340B Drug Discount Program Should Be on GAO’s High-Risk List

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When a new Congress begins, the Government Accountability Office (GAO) releases its updated “High-Risk List” of programs and operations that are ‘high risk’ due to their vulnerabilities to fraud, waste, abuse, and mismanagement, or that need transformation. The 2021 version has 36 risk areas, including Department of Defense (DOD) Weapons Systems Acquisition, Medicare and Medicaid, and the National Flood Insurance Program.

While improvements were seen in seven areas, the only program removed was the DOD Support on Infrastructure Management, which had been on the list since 1997. Overall, the ratings for 20 of the 36 areas remained unchanged, with five areas that regressed. The GAO added Small Business Administration Emergency Loans and the Federal Response to Illegal Drug Use to the list. However, the 340B Drug Discount Program, which has been the subject of several critical GAO reports, should also have been added to the list. 

GAO reports on 340B include “Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals,” which was published in 2015 and found that on average Part B spending at 340B disproportionate share hospitals (DSH) was higher than non-340B hospitals, likely because more drugs were prescribed or more expensive drugs were dispensed. A 2018 report found insufficient oversight by the Health Resources and Services Administration (HRSA) with regard to contract pharmacies’ accountability to ensure compliance with the program, like verifying prohibited duplicate discounts were not being provided for Medicaid beneficiaries. The House Energy and Commerce Committee issued a report in January 2018 that laid out several recommendations to improve the program, like clarifying its intent, promoting more transparency for all stakeholders, requiring independent audits of program compliance, and establishing a mechanism to monitor levels of charity care.

Congress created 340B under the 1992 Veterans Health Care Act to fix a problem it had created when the Medicaid Drug Rebate program was established in 1990. The rebates were based on the average manufacturer price (AMP) or the difference between the AMP and the lowest price charged to any entity in the U.S. Although members of Congress were made aware of a problem related to discounts in hearings on the legislation, the bill that was enacted into law did not factor in the substantial voluntary discounts many pharmaceutical companies had given the VA and non-profit entities that were serving indigent and uninsured patients. As a result, their generous discounts disappeared. The 1992 law created two new price control programs, the VA Federal Ceiling Price program and the 340B Drug Discount Program and excluded their prices from the Medicaid rebate calculus.

The Patient Protection and Affordable Care Act (PPACA) expanded eligibility to more hospitals, like sole community and critical access hospitals, along with expanded Medicaid eligibility.

This was one of several reasons why the 340B has grown wildly out of control with an increase of 464 percent since 2010. It has also been subject to significant waste, abuse, and mismanagement. In addition to the PPACA expansion, HRSA allowed covered entities to have unlimited for-profit contract pharmacies, including chain drug stores, to participate in the program even though the law is silent on the use of contract pharmacies. Because there is no requirement to pass along the savings to the patient, hospitals and their contract pharmacies can pocket the difference between the 340B discounted price and what insurance pays.

In 2018, the New England Journal of Medicine found that there are no direct incentives for 340B DSH hospitals to follow the intent of the program and use the savings to improve care for low-income patients who need it most. The 340B program has been associated with “hospital-physician consolidation in hematology-oncology” that has led to more “hospital-based administration of parenteral drugs” like cancer drugs, but the financial gains for hospitals “have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”

Despite these findings and recommendations, nothing has been done to reform 340B and stop hospitals and for-profit pharmacies from enriching themselves. Establishing a clear definition for a 340B patient by focusing on indigent individuals with no health insurance would go a long way in solving many of the problems in the program. It is long past due to be put on the 340B program on the GAO High Risk List and for Congress to return it to its original mission.

Elizabeth Wright is the Health and Science Director at Citizens Against Government Waste

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