Department of Health and Human Services
 

OFFICE OF 
 

INSPECTOR GENERAL 
 

DEFICIENCIES IN THE 
 

OVERSIGHT OF THE 340B DRUG 
 

PRICING PROGRAM
 

Daniel R. Levinson
 

Inspector General 
 

October 2005
 

OEI-05-02-00072
 
Office of Inspector General 
 http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services (HHS) 

programs, as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying out 

their respective responsibilities and are intended to provide independent assessments of HHS 

programs and operations in order to reduce waste, abuse, and mismanagement and to promote 

economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts management and program evaluations 

(called inspections) that focus on issues of concern to HHS, Congress, and the public. The 

findings and recommendations contained in the inspections generate rapid, accurate, and up-todate information on the efficiency, vulnerability, and effectiveness of departmental programs. 

OEI also oversees State Medicaid Fraud Control Units which investigate and prosecute fraud 

and patient abuse in the Medicaid program. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 

allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 

by providers. The investigative efforts of OI lead to criminal convictions, administrative 

sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, 

rendering advice and opinions on HHS programs and operations and providing all legal support 

in OIG’s internal operations. OCIG imposes program exclusions and civil monetary penalties 

on health care providers and litigates those actions within HHS. OCIG also represents OIG in 

the global settlement of cases arising under the Civil False Claims Act, develops and monitors 

corporate integrity agreements, develops compliance program guidances, renders advisory 

opinions on OIG sanctions to the health care community, and issues fraud alerts and other 

industry guidance. 
Δ EXECUTIVE SUMMAR Y 
 

OBJECTIVE 

To assess the ability of the Health Resources and Services 

Administration (HRSA) to ensure that entities participating in the 340B 

Drug Pricing Program are able to purchase products at or below a 

statutorily established ceiling price. 

BACKGROUND 

In 1992, Congress amended section 340B of the Public Health Service 

Act (PHS Act), 42 U.S.C. 2566, to establish the 340B Drug Pricing 

Program (340B Program). Pursuant to the PHS Act, manufacturers 

agree to charge certain covered entities at or below a specified 

maximum price for outpatient drug purchases, known as the 340B 

ceiling price. Covered entities include public hospitals, AIDS Drug 

Assistance Programs, and community health centers, which serve some 

of the country’s most vulnerable populations. HRSA oversees the 340B 

Program, managing the pricing arrangements among the 702 

participating manufacturers and nearly 12,000 entities. Participating 

entities spent an estimated $3.4 billion on outpatient drugs in calendar 

year 2003. 

The Government and pharmaceutical manufacturers separately 

calculate a 340B ceiling price each quarter. The Government’s 

calculation is intended to be used in program oversight, while the 

manufacturers’ calculation is the price used in sales to participating 

entities. The 340B price is based on required sales data that 

manufacturers must report to the Government for the purposes of the 

Medicaid Drug Rebate program. Manufacturers and the Government 

use the same pricing data and formula to calculate 340B ceiling prices. 

Due to provisions and policies protecting the manufacturers’ pricing 

data, neither the Government’s nor the manufacturers’ ceiling prices 

are disclosed to the covered entities. 

In June 2004, the Office of Inspector General (OIG) issued a report 

entitled “Appropriateness of 340B Drug Prices” (OEI-05-02-00070), 

which evaluated whether participants in the 340B Program received the 

prices to which they are entitled by law. During follow-up work on the 

report, we uncovered a number of problems with the data used to 

develop the report’s findings. Therefore, we withdrew this report on 

October 21, 2004, and conducted a focused review of the Government’s 

340B ceiling prices. 

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For this review on the deficiencies in the oversight of the 340B Program, 

we thoroughly analyzed the data previously collected for 

“Appropriateness of 340B Drug Prices,” which included a sample of 

entity invoices and the Centers for Medicare & Medicaid Services (CMS) 

ceiling price calculations for the third quarter of 2002. We also 

reviewed and further evaluated CMS’s reported analysis on the 

completeness of 340B ceiling prices effective in the first quarter of 2005. 

We interviewed both CMS and HRSA staff about the 340B ceiling price 

calculation and oversight of the 340B Program. 

FINDINGS 

Due to systemic problems with the accuracy and reliability of the 

Government’s record of 340B ceiling prices, HRSA is unable to 

appropriately oversee the 340B Program. HRSA needs an accurate 

record of 340B ceiling prices to verify that entities receive the discount 

to which they are entitled by law. A review of CMS’s analysis of the 

first quarter 2005 340B ceiling prices revealed significant problems with 

the underlying data used in its calculation. In particular, the 

Government’s record was missing 28 percent of the 340B ceiling prices. 

Further, 8 percent of its prices did not include the 340B discount, 

producing inaccurate ceiling prices. Finally, HRSA received a 

substantial amount of information that was not relevant to the 340B 

program, but upon which it inappropriately relied in conducting 

analyses and performing its oversight role. 

HRSA’s oversight of the program is further hindered by the lack of 

detailed, written procedures for calculating 340B ceiling prices. 

Consequently, the 340B ceiling prices calculated by CMS used 

incomplete package size information, which yielded incorrect ceiling 

prices. HRSA also has no procedure to convert ceiling prices with 

negative values into practical ceiling prices. 

HRSA lacks the oversight mechanisms and authority to ensure that 

340B entities pay at or below the 340B ceiling price. Until September 

2005, HRSA relied on CMS to calculate 340B ceiling prices and, while 

HRSA anticipates calculating the price now, it has yet to establish a 

system to perform the calculations itself. In line with this new 

responsibility, HRSA does not systematically compare its record of 340B 

ceiling prices to the ceiling prices calculated by pharmaceutical 

manufacturers to identify any discrepancies. HRSA also does not 

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EXE CUTIVE S U MMAR Y 
 

perform program monitoring designed to ensure that 340B participants 

receive the 340B ceiling price. 

Confidentiality provisions related to disclosure of 340B ceiling prices 

further hamper HRSA’s ability to effectively implement its prime 

vendor program which, besides offering distribution services through a 

network of wholesalers, is intended to negotiate subceiling discounts for 

participating entities. Finally, HRSA does not have the authority to 

enforce compliance with either the PHS Act or the Pharmaceutical 

Pricing Agreement, which is the formal agreement between HRSA and 

manufacturers participating in the 340B Program. 

Participating entities cannot independently verify that they receive 

the correct 340B discount due to confidentiality provisions. Entities 

participating in the 340B Program do not have access to 340B ceiling 

prices. Therefore, entities are unable to determine the prices to which 

they are entitled under the 340B statute and whether they receive 

them. 

RECOMMENDATIONS 

CMS and HRSA should work together to ensure accurate and timely 

pricing data for the Government’s official record of 340B ceiling 

prices. CMS and HRSA have already engaged in discussions about 

calculating the 340B ceiling price. On September 19, 2005, CMS and 

HRSA signed a new Intra-Agency Agreement, retroactively effective for 

Fiscal Year 2005, which states that HRSA will continue to receive 

pricing data from CMS, but will itself calculate the government’s 340B 

ceiling price. We encourage HRSA and CMS to continue to work 

together to improve the accuracy and timeliness of the pricing data 

CMS has agreed to provide HRSA. 

HRSA should establish detailed standards for its calculation of 340B 

ceiling prices. To prevent the types of errors we discovered in CMS’s 

calculation of the 340B ceiling price, we suggest that HRSA take action 

to ensure the accuracy of its calculations. In particular, HRSA needs to 

develop specific policies around correctly calculating the 340B ceiling 

prices. HRSA’s standards should include specifics on the use of correct 

package sizes and a conversion factor for negative ceiling prices. 

HRSA should institute oversight mechanisms to validate its 340B 

price calculations and the prices charged to participating entities. 

We suggest these mechanisms include: 

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• 	 Comparing the Government’s official 340B ceiling prices to the 

manufacturers’ ceiling prices each quarter to detect discrepancies; 

• 	 Spot-checking covered entity invoices against ceiling price data to 

ensure that entities are charged at or below 340B ceiling prices; and 

• 	 Selectively auditing manufacturers, wholesalers, and covered 

entities to ensure the integrity of the discount program. 

HRSA should seek authority to establish penalties for PHS Act 

violations. HRSA should propose a legislative package that might 

include a variety of sanctions, such as fines and civil monetary 

penalties, for manufacturer or wholesaler violations of the 340B 

Program requirements. We recommend that HRSA consider as a model 

CMS’s statutory authority to enforce the Medicaid rebate program, 

pursuant to § 1927(b)(3)(C)(i) of the Social Security Act, and seek 

similar authorities with respect to enforcement of the 340B Program. 

HRSA should provide participating entities with secure access to 

certain pricing data to help approximate 340B ceiling prices. We 

suggest that HRSA develop a price verification system by which entities 

can submit prices to determine whether they comply with the 340B 

discount requirements, while protecting the confidentiality of protected 

data. We additionally suggest that HRSA reinstate the publication of its 

340B prime vendor program’s selling prices on the agency Web site so 

covered entities can validate the prices they are charged. 

AGENCY COMMENTS 

HRSA and CMS concur with most of our recommendations. The 

complete text of the comments can be found in Appendix B. 

Based on the issues raised and recommendations offered in our 

withdrawn report, HRSA and CMS have already engaged in numerous 

technical discussions about calculating the 340B ceiling price. As a 

result of these discussions, HRSA will continue to receive pricing data 

from CMS, but will itself calculate the Government’s 340B ceiling price. 

To improve the quality and timeliness of the data sent to HRSA, CMS 

has agreed to reiterate the 30-day pricing data submission requirement 

for manufacturers and will consider referring appropriate cases of late 

submission to OIG to levy penalties. HRSA commented that it will 

work with CMS to maximize the acquisition of manufacturers’ data as 

well as resolve problems related to missing data. HRSA also agreed to 

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publish detailed standards for the calculation of 340B ceiling prices to 

its Web site. 

In response to our recommended steps for instituting oversight to 

improve the integrity of 340B ceiling prices, HRSA stated its intent to 

review the data that manufacturers and entities voluntarily submit, to 

the extent that resources permit. For more intensive audits of the 340B 

Program, HRSA deferred to its reliance upon OIG audits and 

evaluations. 

HRSA does not support our recommendation to seek legislation to 

establish penalties for violations of the PHS Act, preferring to first 

acquire experience with its planned changes. Finally, HRSA does not 

concur with our recommendation that it reinstate the publication of 

HRSA’s 340B prime vendor program’s selling price on the agency Web 

site. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We are encouraged that CMS and HRSA concur with most of our 

recommendations and have already taken steps to improve the 

calculation of the 340B ceiling price. We also support HRSA’s stated 

intention to compare the manufacturers’ data currently received 

voluntarily to the ceiling price and review the prices charged to entities; 

however, we do not believe this represents an adequate approach to 

oversight of the program. While this level of review might prove helpful 

in some instances, it will only cover the number of limited 

manufacturers and entities who choose to supply drug pricing data. 

We are concerned about the limited nature of HRSA’s own plans for 

oversight of the 340B Program. While OIG is committed to ensuring the 

integrity of the HHS programs, we believe that routine oversight is an 

agency’s responsibility. Therefore, we maintain that HRSA itself needs 

to develop a comprehensive auditing program. 

We also do not agree with HRSA that it is best to wait to seek authority 

to establish penalties for violations of the PHS Act. Rather, we believe 

that the ability to impose fines and civil penalties is essential in 

ensuring that entities receive the full 340B discount. 

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Δ T ABLE OF CONTENTS 
 

EXECUTI VE SUMMARY ........................................ i
 

INTRODUCTI ON ................................................ 1 
 

FINDI NGS ...................................................... 10 
 

Systemic data problems hinder HRSA oversight.............. 10 
 

HRSA lacks oversight mechanisms and authority ............ 15 
 

Entities cannot verify prices themselves .................... 18 
 

RECOM M E NDATI O NS ......................................... 20 
 

AGENCY COMME NTS ......................................... 23 
 

OFFICE OF I N SPECTOR GENERAL RESPONS E ........... 24 
 

ENDNOTE S ..................................................... 26 
 

APPENDI XES ................................................. 28 
 

A: Programs Eligible to Participate in 340B ................... 28 
 

B: Agency Comments ....................................... 29 
 

ACKN O W LEDGMENTS ......................................... 37
 
Δ INTRODU C TION 
 

OBJECTIVE 

To assess the ability of the Health Resources and Services 

Administration (HRSA) to ensure that entities participating in the 

340B Drug Pricing Program are able to purchase products at or below a 

statutorily established ceiling price. 

BACKGROUND 

In June 2004 the Office of Inspector General (OIG) issued a report 

entitled “Appropriateness of 340B Drug Prices” (OEI-05-02-00070), 

which evaluated whether participants in HRSA’s 340B Drug Pricing 

Program (340B Program) were able to purchase their products at or 

below established ceiling prices as specified in the Public Health Service 

Act (PHS Act). Because the formula for 340B ceiling prices contains 

protected manufacturer pricing information, the entities cannot access 

the ceiling price to verify the accuracy of their charges, nor can HRSA 

precisely identify potential overcharges. Therefore, we analyzed 

whether 340B entities were being charged at or below the ceiling prices. 

For the June 2004 report, we applied quality assurance standards to 

ensure the sufficiency, competency, and relevancy of the Government’s 

record of the 340B ceiling price data per Government Auditing 

Standards.1 Following our integrity checks, we presumed the 

Government’s 340B ceiling price data to be reliable. 

After the publication of the report, however, we discovered a number of 

problems with the underlying data used to support the first of the 

report’s four findings. A comparison of the Government’s ceiling prices 

to industry pricing data, along with interviews with CMS staff, led us to 

conclude that CMS provided us with 340B ceiling prices for the wrong 

timeframe. Based on our data concerns, we withdrew the report on 

October 21, 2004. 

After receiving the data for the correct timeframe, our review revealed 

other, more subtle, embedded issues that caused us to further question 

the validity of the data. Thus, we determined that we would not use 

that data to report whether 340B entities receive drugs at or below the 

statutory discount. The report that follows describes the various data 

problems that need to be addressed prior to drawing such conclusions. 

This report restates the findings related to HRSA’s limited oversight as 

previously noted in “Appropriateness of 340B Drug Prices” and 

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introduces new concerns regarding the data used to provide appropriate 

oversight. Once we are assured that the data issues have been resolved, 

we intend to begin work on a new study to examine if and to what 

extent entities pay at or below 340B ceiling prices. 

The 340B Drug Discount Program 

In 1992, Congress amended section 340B of the PHS Act, “Limitations 

on Prices of Drugs Purchased by Covered Entities,” to create the 340B 

Program. Under the 340B Pharmaceutical Pricing Agreement (the 

agreement), a manufacturer agrees to sell covered drugs at or below 

a specified ceiling price to certain PHS and Government-supported 

facilities, called covered entities, which serve some of the country’s most 

vulnerable patient populations. These entities include community 

health centers, Ryan White grantees, and disproportionate share 

hospitals, among others (for a complete list, see Appendix A). Through 

the 340B Program, outpatient prescription drug costs are reduced by an 

estimated 20 to 50 percent.2 Participating entities spent an estimated 

$3.4 billion on outpatient drugs in calendar year 2003.3 HRSA is 

responsible for interpreting, implementing, and overseeing compliance 

with section 340B on behalf of the estimated 12,000 participating 

entities. 

HRSA also maintains the electronic database of participating covered 

entities. Entities must notify HRSA of their intention to participate by 

completing and submitting appropriate registration forms. Upon 

receipt, HRSA adds the entity to the participating database and the 

entity is eligible to receive pharmaceuticals at the 340B discounted 

price beginning the next calendar quarter. Manufacturers rely on this 

list to verify an entity’s eligibility for the 340B discount and use the 

contact information for shipping and billing purposes. 

Section 340B(a)(8) of the PHS Act requires the Government to establish 

a prime vendor program to facilitate the delivery of covered outpatient 

drugs. HRSA’s prime vendor serves its participants in three primary 

roles: negotiating prices below the 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 prime vendor 

program is voluntary. 

Calculation of 340B Ceiling Prices 

The drug discount that manufacturers must provide to participating 

entities is calculated according to a formula tied to the calculation of the 

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Medicaid drug rebate amount and to manufacturers’ figures for a drug’s 

average manufacturer price (AMP) and its best price offered during a 

quarter. Specifically, the 340B discount is equal to the AMP reduced by 

Medicaid’s unit rebate amount (URA), which CMS calculates based on a 

formula stipulated in the Omnibus Budget Reconciliation Act of 1990 

(OBRA ’90).4 

Pursuant to the PHS Act, inputs to the 340B discount formula are based 

on the smallest dispensable unit of each drug, such as a tablet, capsule, 

or milliliter. Therefore, taken literally, the discount yields a price that 

applies to each unit of the product that the entity purchases—for 

example, $1 per pill. Though it is not explicitly stated in law, the 

per-unit result of the ceiling price calculation must be multiplied by the 

drug package size to practically apply the discount to the way in which 

entities, such as hospitals, purchase products—for example, a bottle of 

100 tablets versus an individual tablet. 

Manufacturers report the product package size when applying for a 

National Drug Code (NDC) from the Food and Drug Administration 

(FDA). The NDC is a three-segment universal product identifier for 

drugs. FDA assigns the first segment of the code, which identifies the 

manufacturer. Manufacturers determine the second and third 

segments—the product code and package size code—and report this 

information to the FDA. Manufacturers report this same information to 

third-party contracted providers of prescription drug information, such 

as First Databank and Medispan, which sell the information to States, 

insurance companies, and CMS. 

Pharmaceutical manufacturers and the Government each calculate 

340B ceiling prices each quarter. Pharmaceutical manufacturers’ 

calculated 340B ceiling prices are used in sales to covered entities. 

Manufacturers are not required to share their 340B ceiling prices with 

the Government. However, manufacturers are required to submit sales 

data to CMS for the Medicaid drug rebate program. In the past, CMS 

used this manufacturer-reported data to calculate the Government’s 

official 340B ceiling prices on behalf of HRSA. On September 19, 2005, 

HRSA and CMS agreed that HRSA would be responsible for calculating 

340B ceiling prices. 

HRSA needs official Government 340B ceiling prices to “verify that the 

selling price to covered entities does not exceed the statutory ceiling 

price and for research, analysis, audit and dispute resolution 

purposes.”5 HRSA receives information on 340B selling prices from 

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manufacturers that elect to send their 340B prices to HRSA and from 

covered entities that have questions or concerns on the accuracy of the 

prices they pay. 

Manufacturers’ calculation of 340B ceiling prices. Under the PHS Act, 

manufacturers agree to charge covered entities at or below a maximum 

price calculated using specific sales and pricing data defined under the 

Social Security Act (the SSA Act) and used to calculate the Medicaid 

Drug Rebate amount. Section 340B(10) states that nothing shall 

prohibit a manufacturer from charging a price for a drug that is lower 

than the maximum price calculated using the specified formula. 

Manufacturers are responsible for ensuring that the 340B discount is 

passed on to the covered entity, regardless of whether the entity 

purchases drugs from a wholesaler or directly from the manufacturer.6 

HRSA staff stated that it is acceptable for wholesalers to charge covered 

entities 340B ceiling prices plus a distribution fee, which varies based 

on standard business practice. If a manufacturer fails to sell covered 

drugs at or below the ceiling price, it may be required to reimburse for 

discounts withheld and can be terminated from both the 340B and 

Medicaid Drug Rebate programs. 

Government’s official calculation of 340B ceiling prices. HRSA and CMS 

negotiated a new Intra-Agency Agreement and Data Use Agreement on 

September 19, 2005. Under the Agreement, HRSA will receive pricing 

data from CMS effective during Fiscal Year (FY) 2005, but will itself 

calculate the Government’s 340B ceiling price. Prior to this agreement 

and covering the period of this report, CMS calculated the 340B ceiling 

prices on behalf of HRSA each quarter. Although CMS and HRSA have 

yet to negotiate an Agreement for FY 2006, OIG understands that 

HRSA will continue to be responsible for calculating 340B ceiling price. 

Pursuant to the Intra-Agency Agreement, CMS provides HRSA with an 

electronic file containing the pricing data components needed to 

calculate 340B ceiling prices. These elements include the 

manufacturer’s reported AMP and CMS’s calculation of the URA for 

each NDC, which CMS sends HRSA approximately 45 days after a 

quarter’s end. HRSA stated that it intends to use package size data 

from First Databank, a contractor that provides prescription drug 

information reported by manufacturers. 

Chart 1 illustrates the two ways in which CMS and pharmaceutical 

manufacturers calculate 340B ceiling prices. 

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CHART 1 : 340B PRICING DAT A AND PURCHASE FLOW 

Government record of 340B ceiling prices Manufacturers’ calculation 

and dissemination of 340B 

ceiling prices 

Pharmaceutical 

Manufacturers 

CMS 

HRSA 

Wholesalers 

340B 

Entities 

First Data Bank 

(FDB) 

Manufacturers send 

340B ceiling price to 

Manufactur wholesalers ers 

send pricing 

data to CMS 

Wholesalers sell drugs 

at 340B ceiling price + 

distribution fee to 

entities 

CMS will send HRSA 

manufacturers’ price 

data needed to 

calculate ceiling prices 

FDB supplies HRSA with 

package size data 

Manufacturers 

send package 

size information 

As of 10/01/05, 

HRSA calculates 

340B ceiling prices 

Confidentiality of Ceiling Price Information 

OBRA ’90 stipulates that information disclosed by manufacturers, 

including AMP and Best Price “. . . shall not be disclosed by the 

Secretary . . . in a form which discloses the identity of the manufacturer, 

or the prices charged by the manufacturer, except as necessary to carry 

out the provisions of the Act.”7 Because of this provision, the 340B 

covered entities are not given access to the AMP, Best Price, or the 

calculated ceiling price. However, language in the Pharmaceutical 

Pricing Agreement states that the confidentiality protections only 

extend to the 340B ceiling price, not to the 340B selling price, to which 

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entities have access through their wholesaler price lists. The 

Pharmaceutical Pricing Agreement states: 

Section 340B requires the manufacturers to charge a price for 

covered outpatient drugs that will not exceed the amount 

determined under a statutory formula. This charged price, termed 

the 340B “Selling Price,” is provided to wholesalers and covered 

entities by manufacturers and is available in the marketplace for 

the buying and selling of drugs by covered entities and is 

considered separate from the ceiling price as generated by the 

MDRI [CMS’s Medicaid Drug Rebate Initiative] data elements.8 

Related OIG Work 

In June 2004, OIG also issued “Deficiencies in the 340B Drug Discount 

Program’s Database” (OEI-05-02-00071), which reviewed the quality 

and timeliness of HRSA’s database containing information on 340B 

entity enrollment. The PHS Act requires HRSA to maintain an 

electronic listing of all the entities enrolled in the 340B Program. 

Pharmaceutical manufacturers refer to the listing to verify entities’ 

eligibility for the ceiling price and to ensure that their drugs are 

shipped to legitimate sites. 

We found the enrollment database to be a poor source of information on 

participating 340B entities. Thirty-eight percent of our sampled entities 

were listed as enrolled, but do not actually participate in the 340B 

Program. The database had incorrect addresses for 43 percent of 

sampled entities and did not provide essential information on the 

entities’ billing and shipping arrangements. According to interviews 

with nine major pharmaceutical corporations, the extent of incorrect 

addresses listed in the database hinders their ability to effectively 

identify entities eligible for the discount program. 

We recommended that HRSA develop a strategic plan for improved 

management of the 340B database and HRSA is currently taking steps 

to address this recommendation. 

METHODOLOGY 

The findings in this report rely on data from two points in time. First, 

we used ceiling prices from the quarter effective during September 

2002, which includes July, August, and September. These are the data 

originally collected for the now-withdrawn “Appropriateness of 340B 

Drug Prices.” Second, to provide further information on the accuracy of 

the Government’s 340B ceiling prices, we examined an analysis 

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conducted by CMS on pricing data used to calculate the 340B ceiling 

prices effective during the first quarter (January to March) of calendar 

year 2005. 

Government’s Official Record of the 340B ceiling price 

CMS 2002 ceiling prices. For “Appropriateness of 340B Drug Prices,” we 

requested CMS’s confidential data used to calculate 340B ceiling prices 

for the quarter effective during September 2002, which includes July, 

August, and September. We requested invoices from a sample of 

participating entities for purchases made during the same month. 

Upon receipt of the data, we applied quality assurance standards to 

ensure the sufficiency, competency, and relevancy of the Government’s 

record of the 340B ceiling price data per Government Auditing 

Standards. Following our integrity checks, we presumed the 

Government’s 340B ceiling price data to be reliable. 

Following the publication of the report, however, we discovered a 

number of problems with the underlying data used to support the first 

of the report’s four findings. A comparison of the Government’s ceiling 

prices to industry pricing data, along with followup with CMS staff, led 

us to conclude that CMS had provided us with 340B ceiling prices for 

the wrong timeframe. Therefore, we requested that CMS extract the 

ceiling prices for the appropriate timeframe and received the correct 

data in November 2004. 

Our analysis of the ceiling price data for the correct timeframe revealed 

serious data issues that caused us to further question the validity of the 

data. During our followup on “Appropriateness of 340B Drug Prices,” 

we discovered issues with the Government’s package size data. 

Therefore, we reassessed the package size data CMS used in the 

calculation of the 340B ceiling price. 

To compile an accurate and verified list of package sizes, we compared 

the package size information listed in CMS’s 2002 third-quarter ceiling 

prices against the package size information maintained by First 

Databank. CMS reported that it relied on First Databank for the 340B 

package size information. For those drug products for which there was 

a discrepancy between CMS and First Databank’s information, we 

replaced CMS’s package size with First Databank’s package size. For 

the 10 drug products for which First Databank did not have 

information, we compared CMS’s package size data to data maintained 

by FDA and replaced CMS’s package size where applicable. 

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We also analyzed the 2002 data in great detail to uncover other, lessobvious data issues. 

CMS 2005 ceiling prices. In addition to our analysis of the 2002 340B 

ceiling price data, we also examined an analysis that CMS conducted on 

ceiling prices effective for the first quarter of calendar year 2005. CMS 

conducted this analysis to assess the completeness of the data and to 

identify causes for missing data or instances in which ceiling prices 

were equal to zero. This initial analysis provided descriptive statistics 

on which data elements were missing—for example, AMP, Best Price, 

and package size—which could then result in missing 340B ceiling 

prices. Given that CMS staff had the ability to analyze data used for 

the Medicaid program more thoroughly than we could for the purposes 

of this report, we felt it was important to include the findings of their 

analysis. Additionally, the analysis CMS conducted covers 2005—much 

more recent than our 2002 analysis—showing that the concerns with 

the 340B data persist. 

We verified the accuracy and reliability of the analysis conducted by 

CMS by duplicating the analysis where possible and by meeting with 

CMS analysts to review the methods used in the analysis. 

We also used the data CMS provided to create two categories from 

which to assess the data: those NDCs that should have ceiling prices 

and those NDCs that should not have ceiling prices. This approach 

differs from CMS’s analysis of the data, which evaluates the overall 

completeness of the categories combined. Because we felt inclusion of 

NDCs that should not have ceiling prices would skew the results of our 

analysis, we did not include them in our overall estimations. 

Consequently, our results and basis for findings differ from what CMS 

originally reported. 

Interviews and Document Review 

To assess the adequacy of 340B Program oversight, we reviewed 

relevant statutes, the Pharmaceutical Pricing Agreement, and HRSA 

program memoranda. We also interviewed officials from CMS and 

HRSA. We requested documentation of the Government’s process for 

calculating the 340B ceiling price, but neither CMS nor HRSA could 

provide such information. 

Limitations 

We did not review CMS’s oversight of manufacturer-reported prices 

required by OBRA ’90. We did not audit the accuracy of manufacturers’ 

reported prices. We relied on CMS’s analysis of 340B ceiling prices for 

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INTROD UCT ION

the first quarter of 2005, verifying and testing its conclusions where 

possible. Lastly, we did not assess whether price discrepancies or 

overcharges are occurring. 

Our results describe challenges related to the Government’s ceiling 

prices as calculated by CMS. With the 2005 Intra-Agency Agreement, 

HRSA, rather than CMS, will be calculating the 340B prices. 

Despite this change, HRSA will rely on the same pricing data and will 

continue to face the same challenges CMS faced in ensuring that the 

340B ceiling prices are accurate. 

Standards 

We conducted our review in accordance with the Quality Standards for 

Inspections issued by the President’s Council on Integrity and 

Efficiency. 

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Δ FINDINGS 
 

Due to systemic problems with the accuracy and 

reliability of the Government’s record of the 340B 

ceiling price, HRSA is unable to appropriately 

oversee the 340B Program 

As the administrator of the 340B 

Program, HRSA’s responsibilities 

extend to overseeing the validity 

of the ceiling price data used to 

monitor the program. HRSA 

needs the quarterly 340B ceiling 

price to verify that the 340B covered entities receive the discount to 

which they are entitled by law. Based on reviews of the data collected, 

we found the 340B ceiling prices HRSA received from CMS to be so 

problematic that they are of little use to the agency’s oversight of the 

340B Program. 

The official 340B price record was missing 28 percent of the ceiling prices 

The 340B ceiling price file for the first quarter of 2005 was missing 28 

percent of the prices needed for appropriate program oversight. For 49 

percent of these missing ceiling prices, the file did not contain the AMP. 

For 29 percent, the products were missing package size data. For the 

remaining 21 percent, the products had neither the AMP nor the 

package size.9 

Missing AMP data are most likely the result of manufacturers not 

reporting or delaying submission of AMP data to CMS. Manufacturers 

are required to report their drugs’ AMP and the single best price within 

30 days after a quarter’s end so that CMS can calculate the drug’s URA. 

If the data are late, the Secretary may impose a civil monetary penalty 

for failure to provide timely information on AMP or the best price.10 

Instead of seeking penalties, CMS staff typically notify the 

manufacturers of the missing data and request prompt submission. 

Manufacturers typically include previously missing data with their next 

quarter’s submission. 

While late submission of pricing data may delay, rather than prevent, 

State Medicaid agencies’ rebate collections, it has a more immediate 

impact on the 340B Program because HRSA will be unable to calculate 

ceiling prices at the time they are needed for the 340B Program. 

Further, although CMS will supply HRSA with a separate file of 

previously missing pricing data along with the quarterly updates, HRSA 

does not have a policy in place to use the file to update the official 

ceiling prices. Therefore, any missing ceiling prices will remain 

missing. 

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F I NDING S 

Eight percent of the Government’s 340B ceiling prices were inaccurate 

because the calculation did not include the 340B discount 

To correctly calculate a 340B ceiling price, HRSA will need the drug’s 

AMP, URA, and package size. Based on our analysis of the 37,067 

official CMS-calculated 340B ceiling prices for the first quarter of 2005, 

8 percent were inaccurate because the price did not include the URA. 

The URAs were not included because CMS’s validity test for a 

manufacturer’s AMP submission, known as the “50/50” edit,11 rejected 

the AMP. Without an AMP, CMS does not calculate a URA, so the 

ceiling price submitted to HRSA was equal to AMP-0. Thus, HRSA 

received ceiling prices that appeared to be complete, but did not include 

the 340B discount. 

For 90 percent of the records with no URA, package size information is 

available. However, the 340B ceiling price was overstated because the 

ceiling price is equal to (AMP-0) multiplied by the package size, which 

did not include the discount. 

For the remaining 10 percent of the records, HRSA’s file was missing 

both the URA and package size. Again, HRSA received data that 

appeared complete, but in reality were incorrect and dramatically 

understated the real ceiling price. This is because the ceiling price was 

the equivalent of the unit (AMP-0) multiplied by a blank field (a result 

of no package size data), therefore generating a price that did not 

represent the price for the full product purchased and which did not 

include the discount. 

According to CMS staff, when CMS received a manufacturer’s corrected 

pricing information at a later date in response to its 50/50 request, the 

revised AMPs and URAs were sent to HRSA in a separate file; however, 

HRSA did not have a policy to make adjustments to the official ceiling 

prices, so the prices remain inaccurate. 

The Government’s record of 340B ceiling prices included a substantial 

amount of information that is unnecessary to the discount program and 

upon which HRSA inappropriately relied on in its oversight role 

According to CMS’s analysis, the Government’s official record of the 

340B ceiling prices included information about 95,928 NDCs, which is 

nearly 50,000 more than the number of active NDCs listed in CMS’s 

Medicaid Drug Rebate database for the same timeframe. Thus, 46 

percent of the records that HRSA had received from CMS were 

irrelevant to the 340B Program. To further complicate this matter, 

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F I NDING S 

HRSA inappropriately relied on some of this irrelevant information in 

its limited program oversight efforts. 

Based on CMS’s analysis, the 340B ceiling price file generated each 

quarter included all products with a termination date after November 

30, 1993; products with future market dates; and terminated 

manufacturers. CMS staff were unable to explain why the file 

contained this extraneous information. They stated that that was how 

the file was set up in the early 1990s. HRSA also could not explain why 

the information was included and had no documentation as to why it is 

included. Neither CMS nor HRSA was aware of the unnecessary 

information because neither agency had reviewed or questioned the 

data or the resulting 340B ceiling price since the program was 

established. 

None of the information pertaining to terminated manufacturers or 

terminated products should be used for 340B ceiling price purposes. 

However, in November 2004, HRSA reported the results of its analysis 

on the completeness of CMS’s ceiling price file and included these 

expired NDCs in the universe. Because HRSA’s universe was 

overstated, it concluded that 60 percent of the ceiling price data were 

missing and requested a response from CMS. When the irrelevant data 

are excluded, however, the actual error rate is 28 percent. 

The lack of established technical procedures for calculating the 

Government’s record of 340B ceiling prices resulted in unreliable data 

According to CMS and HRSA staff, no established written procedures 

exist for calculating the 340B ceiling price. Neither CMS nor HRSA has 

a 340B ceiling price operations guide or manual that explicitly states 

policies for calculating the ceiling prices. The staff at both agencies do 

not know who set up the initial Intra-Agency Agreement or how the 

calculation was originally determined. Instead, as CMS staff explained, 

the policies for calculating the ceiling prices have been orally passed 

down since the early 1990s. CMS officials have never questioned the 

policies for calculating the ceiling price because HRSA never raised any 

issues with the outcomes. 

A general lack of detailed procedures for calculating the 340B ceiling 

price results in unreliable data with which to oversee the 340B Program 

and could lead to inappropriate enforcement actions. For example, if 

HRSA had conducted a review of the appropriateness of entities’ prices 

using the data CMS generated, the improper 340B ceiling prices would 

have produced faulty results and potentially misleading information. 

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F I NDING S 

Due to the absence of established procedures, the 340B ceiling price was 

calculated using incorrect package size information. CMS was using 

incomplete information on a product’s package size, thereby calculating 

and supplying HRSA with incorrect 340B ceiling prices. Based on our 

analysis of the ceiling prices from 2002, we estimate that incorrect 

package size data significantly affected 6 percent of the 3,000 prices we 

reviewed. HRSA had never examined the completeness of package size 

information or specified to CMS the type or source for package size data 

needed to calculate 340B ceiling prices. 

To correctly compute 340B ceiling prices, it is necessary to multiply the 

Medicaid unit price by the product’s total package size. To define a 

product’s package size, it is necessary to multiply the number of units in 

a bottle or vial by the number of bottles or vials that are packaged and 

sold together. This is typically expressed in a “unit X amount” notation. 

For example, 100 pills sold in a bottle would have a total package size of 

100 X 1=100. 

In our analysis of package size data, we found that the ceiling prices 

calculated by CMS included only units in calculating the 340B ceiling 

price, rather than correctly multiplying units X amount to determine 

the total package size. When CMS used the package size information 

from First Databank, it only captured the field containing units, not the 

second field listing the amount. 

Package size problems are rarely found in drug products delivered as 

pills. For these products, it is easy to identify the unit as a pill and the 

amount as the bottle that contains them. Using the example from 

above, 100 pills sold in a bottle would have a total package size of 

100 X 1. In these cases, since the amount, or multiplier, is one, the 

information on units previously captured by CMS and the total package 

size necessary to correctly calculate the 340B ceiling price are the same. 

However, for products measured by liquid volume or weight, such as 

inhalers, ointments, or products sold in vials, incomplete package size 

information does present a problem. In these cases, it can be difficult to 

determine what constitutes a unit and what constitutes the amount. In 

many of these cases, the manufacturer specifies the amount as a 

number greater than one. 

For example, the manufacturer may report the total package size for a 

liquid prescription drug as “3 mL X 5,” equal to 3 milliliters of product 

in each of 5 vials. In this case, it is necessary to multiply the unit X 

amount, or the number of milliliters (3) by the number of vials (5), 

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F I NDING

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S 

which results in a total package size of 15. Using only the units, the 

calculated 340B ceiling price would underestimate the actual 340B 

ceiling price by a factor of 5. 

As this example illustrates, the miscalculation of the ceiling price due to 

incomplete package size information may significantly understate the 

price. In our review of CMS’s listed package sizes, we discovered cases 

in which the ceiling price was 50 percent lower than the actual ceiling 

price calculated using the correct package size. 

Our review of FDA and First Databank package size data, which are 

both reported by manufacturers, yielded marked discrepancies that 

raise questions about potential problems with the general consistency 

and reliability of manufacturers’ package size reporting. Manufacturers 

are not held to any specific standards when reporting the package size, 

so determining the correct amount for the purposes of calculating the 

340B ceiling price is complicated and affects the entire pharmaceutical 

industry. 

HRSA has no procedure for converting negative ceiling price values received 

from CMS into practical ceiling prices. HRSA does not have an official 

policy regarding how to convert negative prices to reflect positive, and 

therefore practical, ceiling prices. HRSA has never communicated with 

CMS about the incidence of negative ceiling prices, nor did it perform 

the necessary conversions for its record of 340B ceiling prices. Our 

review of CMS’s 3rd quarter 2002 data found 117 products with negative 

prices. 

Because the 340B ceiling price formula is essentially AMP minus URA, 

negative ceiling prices occur when the discount, the drug’s URA, is 

greater than the base price, the AMP. This situation creates a negative 

price that is meaningless in the marketplace. HRSA recommends to 

manufacturers that if the ceiling price calculation yields a negative 

number, it expects the manufacturer to charge the entity a penny. 

However, HRSA has not provided official guidance on this issue or 

updated its records to reflect this expectation. 

If HRSA uses data containing negative ceiling prices to determine if 

entities paid at or below 340B ceiling prices, the results will be skewed. 

Mathematically, subtracting a negative number is the same as adding a 

positive; therefore, the presence of negative figures in the Government’s 

official record would seriously distort any assessment of price 

discrepancies. For example, if the covered entity actually paid $0.01 for 

a product, but HRSA’s uncorrected data had a ceiling price of -$2.50, the 

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F I NDING S 

subtraction of $0.01 minus (-$2.50) would result in a positive $2.51 

overcharge. In reality the manufacturer may have charged the entity a 

penny, which is the amount it should have charged per HRSA’s 

recommendation; however, the comparison of these two prices would 

show an overcharge. These false positives might cause HRSA to draw 

invalid conclusions about compliance with the discount requirements. 

HRSA lacks the oversight mechanisms and 

authority to ensure that 340B entities pay at or 

below the 340B ceiling price 

Even if HRSA’s record of the 

ceiling price were completely and 

accurately calculated, HRSA does 

not use the information to oversee 

the 340B Program because it lacks 

the necessary mechanisms and authorities. HRSA has no process for 

ensuring that participating entities receive the price to which they are 

entitled. HRSA also does not have the statutory authority to enforce 

compliance with the PHS Act or the the Pharmaceutical Pricing 

Agreement, or to effectively implement its prime vendor program. 

While manufacturers have a vested interest in complying with the 

terms of the PHS Act and the Pharmaceutical Pricing Agreement, 

HRSA has not pursued increased authority or developed a plan 

designed to ensure the integrity of the 340B Program. 

HRSA has no system for ensuring that entities participating in the 340B 

Drug Discount Program receive the statutory discount 

According to interviews with HRSA officials, the agency has no reliable 

way to document that entities purchasing drugs under the 340B 

discount are actually receiving the discount to which they are entitled.12 

Because confidentiality provisions of OBRA ’90 prevent the disclosure of 

340B pricing data to the entities, HRSA has the primary responsibility 

of ensuring that the program’s participants do not pay more than the 

340B ceiling price. However, we found that HRSA does not conduct 

audits or spot checks of entities’ or manufacturers’ prices, citing 

insufficient authority. 

HRSA does not compare the 340B ceiling prices calculated by CMS to 

pharmaceutical manufacturers’ 340B ceiling prices 

HRSA does not verify the official Government 340B ceiling prices 

against manufacturers’ 340B ceiling prices to detect discrepancies. 

Manufacturers must calculate their ceiling prices to participate in the 

340B Program, but they are not required to report their final ceiling 

prices to HRSA. However, manufacturers sign the Pharmaceutical 

Pricing Agreement, which states they must charge entities at or below 

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F I NDING S 

the ceiling price and can face consequences for violating the terms of the 

agreement. Theoretically, the Government and the manufacturers 

should calculate the same ceiling price because they use the same 

numbers. However, HRSA does not check and thus is unable to detect 

whether manufacturers perform the calculation properly and whether 

entities are paying at the correct ceiling price. 

HRSA has no statutory authority to enforce compliance with the PHS Act or 

the Pharmaceutical Pricing Agreement, or to effectively implement its prime 

vendor program 

HRSA does not have the necessary legislative, regulatory, or contractual 

authority to effectively oversee the 340B Program. Unlike the Medicaid 

Rebate Program statute, the PHS Act does not impose civil penalties for 

noncompliance with the 340B Program requirements. Instead, the PHS 

Act, in accordance with its predecessor, the SSA Act, states that 

manufacturers must comply with the terms of the 340B Program or be 

terminated from participation in the Medicaid and 340B Programs.13 

Currently, HRSA has guidance on a voluntary process for resolving 

disputes between manufacturers and entities,14 but, according to 

interviews with HRSA staff, pharamaceutical manufacturers, entities, 

and other industry experts, no one has engaged in the dispute 

resolution process. 

HRSA’s only statutory authority to enforce 340B Program requirements 

may be too extreme to actually use; in addition, other authorities 

mentioned in program guidance are ambiguous. According to 340B 

Program guidelines, if HRSA determines that a manufacturer has 

violated the provisions of section 340B of the PHS Act, the 

manufacturer’s Pharmaceutical Pricing Agreement could be terminated 

or “other actions taken, as deemed appropriate.”15 However, 

terminating a manufacturer’s participation is an extremely severe 

sanction, given the effect terminating a manufacturer would have on 

access to medications for the millions of Medicaid and 340B 

beneficiaries. Further, it is unclear what “other actions” HRSA can 

take. 

Because HRSA’s informal dispute resolution process is voluntary, 

covered entities or manufacturers are not required to participate. If a 

covered entity believes that a manufacturer is charging a price for a 

covered drug that exceeds the ceiling price, it can submit a written 

request for a review of the dispute, but this does not guarantee the 

resolution of such dispute. If the manufacturer does not cooperate with 

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F I NDING S 

the resolution process because there is no requirement to do so, HRSA 

cannot enforce the consequences for violations as stated in HRSA’s 

Pharmaceutical Pricing Agreement. 

Pursuant to this Agreement, if a manufacturer is noncompliant, the 

HHS Secretary “may require the manufacturer to reimburse the entity 

for discounts withheld.”16 However, the directive to reimburse 

overcharges is only found in the agreement, which does not have the 

same force as a contract and is not reinforced by the PHS Act. 

Even when HRSA attempts action against violators of the 340B 

Program, its lack of legal authority makes it challenging to enforce its 

guidelines. For example, in 2003, OIG issued a report citing five 

manufacturers with charging 340B providers $6.1 million more than 

they should have under the law.17 In September 2004, HRSA issued 

letters to each of the drug companies identified in the audit requesting 

that they develop action plans that include refunding covered entities 

for overcharges. According to HRSA, the companies have responded to 

the letters, but refunds have yet to be recovered. 

To further illustrate the ineffectiveness of HRSA’s current authorities, in 

2001, HRSA itself discovered overcharges based on entities’ invoices, but 

did not pursue the issue further, citing insufficient authority. The Public 

Hospital Pharmacy Coalition, an organization that represents the 

interests of public hospitals participating in the 340B Program, 

submitted six hospitals’ sales data to HRSA for price verification. 

HRSA analysts found that 37 of the 50 drug prices exceeded the ceiling 

price, but could not provide specific information on the extent of the 

overcharges. Instead, HRSA informed the coalition that the differences 

ranged from 10 to 100 percent over the 340B ceiling price. Despite the 

evidence, HRSA did not initiate the dispute resolution process or take 

other action to resolve this issue. 

Insufficient legal authority also hampers HRSA’s ability to effectively 

implement its prime vendor program. Section 340B(8) of the PHS Act 

requires HRSA to establish a prime vendor program that negotiates 

discounts below the ceiling price based on the buying power of the 

participating entities. However, HRSA does not have the specified 

authority to disclose the 340B ceiling prices to its prime vendor for the 

stated purpose of negotiation. As a result, the prime vendor’s ability to 

perform its assigned role is challenged by the lack of information. 

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F I NDING S 
 

Participating entities cannot independently 

verify that they receive the correct 340B price 

due to confidentiality provisions 

Pursuant to the confidentiality provisions 

in OBRA ’90 regarding manufacturers’ 

pricing information, covered entities do 

not have access to confidential drug 

pricing information used to calculate the 340B discount—AMP, best 

price, and URA. Therefore, HRSA cannot share 340B ceiling prices with 

the entities. 

HRSA’s 340B Program guidance states that “confidential drug pricing 

information includes both ‘best price’ and ‘average manufacturer price.’ 

The quoted price and actual price given by the manufacturer to the 

covered entity is not confidential.”18 The selling price that 

manufacturers provide to wholesalers and entities is considered public 

information because it is not data reported to the Government for the 

purpose of the Medicaid program or the 340B Program. Also, since the 

340B discount is a ceiling price, a variety of selling prices can exist 

under the ceiling. 

In a 2004 survey of 340B participants, commissioned by HRSA and 

conducted by Mathematica Policy Research, 23 percent of respondents 

complained about the lack of price transparency. Entities may submit 

written requests to HRSA for 340B price approximations, but survey 

respondents viewed this process as cumbersome and inefficient.19 

HRSA staff confirmed that they are only able to review price requests 

limited to 10 products at a time due to staffing limitations. Further, 

due to the confidentiality provisions, HRSA can only provide a general 

indication to the entity on whether the price is over the ceiling. In other 

words, if an entity’s reported price exceeds the ceiling price, HRSA can 

inform the entity of the overcharge, but not the extent of the overcharge. 

In October 2000, HRSA attempted to provide entities with a tool to 

verify prices but was ultimately unsuccessful. HRSA posted the selling 

prices of 207 commonly prescribed drugs (negotiated by and purchased 

through its prime vendor) on its Web site to demonstrate the prices 

entities could receive if they signed up for the prime vendor program. 

However, due to industry complaints that the publication violated the 

confidentiality provisions stated in the Medicaid statute, HRSA 

removed the list in January 2001.20 This action removed the only tool 

entities had to verify discounts. HRSA does not currently post any 

information related to price on its Web site or elsewhere. 

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F I NDING S 

Since HRSA cannot share the protected data and is faced with industry 

opposition to supplying sales data, entities are unable to determine or 

approximate whether their purchases are at or below the 340B ceiling 

price. Absent such data, entities either assume that the manufacturer’s 

reported price is compliant with the law or expend significant resources 

to obtain drug pricing information from secondary sources (including 

wholesalers, consultants, and other purchasers). 

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Δ RECOMME NDA TIONS 
 

Our findings point to systemic problems with HRSA’s oversight of the 

340B Program and with the data used in the calculation of 340B ceiling 

prices. HRSA’s 340B ceiling price has not historically been based on 

accurate pricing information and we have concerns about the continued 

problems posed by inaccurate and incomplete data. Even if HRSA did 

possess accurate ceiling prices, we believe that it does not have 

appropriate mechanisms in place to ensure that entities are charged at 

or below the appropriate ceiling price. HRSA also does not have the 

authority to enforce the terms of the PHS Act. Finally, confidentiality 

provisions prevent HRSA from sharing the 340B ceiling price data with 

covered entities so they can verify that they are receiving the price to 

which they are entitled. As a result, it is nearly impossible for HRSA to 

assess whether the 340B Program is being implemented as intended to 

“stretch Federal resources as far as possible, to reach more eligible 

patients and provide more comprehensive services.”21 

HRSA’s ability to protect the integrity of the 340B Program is not 

only crucial to the thousands of Federal grantees and public hospitals 

whose patients currently benefit from the discount, but is also 

important to the growing number of future beneficiaries. Due to a 

change enacted by the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003, rural and urban hospitals with fewer than 

100 beds now meet the eligibility criteria to enroll in the 340B 

Program.22 State Medicaid Directors are also seeking ways to cover 

the pharmaceutical needs of some Medicaid beneficiaries using the 

340B discount price, which is typically lower than the Medicaid 

rebate. Finally, the President’s proposed budget for fiscal year 2006 

completes the Administration’s 5-year commitment to create 1,200 

new or expanded health center sites serving an estimated additional 

6.1 million people.23 Each new site will be eligible for the 340B 

Program. These beneficiaries depend on receiving discounted 

prescription drugs through the 340B Program; therefore, it is 

essential that the program receive appropriate oversight. 

The following recommendations focus on improving HRSA’s oversight 

of the 340B Program as it relates to the integrity of its ceiling prices, 

as well as its ability to ensure that entities pay no more than the 

appropriate price. 

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R E C O MMENDA T I O N S 

CMS and HRSA should work together to ensure accurate and timely 

pricing data for the Government’s official record of 340B ceiling prices 

CMS and HRSA have already engaged in discussions about calculating 

the 340B ceiling price. On September 19, 2005, CMS and HRSA signed 

a new Intra-Agency Agreement, which states that HRSA will receive 

pricing data effective during FY 2005 from CMS, but will itself calculate 

the Government’s 340B ceiling price. We encourage CMS and HRSA to 

continue to work together to improve the accuracy and timeliness of the 

pricing data CMS has agreed to provide HRSA. Additionally, because 

no Agreement has been signed for FY 2006, we anticipate the need for 

continued cooperation to ensure that there is no interruption in the 

calculation of the 340B ceiling prices used to monitor the program. To 

improve the data contained in the 340B ceiling price file, CMS and 

HRSA should: 

• 	 Restate the need for manufacturers to provide complete and timely 

pricing data, as required by OBRA ’90; if manufacturers’ pricing 

data submissions do not comply with the 30-day requirements, CMS 

should consider making referrals to OIG to levy penalties for late 

data in appropriate cases; 

• 	 Determine a solution for updating missing prices so HRSA’s record 

is complete; and 

• 	 Eliminate data that are not relevant to the 340B Program, such as 

terminated products and labelers, as well as products with future 

market dates. 

HRSA should establish detailed standards for the calculation of 340B ceiling 

prices 

To prevent the types of errors we discovered in CMS’s calculation of the 

340B ceiling price, we suggest that HRSA take action to ensure the 

accuracy of its calculations. In particular, HRSA needs to develop 

specific policies around correctly calculating 340B ceiling prices. 

HRSA’s standards should include specifics on the use of correct package 

sizes and a conversion of negative ceiling prices. 

HRSA should institute oversight mechanisms to validate its 340B price 

calculations and the prices charged to participating entities 

We suggest that this oversight protocol include: 

• 	 Comparing the Government’s official 340B ceiling prices to the 

manufacturers’ ceiling prices each quarter to detect discrepancies. 

HRSA could accomplish this by requesting that manufacturers 

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R E C O MMENDA T I O N S 

submit either a sample of 340B prices or send all 340B prices 

directly to HRSA each quarter. 

• 	 Spot-checking entity invoices to ensure that entities are charged at 

or below 340B ceiling prices. 

• 	 Selectively auditing manufacturers, wholesalers, and covered 

entities to ensure the integrity of the 340B Program. 

HRSA should seek authority to establish penalties for violations of the 

PHS Act 

Other than exclusion from participation in the Medicaid drug rebate 

and 340B programs, HRSA has no effective penalties to use for 

violations of the PHS Act or the Pharmaceutical Pricing Agreement. 

HRSA should propose a legislative package that might include a variety 

of sanctions, such as fines and civil monetary penalties. We recommend 

that HRSA consider as a model CMS’s statutory authority to enforce the 

Medicaid rebate program, pursuant to § 1927(b)(3)(C)(i) of the Social 

Security Act, and seek similar authorities with respect to enforcement of 

the 340B Program. 

HRSA should provide covered entities with secured access to certain 

pricing data to help approximate 340B ceiling prices 

To optimize 340B savings and maximize the efficiency of the covered 

entities’ role in the program, we suggest two methods to help entities 

detect differences between the price they pay and the price they are 

entitled to under the law: 

1. 	 HRSA could design a mechanism that allows participating entities 

to assess whether prices exceed the ceiling price. Because OBRA ’90 

requires the HHS Secretary to keep components of the 340B ceiling 

price—AMP and Best Price—confidential, HRSA may not disclose 

the 340B ceiling price to the entities. Presently, HRSA can 

informally review a limited number of prices on behalf of the entities 

and inform them if their prices exceed the ceiling price. However, to 

protect confidential data, it cannot reveal the extent of any 

overcharge. 

We suggest that HRSA develop a price verification system that 

informs entities if they are paying above the ceiling price. Entities 

should have enough information to, at the very least, submit prices 

to determine whether they comply with the 340B discount 

requirements. Through this system, entities should be able to 

identify potential vulnerabilities and pursue further communication 

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R E C O MMENDA T I O N S 

with HRSA or the manufacturer. One suggestion is to institute a 

password-protected, Web-based query function to allow entities to 

check the prices they paid against 340B ceiling prices, while still 

protecting the confidentiality of the manufacturers’ data. For 

example, entities could enter the price they paid for a drug and 

receive a response if it exceeds the ceiling price within a specified 

percentage (for example, within 5 percent). Alternatively, entities 

could submit the prices paid for a market basket of products to 

obtain information about the appropriateness of the charges in the 

aggregate. 

2. 	 HRSA could reinstate the publication of its 340B prime vendor 

program’s selling price list on the agency Web site so covered 

entities could estimate the potential savings available to them. 

Pursuant to HRSA’s entity guidelines, confidential pricing 

information includes both the best price and the AMP; however, the 

quoted price and the actual price given by the manufacturer to the 

entity are not confidential.24 

Because the absence of an offical 340B price list presents a major 

challenge to participation in the 340B Program, we suggest that 

HRSA maximize the use of its prime vendor to provide 

nonconfidential pricing information to covered entities. HRSA’s 

posting of the agency’s prime vendor program’s prices in 2000 did 

not reveal information protected by OBRA ’90; rather, HRSA’s 

information included quoted and/or actual wholesaler prices that are 

widely available in the marketplace. The reinstatement of this list 

would provide entities with a tool to compare the prices they pay to 

a source that is overseen by the prime vendor. 

AGENCY COMMENTS 

HRSA and CMS concurred with most of our recommendations. The 

complete text of the comments can be found in Appendix B. 

Based on the issues raised and recommedations offered in our 

withdrawn report, HRSA and CMS have already engaged in numerous 

technical discussions about calculating the 340B ceiling price. As a 

result of these discussions, HRSA and CMS negotiated a new IntraAgency Agreement and Data Use Agreement. Under this Agreement, 

HRSA will receive pricing data from CMS effective during FY 2005, but 

will itself calculate the Government’s 340B ceiling price. To improve 

the quality and timeliness of the data sent to HRSA, CMS has agreed to 

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reiterate the 30-day pricing data submission requirement for 

manufacturers and will consider referring appropriate cases of late 

submission to OIG to levy penalties. HRSA commented that it will 

work with CMS to maximize the acquisition of manufacturer’s data as 

well as resolve problems related to missing data. HRSA also agreed to 

publish detailed standards for the calculation of 340B ceiling prices on 

its Web site. 

In response to our recommended steps for instituting oversight to 

improve the integrity of 340B ceiling prices, HRSA stated its intent to 

review the data that manufacturers and entities voluntarily submit, to 

the extent that resources permit. HRSA stated that it further intends 

to compare manufacturers’ pricing data, provided through wholesalers 

to its Prime Vendor Program, to its 340B ceiling prices. For more 

intensive audits of the 340B Program, HRSA deferred to its reliance 

upon OIG audits and evaluations. 

HRSA does not support our recommendation to seek legislation to 

establish penalties for violations of the PHS Act, preferring to first 

acquire experience with its planned changes. Finally, HRSA does not 

concur with our recommendation that it reinstate the publication of 

HRSA’s 340B prime vendor program’s selling price on the agency Web 

site. HRSA stated that it is exploring other options. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

We are encouraged that CMS and HRSA concur with most of our 

recommendations and have already taken steps to improve the 

calculation of the 340B ceiling price. In addition, we support HRSA’s 

intention to publish detailed standards for the calculation of the 340B 

price. However, HRSA did not indicate an approximate timeline for 

posting this information or provide details on what we should expect of 

the standards. 

We also support HRSA’s stated intention to compare the manufacturers’ 

data currently received on a voluntary basis to the ceiling price and 

review the prices charged to entities; however, we do not believe this 

represents an adequate approach toward oversight of the program. 

While this level of review might prove helpful in some instances, it will 

only cover the number of limited manufacturers and entities who choose 

to voluntarily supply drug pricing data. Comparing manufacturers’ 

selling prices to the official Government 340B prices represents a 

positive step toward comprehensive oversight. 

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We are concerned about the limited nature of HRSA’s own plans for 

oversight of the 340B Program. While OIG is committed to ensuring the 

integrity of the HHS programs, we believe that routine oversight is an 

agency’s responsibility. Therefore, we maintain that HRSA itself needs 

to develop a comprehensive auditing program. 

We also do not agree with HRSA that it is best to wait to seek authority 

to establish penalties for violations of the PHS Act. Rather, we believe 

that the ability to impose fines and civil penalities is essential in 

ensuring that entities receive the full 340B discount. 

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Δ ENDNOTE S 
 

1 OIG quality assurance standards are based on the Government 

Auditing Standards, 2004. 

2 Total purchase estimates from the Office of Pharmacy Affairs, 2003. 

3 340B entity expenditures are based on estimates from the Director of 

HRSA’s Office of Pharmacy Affairs in a presentation to the 340B 

Coalition on July 14, 2003. This is the most recent estimate available. 

4 Section 1927 of the Social Security Act, 42 U.S.C. 1396s, defines the 

sales information drug manufacturers must provide to CMS, including 

the AMP and Best Price for the total sales of each covered outpatient 

drug over a quarter’s time. 

5 Intra-Agency Agreement signed between CMS and HRSA, 2004. 

6 Guidance Regarding Section 602 of the Veterans Health Care Act of 

1992 Limitation on Prices of Drugs Purchased by Covered Entities, 

58 FR 27291, December 29, 1993. 

7 Section 1927(b)(3)(D)(i) of the Social Security Act, 42 U.S.C. 1396r8(b)(3)(D)(i). 

8 Intra-Agency Agreement signed between CMS and HRSA, 2004. 

9 Totals do not equal 100 due to rounding. 

10 The amount of the penalty, as set forth in section 1927(b)(3)(C)(i) of 

the Act, is $10,000 for each day in which such information has not been 

provided. The Secretary has delegated the responsibility of imposing 

such penalties to OIG when CMS identifies instances in which 

manufacturers are in violation of the 30-day submission requirement. 

11 The 50/50 edit was designed to reject an AMP when it is either 50 

percent higher or lower than the manufacturer’s submission from the 

previous quarter. When the 50/50 edit detects faulty AMP values, 

CMS sends a report to the manufacturer requesting corrected 

information. 

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12 OIG interview with HRSA’s Office of Pharmacy Affairs, June 2003. 

13 42 U.S.C. 1396r-8(b)(4)(B). 

14 59 FR 30023, May 13, 1994. 

15 61 FR 65413, December 12, 1996. 

16 Pharmaceutical Pricing Agreement, section IV, Dispute Resolution, 

subsection (c). 

17 Office of Inspector General, “Pharmaceutical Manufacturers 

Overcharged 340B Entities,” A-06-01-00060, March 10, 2003. 

18 58 FR 68922, December 29, 1993. 

19 Mathematica Policy Research, Inc., August 30, 2004, “The PHS 340B 

Drug Discount Program: Results of a Survey of Eligible Entities.” 

20 Pharmaceutical Researchers and Manufacturers of America letter to 

HRSA, January 16, 2001. 

21 H.R. Rpt. 102-384, 102nd Cong., 2nd session, part 2, at 12 (1992). 

22 Medicare Prescription Drug, Improvement, and Modernization Act of 

2003, section 402, increased the Medicare Disproportionate Share 

Hospital cap from 5.25 percent to 12 percent. (SSA 1886(d)(5)(F)(xiv) 

23 President’s Budget FY 2006, “Advancing the Health, Safety, and 

Well-Being of Our People,” pp. 3-4. 

24 59 FR 25110, May 13, 1994. 

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Δ APPENDIX ~ A 
 

Programs Eligible to Participate in 340B: 

Community health centers 

Tuberculosis clinics 

Sexually transmitted disease clinics 

Disproportionate share hospitals 

Migrant health clinics 

Healthcare for the homeless centers 

Federally qualified health center look-alikes 

Hemophilia treatment centers 

Ryan White Title I 

Ryan White Title II (direct purchase) 

Ryan White Title II (rebate option) 

Ryan White Title III 

Public housing clinics 

School-based programs 

Special Projects of National Significance 

Black lung clinics 

Urban Indian organizations 

Federally qualified health centers funded by the Office of 

Tribal Programs 

Family planning clinics 

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Δ APPENDIX ~ B 

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Δ ACKNOWLEDGMENTS 
 

This report was prepared under the direction of William C. Moran, 

Regional Inspector General for Evaluation and Inspections in the 

Chicago regional office, and Ann T. Maxwell, Assistant Regional 

Inspector General. Other principal Office of Evaluation and Inspections 

staff who contributed include: 

Madeline Francescatti, Team Leader 

Tom Komaniecki, Program Analyst 

Suzanne Bailey, Program Analyst 

Ayana Everett, Program Specialist 

Elise Stein, Director, Public Health and Human Services 

Barbara Tedesco, Mathematical Statistician 

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