340B – Reply Hazy, Try Again

By: Marcus J. Hopkins, Policy Consultant & Guest Contributor 

For the past three years, I have spent countless hours trying to make sense of the 340B Drug Pricing Program, how it is utilized by state and private entities, and how certain companies can take an ostensibly good program and turn it into what is essentially a slush fund for their organizations. As of January 15th, 2020, my understanding of the various working parts of this program, even after peer reviewing a white paper for the Community Access National Network (which can be found here) on the topic, remains unclear, at best.

For those unfamiliar with the 340B program, it was created in 1992 and requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. It was designed to all covered entities to “…stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services” (Health Resources & Services Administration, 2020). “Eligible health care organizations/covered entities are defined in [the] statute and include HRSA-supported health centers and look-alikes, Ryan White clinics and State AIDS Drug Assistance programs, Medicare/Medicaid Disproportionate Share Hospitals, children’s hospitals, and other safety net providers” (HRSA).

Some examples of “covered entities” include HIV/AIDS clinics and pharmacies such as those run by the AIDS Healthcare Foundation, AID Atlanta, Thrive Alabama, Trillium Health, Urban Health Solutions, Inc., and numerous others around the U.S. These Federal grantees must reinvest any revenues from the sale of drugs (340B or otherwise) and other patient revenues into the federal grant project, as well as report how they budget for and spend such “program income” (Community Access National Network, 2019). While these entities are required to report how they reinvest, hospitals are not required to do so.

Proponents of the program argue (rightly) that the 340B program has allowed for more patients to receive more medications, particularly as it pertains to HIV medications. Using 340B “income,” Ryan White clinics are able to provide eligible prescription medications to need patients at no or reduced cost, assist patients with their insurance premiums, and provide medical services as little or no cost to needy patients (Ryan White Clinics for 340B Access, 2016).

Critics argue that the 340B program is being abused by Pharmacy Benefit Managers (PBMs), Managed Care Organizations (MCOs), and hospitals and is no longer operating as it was intended. They argue that hospitals, which account for 80% of all 340B sales, essentially using the savings they receive to pad profits without being held accountable. Additionally, they argue that:

"The contract pharmacy model spurred some unique developments. Covered Entities and pharmacies have developed virtual inventory or replenishment systems through which the pharmacy dispenses its inventory to Covered Entity patients, then backfills or replenishes what could have been dispensed with a Covered Entity’s 340B drugs with 340B drugs purchased by the Covered Entity for the pharmacy. The replenishment model acts as a loan of non-340B drugs to be repaid with the Covered Entity’s drugs. The compensation model is also somewhat unique. Covered Entities own the 340B drugs dispensed to their patients (whether a physical 340B inventory or a retrospective virtual inventory is used). The contract pharmacies bill on behalf of the Covered Entities using the pharmacies’ payer contracts. Contract pharmacies collect the reimbursement owed to the Covered Entity on behalf of the Covered Entity, whether from the patient, his or her payer, or a combination of the two. The third-party administrator (TPA) then forwards that reimbursement to the Covered Entity, less its fee and the fee charged by the pharmacy for providing contract pharmacy services. Different contract pharmacy fee structures exist in the market, including flat per-dispense fees, percentage-of-reimbursement fees, pre-determined reimbursement and hybrids of the other methods. All contract pharmacy arrangements must comply with federal fraud-and-abuse laws." (CANN)

If all of this seems confusing, that’s because it is. Or, rather, the legislation has not kept up with how the U.S. healthcare “system” has developed since its inception. Further complicating the mix is the concern (which is really more of a reality) that some entities are abusing the 340B program and Medicaid program in order to receive duplicative discounts on the same drugs. This is, of course, is illegal, as covered entities are restricted from billing state Medicaid programs for reimbursement for 340B drugs if the drugs are subject to a manufacturer discount (CANN). Despite this clear prohibition, duplicate discounts continue to occur, because current policies and systems are woefully inefficient at preventing them, and the increased use of PBMs and MCOs under the Affordable Care Act has increased the likelihood that duplicate discounts will occur.

In an effort to bring some clarity to this complicated landscape of duplicate discounts, Manatt, Phelps & Phillips, LLP, a multidisciplinary, integrated professional services form, conducted a 50-state survey on 340B program laws, regulations, and sub-regulatory guidance that govern how state programs reimburse for both 340B and non-340B drugs, and how those states ensure that the 340B drugs are not also subject to Medicaid rebates (Manatt, 2019). They found that:

• 12 states rely solely upon the federal Office of Pharmacy Affairs (OPA) Medicaid Exclusion File;
• 22 rely solely upon claims-level identifiers;
• 1 state prohibits all covered entities from using 340B drugs for Medicaid beneficiaries;
• 1 state permits 340B drugs for family planning clinics only;
• Other states rely on a combination of OPA and claims-level identifiers

Photo Source: Manatt Health

Unfortunately, the full report is behind a paywall, so I was unable to read the full findings to glean a fuller picture of their findings, and what they did publish for free in Manatt Health's infographic leaves people who aren’t already experts in the intricacies of 340B policies and politics with barely even a cursory understanding of what is being done to avoid duplicate discounts.

But, beyond the HIV arena, accusations of PBMs and MCOs successfully abusing the 340B program to increase profits continue to rise as other healthcare providers, particularly in areas hard hit by the opioid epidemic and endemic poverty, are sounding alarms that PBMs are reducing the rates they pay to pharmacies for the drugs they get at a discount (Candisky, 2020):

“What we’re seeing in Ohio and in other states across the country (is) that the PBMs are diverting those pharmacy savings from the 340B program intended to provide care to underserved patients and communities and using those dollars for themselves to increase their profit margins,” said Julie DiRossi King, chief operating officer for the Ohio Association of Community Health Centers.

Hopewell’s director of pharmacy, Logan Yoho, said “discriminatory contracting” by some PBMs makes it difficult to maintain services at its 25 clinics across Ohio’s Appalachian region. Not only has he seen the savings evaporate, but reimbursements from PBMs have dropped so low on some medicines that he’s losing money. (Candisky)

PBMs have come under intense scrutiny over the past five years, particularly in Ohio and Kentucky, where PBMs have overcharged the Ohio Bureau of Workers’ Compensation by millions of dollars (Rowland, 2019) and taken $123.5 million in hidden feeds from Kentucky health insurance plans that cover the state’s poor (Langreth, 2019).

The unfortunate reality is that the 340B program and the various methods through which it can be abused with relative ease (and even less oversight or repercussions) has made what is already a complicated mess even more contentious among healthcare providers, policy advocates, and healthcare access advocates. Furthermore, there is no “one” answer to solve the problems that have arisen that will leave any stakeholder completely happy. Moreover, there are likely going to be some “losers,” in terms of operating budgets, profits, and executive/management salaries of organizations that are illegally manipulating the 340B program and Medicaid to line their own pockets.

That, there, is really my personal axe to grind, not just about the 340B program, but about the American healthcare “system,” in general: providing healthcare to all Americans should never be about profit margins, higher salaries, or bonuses; it should be about keeping people healthy and saving lives to improve the quality of life for all American citizens, not just those profiting from their misery. This is a view shared by a majority of Americans, though there’s little consensus about how to eradicate the for-profit model. A good place to start, however, would be to reform the 340B program to make certain that all covered entities are governed by the same rules and that those who abuse the program are made to pay a steep price.

References:

• Candisky, C. (2020, January 13). Pharmacy middlemen benefit from drug discount program intended to help poor Ohioans. Columbus, OH: The Columbus Dispatch. Retrieved from: https://www.dispatch.com/news/20200113/pharmacy-middlemen-benefit-from-drug-discount-program-intended-to-help-poor-ohioans?utm_source=SFMC&utm_medium=email&utm_campaign=Columbus Dispatch politics 2020-01-14&utm_content=COLD_CD&utm_term=011420
• Community Access National Network. (2019, February). 340B Commission’s FINAL REPORT ON THE 340B DRUG DISCOUNT PROGRAM – The Issues Spurring Discussion, Stakeholder Stances and Possible Resolutions. Washington, DC: Community Access National Network. Retrieved from: https://docs.google.com/gview?url=http://www.tiicann.org/pdf-docs/2019_CANN_340B_Commission_Final-Report-v5_03-07-19.pdf&embedded=true
• Health Resources & Services Administration. (2020, January). 340B Drug Pricing Program. Rockville, MD: United States Department of Health and Human Services: Health Resources & Services Administration: 340B Drug Pricing Program. Retrieved from: https://www.hrsa.gov/opa/
• Langreth, R. (2019, February 21). Drug Middlemen Took $123.5 Million in Hidden Fees, State Claims. New York City, NY: Bloomberg: Prognosis. Retrieved from: https://www.bloomberg.com/news/articles/2019-02-21/drug-middlemen-took-123-5-million-in-hidden-fees-state-claims
• Manatt. (2019, October 15). Manatt Health Releases 50-State Survey on 340B in State Medicaid Programs. Washington, DC: Manatt, Phelps & Phillips, LLP: Manatt [dot] com: Insights: Press Releases: 2019. Retrieved from: https://www.manatt.com/Insights/Press-Releases/2019/Manatt-Health-Releases-50-State-Survey-on-340B-in
• Rowland, D. (2019, November 25). Pharmacy benefit manager OptumRx overcharged Ohio BWC by millions, Yost says. Columbus, OH: The Columbus Dispatch. Retrieved from: https://www.dispatch.com/news/20191125/pharmacy-benefit-manager-optumrx-overcharged-ohio-bwc-by-millions-yost-says
• Ryan White Clinics for 340B Access. (2016). What is 340B?. Retrieved from: https://www.rwc340b.org/

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.