While exploring ways to make healthcare more affordable, you might come across discussions about drug discount programs and wonder if they are linked to the Affordable Care Act (ACA), often referred to as Obama Care. The short answer is: not directly. Drug discount programs, specifically programs like the 340B Drug Pricing Program, operate independently of the ACA. However, they are crucial components of the healthcare landscape, aiming to ensure that vulnerable populations have access to affordable medications, a goal shared by the broader objectives of the ACA.
To understand this better, let’s delve into the details of a significant drug discount program – the 340B program. This program has been in place well before the ACA and plays a vital role in supporting healthcare providers who serve a large number of low-income and vulnerable patients.
The Origins of the 340B Drug Pricing Program
The foundation for the 340B program was laid in 1990 with the creation of the Medicaid Drug Rebate Program (MDRP). The MDRP was designed to reduce the cost of prescription drugs for state Medicaid agencies. It required drug manufacturers to enter into rebate agreements with the Department of Health and Human Services (HHS) as a condition for their drugs to be covered by Medicaid and Medicare Part B. Under this program, drug companies had to provide rebates to state Medicaid programs for outpatient drugs covered, with rebate amounts for brand-name drugs linked to the manufacturer’s “best price.”
Building on the principles of the MDRP, Congress recognized the need to extend similar drug cost relief to healthcare providers serving vulnerable populations. This led to the enactment of Section 340B of the Public Health Service Act in 1992, as part of the Veterans Health Care Act. This section established the 340B Drug Pricing Program.
The 340B program mandates that pharmaceutical manufacturers sign a pharmaceutical pricing agreement (PPA) with the HHS Secretary to have their drugs covered by Medicaid and Medicare Part B. In return, these manufacturers must offer upfront discounts on covered outpatient drugs purchased by specific healthcare providers, known as “covered entities.” These covered entities are organizations that serve the nation’s most vulnerable patient populations. The core purpose of the 340B program, as stated in congressional reports, is to empower these covered entities to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” This makes the 340B program a critical element in the healthcare safety net, working towards affordable healthcare access, a goal also pursued by initiatives like the ACA.
Who Can Participate in the 340B Program?
The 340B program carefully defines “covered entities” to ensure that discounts reach the intended vulnerable populations. Eligibility includes specific categories of hospitals and non-hospital healthcare providers.
Hospital Categories:
Six categories of hospitals are eligible, each serving a unique role in the healthcare system:
- Disproportionate Share Hospitals (DSHs): These hospitals serve a high percentage of low-income patients.
- Children’s Hospitals and Cancer Hospitals: Hospitals exempt from the Medicare prospective payment system, focusing on specialized care.
- Sole Community Hospitals: Hospitals that are the only source of inpatient hospital services in a geographic area.
- Rural Referral Centers: Hospitals in rural areas that provide specialized medical care to a larger geographic region.
- Critical Access Hospitals: Small rural hospitals that provide essential healthcare services in remote areas.
To qualify within these categories, hospitals must meet specific ownership and operational criteria, including being:
- Owned or operated by state or local government.
- A public or private non-profit corporation officially granted governmental powers by state or local government.
- A private non-profit organization contracted with a state or local government to provide care for low-income individuals not eligible for Medicaid or Medicare.
Except for critical access hospitals, these hospitals must also meet payer-mix criteria related to the Medicare DSH program, further ensuring their focus on serving vulnerable populations.
Non-Hospital Covered Entities:
Beyond hospitals, ten categories of non-hospital covered entities are eligible based on receiving federal funding, expanding the reach of the 340B program to community-based healthcare providers:
- Federally Qualified Health Centers (FQHCs)
- FQHC “look-alikes”
- State-operated AIDS Drug Assistance Programs
- Ryan White Comprehensive AIDS Resources Emergency (CARE) Act clinics and programs
- Tuberculosis clinics
- Black lung clinics
- Title X family planning clinics
- Sexually transmitted disease clinics
- Hemophilia treatment centers
- Urban Indian clinics and Native Hawaiian health centers
This broad range of eligible entities demonstrates the 340B program’s commitment to supporting a wide spectrum of healthcare providers who are crucial in delivering care to underserved communities.
Administration of the 340B Program
The 340B program is managed by the Office of Pharmacy Affairs (OPA), a division within the Health Resources and Services Administration (HRSA), which is part of the HHS. HRSA and OPA, based in Rockville, MD, are responsible for interpreting and implementing the 340B law. This includes setting guidelines, overseeing compliance, and providing resources for both covered entities and drug manufacturers.
For inquiries about the 340B program, HRSA’s contractor, Apexus, can be contacted at 1-888-340-2787 or [email protected]. Apexus serves as a point of contact for program participants and stakeholders, offering support and guidance on program-related matters.
How the 340B Program Operates
Facilities that believe they meet the criteria for a “covered entity” can apply to participate in the 340B program through an online registration process. This registration window occurs during the first two weeks of each calendar quarter (January, April, July, and October).
Once approved by OPA, registered entities are listed on the 340B OPA Information System (OPAIS). This listing confirms their eligibility to receive discounted drug prices, which begin on the first day of the calendar quarter following their registration approval. Once enrolled, covered entities are entitled to discounts on all eligible covered outpatient drugs. These discounted prices are usually accessed through the covered entity’s wholesaler, although some manufacturers may require direct purchases or use of specific distributors. Covered entities can then dispense these 340B-purchased drugs to all eligible patients, regardless of their insurance status or whether the drug is for self-administration or clinical administration.
Understanding 340B Drug Pricing and Discounts
A key aspect of the 340B program is the 340B ceiling price. Manufacturers are legally restricted from charging covered entities more than this ceiling price for covered outpatient drugs, irrespective of whether the purchase is through a wholesaler or directly from the manufacturer.
The 340B ceiling price is calculated based on the Average Manufacturer Price (AMP) minus a Unit Rebate Amount (URA). The URA is a minimum rebate percentage that varies depending on the drug type:
- 23.1 percent: Most brand-name prescription drugs
- 17.1 percent: Brand-name pediatric drugs and clotting factor
- 13 percent: Generic and over-the-counter drugs
Manufacturers are required to offer even deeper discounts on brand-name drugs if their “best price” for a drug is lower than AMP minus 23.1 percent, or if the drug’s price has increased faster than inflation. This also applies to generic drugs in relation to inflation. Covered entities are also permitted to negotiate prices lower than the 340B ceiling price, known as sub-ceiling prices, further maximizing their cost savings.
Obtaining 340B Discounts
Upon successful registration into the 340B program, a covered entity needs to establish a 340B account with their wholesaler. The wholesaler then processes drug orders under this account and delivers 340B drugs according to the covered entity’s wholesaler agreement. Covered entities can also request 340B drug price lists from their wholesalers to ensure price transparency. It is important to note that the price charged by wholesalers might include fees, and therefore may differ slightly from the pure 340B ceiling price.
Since 2019, HRSA has provided a secure online platform where covered entities can verify 340B ceiling prices. This website, updated quarterly, enhances transparency and allows covered entities to validate the prices they are paying. Initially offering basic unit prices, the website expanded to include raw ceiling price, package size, case pack size, and package adjusted price. Access is limited to authorized personnel to maintain security and data integrity.
If a covered entity suspects they are not receiving the correct 340B price, they should immediately contact their wholesaler and/or the manufacturer. Often, discrepancies are due to errors that can be quickly resolved. Unresolved issues should be reported to OPA using an Apexus form sent to [email protected].
To address disputes, Congress mandated a binding Administrative Dispute Resolution (ADR) process in 2010. This process, finalized in regulation in 2021, is designed to resolve claims of overcharging by manufacturers and claims of diversion or duplicate discounts by drug companies against covered entities. However, the ADR process is still evolving, with ongoing lawsuits challenging its legality, adding a layer of complexity to dispute resolution within the 340B program.
The 340B program also includes a Prime Vendor Program (PVP), managed by Apexus since 2004, to assist covered entities in negotiating sub-ceiling prices. While not mandatory for participation, the PVP leverages collective purchasing power to secure favorable prices and establish an efficient national distribution system, potentially offering better terms than individual entities could achieve alone.
Dispensing Discounted Drugs and Patient Definition
The 340B law strictly prohibits the resale or transfer (“diversion”) of discounted drugs to anyone other than a patient of the covered entity. HRSA has defined a “patient” of a covered entity through guidelines published in a 1996 Federal Register notice.
According to these guidelines, to be considered a patient, an individual must:
- Have an established relationship with the covered entity, with the entity maintaining records of their care.
- Receive care from a professional employed by the covered entity or under contract or other arrangement with the covered entity, such that the covered entity retains responsibility for the care.
- For grantees and sub-grantees, receive health services from the covered entity that align with the services for which grant funding was provided.
Importantly, simply dispensing a drug for self-administration or home administration is not sufficient to establish an individual as a patient of the covered entity. This definition ensures that 340B drugs are dispensed to individuals genuinely receiving care from the covered entity, preventing misuse of discounted drugs.
Billing Restrictions and Duplicate Discounts
Federal law prevents “duplicate discounts,” meaning a manufacturer cannot provide both a 340B discount and a Medicaid fee-for-service (FFS) rebate for the same drug. To avoid this, covered entities must decide whether to “carve in” or “carve out” 340B drugs for their Medicaid FFS patients.
“Carving in” means using 340B drugs for Medicaid FFS patients, while “carving out” means purchasing drugs outside the 340B program for these patients. For contract pharmacies, carving in Medicaid FFS is only allowed if arrangements are in place to prevent duplicate discounts, and OPA is notified. For drugs dispensed at hospital locations or entity-owned pharmacies, entities must inform OPA of their carve-in decision and ensure their billing numbers (NPI and/or state-specific numbers) are listed in OPA’s Medicaid Exclusion File. This file allows state Medicaid agencies to exclude these claims from rebate requests. Some states may have additional requirements, such as using modifiers on 340B claims.
Most states allow entities to carve out, applying standard state Medicaid billing rules to non-340B drugs. The Medicaid Exclusion File is specifically for Medicaid FFS and not Medicaid managed care. For Medicaid managed care, CMS regulations require states to ensure that Medicaid managed care organizations (MCOs) either exclude 340B claims from utilization reports or require covered entities to submit 340B claims data directly to the state before rebate invoicing. CMS has provided states with options for MCOs to identify and exclude 340B claims, including using specific identifiers or BIN/PCN/Group numbers for 340B claims. Covered entities should review their Medicaid MCO contracts and state Medicaid requirements to ensure compliance with 340B billing practices.
Historically, state Medicaid agencies had varying payment rates for 340B drugs. However, in 2016, CMS introduced a rule requiring states to establish reimbursement policies for retail 340B Medicaid FFS drugs based on actual acquisition cost (AAC) by 2017. While states have flexibility in setting AAC-based rates, CMS clarified that reimbursement cannot exceed the 340B ceiling price. Prior to this, many states already billed at AAC plus a dispensing fee. States may also pay higher dispensing fees for 340B drugs to accommodate pharmacy costs. No federal billing requirements exist for non-retail 340B Medicaid FFS drugs or for 340B drugs provided to Medicaid MCO beneficiaries. Providers should consult their state Medicaid agencies for specific billing and reimbursement rules.
Medicare initially reimbursed hospitals under the outpatient prospective payment system (OPPS) at average sales price (ASP) plus 6 percent. However, in 2017, CMS changed this to ASP minus 22.5 percent for most separately payable Part B drugs purchased through the 340B program, effective in 2018. This reimbursement cut does not apply to rural sole community hospitals, critical access hospitals, children’s hospitals, and cancer hospitals participating in 340B. Initially, it also exempted certain off-campus clinics, but these “site-neutral” clinics were later included in the cuts. These cuts have continued in subsequent years, affecting reimbursement for 340B drugs under Medicare OPPS, except for the exempted hospital types.
Contract Pharmacy Use in the 340B Program
Covered entities can contract with external pharmacies (“contract pharmacies”) to dispense discounted drugs to their eligible patients. HRSA guidelines permit these arrangements where the covered entity purchases the drugs, and the contract pharmacy provides pharmacy services. This often involves a “ship to-bill to” process where drugs are shipped directly to the contract pharmacy, but billing goes to the covered entity.
Contract pharmacies must provide regular financial statements, collection reports, and dispensing records to the covered entity and maintain these records as legally required. Both the covered entity and the contract pharmacy must have systems to prevent drug diversion to ineligible individuals. Covered entities are ultimately responsible for ensuring contract pharmacy compliance with 340B program rules, including patient definition and duplicate discount prohibition. Many entities use software vendors to manage these complex arrangements.
Recent years have seen some pharmaceutical manufacturers restrict 340B pricing for drugs dispensed through contract pharmacies. This has led to ongoing litigation, with drug companies challenging HHS’s authority to require 340B pricing for contract pharmacy dispensing. The legal landscape in this area remains uncertain.
Savings from the 340B Program
The 340B program offers substantial drug price savings. A 2015 Government Accountability Office report estimated that program participants can save between 20-50% on drug costs. These savings are crucial for covered entities to expand services and reach more patients within their limited resources.
Compliance Monitoring and Enforcement
To ensure program integrity, HRSA is authorized to audit both covered entities and manufacturers for compliance with 340B requirements. HRSA conducts around 200 covered entity audits annually, with results posted on the HRSA 340B program integrity website. Manufacturers can also audit covered entities under HRSA guidelines, requiring reasonable cause and HRSA approval of an audit plan, focusing on patient definition and duplicate discount prohibition. Manufacturer audits are less frequent than HRSA audits.
Annual recertification is another key compliance mechanism. Covered entities must recertify their compliance each year, with authorizing officials attesting to adherence to 340B rules, including contract pharmacy compliance. Self-reporting of breaches is also required, with HRSA recommending entities define criteria for material breaches that necessitate notification.
Manufacturers are also subject to HRSA audits. Penalties for non-compliance vary. For covered entities, violations of diversion or duplicate discount rules may result in repayment of discounts, potential interest on refunds for knowing and intentional violations, and possible disqualification from the program for egregious violations. For manufacturers overcharging covered entities, penalties include refunding overcharges and potential civil monetary penalties for knowing and intentional overcharging. Termination of the PPA, leading to exclusion of drugs from Medicaid and Medicare Part B coverage, is another potential consequence for manufacturers.
Staying Informed About the 340B Program
OPA disseminates program information through its website (http://www.hrsa.gov/opa/index.html) and the PVP website (http://www.340bpvp.com). These websites offer lists of participating entities, Federal Register notices, guidelines, and other program-related resources. 340B Health (http://www.340bhealth.org) also provides valuable information, including a blog (http://www.340Binformed.org) and a podcast (https://www.340bpodcast.org/) for program updates and discussions.
For further questions, www.340bhealth.org or contacting Amanda Sellers Smith at [email protected] or 202-552-5851 are excellent resources.
In conclusion, while drug discount programs like the 340B program are not directly part of Obama Care (the ACA), they are vital components of the US healthcare system. They work to ensure that hospitals and clinics serving vulnerable populations can access affordable medications, thus expanding healthcare access and affordability, which aligns with the overarching goals of the ACA. Understanding programs like 340B is crucial for anyone seeking to navigate the complexities of healthcare costs and access in the United States.
