Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

R 340B P
EVIEW OF  RICES

Daniel R. Levinson

Inspector General 

July 2006

OEI-05-02-00073
 Office of Inspector General 

http://oig.hhs.gov 
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as amended, is to protect the integrity of the Department of Health and Human Services 
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The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
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  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine whether entities participating in the 340B Drug Pricing 
Program pay more than the statutorily defined 340B ceiling prices and, 
if so, the potential reasons for price discrepancies.   
BACKGROUND 
Section 340B of the Public Health Service Act (PHS Act) established the 
340B Drug Pricing Program (340B Program), which requires 
pharmaceutical manufacturers to charge at or below statutorily defined 
prices, known as the 340B ceiling prices, to qualified entities (340B 
entities), including community health centers, public hospitals, and 
various Federal grantees. Since 340B ceiling prices are based on 
confidential pricing data, they are not disclosed to 340B entities, leaving 
the entities unable to determine if the prices they pay are higher than 
the 340B ceiling prices. The Health Resources and Services 
Administration (HRSA) is responsible for monitoring compliance with 
the 340B Program. Previous Office of Inspector General (OIG) studies 
have determined that HRSA does not systematically ensure that 
entities receive the prices to which they are entitled.   
Our analysis compares the prices paid by 70 sampled 340B entities 
during a randomly selected monthJune 2005to 340B ceiling prices 
as calculated by HRSA and adjusted, where necessary, by OIG.  These 
70 340B entities made an estimated 229,796 total purchases during that 
month. 
FINDINGS 
In June 2005, 14 percent of total purchases made by 340B entities 
exceeded the 340B ceiling prices, resulting in total overpayments of 
$3.9 million. Fourteen percent, or one in seven, of the total projected 
340B purchases made in June 2005 exceeded the 340B ceiling prices, 
resulting in a projected overpayment of $3.9 million for that month.  
Sixty-eight of the seventy sampled entities overpaid on at least one 
purchase.  Overpayments made by these 68 entities were mostly 
modest, but there were a few exceptionally large overpayments.   
The largest overpayments in our sample resulted from inappropriate 
handling of negative ceiling prices.   The largest overpayments in our 
sample were due to prices that did not follow HRSAs penny price 
policy in situations to which applying the statutory 340B ceiling price 
  OEI-05-02-00073  REVIEW OF 340B PRICES  i  E X E C U T I V E   S U M M A R Y  
calculation yielded a negative number.  In these cases, rather than 
paying a penny per unit, as directed by HRSA, entities paid anywhere 
from $1.65 to $1,931 per purchase over the ceiling price.   
Patterns in our sample suggest that overpayments varied by the 
volume of 340B purchases or sales associated with entities, 
manufacturers, and wholesalers. In our sample, we found that most 
340B entities, manufacturers, and wholesalers were involved in 
transactions that resulted in overpayments.  However, when grouped by 
volume of purchases or sales, we found that low-volume entities, 
manufacturers, and wholesalers were associated with higher rates of 
overpayments. 
Inaccuracies in HRSAs ceiling prices limit its ability to monitor 340B 
program compliance.   Our analysis of the data HRSA used to 
calculate 340B ceiling prices for June 2005 revealed that some data on 
unit of measure and package size are inconsistent and, therefore, 
resulted in incorrect 340B ceiling prices for certain drugs in HRSAs 
pricing file. If HRSA were to conduct audits using these data to 
calculate ceiling prices, it would not be able to correctly identify or 
quantify overpayments. 
RECOMMENDATIONS 
HRSA should improve its oversight of the 340B Program to ensure 
that entities are charged at or below the 340B ceiling price.  To 
ensure that entities do not pay more than the 340B ceiling prices, we 
continue to support our prior recommendations that HRSA improve its 
oversight of the 340B program by more closely monitoring the prices 
340B entities are charged, by officially comparing its 340B ceiling prices 
to manufacturers calculations to detect discrepancies, and by 
establishing penalties for PHS Act violations.  HRSA could also work to 
ensure uniform and timely transmission of 340B ceiling prices by taking 
responsibility for disseminating a single verified list of its 340B ceiling 
prices to wholesalers. 
HRSA should provide technical assistance regarding 340B Program 
implementation to all participating entities, manufacturers, and 
wholesalers.  HRSA should provide 340B entities, manufacturers, and 
wholesalers with information about 340B Program requirements and 
policies to improve compliance among all participants.  HRSA may also 
want to consider providing further assistance to specific entities, 
manufacturers, and wholesalers with low-volume purchases and sales.  
  OEI-05-02-00073  REVIEW OF 340B PRICES  ii  E X E C U T I V E   S U M M A R Y  
Finally, as the marketplace continues to evolve, HRSA may want to 
consider formulating outreach programs to orient new entities, 
manufacturers, and wholesalers to the 340B Program.   
HRSA should publish guidance regarding its penny price policy. 
HRSA should publish guidance alerting manufacturers to its current 
penny price policy, which instructs manufacturers to charge a penny 
multiplied by the drugs package size when faced with a negative 340B 
ceiling price. Since the largest identified overpayments were due to 
noncompliance with this policy, reinforcing the directive through 
publicly available guidance could have a significant impact on reducing 
overpayments with minimal effort.  
To accurately calculate 340B ceiling prices, HRSA should obtain 
data on consistent unit of measure and package size.  HRSAs ability 
to correctly calculate 340B ceiling prices depends on the consistency of 
the data related to unit of measure and package size. To ensure that 
these data are uniform, we suggest that HRSA work with the Centers 
for Medicare & Medicaid Services to identify incongruent data on unit of 
measure.  HRSA must also develop protocol to identify and correct 
inaccurate package size data to ensure correct 340B ceiling prices.   
AGENCY COMMENTS 
HRSA concurred with each of our recommendations.  The complete text 
of HRSAs comments can be found in Appendix D. 
In response to our recommendation to improve oversight of the 340B 
Program, HRSA stated that it has taken steps to more closely monitor 
the prices paid by 340B entities.  HRSA also agreed that, despite its 
limited resources, it will manage and coordinate the technical 
assistance efforts for the 340B Program, including special efforts to 
target new and smaller-volume purchasers of drugs.  HRSA stated that 
it anticipates promulgating a penny price policy in conjunction with 
formalizing the instructions for the calculation of 340B ceiling prices.  
Finally, HRSA concurred with our final recommendation that it obtain 
consistent unit of measure and package size data.   
OFFICE OF INSPECTOR GENERAL RESPONSE 
We believe that the steps HRSA outlined in response to our 
recommendations will improve program oversight and the accuracy of 
340B ceiling prices. We do, however, continue to encourage HRSA to 
  OEI-05-02-00073  REVIEW OF 340B P RICES  iii  E X E C U T I V E   S U M M A R Y  
work toward a comprehensive comparison of its 340B ceiling prices to 
all manufacturers data. We also maintain that HRSA should develop a 
systematic process to detect and resolve unit of measure and package 
size issues with its ceiling price data to ensure accurate 340B ceiling 
prices. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  iv    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

  Fourteen percent of purchases over 340B ceiling price. . . . . . . . .  11

  Largestoverpaymentsexplained . . . . . . . . . . . . . . . . . . . . . . . . . .  14

Overpayments linked to volumeof purchases and sales. . . . . . . .  15

Problematic HRSA ceiling priceshinder oversight . . . . . . . . . . . .  17

R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

  Agency Comments ..........................................  24 

Office of Inspector General response..........................  24 

E N D NO T ES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30

A: Eligible 340B Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30

B:  DetailedMethodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31

C:  PackageSize Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40

D:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
   I N T R O D U C T I O N  

OBJECTIVE 
To determine whether entities participating in the 340B Drug Pricing 
Program pay more than the statutorily defined 340B ceiling prices and, 
if so, the potential reasons for price discrepancies. 
BACKGROUND 
The 340B Drug Pricing Program (340B Program) resulted from the 
enactment of the Veterans Health Care Act of 1992 and is codified at 
section 340B of the Public Health Service Act (PHS Act).1 The 340B 
Program requires manufacturers to enter into a Pharmaceutical Pricing 
Agreement (PPA) with the Secretary of the Department of Health and 
Human Services.2 Under the 340B Program and in accordance with the 
PPA, pharmaceutical manufacturers agree to charge at or below 
statutorily defined prices, known as the 340B ceiling prices, for sales to 
certain qualified entities.3  The 340B entities spent an estimated    
$3.4 billion on covered outpatient drugs in calendar year 2003.4  The 
Health Resources Services Administration (HRSA) oversees the 340B 
Program, which includes monitoring the PPA. 
The 340B Drug Pricing Program 
Section 340B(a)(4) of the PHS Act lists the types of entities eligible to 
participate in the 340B Program.5  Eligible 340B entities include 
community health centers, Ryan White grantees, and disproportionate 
share hospitals, among others (for a complete list, see Appendix A).  As 
of April 2006, more than 12,300 entities were enrolled in the 340B 
Program.6 
Participation in the 340B Program is voluntary; eligible entities must 
notify HRSA of their intention to participate by completing appropriate 
registration forms.7  Upon receipt and approval of the forms, HRSA 
adds the entity to its Covered Entity database, which is available on 
HRSAs Web site.8  The 340B entity is responsible for alerting 
wholesalers and manufacturers of its participation and referring them 
to the database for confirmation so it can purchase covered outpatient 
drugs at or below the ceiling prices.9 Manufacturers and wholesalers 
access this database to verify an entitys eligibility for the 340B 
Program and use the contact information for shipping and billing 
purposes.  Once registration is completed and eligibility is approved, the 
entity can purchase covered outpatient drugs at or below 340B ceiling 
prices beginning the next calendar quarter.10 
  OEI-05-02-00073  REVIEW OF 340B PRICES  1  I N T R O D U C T I O N  
Pursuant to section 340B(a)(8) of the PHS Act,11 HRSA established a 
prime vendor program to facilitate the delivery of covered drugs.  
HRSAs 340B Prime Vendor Program, managed by Healthcare 
Purchasing Partners International, serves its participants in three 
primary ways: negotiating discounts below 340B ceiling prices, 
establishing distribution solutions and networks that improve access to 
affordable medications, and providing other services designed to 
simplify participation in the 340B Program.  Participation in the 340B 
Prime Vendor Program is voluntary and cost-free to entities.  To date, 
nearly 2,400 340B entities participate in the program.12 
Manufacturers are responsible for calculating 340B ceiling prices and 
ensuring that 340B entities are charged at or below 340B ceiling prices 
for their drug purchases, regardless of whether the 340B entity 
purchases drugs directly from the manufacturer or through a 
wholesaler. Section 340B(a)(10) of the PHS Act13 provides that nothing 
shall prohibit a manufacturer from charging less than the ceiling price 
for a drug. If a manufacturer fails to abide by the 340B Program 
requirements, it may be required to reimburse the 340B entity for 
discounts withheld and can be terminated from the 340B Program. 
Further, a manufacturer that lacks a PPA will fail to meet the 
requirements of the Medicaid drug rebate program and its products will 
not be eligible for Federal Medicaid reimbursements.14 
If a manufacturers drugs are available to entities through wholesalers, 
the 340B discount must be made available through that avenue.15 In 
other words, the wholesalers, acting on behalf of the manufacturers, 
must pass the 340B ceiling prices through to 340B entities. Currently, 
three large wholesalers, categorized as primary wholesalers, carry 
nearly all types of pharmaceutical products and handle approximately 
90 percent of pharmaceutical product distribution in the United 
States.16  The remaining 10 percent of drugs are delivered by secondary 
wholesalers, which serve smaller areas than primary wholesalers and 
may deliver a more limited line of pharmaceuticals.  Both primary and 
secondary wholesalers must pass along 340B ceiling prices to the 340B 
entities, but are allowed to charge an administrative and/or distribution 
fee based on negotiations with the individual entities. 
340B Ceiling Price Formula 
The 340B ceiling prices are calculated according to a formula that is 
based on information generated in connection with the Medicaid drug 
rebate program.   In that program, manufacturers are required to report 
  OEI-05-02-00073  REVIEW OF 340B PRICES  2  I N T R O D U C T I O N  
to the Centers for Medicare & Medicaid Services (CMS) each quarter 
the average manufacturer price (AMP) for each of their drugs.17 CMS 
uses AMP and other data to calculate a unit rebate amount (URA) that 
serves as a basis for the rebate amounts paid by manufacturers.18  The 
340B ceiling price is based on these components and is essentially equal 
to the AMP reduced by the URA.19 
The AMP and URA used in the 340B ceiling price formula are based on 
the smallest dispensable unit of each drug, such as a tablet, capsule, or 
milliliter.  Therefore, taken literally, the ceiling price applies to each 
unit of the drug that the entity purchasesfor example, $1 per pill.   
To implement the 340B ceiling price requirement, the per-unit ceiling 
price must be multiplied by the drug package size in which entities 
purchase drugsfor example, a bottle of 100 tablets versus individual 
tablets. The 340B ceiling prices per package are calculated as follows: 
[(AMP) - (URA)] * drugs package size 
Occasionally, a drugs URA is greater than its AMP, resulting in a 
negative ceiling price.20  Therefore, to convert negative prices to 
practical prices, HRSA developed the penny price policy, which advises 
manufacturers to charge entities one penny per unit in these 
situations.21 
HRSA and Manufacturers Use of 340B Ceiling Prices 
Pharmaceutical manufacturers and HRSA calculate 340B ceiling prices 
every quarter. Pharmaceutical manufacturers use their calculated 
340B ceiling prices in sales to 340B entities, but they are not required to 
report these prices to HRSA.  Therefore, for oversight purposes, HRSA 
must calculate 340B ceiling prices as well. 
To calculate 340B ceiling prices, HRSA receives the AMP and URA from 
CMS each quarter under the terms of an Intra-Agency Agreement. As 
explained above, CMS receives the manufacturers pricing data for the 
Medicaid drug rebate program and calculates a URA.  Under a separate 
contract, HRSA obtains the package size information needed to 
calculate 340B ceiling prices from First DataBank (FDB), a contracted 
provider of drug product information.  HRSA assumed responsibility for 
calculating the 340B ceiling price in October 2005.  Previous to this, 
CMS had calculated the 340B ceiling price and transmitted it to HRSA 
  OEI-05-02-00073  REVIEW OF 340B PRICES  3  I N T R O D U C T I O N  
each quarter. Chart 1 illustrates the calculation and use of 340B ceiling 
prices by HRSA and manufacturers.   
CHART 1:   340B PRICING DATA AND PURCHASE FLOW  
HRSAs 340B ceiling prices  Manufacturers calculation and 
dissemination of 340B ceiling 
prices 
Pharmaceutical 
Manufacturers 
send FDB  Manufacturers 
package size 
info 
Manufacturers use AMP and 
Manufacturers 
URA data to calculate 340B 
send AMP and 
ceiling prices and transmit to 
Best Price to 
CMS  wholesalers 
FDB 
Manufacturers 
CMS 
can also sell 
drugs directly 
to entities 
Wholesalers 
CMS sends 
AMP and URA 
FDB sends HRSA  to HRSA
manufacturer 
HRSA works 
package size data  Wholesalers sell drugs 
with 
at 340B ceiling price + 
manufacturers 
fee to entities 
to resolve 
price issues 
HRSA calculates 340B 
ceiling prices; uses them  340B 
HRSA 
to verify prices on behalf 
Entities 
of entities and to oversee 
program. Does not share 
ceiling prices with 
entities. 
Confidentiality of 340B Ceiling Prices 
The Medicaid drug rebate program statute, at Section 1927(b)(3)(D) of 
the Social Security Act, specifies that AMP and certain other pricing 
information ...shall not be disclosed by the Department in a form 
which discloses the identity of a specific manufacturer or wholesaler, 
[or] the prices charged for drugs except as necessary to carry out the 
provisions of the Act or for certain other limited purposes.  Due to this 
  OEI-05-02-00073  REVIEW OF 340B PRICES  4  I N T R O D U C T I O N  
provision, 340B entities have not had access to AMPs or to the 
calculated 340B ceiling prices, rendering them unable to check whether 
they paid more than the 340B ceiling prices.  HRSA reports that it has, 
when requested, compared a sample of prices paid by entities to its 
340B ceiling prices for a market basket of products, typically around 
10 products, to check for discrepancies.  Yet, since HRSA cannot disclose 
any information related to the ceiling prices, its response to the entity is 
limited to a discussion of how the entitys prices compared to the 340B 
ceiling price in the aggregate. 
The Deficit Reduction Act of 2005 (DRA) requires certain disclosures of 
AMPs. Section 6001(b) of the DRA requires CMS to make AMPs 
available to State Medicaid programs monthly and to the public 
quarterly through its Web site beginning July 1, 2006.  On May 22, 
2006, however, CMS stated that it would not publicly release the 
current AMP figures, but instead would focus on developing a revised 
definition of AMP and AMP data based on the new definition for public 
disclosure.22  It is unclear when this revised definition and data will be 
released or whether it will be useful for 340B entities in evaluating the 
appropriateness of the prices they are charged. 
Related OIG Work 
In June 2004, OIG issued Deficiencies in the 340B Drug Pricing 
Programs Database (OEI-05-02-00071), which reviewed the quality 
and timeliness of HRSAs database containing information on 340B 
participating entity enrollment.  We found the enrollment database to 
be a poor source of contact and participation information for 340B 
entities and we recommended that HRSA develop a strategic plan for 
improved management of the 340B database.  In response, HRSA has 
made significant improvements to its Covered Entity database, 
including the deletion of several nonparticipants and the recertification 
of more than 7,500 participating entities. 
In October 2005, OIG issued Deficiencies in Oversight of the 340B 
Drug Pricing Program (OEI-05-05-00072), which assessed HRSAs 
oversight capacities.  We found that due to systemic problems with the 
accuracy and reliability of HRSAs record of 340B ceiling prices, HRSA 
is unable to appropriately oversee the 340B Program. We also found 
that HRSA lacks the oversight mechanisms and authority to ensure 
that 340B entities pay at or below 340B ceiling prices. 
Based on these findings, we recommended that HRSA establish detailed 
standards for its calculation of 340B ceiling prices and institute 
  OEI-05-02-00073  REVIEW OF 340B PRICES  5  I N T R O D U C T I O N  
oversight mechanisms to validate its 340B ceiling prices and the prices 
charged to entities. We also recommended that CMS and HRSA work 
together to ensure the availability of accurate and timely pricing data 
for 340B ceiling prices. Finally, we recommended that HRSA seek 
legislative authority to establish penalties for PHS Act violations. 
HRSA agreed with most of our recommendations and has already 
addressed many of the issues we raised.  For example, HRSA is 
comparing its 340B ceiling prices to a subset of manufacturers 
voluntarily submitted ceiling prices each quarter.  
METHODOLOGY 
To determine whether entities participating in the 340B Program pay 
more than the statutorily defined 340B ceiling prices, we compared the 
prices that a sample of 340B entities paid over a randomly selected 
month to the 340B ceiling price as calculated by HRSA and adjusted, 
where necessary, by OIG.   
We randomly selected one monthJune 2005from the first 2 quarters 
of 2005, as these were the most recent data available.  According to 
HRSA, pricing information is often delayed at the beginning of a new 
quarter as manufacturers update 340B prices; therefore, we excluded 
the first month of each quarter from selection. As such, our final 
conclusions apply only to the selected month, June 2005.   
Below we provide an overview of our sampling, data collection, and 
analysis. For more details, see Appendix B.   
Entity Sample Selection 
To select our sample of entities, we accessed HRSAs Covered Entity 
database, available on its Web site. Although our 2003 report cited 
deficiencies in this database, it is the only official source from which to 
sample 340B entities.  In addition, based on our recommendations, 
HRSA made some improvements to the database, as mentioned above.  
Finally, we did some additional verification of the data prior to selecting 
our sample.  At the time we selected the sample, April 2005, the 
database included 11,947 entities.   
Based on interviews with HRSA and several entity advocacy groups, we 
excluded certain entity types from our population.23 We excluded 340B 
entities that regularly purchase drugs using other discount 
mechanisms, such as the discounts available via the Federal Supply 
Schedule or Title X.  We also excluded 340B entities that purchase a 
  OEI-05-02-00073  REVIEW OF 340B PRICES  6  I N T R O D U C T I O N  
very low volume of drugs.  These exclusions eliminated a total of 7,707 
entities, giving us a population of 4,240 entities.   
Because the 340B Program requires each location that receives 340B 
Program drug shipments to be registered individually in HRSAs 
Covered Entity database, the database includes multiple entity listings 
associated with the same organization.  A 340B entity is often a grantee 
that has several satellite sites.  The primary site purchases, pays for, 
and distributes drugs to be used in the satellite sites.  We identified and 
linked related entities because we wanted our sampling units to be 
entities that purchase drugs either for themselves or on behalf of 
satellite sites. From the universe of 4,240 entities, our efforts to link 
related entities produced our final population of 1,708 primary sites, 
which we refer to as purchasing agents.24  For the purpose of this 
study, we refer to the purchasing agent and the satellite sites as a 
single 340B entity. 
We next selected a stratified random sample of 98 entities. We 
stratified based on characteristics we believed might be related to price 
discrepancies: entity type and purchasing method.  The resulting 
sample included five strata, described in Table 1. 
Table 1.  Stratification of 340B Entities  
Strata  Entity Types Within Stratum  Reason for Stratum  Population  Sample 
Size  Size 
Direct Purchasers:   Disproportionate Share Hospitals  High pharmacy volume and  484  30 
Stratum 1  sophisticated purchasing 
process 
Direct Purchasers:   Consolidated Health Centers and  Diversity of products but at a  620  30 
Stratum 2  Federally Qualified Health Centers  lower volume than hospitals 
Direct Purchasers:   Hemophilia Treatment Centers   Specific, expensive products,  43  8 
Stratum 3  including anticlotting factor 
Direct Purchasers:   Ryan White Title I, Ryan White  Slightly more diverse range of  137  10 
Stratum 4  Title II (ADAP Direct Purchasers),  products than hemophilia 
and Ryan White Title III  treatment centers purchased for 
a specific population 
Contracted Pharmacy  All  Complicated distribution  424  20 
Arrangement  arrangements 
Purchasers: Stratum 5 
 Total  1,708  98 
  OEI-05-02-00073  REVIEW OF 340B PRICES  7  I N T R O D U C T I O N  
Prior to data collection, we eliminated four entities in our sample that 
were located in Mississippi and Louisiana, because their operations may 
have been disrupted by Hurricane Katrina.  This elimination reduced 
our sample of entities to 94.  We contacted each of the 94 entities to 
verify contact information and to confirm participation, and found that 
only 73 of the 94 entities were actually participating in the 340B 
Program.  In other words, 21 of the entities in our sample (which 
purchased on behalf of 32 individual entities) do not participate in 340B 
or were not participating in June 2005, even though they were included 
in HRSAs database of participants.  The exclusion of these 21 entities 
reduced our number of eligible respondents from 94 to 73.   
Data Collection 
Entity invoice data.  We requested that the 73 sampled 340B entities 
supply copies of invoices for purchases made over the sampled month 
and respond to an online survey regarding their purchasing process to 
provide context to the invoices.  We informed sampled entities that we 
would need to capture information for our analysis based on the 
National Drug Code (NDC) from the Food and Drug Administration.  
The NDC is a three-segment universal product identifier that specifies 
the drugs manufacturer, product name, and package size.  We received 
complete and usable submissions from 70 purchasing agents, which 
represented the purchases made on behalf of 165 individual sites listed 
in HRSAs database.  Detailed information on response rate is included 
in Appendix B. 
340B ceiling prices.  To obtain the 340B ceiling prices used in June 2005, 
we requested and received the complete ceiling price file from HRSA for 
the relevant quarter.25 
During our quality assurance review of HRSAs 340B ceiling prices, we 
discovered disparities between CMS and pharmaceutical industry 
standards for describing a drugs unit of measure and package size, 
which led to incorrect HRSA 340B ceiling prices for certain drugs.  We 
reviewed 372 NDCs and adjusted the 340B ceiling prices on 164 NDCs.  
Therefore, for the purpose of our analysis, 340B ceiling prices reflect 
HRSAs submitted ceiling prices, with OIG adjustments for 164 NDCs.  
Further details on our process for detecting and resolving issues with 
HRSAs ceiling prices can be found in Appendix B.   
  OEI-05-02-00073  REVIEW OF 340B PRICES  8  I N T R O D U C T I O N  
Analysis 
To conduct our analysis, we first calculated a unit difference amount by 
subtracting the 340B ceiling prices per unit from the unit prices paid by 
the entity, without accounting for quantity.  In making this comparison, 
we considered the invoice price to be the same as the 340B ceiling price 
as long as it was within $0.01 of the ceiling price.  This margin of error 
allowed us to disregard differences solely due to rounding. Per CMS 
guidelines, the AMP and URA calculations, and therefore the 340B 
ceiling prices as well, may be calculated to the fifth decimal place.26 
However, 340B entity prices reflect actual transactions, which are 
reported only to the second decimal place on the invoices.   
In making our comparisons, we did not account for the addition or 
reduction of any wholesalers fees or discounts since they were 
considered separate from the cost of the drug. Although it is reasonable 
to assume that the addition of a middleman would increase the entitys 
costs, of the 66 entities (out of 72 survey respondents) that provided us 
with information on wholesalers fees, only 5 reported paying an 
administrative fee to the wholesaler which was considered separate 
from the cost of the drugs.  More commonly, entities (23) reported 
receiving a volume-based discount from their wholesalers ranging from 
1 to 3 percent below the ceiling price. 
For the purpose of this study, we classified each of these unit 
comparisons as a single purchase.  The term purchase reflects the 
single purchase of each package of product whether the entity 
purchased multiple quantities of the product at the same time or just a 
single package.  For example, whether the entity purchased 10 packages 
of Drug A at 1 time or 1 package 10 separate times, both cases counted 
as 10 purchases. To compute the total financial impact of differences, 
we multiplied the unit price difference per purchase by the total 
quantity the entity reported ordering.   
Our analysis only included line items for which the quantity shipped 
and the unit prices were greater than zero.  It also excluded NDCs for 
which HRSA did not calculate a unit price because the AMP and/or 
URA was missing.27 
We included 100 percent of purchases from 63 entities invoices, as they 
were submitted electronically or were paper submissions that could 
reasonably be entered manually.  Seven of the entities paper 
submissions could not reasonably be manually entered, so we entered a 
simple random sample of their purchases.  The number of purchases 
  OEI-05-02-00073  REVIEW OF 340B PRICES  9  I N T R O D U C T I O N  
entered into our database was 202,251. When the purchases reported 
by these 7 entities are appropriately weighted, our final conclusions 
relate to 229,796 purchases and 5,331 unique NDCs. 
Pattern Analysis 
To assess potential reasons for price discrepancies, we examined our 
sample to look for characteristics associated with overpayments. We 
considered whether overpayments occurred more often for transactions 
involving specific entities, manufacturers, or wholesalers. We also 
looked at whether specific drugs were associated more often with 
overpayments.  We looked at volume of sales or purchases in light of the 
common business practice of manufacturers and wholesalers offering 
volume-based discounts to purchasers.  To do this, we grouped entities, 
manufacturers, and wholesalers in clusters by volume, maintaining 
appropriate proportions given the range of each groups purchases or 
sales. 
Projections 
Due to issues with assigning appropriate strata,28 as well as identifying 
340B entities, we were prevented from projecting our findings by 
stratum. Our estimates of total 340B entity overpayments and total 
340B entity spending are projected from our overall sample to the 
population of 1,708 purchasing agents that purchase on behalf of 4,240 
entities listed in HRSAs database. 
However, most of the analysis presented in this report relates only to 
our sample and is not projected to the population of 340B entities.  We 
analyzed these data by purchase, by entity, and by NDC.  We also 
analyzed the data by manufacturers and wholesalers who sold drugs to 
the 340B entities in our sample.  The results from this analysis relate 
only to our sample and cannot be projected to the universe of 
manufacturers or wholesalers.  Where appropriate, we tested 
differences we found in our sample for statistical significance. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  10    F I N D I N G S

In June 2005, 14 percent of total purchases  Fourteen percent, or one in seven, 
made by 340B entities exceeded the ceiling  of the total projected 340B 
purchases in June 2005 exceeded 
price, resulting in total overpayments of   
340B ceiling prices. Eighty-six 
$3.9 million 
percent of the purchases met the 
statutory requirement to be either 
at or below 340B ceiling prices.  The 14-percent error rate corresponds 
to a total projected overpayment of $3.9 million (+/- $1.9 million at the 
95-percent confidence level) for that month.  We estimate that our 
population of 1,708 purchasing agents, representing 4,240 sites, spent 
an estimated $445 million on drugs during June 2005.  Thus, the 
overpayments of $3.9 million represent slightly less than 1 percent of 
total spending. 
Because 340B ceiling prices represent the maximum amount an entity 
should pay for drugs, any amounts over the ceiling prices are 
noncompliant with the requirements of the 340B Program. Congress 
intended the 340B Program to help stretch Federal resources as far as 
possible, to reach more eligible patients and provide more 
comprehensive services.29  The $3.9 million overpaid for this 1 month 
might instead have been used to lower the cost of acquiring additional 
drugs to serve indigent patients at low or no cost.   
Overpayments by 340B entities may also result in financial loss to State 
Medicaid agencies.  Because 340B entities may also serve patients 
covered by the Medicaid program, they can elect to charge the State at 
340B prices for drugs dispensed to these beneficiaries if the State does 
not also collect Medicaid drug program rebates for the same drugs.30 In 
fact, 37 of the sampled entities reported that they pass on the 340B 
price to the States instead of charging at the States usual Medicaid 
rate.31  Thus, when an entity pays in excess of the ceiling price, it may 
be unknowingly passing on an inflated price to the State. 
Sixty-eight of the seventy sampled entities overpaid on at least one 
purchase   
Almost all 340B entities in our sample paid more than 340B ceiling 
prices at least once.  Overall, 68 sampled entities paid more than the 
ceiling prices for between 2 and 100 percent of their total purchases.  In 
terms of dollars, the total monthly overpayment range by entity ranged 
from $.51 to $36,730 over the ceiling prices.  On average, 35 percent of 
  OEI-05-02-00073  REVIEW OF 340B PRICES  11  F I N D I N G S  
sampled entities purchases in June 2005 exceeded the ceiling prices, 
with a median of 12 percent. 
On the high end, however, 17 of the sampled entities paid above the 
340B ceiling prices for 75 percent or more of their total purchases.  One 
of these entities paid more than the ceiling prices on 100 percent of its 
purchases. The percentage of overpayments by entity is displayed in 
Chart 2. 
CHART 2 

Percentage of Purchases Overpaid for the 68 

Sampled Entities With Overpayments 

100% 
s 
e
c
ri
P 90% 
g 
n
eili
C 80% 
B 
0
4
3
e  70% 
h
of t
s  60% 
s
e
c
x
n E 50% 
s i
e Average Overpayment Rate for the 68 Entities in the Sample With 
as 40%  Overpayments (35%) 
h
c
r
u
of P 30% 
e 
g
nta 20%  Overall Overpayment Rate for the Sampled Entities (14%) 
e
c
r
e
P 10%  Median Overpayment Rate for the 68 Sampled Entities With 
Overpayments (12%) 
0% 
Entities 
Source:  Office of Inspector General analysis of sampled entities invoices, 2006. 
Overpayments by the sampled entities were mostly modest, with a few 
exceptionally large overpayments 
Of the 32,201 purchases with associated overpayments, the extent to 
which they exceeded the 340B ceiling prices ranged broadly from less 
than 1 percent to 450,000 percent. However, the median overpayment 
was a modest 5 percent over the ceiling price.  In fact, 72 percent of the 
overpayments in our sample exceeded the ceiling price by less than   
25 percent. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  12   
 
 
F I N D I N G S  
In contrast, there were some large overpayments.  Eighteen percent of 
the overpayments in our sample exceeded the 340B ceiling prices by 
more than 50 percent.  For nearly 11 percent of overpayments, the 
purchase price exceeded the ceiling price by more than 100 percent.  
Finally, 3 percent of the entity overpayments exceeded the ceiling prices 
by more than 1,000 percent.   
Overall, the dollar difference between the prices sampled entities paid 
per purchase and the respective ceiling prices ranged from $0.01 to 
almost $2,000.  The median overpayment was $0.38.  On the other 
hand, per-purchase overpayments in excess of $500 affected 27 
purchases.  Overpayments by sampled entities purchases are displayed 
in Chart 3.  
CHART 3    $2,000 
Dollars Paid Over 
the 340B Ceiling  e $1,931 
c
Prices for 229,796  Pri
Sampled  ng  $1,500 
Purchases  eili
C
  B 
0
4
3 $1,000 
e 
h
r t
e
v
O
s 
r $500 
a
oll
D
$0.01  Median = $0.38 
$0 
Sampled Entity Purchases Above the 340B Ceiling Price 
  Source:  Office of Inspector General analysis of sampled entities invoices, 2006. 
 
In our sample, the majority of purchases below the ceiling prices entailed 
modest discounts  
Like the pattern of overpayments, entities purchase prices that fell 
below the ceiling prices ranged widely.  For the majority, the differences 
between purchase price and ceiling price were modest.  In our sample, 
entities paid between less than 1 percent to almost 100 percent below 
340B ceiling prices.  However, the median discount off the ceiling prices 
was just 3 percent.  In the aggregate, 75 percent of the payments below 
the ceiling price represented less than a 10-percent discount.  On the 
  OEI-05-02-00073  REVIEW OF 340B PRICES  13  F I N D I N G S  
other hand, approximately 6 percent of the below-ceiling payments were 
more than 50 percent lower than the ceiling prices.   
Overall, the dollar difference between the prices sampled entities paid 
and the respective ceiling prices ranged from $.01 below the ceiling 
prices per purchase to nearly $2,920 below per purchase.  The median 
dollar difference between the entity price and the ceiling price was 
$1.54. 
The largest overpayments in our sample 
The largest overpayments within 
resulted from inappropriate handling of  our sample were due to purchases 
negative ceiling prices  for which the price did not reflect 
HRSAs penny price policy. In 
the 340B ceiling price calculation, 
occasionally the URA is greater than the AMP, resulting in a negative 
340B ceiling price. This occurs when a manufacturers reported AMP 
has increased faster than the rate of inflation, requiring it to pay an 
additional rebate amount.  When the 340B calculation results in a 
negative price, HRSA has directed manufacturers to charge a penny per 
unit. 
Of the 49 drugs in our sample for which the URA is greater than the 
AMP, the ceiling prices were not calculated according to HRSAs penny 
price policy for over half (27).  In these cases, 340B entities paid 
anywhere from $1.65 to $1,931 per purchase over the 340B ceiling 
prices.  These overpayments ranged from 1,790 to 450,000 percent over 
the 340B ceiling prices. It appears that instead of a price based on the 
penny price policy, entities were charged either at the retail price or at 
an approximation of the previous quarters ceiling prices.  
All purchase prices in excess of the ceiling prices by more than 100,000 
percent were the result of noncompliance with the penny price policy.  
The discrepancies account for 7 percent of the samples total 
overpayment of approximately $259,000.  If purchases of the 27 drugs 
not in compliance were corrected to follow HRSAs penny price policy, 
the savings would equal $18,553 for the month for the sampled entities.  
Although HRSAs penny price policy is not stated in statute or 
regulation, HRSA says that it has been verbally communicated to 
manufacturers and has been a routine practice since the program 
started. For slightly less than half of the drugs, penny prices were 
  OEI-05-02-00073  REVIEW OF 340B PRICES  14  F I N D I N G S  
correctly charged, indicating that some manufacturers and wholesalers 
are aware of and follow this policy.  
Patterns in our sample suggest that  In our sample, we found that most 
overpayments varied by the volume of 340B  entities, manufacturers, and 
wholesalers were associated with 
purchases or sales associated with entities, 
transactions resulting in 
manufacturers, and wholesalers 
overpayments.  We also found that 
an overpayment by one entity for a particular drug did not mean that 
all entities overpaid for that drug.  In fact, a drug sold to one entity at a 
price above the 340B ceiling price is often sold below the ceiling price to 
a different entity.  Over 40 percent of the unique drugs in our sample 
that were sold at least once at a price above the 340B ceiling price were 
also sold at prices equal to or below the ceiling price. 
Upon further examination of the sample, we identified patterns that 
may offer insights into some overpayments.  When entities, 
manufacturers, and wholesalers were grouped by volume of purchases 
or sales, we saw consistent patterns associated with overpayments.  In 
particular, the sampled data suggest that overpayments occurred more 
often in transactions involving entities, manufacturers, and wholesalers 
with lower volume of 340B sales or purchases. Although we expected 
higher-volume purchasers to negotiate larger volume-based discounts 
below the ceiling price and lower-volume entities to pay prices closer to 
the ceiling price, we did not anticipate that lower-volume entities would 
have more overpayments.  It is possible that the low-volume entities, 
manufacturers, and wholesalers with limited involvement with the 
340B Program may be less familiar with its requirements and policies, 
resulting in noncompliance. 
Sampled entities with fewer 340B purchases paid more than the ceiling price 
for a higher percentage of purchases 
In our sample, entities with fewer purchases for the month had a 
significantly higher percentage of purchases above 340B ceiling prices 
than entities that made a greater number of purchases.  When grouped 
by purchase volume, distinct differences exist among the three 
categories of purchasers, as seen in Table 2 on the following page.  
These differences are statistically significant within our sample. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  15  F I N D I N G S  

Table 2. Percentage of Purchases Over the 
340B Ceiling Price by Volume of Entity 
Purchases 
Number of Purchases  Percentage Over 
Less than 500 (28 entities)  43% 
500 to 1,500 (17 entities)  27% 
Greater than 1,500 (23 entities)  12% 
Source:  Office of Inspector General analysis of sampled entities invoices, 2006. 
This pattern results in overpayments having a more pronounced 
financial impact on entities with lower 340B drug expenditures.  For the 
26 entities that purchased more than $100,000 of drugs during June 
2005, overpayments accounted for less than 5 percent of their total 
spending.  Conversely, for the sampled entities that spent under 
$100,000 on 340B purchases for the month, 13 had overpayments that 
accounted for more than 5 percent of total expenditures made during 
June 2005. The 3 entities with the highest percentages of overpayments 
(15, 17, and 35 percent) spent less than $11,000 on 340B drugs for the 
month. 
In our sample, the manufacturers with the lowest volume of sales had the 
greatest percentage of sales that resulted in overpayments 
Similar to the entity pattern, when we grouped manufacturers by 
volume of total 340B sales in our sample, we found that a relationship 
between total sales and percentage of sales with overpayments became 
clear.32  These differences are illustrated in Table 3 below and are 
statistically significant within our sample.   
Table 3.  Percentage of Sales Resulting in 
Overpayments by Volume of Manufacturer Sales 
Number of Sales  Percentage Over 
Less than 100 (112 manufacturers)  46% 
100 to 1,000 (51 manufacturers)  28% 
Greater than 1,000 (49 manufacturers)  13% 
Source:  Office of Inspector General analysis of sampled entities invoices, 2006. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  16  F I N D I N G S  
In our sample, overpayments occurred more frequently for products sold 
through secondary wholesalers than through primary wholesalers  
A statistically significant relationship between lower sales volume and 
more frequent overpayments also holds true for the wholesalers in our 
sample.  When we examined the differences between the rates of 
overpayments associated with the two groups of wholesalers, primary 
and secondary, we found that 14 percent of the products sold through 
primary wholesalers were sold at prices above the ceiling prices, 
whereas 68 percent of the products sold by secondary wholesalers were 
sold at prices above the ceiling prices.  The three primary wholesalers in 
our sample accounted for significantly greater volume of sales than the 
13 secondary wholesalers.  In fact, the primary wholesalers represented 
178 times the total sales volume of secondary wholesalers in our 
sample. 
Inaccuracies in HRSAs ceiling prices limit its  Our analysis of the data HRSA used 
ability to detect price discrepancies and  to calculate 340B ceiling prices for 
oversee the 340B program  June 2005 revealed that data 
regarding unit of measure and 
package size are inconsistent and, therefore, result in incorrect HRSA 
340B ceiling prices for certain drugs. If HRSA were to conduct audits 
using these data to calculate ceiling prices, it would not be able to 
correctly identify overpayments. 
Inconsistent drug pricing data produce incorrect HRSA 340B ceiling prices   
Some of HRSAs 340B ceiling prices for June 2005 were incorrect due to 
problems related to unit of measure and package size data, which are 
necessary to calculate 340B ceiling prices from AMPs.  Section I(a) of 
the Medicaid drug rebate program agreement entered into by drug 
manufacturers defines the AMP to be a manufacturers average unit 
sales price to wholesalers for drugs distributed to the retail pharmacy 
class of trade (e.g., per pill, milliliter, or tube).  However, manufacturers 
set prices for the sale and distribution of drugs in various package sizes 
(e.g., per bottle, vial, or kit).  Pharmacies purchase drugs by the package 
and 340B ceiling prices are set at this package level.  As previously 
explained, in the 340B ceiling price formula, the AMP (discounted by 
the URA) must be multiplied by package size in order to correspond 
with market practices. 
To calculate 340B ceiling prices, HRSA obtains AMP and URA data 
from CMS and contracts with FDB to receive industry package size 
  OEI-05-02-00073  REVIEW OF 340B PRICES  17  F I N D I N G S  
information. FDB package size information conforms to standards 
established by the National Council for Prescription Drug Programs 
(NCPDP)33 to facilitate use of uniform billing units in all transactions.34 
For the most part, CMS and FDB use the same standards; however, 
when the standards vary, calculating 340B ceiling prices using data 
adhering to two different standards yields inaccurate results.   
To accurately calculate a 340B ceiling price from the AMP, it is 
necessary to consistently apply the unit of measure across all pricing 
data. We identified instances in which the definition of a unit of 
measure differed between CMS and FDB.  For instance, manufacturers 
report the AMP to CMS for a particular drugDrug Abased on a 
milliliter unit of measure; however, FDB lists the unit of measure for 
Drug A as each.35  Drug A is sold to pharmacies as a powder for 
infusion in a vial with a unit of measure of each.  Medicaid rebates are 
based on how Drug A was dispensed, as a reconstituted liquid dose 
(milliliter). Although both descriptions of the unit of measure (each and 
milliliter) are correct for their respective purposes, the combination of 
the data results in incorrect ceiling prices.  In this situation, the HRSA 
computed 340B ceiling price was 10 times too low.   
Beyond issues with defining a unit of measure, OIG also uncovered 
instances in which the information on units per package size reported 
by manufacturers to CMS differed from the package size they reported 
to FDB.  These differences led to incorrect 340B ceiling prices because 
the AMP was multiplied by the inappropriate package size.  For further 
details on these issues, see Appendix C. 
HRSAs ability to monitor the appropriateness of prices that 340B entities 
pay is significantly limited by flawed ceiling price data 
Based on the problems outlined above, OIG had to adjust the ceiling 
prices for 164 unique NDCs, which affected 4,332 entity purchases.  In 
some cases, the comparison of 340B entity prices to the revised ceiling 
prices changed the original determination of whether a price was above, 
at, or below the 340B ceiling price.  In other cases, it affected the size of 
the difference between ceiling prices and entity prices. 
We found that 1,673 of the sampled entity purchases went from an 
overpayment when compared to HRSAs 340B prices to at or below the 
ceiling prices when compared to the OIG-adjusted prices.  Using HRSAs 
340B ceiling prices to project to the population would result in an 
estimate that entities overpaid $12.6 million in June 2005nearly  
$9 million more than the estimate based on OIG-adjusted prices.   
  OEI-05-02-00073  REVIEW OF 340B PRICES  18  F I N D I N G S  
We also found that certain purchases went from at or below the ceiling 
prices when compared to HRSAs calculated ceiling prices to an 
overpayment based on the OIG-adjusted prices.  Using HRSAs 340B 
prices would have missed 380 purchases that exceeded the ceiling prices 
for the month reviewed. 
Finally, we identified purchases for which comparing 340B entity prices 
to HRSAs calculated 340B prices would have accurately identified the 
direction of price discrepancies, but would not have accurately identified 
the extent of the discrepancies. For these 2,279 purchases, comparing 
entity prices to OIG-adjusted prices (as opposed to HRSAs calculated 
prices) did not change whether a price discrepancy was above or below 
the ceiling price. Rather, it changed the extent of the discrepancy.   
If HRSA had used its ceiling prices to assess the appropriateness of 
prices paid by 340B entities, it would have erroneously identified 
overpayments as transactions that were actually at or below the ceiling 
price, which could have led to inappropriate enforcement actions. It is 
also possible that use of HRSAs prices might result in attempts to 
recoup incorrect amounts where overpayments are identified but the 
amount is incorrect.  In addition, use of inaccurate data could also 
interfere with the ability to detect actual overpayments.   
  OEI-05-02-00073  REVIEW OF 340B PRICES  19    R E C O M M E N D A T I O N S  

Despite the requirements of the 340B Program, 14 percent of purchases 
made by 340B entities exceeded the 340B ceiling price, resulting in  
$3.9 million in projected overpayments for the month reviewed.   
Previous OIG work found that HRSA is unable to appropriately oversee 
the 340B Program. 36  In particular, we found that HRSA lacked the 
mechanisms and authority to ensure that 340B entities pay at or below 
340B ceiling prices. This report quantifies the potential impact that a 
lack of oversight has on the 340B Program.  Furthermore, we found, as 
in our previous report, that HRSAs calculated ceiling prices can be 
inaccurate, which causes further concern related to HRSAs ability to 
monitor the 340B Program. 
This review also explores potential reasons for the price discrepancies 
we uncovered in our sample of 70 purchasing agents, which made 
229,796 purchases on behalf of 165 eligible sites in June 2005.  We 
discovered that noncompliance with HRSAs penny price policy accounts 
for some of the largest overpayments in our sample.  We also found that 
manufacturers, wholesalers, and entities in our sample that sell or 
purchase drugs using the 340B Program less frequently tend to be 
associated with more overpayments, suggesting that at least some 
overpayments stem from lack of experience with the complex 340B 
system. 
The following recommendations reiterate and build upon our previous 
recommendations to HRSA to improve its oversight of the 340B 
Program to ensure that entities pay at or below the mandated ceiling 
price. 
HRSA Should Improve Its Oversight of the 340B Program to Ensure That 
Entities Are Charged at or Below the 340B Ceiling Price 
To ensure that entities are charged at or below the 340B ceiling price, 
we continue to support our prior recommendation that HRSA increase 
its oversight of the 340B Program. Increased monitoring could include 
HRSAs comparing its 340B ceiling prices to the manufacturers ceiling 
prices each quarter to detect and resolve discrepancies.  HRSA could 
also conduct spot-checks of entity invoices to ensure that entities are 
charged at or below 340B ceiling prices.  Finally, as previously proposed, 
we believe it is important that HRSA have sufficient penalty authority 
  OEI-05-02-00073  REVIEW OF 340B PRICES  20  R E C O M M E N D A T I O N S  
in case its current informal approach toward dispute resolution is 
insufficient. 
HRSA has made steps toward improving 340B Program oversight based 
on these prior OIG recommendations.  In December 2005, HRSA 
requested manufacturers to voluntarily submit their 340B ceiling prices 
to HRSA for comparative purposes and received responses from more 
than 130 manufacturers, from which it has run comparisons on a subset 
of 50. HRSA is currently working on an automated program to compare 
the 340B ceiling prices to prices within the 340B market.  Finally, 
HRSA reported that it included a request for funds in its 2007 
appropriation to support efforts to resolve pricing discrepancies when 
they are detected.  We support these efforts and encourage HRSA to 
formalize the process of comparing all of the more than 700 
participating manufacturers ceiling prices to its 340B ceiling prices 
under a prescribed protocol to ensure a thorough and consistent 
verification process. 
In addition to these efforts to ensure the accuracy of the 340B ceiling 
prices, HRSA could assist the uniform and timely transmission of 340B 
ceiling prices by taking responsibility for disseminating a single verified 
list of 340B ceiling prices to wholesalers. To do this, HRSA could 
receive ceiling prices from all manufacturers for comparison to its 340B 
ceiling prices, flag differences, follow up on the discrepancies, and create 
a single verified list of 340B ceiling prices.  This action would 
streamline the process significantly as wholesalers would receive one 
340B pricing file from HRSA instead of the current process whereby 
wholesalers exchange data with more than 700 participating 
manufacturers each quarter.  To implement this process, HRSA might 
consider its Prime Vendor as a possible conduit of this data, since the 
Prime Vendor has links to the wholesalers. 
Finally, we recommend that HRSA monitor the way in which the AMP 
disclosure provisions required in Section 6001(b) of the DRA are 
implemented.  The revised definition of the AMP, when made available, 
could potentially be useful to 340B entities in approximating whether 
they are paying more than 340B ceiling prices. 
HRSA Should Provide Technical Assistance Regarding 340B Program 
Requirements to All Participating Entities, Manufacturers and Wholesalers 
HRSA should increase its efforts to provide entities, manufacturers, and 
wholesalers with information about 340B Program requirements and 
policies with the goal of improved compliance among all participants.  
  OEI-05-02-00073  REVIEW OF 340B PRICES  21  R E C O M M E N D A T I O N S  
Though we are unable to project, the patterns detected in our sample 
suggest a potential link between infrequent interactions with the 340B 
program and overpayments.  We found that low-volume purchasers 
were disproportionately affected by overpayments.  HRSA may want to 
consider providing further assistance to specific entities, manufacturers, 
and wholesalers with low-volume purchases and sales.   
HRSA might increase the 340B Programs visibility to entities through 
further promotion of its Pharmacy Services Support Center (PSSC), a 
pharmacy technical assistance resource established in 2002 to provide 
information, education, and policy analysis to help eligible entities 
optimize the value of the 340B Program.37  One valuable tool offered 
through PSSC that merits increased attention is the HRSA technical 
initiative called PharmTA. This program provides 340B entities with 
an opportunity to request and receive 340B and pharmacy technical 
assistance via a team of HRSA-trained consultants by phone, by e-mail, 
or in person. 
For manufacturers and wholesalers, HRSA could further its education 
efforts geared toward increasing industry compliance with the 340B 
Program.  HRSA has participated in several industry conferences 
designed to specifically educate manufacturers and wholesalers, and we 
believe continuing to actively pursue opportunities for training will 
assist the success of the 340B Program. HRSA could also, like CMS, 
publish letters on its Web site addressed to all manufacturers and 
wholesalers, for example, to direct 340B pricing or distribution practices 
or to clarify policies. 
HRSA may also want to form a work group with members representing 
the entities, manufacturers, and wholesalers to identify and resolve 
ongoing issues related to the 340B Program.  HRSA has enjoyed success 
with this informal approach in addressing issues with its Covered 
Entity database and interaction with Medicaid. 
Finally, as the marketplace continues to evolve, HRSA may want to 
consider creating and conducting outreach programs to orient new 
entities, manufacturers, and wholesalers to the 340B Program. 
HRSA Should Publish Guidance Regarding Its Penny Price Policy 
HRSA should publish guidance that will serve as an explicit 
confirmation of its currently unofficial penny price policy.  A formal, 
publicly available statement of this policy would help ensure that 
manufacturers consistently charge a penny (multiplied by the drugs 
package size) when a negative ceiling price is calculated.  Since the 
  OEI-05-02-00073  REVIEW OF 340B PRICES  22  R E C O M M E N D A T I O N S  

inappropriate handling of negative ceiling prices results in significant 
overpayments, accounting for 7 percent of the total overpayments in our 
sample, reinforcing the penny price policy with official guidance could 
have a significant impact on reducing the amount entities overpaid with 
minimum effort. 
HRSA has already committed to publish detailed instructions for the 
calculation of the 340B ceiling price on its Web site, and we encourage it 
to include guidance related to the penny price in these policies.38 If, 
however, HRSA finds that this guidance is insufficient to ensure 
compliance, the agency may want to pursue promulgating regulations 
about the policy.  HRSA may want to also create an exceptions process 
to the policy to address instances in which adherence to this policy 
results in a higher price than the previous quarters ceiling prices.  
To Accurately Calculate 340B Ceiling Prices, HRSA Should Obtain 
Consistent Data on Unit of Measure and Package Size 
HRSAs ability to monitor the 340B Program depends on having 
accurate 340B ceiling prices.  Though HRSAs current package size data 
from FDB yield a correct ceiling price for most drugs, the prices are 
incorrect for certain products for which CMS and NCPDP have 
divergent standards for defining a unit or package.  Until these unit of 
measure and package size issues are resolved, HRSA will continue to 
incorrectly calculate the 340B ceiling price for certain drugs.  
HRSA has recently recognized the potential for discrepancies stemming 
from different unit of measure or package size conventions, and reports 
that it is working toward a more systematic process to detect and 
resolve these differences.  We recommend as part of these efforts that 
HRSA develop protocol that compares CMS and FDB unit of measure 
definitions to detect discrepancies. This comparison requires a fairly 
simple data match.  We also suggest that HRSA work directly with CMS 
to identify NDCs for which the unit of measure is captured differently 
by CMS and FDB. The agencies should also exchange information on 
instances in which CMS has exceptions to its unit of measure 
standards, as this information could isolate where standards diverge. 
HRSA and CMS have already engaged in discussions regarding 
accurate and timely drug pricing data, so they could add unit of 
measure issues to the agencies collaborative efforts. 
To address the package size issues, we offer two suggestions to improve 
the integrity of HRSAs 340B ceiling price calculations. First, because 
most unit of measure differences also require adjustments to the 
  OEI-05-02-00073  REVIEW OF 340B PRICES  23  R E C O M M E N D A T I O N S  
package size data, HRSA could systematically review the package size 
data associated with unit of measure discrepancies.  Second, HRSA 
could request that manufacturers submit the package size information 
they use directly to the Agency to be used as its official package size 
source or as a source of comparison.  This information would not 
necessarily be the same package size information reported to either 
FDB or CMS, but would assist in calculating correct 340B ceiling prices. 
AGENCY COMMENTS 
HRSA concurred with each of our recommendations.  The complete text 
of HRSAs comments can be found in Appendix D. 
In response to our recommendation to improve oversight of the 340B 
Program, HRSA stated that it has taken steps to more closely monitor 
the prices paid by 340B entities.  Specifically, HRSA has requested that 
manufacturers voluntarily submit their prices for comparison to the 
agencys ceiling prices.  HRSA stated that it already receives ceiling 
price information on a voluntary basis from more than 50 
manufacturers and expects that many more manufacturers will 
voluntarily submit data.  HRSA also stated that it will continue to work 
toward dissemination of verified ceiling prices to wholesalers.  Further, 
HRSA intends to explore ways to provide ceiling prices to wholesalers 
and entities, while protecting the confidentiality of the pricing data.  
Additionally, HRSA stated that it will explore the possibility of seeking 
the authority and resources needed to impose fines and civil penalties 
for violations of the PHS Act.   
In response to our other recommendations, HRSA agreed that, despite 
its limited resources, it will manage and coordinate the technical 
assistance efforts for the 340B Program, including special efforts to 
target new and smaller-volume purchasers of 340B drugs.  HRSA also 
stated that it anticipates promulgating a penny price policy in 
conjunction with formalizing the instructions for the calculation of 340B 
ceiling prices, which OIG recommended in a previous report.  Finally, 
HRSA concurred with our recommendation that it should obtain 
consistent unit of measure and package size data.   
OFFICE OF INSPECTOR GENERAL RESPONSE 
We believe that the steps HRSA outlined in response to our 
recommendations will improve its program oversight and the accuracy 
of 340B ceiling prices. We do, however, continue to encourage HRSA to 
  OEI-05-02-00073  REVIEW OF 340B P RICES  24  R E C O M M E N D A T I O N S  
work toward a comprehensive comparison of its 340B ceiling prices to 
all manufacturers data. We also maintain that HRSA should develop a 
systematic process to detect and resolve unit of measure and package 
size issues with its ceiling price data to ensure accurate 340B ceiling 
prices. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  25    E N D N O T E S  

1 42 U.S.C.  256b. 
2 42 U.S.C.  256b(a)(1). 
3 Ibid. 
4 This estimate of total purchases is the most recent available from the 
Office of Pharmacy Affairs, Health Resources and Services 
Administration. 
5 42 U.S.C.  256b(a)(4). 
6 The total number of entities listed on HRSAs Covered Entity 
Database is 12,334.  Available online at 
http://opanet.hrsa.gov/opa/Login/MainMenu.aspx. Accessed on May 24, 
2006. 
7 The 340B Program registration form may be found on HRSAs Web 
site at www.hrsa.gov/opa/introduction.htm. 
8 http://opanet.hrsa.gov/opa/Login/MainMenu.aspx; select Covered 
Entity to search for participating entities.  
9 The statement from HRSA requiring entities to notify manufacturers 
of their participation is available online at 
http://www.hrsa.gov/opa/introduction.htm. Accessed on May 31, 2006. 
10 Introduction to 340B Drug Pricing Program, available online at 
http://www.hrsa.gov/opa/introduction.htm. Accessed on July 11, 2006. 
11 42 U.S.C.  256b(a)(8). 
12 Prime Vendor Programs Power Point presentation of 340B 
Participation numbers.  Available online at 
http://www.340bpvp.com/faq/default.asp. Accessed on May 22, 2006. 
13 42 U.S.C.  256b(a)(10). 
  OEI-05-02-00073  REVIEW OF 340B PRICES  26  14 Sections 1927(a)(1) and (a)(5)(A) of the Social Security Act. 
15 Final Notice Regarding Section 602 of the Veterans Health Care Act 
of 1992 Entity Guidelines, Section (10) Dealing Direct or Through a 
Wholesaler, 59 FR 25113, May 13, 1994. 
16 Forbes Magazine, Healthcare:  Cardinal Health, available at 
www.forbes.com/global/2002/0415/072.html, and Eban, Katherine, 
Dangerous Doses, May 2006.   
17 Section 1927(b)(3) of the Social Security Act. 
18  Section 1927(c) of the Social Security Act outlines the manner in 
which rebate amounts are determined.   
19 Sections 340B(a)(1-2) of the PHS Act; 42 U.S.C.   256b(a)(1-2). 
20 Under the Medicaid drug rebate program, CMS indexes quarterly 
AMPs to the rate of inflation.  Section 1927(c)(2)(A) provides that if the 
AMP increases at a rate faster than inflation, the manufacturer pays an 
additional rebate amount which is reflected in an increased URA.  Thus, 
Section 1927(c)(2)(A) could increase the rebate amount manufacturers 
must pay to the States, but could also result in negative 340B prices.   
21 Though this policy is not officially stated in regulation or guidance, 
HRSA staff have discussed this expectation in several interviews with 
OIG and publicly stated the expectation at several 340B conferences and 
meeting.  HRSA staff says that this policy has been expressed since the 
start of the program. 
22 Remarks of CMS Administrator Dr. Mark B. McClellan as delivered 
to the National Community Pharmacists Association, May 22, 2006.  
23 We interviewed several member organizations of the 340B Coalition, 
which represents the thousands of safety net providers and programs 
participating in the Public Health Service's 340B Program.  Members 
interviewed included the Public Hospital Pharmacy Coalition, 
Hemophilia Alliance, Inc., National Association of Community Health 
Centers, and National Alliance of State and Territorial AIDS Directors.  
  OEI-05-02-00073  REVIEW OF 340B PRICES  27  24 Technically, our efforts to link related entities resulted in a final 
population of 1,727 entity networks, but we eliminated 20 entities and 
added 1 previously dropped entity, bringing our reported total to 1,708.  
We eliminated 20 hospitals due to ongoing OIG investigations and 
included 1 Ryan White Title IV grantee (previously excluded from the 
sample because of its very low volume of products purchased) after 
discovering it had a contract pharmacy arrangement.   
25 We requested the 340B ceiling prices for second quarter of 2005, which 
HRSA calculated using AMPs and URAs from the fourth quarter of 2004. 
26 Centers for Medicare & Medicaid Services, Medicaid Drug Rebate 
Operational Guide, p. H2. 
27 If a manufacturer does not submit AMP to CMS, CMS is unable to 
calculate a URA and, therefore, cannot supply HRSA with either the 
AMP or URA needed to compute 340B ceiling prices.   
28 During our review, we discovered that HRSAs database had the 
incorrect entity type listed for six of the sampled entitiese.g, the entity 
was categorized as a Ryan White grantee, but reported that it was 
actually a Consolidated Health Center.  Since our stratification was 
based on entity type, these inaccuracies meant we had placed them in 
incorrect strata.   
29  H.R. Rpt. 102-384, 102nd Cong., 2nd session, pt. 2 at 12 (1992). 
30 Entity Guidelines, 58 FR 68922,68923, December 29, 1993.  Entities 
may instead opt to bill the State for Medicaid beneficiaries at the States 
usual acquisition cost plus a fee.  Entities using this option must 
purchase a separate inventory at a non-340B contract price for Medicaid 
patients. 
31 Of the 73 eligible entities in our sample, 72 responded to the       
Web-based survey, of which 69 responded to this question on passing on 
the 340B discount or billing States at the Medicaid rate.   
32 As a quality control check, we also analyzed the relationship between 
the volume of sales associated with the unique labeler codes of each of the 
306 sampled manufacturers and overpayments.  We found that, when 
  OEI-05-02-00073  REVIEW OF 340B PRICES  28  categorized in the same three groups, the relationship between low-
volume manufacturers and higher overpayments was still evident and 
statistically significant.  In this analysis, the high-volume manufacturers 
had a 12 percent overpayment rate; medium-volume, 22 percent; and   
low-volume, 39 percent.   
33 The National Council for Prescription Drug Programs (NCPDP) is a 
not-for-profit standards development organization consisting of more 
than 1,300 members representing virtually every sector of the pharmacy 
services industry. 
34 NCPDP Billing Unit Standard Implementation Guide Version 2.0.  
35 According to the NCPDP Billing Unit Standard, each is one of the 
three appropriate billing units other than milliliter or gram.  The term 
each may refer to a tablet, a capsule, a suppository, or a transdermal 
patch. NCPDP Billing Unit Standard Implementation Guide Version 2.0.  
36 Deficiencies in Oversight of the 340B Drug Pricing Program,      
OEI-05-02-00072, October 2005. 
37 The Pharmacy Services Support Center operates under a contract 
between the American Pharmacists Association and HRSA. 
38 Agency comments section, Deficiencies in the Oversight of the 340B 
Drug Pricing Program, OEI-05-02-00072, October 2005. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  29    A P P E N D I X ~ A  

Types of Entities Eligible to Participate in the 340B Program: 
Black lung clinics 
Community health centers 
Disproportionate share hospitals 
Family planning clinics 
Federally qualified health center lookalikes 
Federally qualified health centers funded by the Office of Tribal Programs 
Healthcare for the homeless centers 
Hemophilia treatment centers 
Migrant health clinics 
Native Hawaiian Health Care Program 
Public housing clinics 
Ryan White Title I 
Ryan White Title II 
Ryan White Title II (AIDS Drug Assistance Program direct purchase) 
Ryan White Title II (AIDS Drug Assistance Program rebate option) 
Ryan White Title III  
Ryan White Title IV 
School-based programs 
Sexually transmitted disease clinics 
Special Projects of National Significance 
Tuberculosis 
Urban Indian Clinics 
  OEI-05-02-00073  REVIEW OF 340B PRICES  30    A P P E N D I X ~ B  

DETAILED METHODOLOGY 
Entity Sample Selection 
Based on interviews with the Health Resources and Services 
Administration (HRSA) and other 340B interest groups, we excluded 
certain entity types from our population.  We excluded entities that 
regularly purchase drugs using other discount mechanisms, such as the 
reductions available via the Federal Supply Schedule or Title X.  We 
also excluded entities that purchase a very low volume of drugs.  These 
exclusions eliminated a total of 7,707 entities, giving us a population of 
4,240 entities. Table 1 lists the excluded entities.   
Table 1. Entities Excluded From Sample 
Number of Entity 
Entity Type  Listings Excluded  Reason for Exclusion 
Federally Qualified Health Centers Funded  102  Indian Health Service grantees may receive 
by the Office of Tribal Programs  pharmaceutical discounts under multiple Federal 
programs, not just 340B 
Urban Indian Organizations  17  Special relationship with Indian Health Service 
Ryan White Title II Rebate Option  47  Do not purchase drugs using the 340B ceiling price 
Family Planning Clinics  5,118  Routinely receive nominal prices or samples and rarely 
order products 
Sexually Transmitted Disease Clinics  1,344  Purchase drugs using Title X discounts 
Tuberculosis Clinics  1,024  Majority of products that sampled entities reported on 
invoices during previous 340B work were vaccines, 
which are not covered under the 340B Program 
Black Lung Clinics  10  Very low volume of products purchased 
Native Hawaiian Clinics  5 
Ryan White Title IV  7 
Special Projects of National Significance  8 
Purchasing Agents 
At the time we selected the sample, HRSAs database did not include a 
link demonstrating the relationship between the purchasing agent and 
its affiliates.  Therefore, we used the HRSA-assigned unique 340B 
identification number to group entities. This identification number 
typically consists of three segments: first, an alpha-prefix that indicates 
the entity type; second, numbers assigned at HRSAs discretion, which 
sometimes consists of the sites Zip code; and third, if a site is related to 
another site, a terminal alpha-suffix.  An example of the unique 
identification number would be DSH1234A.  Using this number, we 
  OEI-05-02-00073  REVIEW OF 340B PRICES  31  A P P E N D I X ~ B  
grouped entities together if their HRSA identification number differed 
only by their alpha-suffix or alpha-prefix, and counted each grouping as 
one purchasing agent.  In attempting, for example, to link DHS1234A to 
other entities, we would have grouped it with DSH1234B and 
DSH1234C.  In addition, entities were grouped together if they had an 
identical address and contact information.  Each group of entities was 
counted as one purchasing agent.  Entities with no listed affiliates were 
also counted as one purchasing agent.  To further confirm linkages 
among just the Consolidated Health Centers, we relied on the data 
listed on HRSAs Bureau of Primary Health Care Web site, which 
contains information on these grantees service delivery sites.  For each 
center, the Web site lists the main site and its supported sites. We also 
used the information on this Web site to update the centers contact 
information. Our efforts to link related entities resulted in a population 
of 1,727 purchasing agents, referred to in the report as 340B entities for 
simplicity. Table 2 summarizes our efforts to link related entities and 
identify the purchasing agent for our sample. 
Table 2.  Identifying 340B Purchasing Agents 
Number Listed in Covered  Overall Number of Purchasing 
Entity Type 
Entity Database  Agents Identified by OIG 
Disproportionate Share Hospital   1,153  498 
Consolidated Health Center  2,500  841 
Federally Qualified Health Center  162  84 
Hemophilia Treatment Centers  74  73 
Ryan White Title I  89  54 
Ryan White Title II   79  65 
Ryan White Title III   183  92 
 Total  4,240  1,727 
Sample Selection 
Prior to selecting our sample, we eliminated 20 disproportionate share 
hospitals from Stratum 1 due to ongoing OIG investigations.  We also 
included a Ryan While Title IV network in Stratum 5 after discovering 
that it differed from the rest of its category in that it had a contract 
pharmacy arrangement.  These adjustments resulted in a final 
  OEI-05-02-00073  REVIEW OF 340B PRICES  32  A P P E N D I X ~ B  
population of 1,708 purchasing agents from which the sample was 
selected and projections were made. 
We selected a stratified random sample of 98 purchasing agents based 
on entity type and purchasing method.  The resulting sample included 
five strata representing disproportionate share hospitals, Consolidated 
Health Centers, hemophilia treatment centers, Ryan White grantees, 
and any entity type with contract pharmacy arrangements.  
We stratified our sample based on characteristics we believed might 
influence price discrepancies.  Based on potential administrative or 
operational differences, we stratified purchasing agents as either direct 
purchasers or entities with contract pharmacy arrangements.  
Additionally, with regard to the direct purchasing agents, we further 
stratified our sample, selecting a stratified random sample from four 
strata of entity types determined by characteristics of 340B 
participating entities, namely pharmacy volume, sophistication of 
purchasing, diversity of products, and proportional impact on the 340B 
program. Table 3 displays the stratification results including the 
population size and sample size by stratum. 
Table 3.  Stratification of 340B Entities  
Stratum   Entity Types Within Stratum  Reason for Stratum  Population  Sample 
Size  Size 
Direct Purchasers:   Disproportionate Share Hospitals  High pharmacy volume and  484  30 
Stratum 1  sophisticated purchasing 
process 
Direct Purchasers:   Consolidated Health Centers and  Diversity of products but at a  620  30 
Stratum 2  Federally Qualified Health Centers  lower volume than hospitals 
Direct Purchasers:   Hemophilia Treatment Centers   Specific, expensive products,  43  8 
Stratum 3  including anticlotting factor 
Direct Purchasers:   Ryan White Title I, Ryan White  Slightly more diverse range of  137  10 
Stratum 4  Title II (ADAP Direct Purchasers),  products than hemophilia 
and Ryan White Title III  treatment centers purchased for 
a specific population 
Contracted Pharmacy  All  Complicated distribution  424  20 
Arrangement  arrangements 
Purchasers: Stratum 5 
 Total  1,708  98 
Sample Verification 
After we made our sample selection, Hurricane Katrina hit the Gulf 
Coast.  As a result, we dropped four purchasing agents located in 
  OEI-05-02-00073  REVIEW OF 340B PRICES  33  A P P E N D I X ~ B  
Louisiana or Mississippi to avoid imposing a burden on health care 
providers in the region.  Calls to each of the remaining 94 purchasing 
agents to confirm participation status and address information revealed 
that 21 of the purchasing agents did not participate the 340B Program 
and, therefore, were not eligible for this study.  In total, of the 98 
purchasing agents originally sampled, only 73 were included in our 
study. Table 4 provides a breakdown of the responses of the ineligible 
entities. 
Table 4. Description of Ineligibles
  Reason Not Eligible  Number
  Does not participate in 340B at all or does not purchase drugs  10
  Enrolled in 340B, but has not yet used the program  4
  Enrolled in 340B, but did not purchase drugs in June 2005  3
  Dropped from study because of Hurricane Katrina (entities in hurricane- 
4
  affected areas of Louisiana and Mississippi) 
  Does not qualify to participate in 340B  1
  Center does not exist or we were unable to locate it  2
  Other  1 
Total  25 
Data Collection  
To obtain information on the prices from the 73 purchasing agents in 
our sample, we requested invoices for purchases made under 340B 
contracts during the sampled month. We requested that the purchasing 
agent only submit invoices relating to purchases made under their 340B 
contract and exclude any inpatient or group purchasing organization 
prices negotiated under a separate contract.  We also requested that the 
purchasing agent provide additional information we deemed necessary 
to ascertain that the invoice data supplied were correct, including 
contract and purchase order numbers.   
Of the 73 eligible purchasing agents, only 1 did not respond to our 
request for 340B invoices for June 2005.  An additional two purchasing 
agents responded, but we were unable to use their invoice submissions. 
For one purchasing agent, paper drug invoices did not include NDC 
codes.  For another purchasing agent, information about prescriptions 
and not invoice purchases was supplied.  Therefore, our final number of 
sampled respondents was 70. These 70 purchasing agents purchase on 
  OEI-05-02-00073  REVIEW OF 340B PRICES  34  A P P E N D I X ~ B  
behalf of a total of 165 entities. Table 5 provides a breakdown of sample 
responses by stratum. 
Table 5. Response Rate by Stratum 
Stratum Description  Sample Size  Eligible for Study  Responses 
Direct Purchasers:  Disproportionate Share  30  24  24 
Hospitals 
Direct Purchasers:  Consolidated Health Center  30  19  18 
Programs and Federally Qualified Health Centers 
Direct Purchasers:  Hemophilia Treatment  8  6  6 
Centers 
Direct Purchasers:  Ryan White Title I, Ryan  10  5  5 
White Title II, and Ryan White Title III 
Contracted Pharmacy Arrangement Purchasers  20  19  17 
Total  98  73  70 
Sampling Invoice Line Items 
We requested that the sampled purchasing agents supply invoice 
information electronically if possible.  Of the 70 purchasing agents that 
submitted usable invoice data, 32 submitted invoices electronically and 
38 submitted paper invoices.  We imported all line items, after we 
verified accuracy and reliability, for any invoices received electronically.  
Of the 38 purchasing agents that submitted reasonable paper invoice 
data, we entered all line items for 31 purchasing agents.  For the 
remaining 7 purchasing agents whose paper invoice submissions were 
too extensive to reasonably enter manually in our timeframe (e.g., the 
total number of line items reported exceeded 500), we took a second-
stage, simple random sample of the line items.  To do this, we 
determined the number of line items we would sample based on the 
total number of line items on the invoices.  Specifically, if the total 
number of line items was under 30, we took them all.  If the total 
number of line items was over 30, we calculated the sample size based 
on the following formula:  ((number of line items *60) /(number of line 
items + 60)).  We rounded up to the next integer and took that number 
in the sample.  If the number of line items exceeded 600, we took 60 
transactions at a minimum. 
We input the NDC, the price paid, and the quantity purchased for each 
outpatient drug purchased within the sample month.   
When possible, we excluded any transactions associated with products 
that had been returned, as indicated on the invoice, and only included the 
entitys net sales.  We recognize that the nature of the 340B market 
  OEI-05-02-00073  REVIEW OF 340B PRICES  35  A P P E N D I X ~ B  
includes the potential for returns and, since two quarters had passed 
between the initial purchase and data request, some electronic invoice 
data included these returns. 
Projections and Confidence Intervals 
For our projection to the population of entities, we did not include the 
six purchasing agents that were assigned to an incorrect stratum.  Even 
though we did not make projections to the stratum level, we excluded 
the six purchasing agents that were assigned to the wrong stratum from 
the overall population for projections to reduce bias in our estimate. 
Table 6 below contains the results:  the total projected overpayments 
and total amount spent on 340B drugs as well as overpayment rates for 
the population of 340B entities during June 2005. 
Table 6.  Projected Spending and Overpayments for Population of 340B Entities 
Statistic  Point Estimate  95-Percent Confidence Interval 
Dollars Paid in Excess of the 340B Ceiling Price Using OIG-
Adjusted 340B Ceiling Prices  $3,865,718  $2,024,514 - $5,706,922 
Total Dollars Spent  $445,318,538  $182,795,807 - $707,841,269 
Rate of Purchases Above the 340B Ceiling Price  14.4%  8.2% - 20.6% 
Rate of Purchases at or Below the 340B Ceiling Price  85.6%  79.4% - 91.8% 
Dollars Paid in Excess of the 340B Ceiling Price Using HRSA-
Calculated 340B Ceiling Prices  $12,617,290  $6,656,187 -$18,578,393 
To analyze our sample, we accounted for the seven purchasing agents 
from which we took a sample of line items.  To do this, we projected 
overpayment dollars, total spending, and overpayment rates for the 
seven purchasing agents.  For the remaining 63 purchasing agents, we 
did not sample line items and therefore did not need to make 
projections. Additionally, we included the six purchasing agents that 
were assigned to an incorrect stratum since analysis of our sample was 
not weighted by stratum.  Table 7, on the next page, contains the results 
for overpayment dollars and overpayment rates for the sample. 
  OEI-05-02-00073  REVIEW OF 340B PRICES  36  A P P E N D I X ~ B  
Table 7.  Projected Spending and Overpayments for Our Sample of 70 Entities 
Statistic  Point Estimate  95-Percent Confidence Interval 
Dollars Paid in Excess of the 340B Ceiling Price  $258,556  $253,717 -$263,395 
Total Dollars Spent  $32,192,304  $31,323,532 - $33,061,076 
Rate of Purchases Above the 340B Ceiling Price  14.0%  13.2% - 14.8% 
Proportion of Dollars Paid in Excess of the 340B Ceiling Price 
Due to Noncompliance With HRSA's Penny Price Policy  7.2%  6.9% - 7.4% 
Office of Inspector General Review of HRSAs 340B Ceiling Prices 
To correct for the discrepancies in unit of measure and package size 
information, we compared drug data for 372 National Drug Codes 
(NDCs) and adjusted unit and package size data as needed based on 
research on how each drug is supplied.  We primarily relied on 
manufacturers package insert information by drug, which is typically 
available on the manufacturers Web site.  
To ensure a proper ceiling price calculation for NDCs with unit of 
measure and/or package size discrepancies, we identified NDCs for 
which the Centers for Medicare & Medicaid Services unit of measure or 
package size differed from First DataBanks unit of measure.  Then, 
using the Internet to research manufacturers Web sites and the Food 
and Drug Administration Web site, we made adjustments to the ceiling 
price when needed.  
In total, we identified 372 out of 5,331 unique NDCs in our sample for 
which the unit of measure or package size descriptions did not 
correspond and potentially resulted in an incorrect ceiling price.  Of 
those, we made adjustments to 164 of HRSAs ceiling prices for which 
the disparities proved problematic. 
Specifically, for our unit of measure discrepancy analysis, we reviewed 
182 unique NDCs. Of those, we adjusted the ceiling price for 52.  This 
affected 289 line items and 1,872 purchases in our sample.  In our 
package size discrepancy analysis, we reviewed 190 unique NDCs. Of 
those, we adjusted the ceiling price for 112.  This affected 340 line items 
and 1,742 purchases in our sample. 
Pattern Analysis 
To look at patterns among entities, we divided the entities into three 
groups:  entities with more than 1,500 purchases, between 500 and 
  OEI-05-02-00073  REVIEW OF 340B PRICES  37  A P P E N D I X ~ B  
1,500 purchases, and fewer than 500 purchases for the month.  By 
purchase, we mean the single purchase of each package of product 
whether the entity purchased multiple quantities of the product at the 
same time or just a single package. We chose these cutoffs because they 
fit the scale of the range of sales.  We also divided entities by total 
dollars spent, using $100,000 as the dividing point.   
For the manufacturer analysis, we grouped manufacturer sales into 
three groups: high (more than 1,000 sales), medium (between 100 and 
1,000 sales) and low (below 100 sales). Similar to our definition of 
purchase, a single sale reflects the individual sale of each package of 
product. The range of manufacturers sales was from 1 to 15,885 sales, 
with an average of 751. We selected these three classifications because 
they also fit the scale of the range of sales.   
To conduct our analysis by manufacturers, we first identified and 
grouped all related subsidiaries, acquired companies, various divisions, 
or divisions located outside the mainland United States and treated the 
grouping as a single manufacturer. All of our price comparisons were 
conducted at the NDC level, of which the first 5 digits represent the 
labeler code, or manufacturer, of the drug.  We identified and linked 
related labeler codes into a manufacturer because, much like our 
identification of the entity purchasing agents, we wanted our unit of 
pattern analysis to be based on the network of businesses that make 
up the single manufacturer.  Further, because some of our conclusions 
reference the manufacturers level of interaction with the 340B 
Program, our groupings treat related companies as having the same 
level of interaction with the program.   
Since there is no single source for linking labeler codes of affiliated 
manufacturers, we identified related manufacturers using a 
combination of sources. For instance, some manufacturers voluntarily 
submit a single 340B ceiling price file to HRSA that contains the prices 
for all affiliated labeler codes.   We requested this file from HRSA and 
were able to link several related manufacturers.  Of the 306 total 
unique labeler codes in our sample, our efforts to group related codes 
resulted in a universe of 212 manufacturers.  We also researched 
company Web sites and drug data Web sites to collect information on 
related manufacturers. 
For the pattern analysis of wholesalers, we grouped wholesalers into 
two groups:  primary and secondary wholesalers.  As previously 
mentioned, secondary wholesalers are associated with lower-volume 
  OEI-05-02-00073  REVIEW OF 340B PRICES  38  A P P E N D I X ~ B  
business than primary wholesalers, who account for 90 percent of drug 
distribution.  We identified which wholesalers were associated with 
each entitys sales using entity survey responses and submitted 
invoices. 
We identified a total of 16 wholesalers in our sample.  The primary 
wholesalers category is composed of the Big 3, as they are known in the 
industry; namely, Amerisource Bergen, Cardinal, and McKesson. 
Included in our category of secondary wholesalers are 13 regional 
wholesalers, repackagers, and pharmacy benefit managers. We 
excluded contract pharmacies from our analysis of wholesalers because 
we could not tell which wholesaler they purchased through. We also 
excluded any manufacturer-direct sales, as no wholesaler was used. 
Finally, we classified NDCs into three groups:  high (more than 1,000 
sales), medium (between 100 and 1,000 sales) and low (below 100 sales).  
We wanted to keep the NDC and the manufacturer grouping similar, so 
that both high-volume groupings had about 10 times the purchases and 
or sales totals as the low-volume group.   
  OEI-05-02-00073  REVIEW OF 340B PRICES  39    A P P E N D I X ~ C  

INCONSISTENCIES IN PACKAGE SIZE DATA USED TO 
CALCULATE 340B PRICES 
OIG uncovered three issues that resulted in discrepancies in package 
size information between CMS and FDB, and ultimately led to 
inaccurate 340B ceiling prices.  
Discrete package size. First, discrepancies in package sizes may occur 
when package size data related to discrete (inner) packages and outer 
package size are not consistently reported.  Complete package size 
consists of two parts, the inner package size and the outer package size. 
The outer package size reflects the number of discrete (inner) packages 
that must be sold together.  We discovered instances in which FDB 
captured the complete package size (inner x outer package size), while 
CMS listed the package size in relation to the inner package size only. 
It appears that the case had been broken and 340B entities were 
buying bottles individually and not in the designated case pack as 
reported to FDB.  For example, FDB captures the full case pack 
information for a particular drug as 12 bottles of 100 tablets.  However, 
CMS lists the package size for this drug as 100 (e.g., 1 bottle of 100 
tablets). Using FDB package size information to calculate the 340B 
ceiling price resulted in a price that was 12 times too high. 
Metric conversion. Both the NCPDP standards used by FDB and the 
CMS guidelines for the Medicaid drug rebate program require that 
drugs be billed in metric units.  However, drugs are not always sold in 
metric units, and therefore must be converted for billing purposes. For 
example, cough syrup is typically sold in 12 fluid ounce bottles, but an 
ounce is not an accepted unit of measure and must, in this case, be 
converted to milliliters for billing purposes.  In making metric 
conversions of this nature, manufacturers have the discretion to report 
either the actual metric quantity, in this case 355 milliliters, or use 
NCPDP metric conversion standards, which are based on traditional 
pharmacy standards, resulting in 360 milliliters.  This discretion allows 
for the possibility that manufacturers will report different metric 
amounts to CMS and FDB, creating a discrepancy in package size.  
Rounding.  Finally, package sizes can differ between CMS and FDB due 
to differences related to rounding.  CMS does not use decimal places in 
its package size field, but FDB occasionally does use decimal package 
sizes. Thus, when CMS rounds decimals to a whole number, there is a 
potential for discrepancy between CMS and FDB package sizes.  
  OEI-05-02-00073  REVIEW OF 340B P RICES  40    A P P E N D I X   ~   D  

AGENCY COMMENTS 

  OEI-05-02-00073  REVIEW OF 340B PRICES  41 
 A P P E N D I X   ~   D  

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 A P P E N D I X   ~   D  

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 A P P E N D I X   ~   D  

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   A C K N O W L E D G M E N T S  

This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago 
regional office, and Tom Komaniecki, Deputy Regional Inspector 
General. Other principal Office of Evaluation and Inspections staff who 
contributed include: 
Madeline Francescatti, Project Leader 
Suzanne Bailey, Program Analyst 
Janet Kilian, Intern 
Ayana Everett, Program Specialist 
Kevin Farber, Mathematical Statistician 
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