[Author: Michael LaBattaglia]

On January 10, 2018, the House Energy and Commerce (E&C) Committee released a report calling for major reforms to the 340B Drug Pricing Program (340B program). Administered by the Health Resources and Services Administration (HRSA), the 340B program allows certain hospitals and other healthcare providers, known as “covered entities,” to purchase covered outpatient drugs at discounted rates from pharmaceutical companies.  According to the report, Congress omitted key aspects of the program when it drafted the 340B statute, and left HRSA with insufficient regulatory authority to oversee the program effectively.  The report finds that these weaknesses, along with rapid program growth, have resulted in variation in the way in which covered entities use the program.  The report urges Congress to establish clear program goals and parameters, expand HRSA’s oversight authority, and reexamine the eligibility requirements for covered entities.

Background on the 340B Program

Congress established the 340B program through the Veterans Health Care Act of 1992.  Providers that are eligible to participate in the 340B program include certain disproportionate share hospitals (DSH hospitals), children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals. Covered entities can purchase covered outpatient drugs at discounted rates, resulting in so-called “340B savings.” Although only covered outpatient drugs are eligible for discount purchasing, 340B drugs can be provided to any outpatient regardless of whether the patient is covered by insurance. In some cases, insurers may reimburse covered entities at rates that exceed the 340B discounted pricing, resulting in “340B revenue.”

The report represents the culmination of a two-year investigation by the E&C Committee. Yet, several recent developments regarding the 340B program not discussed in the report are worth noting. On November 1, 2017, CMS issued the 2018 Hospital Outpatient Prospective Payment System (OPPS) final rule, finalizing steep cuts to reimbursement for 340B drug purchases, as discussed here. Shortly after, Congress introduced legislation aimed at blocking CMS from implementing the OPPS cuts, discussed here. Lastly, on December 29, 2017, the United States District Court for the District of Columbia dismissed a suit seeking to enjoin CMS from implementing the cuts before they took effect January 1, 2018, discussed here.

Summary of the Report’s Findings

The E&C Committee’s report identifies several program weaknesses stemming from the omission of key details from the 340B statute. For example, Congress did not establish requirements regarding how most covered entities are to use their 340B savings. Moreover, the statute does not require most covered entities to track or report program savings or how those savings are used. The report relies on an expectation that covered entities are to use these savings to expand charity care to low-income individuals and other vulnerable populations. Yet, the report concedes that the statute creates no requirement for covered entities to provide charity care. The statute also does not require covered entities to report the amount of charity care that they furnish. As a result, the report concludes, covered entities can use program savings in a variety of different ways, and there is a lack of data measuring how much charity care covered entities provide.

The report also explains that Congress has not empowered HRSA with sufficient authority to promulgate regulations related to program requirements and oversight.  In the three areas where HRSA does have regulatory authority—administrative dispute resolutions, drug price ceiling calculations, and manufacturer civil monetary penalties—the report finds that HRSA has not fully implemented regulations in a timely manner.  While HRSA has the authority to conduct audits of covered entities, the report finds that program participation has outpaced HRSA’s auditing capacity.  Because certain hospitals qualify based in part on their DSH percentage—which accounts for the number of hospital inpatients who are Medicaid and low-income Medicare patients—more hospitals have become eligible to participate in the 340B program with the recent Medicaid expansion under the Affordable Care Act.

In light of these facts, the E&C Committee details several concerns regarding covered entities’ use of the 340B program.   These include the financial incentive for 340B hospitals to prescribe a greater amount of expensive drugs to Medicare Part B beneficiaries, and prescribing trends indicate that 340B hospitals do prescribe more expensive drugs to Medicare Part B beneficiaries as compared to non-340B hospitals.  The report also expresses concern regarding the consolidation of private oncology practices, which, in some instances, according to the report, negatively affects the quality of patient care and increases patient cost.  The report is also critical of hospitals opening child sites in areas that do not reflect the DSH percentage of the parent entity, thus enabling the hospital to boost 340B revenue by gaining access to a higher number of commercially insured patients.

Summary of the Report’s Recommendations

The report urges Congress to clarify the intent of the 340B program.  It also calls for Congress to expand HRSA’s regulatory authority to improve program integrity, clarify program requirements, monitor and track program use, and ensure that low-income and uninsured patients directly benefit from the 340B program.   The report also recommends that HRSA finalize and enforce regulations in the three areas where it has regulatory authority.  Some recommendations, if adopted, would directly affect covered entities.  For example, the report proposes greater monitoring of charity care furnished by covered entities, as well as the disclosure of annual 340B program savings and/or revenue.  The report also suggests that Congress reexamine whether the DSH percentage is still an appropriate measure for program eligibility, or whether a metric based on outpatient population would be more appropriate.

The House Energy and Commerce Report is available here.