Review Of Proposed 340B Omnibus Guidance: How We Got Here And What It Says

In a previous post—now almost one and a half years ago—I described “the coming storm” I anticipated would develop around the 340B drug discount program. After a brief tornado hit the House Energy and Commerce Committee when they considered including 340B reforms in their 21st Century Cures initiative, a slower, hurricane-style churn over the Administration’s proposed guidance on the topic has settled in. With the October 27 comment window steadily approaching, let’s take a look at what the rule says and what it could mean for interested stakeholders.


If you want to get primed on the 340B program, a great place to start is this Health Affairs/Robert Wood Johnson Foundation Health Policy Brief. It’s important to know, though, that the program was established to allow safety-net providers an avenue for purchasing outpatient drugs at lower cost. Manufacturers are required to furnish drugs to these “covered entities” at discounts typically ranging from 25-50 percent or else face removal from the Medicaid program. The program has grown substantially in recent years. In 2010, the Affordable Care Act expanded the list of eligible providers. That same year, the Health Resources and Services Administration (HRSA), which administers the program, began allowing those providers to contract with independent pharmacies to manage 340B prescriptions. Total sales in 2013 were approximately $7.5 billion, with a corresponding $3.8 billion in total discounts provided to covered entities. The number of participating hospitals has swelled 134 percent since 2005, to 1,356. As highlighted in both my previous post and the Health Affairs policy brief, congressional scrutiny of the program has intensified, with a handful of letters being sent to HRSA and 340B providers that demanded enhanced oversight and transparency. Meanwhile, the Government Accountability Office (GAO) and Office of the Inspector General (OIG) have issued reports raising concerns about growth of the program, potentially beyond its intent, as well.


In May of this year, the House Energy and Commerce Committee briefly considered, and then quickly jettisoned, legislative provisions to reform the 340B program. After passing their 21st Century Cures package through the Committee on May 19, policies were discretely floated for stakeholder input before the bill would move to the House floor for final consideration. While the Committee stated its underlying motivation for the 340B changes was to ensure HRSA had adequate authority to pursue meaningful reforms, several changes to the program itself would have been codified. For example, the Committee draft changed the definition of “patients” that can be furnished discounted drugs to require that they have in-person medical visits with the 340B provider. It also enhanced record-keeping requirements and mandated written, disclosed contracts between providers and contract pharmacies. Hospitals quickly responded, objecting to legislative changes to the program while HRSA was in the process of developing new guidance. These stakeholders hinged their objections on procedural grounds, but they also criticized the limitations the draft proposal would put on access to 340B-discounted drugs. Opting to avoid this battle in the context of their broader 21st Century Cures goals, the Committee abandoned the policy and “Cures” ultimately passed the House in July. That was fun, though.


In part due to concerns about their authority to issue rulemaking in this area (they rescinded a proposed rule in 2007 after a protracted legal battle), HRSA downgraded the status of its reforms to the 340B program to “Omnibus Guidance.” Since compliance with the guidance is still obligatory, it would take a better lawyer than I to explain to you the difference. But HRSA apparently thinks they are on safe terrain. We’ll see. The guidance delivers on the expectation of fairly robust reforms to the 340B program. It would replace the existing definition of eligible patient to require, for example, that the discounted drugs prescribed to them are actually a result of encounters the patient had with the 340B provider. Furthermore, encounters with physicians who have privileges with a covered provider do not automatically qualify a patient for discounts. The guidance goes out of its way to stipulate that simply receiving drug infusions from a 340B provider do not qualify drugs furnished to that patient for discounts. While the guidance maintains the ability of covered providers to contract with independent pharmacies, it creates a presumption that these pharmacies will not deliver 340B-dicounted drugs to Medicaid beneficiaries (“double counting” of Medicaid and 340B discounts has been a concern). New protocols are also put in place for addressing patients enrolled in Medicaid managed care plans. HRSA also proposes to add new documentation and reporting with regard to the details of these relationships. The guidance enhances other existing record-keeping and transparency obligations for the provider and adds new ones. Records need not only be “maintained,” they must be “accessible.” Auditable records must be maintained for five years, with violators facing—at least temporary—exclusion from the program. There are new obligations for manufacturers as well. The requirement they honor ceiling prices, in part derived from Medicaid rebate amounts, is codified and their responsibility to report new drugs or changes to the distribution of existing drugs is expanded. The guidance puts in place more detailed protocols for refunding overcharges and a new recertification process for participating manufacturers, aggregated and disclosed via a public database. In sum, HRSA’s proposals would make considerable changes to the 340B program for all participants — patients, providers, pharmacies, and manufacturers. On balance, they appear to be intended to reign in some of the loose ends of the program that have been the focus of such scrutiny in recent years while creating new oversight and enforcement mechanisms. Whether or not it goes far enough for stakeholders on both sides of the debate remains to be seen. Despite the Energy and Commerce Committee’s ill-fated foray into the space, we may not have heard the last from Congress on this issue.

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