufacturers should pay particularly close attention to developments in this area. OPA’s focus over the last couple of years has been primarily on covered entity compliance, but that focus appears to be shifting increasingly to manufacturer compliance. OPA is currently in the process of conducting its first audit of a drug manufacturer. It’s likely that a portion of the increased funding will be used for 340B integrity activities impacting manufacturers, such as issuance of regulations addressing manufacturer 340B Program requirements and enforcement activities directed at manufacturers.

For healthcare providers who are covered entities, increased scrutiny, compliance and enforcement are the industry watch words. Covered entities will likely face increased scrutiny on the 340B program from the federal government and pharmaceutical manufacturers. In addition, release of the mega-regulation is expected to materially change the landscape under which facilities participate in the program. In FY 2013, the OPA had a very aggressive plan to audit more than 400 participants, but the plan was curtailed by the sequestration process. Now, with the announced doubling of funding for the OPA in FY 2014, it’s clear the HRSA will be increasing its compliance and enforcement activities.

Ray Albertina, Director, Deloitte & Touche LLP
Marcy Imada
, Principal, Deloitte & Touche LLP

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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