The 340B Drug Discount Program (otherwise known as PHS program) was created in 1992 as a federally-funded program to provide reduced drug pricing to “safety net providers” that serve uninsured or vulnerable patients. The concept was simple: Manufacturer drug pricing for covered outpatient drugs offered at extremely reduced prices—sometimes even at a penny—to eligible, qualified entities. The reduced pricing offered by manufacturers via the 340B program represents prices less than the net cost of drugs paid by Medicaid.
Defining 340B Eligibility
Section 340B(a)(4) of the Public Health Service Act specifies which covered entities are eligible to participate in the 340B Drug Program. 340B entities are broken into roughly 21 entity types. Think of an entity type as what you might commonly refer to in your organization as a class of trade. Qualification criteria will vary based on a potential entity’s “entity type”.
Eligible entities include a universe of hospitals and federally grant recipients. To be eligible for 340B pricing, an entity has to have a grant code (following application) and valid eligibility dates for the receipt of 340B pricing. Eligibility for an entity can change from period to period. The covered entity definition has also expanded more recently under the Affordable Care Act to include granting eligibility access to critical access, hospitals, sole community hospitals, rural referral centers, and cancer centers; and lastly, multiple contract pharmacies for permitted for any covered entity. Each year, entities must recertify that they are eligible. If an entity is no longer eligible, it must notify the Office of Pharmaceutical Affairs (OPA) and cease purchasing drugs through the program.
There are several different stipulations regarding access to 340B drugs—and what is permitted vs. not permitted. Often times, manufacturers risk offering drugs at significantly reduced prices to entities that don’t qualify. This happens through a variety of violating offenses, including:
Essentially, any disproportionate share hospital, free-standing cancer hospital, or a children’s hospital that is registered as a 340B entity, is not eligible to purchase 340B qualified drugs off of a GPO contract.
I do not see this get a significant amount of attention from the manufacturers I work with. Most of them have a form of revenue management software that is adequately configured per client’s needs to prevent this from happening. (Assuming the client’s customer master, COT schema granularity, chargeback validation and membership eligibility are configured properly to prevent this from occurring.) In speaking with several of my clients, none provided a good answer regarding why an entity would want to buy off a GPO contract for outpatient drugs since 340B pricing is more favourable.
Orphan Drug Exclusion
Another low-offender, but still out there as a possibility for entities to purchase drugs at favourable pricing when entities should not be purchasing at 340B pricing. The Affordable Care Act expanded access to 340B discounts but it excluded orphan drugs from the program. While orphan drugs are used to treat rare diseases, the drugs can also be used to treat other conditions. The current orphan drug exclusion does not require a manufacturer to offer 340B pricing to entities registered as critical access hospitals, freestanding cancer hospitals, rural referral centers, sole community hospitals, and their related contract pharmacies. (However, a manufacturer may choose to offer voluntary discounts for orphan drugs to these entities.)
In any case, typically, orphan drug exclusion leads to higher pricing for entities that are not eligible to purchase orphan drugs at 340B prices, and reduced access to care. Regardless, a hospital does purchase orphan qualified drugs, it is required to track the usage of these drugs. Manufacturers do not have access to openly view the use usage of the drug at the hospital, or its distribution via a contract pharmacy.
What about exclusions?
A hospital (if one of the 4 listed above) that is not eligible for 340B orphan drug pricing can exclude the drug from its 340B purchases via 2 options, per 340B guidance:
Option 1: When the drug is “transferred, prescribed, sold, or otherwise used for the rare condition or disease for which that orphan drug was designated,” and “match[es] the listing and sponsor of the orphan designation;”
Option 2: Any time an orphan drug is prescribed, regardless of the condition for which it is used. Hospitals must inform OPA of their election, and may change it quarterly
So if a hospital (or its related contract pharmacy) purchases under Option 1, a manufacturer does not have access to data to validate this situation unless it audits the hospital or the contract pharmacy. (The hospital is required to maintain auditable records to demonstrate approved use of the drug; the contract pharmacy is required to maintain inventory management records.) For a manufacturer to track this type of violation, it would involve a significant amount of effort; also for hospitals to manage this tracking, complex software and procedures are required—also very costly. My guess is, that there are some violations in this area of 340B purchases but because of the effort required by the hospital to stay compliant and the overall access to enhanced information to track this, hospitals most likely opt out of all 340B orphan drug purchases, which then minimizes the revenue leakage for manufacturers.
Medicaid Exclusion and Duplicate Discounts
My favorite two topics: I will bunch these together because they kind of go hand-in-hand.
Medicaid Exclusion – Entity information is listed on the OPA web-site.
Entity information listed in the OPA database includes an entity’s 340B ID, name, address, grant number, entity type, qualification information (dates of eligibility), Medicaid certification status, other related covered entities and also contract pharmacies that are specific to the entity. This entity information is very important when looking at trying to tie an entity between a detailed Medicaid claim and the Medicaid Exclusion File (MEF).
When an entity enrolls with HRSA, it is required to indicate if it will carve-in or carve-out. The terminology for carve-in and carve-out can get a bit confusing. If I were a manufacturer, I would focus on the MEF that is published by HRSA on a quarterly basis, and the labeling for an entity as one that carves-out.
Regarding 340B discounts, per legislation, a manufacturer is not required to offer discounted 340B pricing via a chargeback, and also pay a back-end rebate (e.g. a Medicaid rebate, or some other sort of rebate). If an entity carves-out, the entity chooses to purchase 340B eligible drugs for its Medicaid population, via a non-Medicaid channel—meaning, through a 340B contract through an indirect purchasing channel.
If an entity is listed on the MEF and it submits under Medicaid, I would recommend as a best practice to see if you (the manufacturer) can identify any related chargebacks for the same relative time-period. There is a high-likelihood that if the manufacturer is able to identify a Medicaid claim submitted for reimbursement by an entity that has certified that it chooses to carve-out then a chargeback was most likely submitted. The challenge with this identification process—even starting with the MEF file is that there is no one to one correlation between the entities listed in the MEF and what is submitted on the Medicaid claim.
Stack this challenge, with the complexity of the fact that an entity can purchase under one of its many contract pharmacies that may submit the Medicaid claim. With this in mind, the manufacturer is already looking at a dismal start to chase the dollars in lost revenue initially through the Medicaid channel for entities that were submitting, when they have certified that they would not, and then secondarily, even via the chargeback channel.