Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement
Published: 2011-09-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Health Resources and Services Administration (HRSA), within in the Department of Health and Human Services (HHS), oversees the 340B Drug Pricing Program, through which participating drug manufacturers give certain entities within the health care safety net--known as covered entities--access to discounted prices on outpatient drugs. Covered entities include specified federal grantees and hospitals. The number of covered entity sites has nearly doubled in the past 10 years to over 16,500. The Patient Protection and Affordable Care Act (PPACA) mandated that GAO address questions related to the 340B program. GAO examined: (1) the extent to which covered entities generate 340B revenue, factors that affect revenue generation, and how they use the program; (2) how manufacturers' distribution of drugs at 340B prices affects covered entities' or non-340B providers' access to drugs; and (3) HRSA's oversight of the 340B program. GAO reviewed key laws and guidance, analyzed relevant data, and conducted interviews with 61 340B program stakeholders selected to represent a range of perspectives, including HRSA, 29 covered entities, 10 manufacturers and representatives, and 21 others. Selection of stakeholders was judgmental and thus, responses are not generalizable.
section_title: What GAO Found
paragraphs: Thirteen of the 29 covered entities we interviewed reported that they generated 340B program revenue that exceeded drug-related costs, which includes the costs of purchasing and dispensing drugs. Of those remaining, 10 did not generate enough revenue to exceed drug-related costs, and 6 did not report enough information for us to determine the extent to which revenue was generated. Several factors affected 340B revenue generation, including drug reimbursement rates. Regardless of the amount of revenue generated, all covered entities reported using the program in ways consistent with its purpose. For example, all covered entities reported that program participation allowed them to maintain services and lower medication costs for patients. Entities generating 340B program revenue that exceeded drug-related costs were also able to serve more patients and to provide additional services. According to the 61 340B program stakeholders we interviewed, manufacturers' distribution of drugs at 340B prices generally did not affect providers' access to drugs. Specifically, 36 stakeholders, including those representing manufacturers, covered entities, and non-340B providers, did not report any effect on covered entities' or non-340B providers' access. The remaining 25, also representing a wide range of perspectives on the 340B program, reported that it affected access primarily in two situations: (1) for intravenous immune globulin (IVIG), a lifesaving drug in inherently limited supply; and (2) when there was a significant drop in the 340B price for a drug resulting in increased 340B demand. In both situations, manufacturers may restrict distribution of drugs at 340B prices because of actual or anticipated shortages. Stakeholders reported that restricted distribution of IVIG resulted in 340B hospitals having to purchase some IVIG at higher, non-340B prices. They also reported that restricted distribution when the 340B price of a drug dropped significantly helped maintain equitable access for all providers. HRSA's oversight of the 340B program is inadequate to provide reasonable assurance that covered entities and drug manufacturers are in compliance with program requirements--such as, entities' transfer of drugs purchased at 340B prices only to eligible patients, and manufacturers' sale of drugs to covered entities at or below the 340B price. HRSA primarily relies on participant self-policing to ensure program compliance. However, its guidance on program requirements often lacks the necessary level of specificity to provide clear direction, making participants' ability to self-police difficult and raising concerns that the guidance may be interpreted in ways inconsistent with the agency's intent. Other than relying on self-policing, HRSA engages in few activities to oversee the 340B program. For example, the agency does not periodically confirm eligibility for all covered entity types, and has never conducted an audit to determine whether program violations have occurred. Moreover, the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater, in part because they serve both 340B and non-340B eligible patients. This further heightens concerns about HRSA's current approach to oversight. With the number of hospitals in the 340B program increasing significantly in recent years--from 591 in 2005 to 1,673 in 2011--and nearly a third of all hospitals in the U.S. currently participating, some stakeholders, such as drug manufacturers, have questioned whether all of these hospitals are in need of a discount drug program.
section_title: What GAO Recommends
paragraphs: To ensure appropriate use of the 340B program, GAO recommends that HRSA take steps to strengthen oversight regarding program participation and compliance with program requirements. HHS agreed with our recommendations.

section_title: Letter
paragraphs: Our nation’s health care safety net provides services to low-income,  uninsured, underinsured, and other individuals who experience barriers  accessing care, regardless of their ability to pay. Certain types of  providers within the safety net have access to discounted prices on  outpatient drugs through the 340B Drug Pricing Program. The program,  created in 1992 and named for the statutory provision authorizing it in the  Public Health Service Act (PHSA), requires drug manufacturers to give  340B discounts to entities covered under the law—known as covered  entities—in order to have their drugs covered by Medicaid.
Covered entities include clinics and hospitals that provide general health  care services, as well as those that serve patients with specific conditions  or diseases, and are typically eligible for the program because they  receive some type of federal support, such as a federal grant. According  to the Health Resources and Services Administration (HRSA), the agency  within the Department of Health and Human Services (HHS) responsible  for administering and overseeing the 340B program, the purpose of the  program is to enable covered entities to stretch scarce federal resources  to reach more eligible patients, and provide more comprehensive  services. Covered entities’ current spending on 340B drug purchases is  estimated to be about $6 billion annually.
Participation in the 340B program is voluntary for both covered entities  and drug manufacturers, but there are strong incentives to participate.  Covered entities can realize substantial savings through 340B price  discounts—an estimated 20 to 50 percent off the cost of drugs, according  to HRSA. In addition, covered entities can generate 340B revenue. For  example, covered entities can purchase drugs at the 340B price for all  patients eligible under the program regardless of their income or  insurance status, and generate revenue, such as through a patients’  insurance reimbursement, that may exceed the 340B price paid for the  drugs. As of July 2011, there were more than 16,500 covered entity sites  enrolled in the program—about double the number reported in 2001.  Because they must participate in the 340B program to receive Medicaid  reimbursement for their drugs, incentives for participation by drug  manufacturers also are strong. According to HRSA, most manufacturers  that produce outpatient drugs have participated in the program since its  inception.
HRSA requires program participants to meet certain conditions set forth  both in law and agency guidance. For example, under the PHSA, covered  entities are prohibited from transferring 340B drugs to individuals who are  not eligible patients of the entities. Similarly, to help ensure covered  entities receive the discounts they are entitled to, HRSA has issued  nondiscrimination guidance prohibiting drug manufacturers from  distributing drugs in ways that would discriminate against covered entities  compared to other, non-340B healthcare providers. This includes not  conditioning the sale of drugs to covered entities on restrictive conditions,  such as requiring them to commit to minimum purchase amounts, which  would discourage entities from participating in the program. However,  stakeholders, including both covered entities and drug manufacturers,  have raised questions about the extent to which 340B program  requirements are followed and the extent to which HRSA ensures  compliance. Further, because the 340B program has no requirements on  how 340B revenue can be used, stakeholders, such as drug  manufacturers, have raised questions about covered entities’ generation  of revenue and whether they are using it in ways consistent with the  purpose of the program. Additionally, due to continued growth in the  number of covered entities participating in the program, some  stakeholders have raised questions about whether increased use of 340B  discounts shifts a larger share of drug costs to others in the health care  system.
The Patient Protection and Affordable Care Act (PPACA) amended the  340B program by expanding entity eligibility for the program to include  additional types of hospitals. PPACA also contained provisions to  improve 340B program integrity, and included a provision explicitly  prohibiting manufacturers from discriminating against covered entities in  the sale of 340B drugs, consistent with HRSA’s nondiscrimination  guidance. The passage of PPACA has raised some questions for 340B  stakeholders about the program. For example, although proponents of the  explicit prohibition on manufacturers contend that it is necessary to  prevent discrimination against covered entities, critics are concerned  about how it could affect non-340B providers’ access to drugs.  Additionally, PPACA extends health insurance coverage to more  Americans, and some stakeholders, such as drug manufacturers, have  questioned whether covered entities will need the discounts provided  through the 340B program given this increased coverage.
PPACA directed us to address several questions related to the 340B  program. In response to the mandate, we examined: (1) the extent to  which covered entities generate 340B revenue, factors that affect their  revenue generation, and how entities use the program; (2) how  manufacturers’ distribution of drugs at 340B prices affects providers’  access to drugs, whether those providers are covered entities or non- 340B providers; and (3) HRSA’s oversight of the 340B program.
To examine the extent to which covered entities generate revenue  through their participation in the 340B program, factors that affect their  revenue generation, and how entities use the program, we conducted  interviews with a judgmental sample of 29 covered entity organizations  primarily selected to represent five covered entity types located in five  states. We selected entity types based on factors, including high levels of  participation in the 340B program and variation in organizational structure  and the types of services provided. We selected states based on factors,  including geographic variation and the percentage of uninsured in the  state. Specifically, we interviewed 7 federally qualified health centers  (FQHC), 5 family planning clinics, 5 AIDS Drug Assistance Programs  (ADAP), 5 hemophilia treatment centers, and 5 general acute care  hospitals with a Medicare disproportionate share hospital (DSH)  adjustment percentage of greater than 11.75 percent—in this report we  refer to these hospitals as DSH hospitals. These entities were located in  Illinois, Massachusetts, Tennessee, Texas, and Utah. We specifically  selected Massachusetts to gain a better understanding of the potential  effect of PPACA’s health insurance reforms on the 340B program. In  addition to interviewing covered entities located in the five states, we  conducted interviews with 2 additional DSH hospitals located in other  states, because of questions raised in stakeholder interviews about how  these hospitals were using the program. When possible, we collected  relevant documentation from covered entities. Although we selected  covered entities to interview that represented a variety of entity types, not  all covered entity types are represented. Further, our selection of covered  entities was judgmental, and our sample is not generalizable. (See  appendix I for more details on how we selected covered entities and  appendix II for more information about the entity types eligible to  participate in the 340B program.)
To examine how manufacturers’ distribution of drugs at 340B prices  affects providers’ access to drugs, whether those providers are covered  entities or non-340B providers, we conducted interviews with 61 340B  program stakeholders, including our judgmental sample of 29 covered  entities, as well as 32 other program stakeholders representing a wide  range of perspectives on the program. Included were interviews with   6 drug manufacturers, selected based on factors such as having a large  market share and producing drugs with reported challenges related to  their distribution at 340B prices, and 6 organizations representing drug  manufacturers and others involved in distributing drugs from  manufacturers to providers. We also interviewed stakeholders  representing providers, including 9 organizations representing covered  entities, 2 organizations representing non-340B providers, and 5  organizations representing both covered entities and non-340B providers.  Finally, we interviewed HRSA and the Centers for Medicare & Medicaid  Services (CMS), as well as HRSA’s 2 340B program contractors. (See  appendix I for more details on interviewees and how we selected them.)  Similar to our selection of covered entities, our selection of other program  stakeholders was judgmental and, as such, responses are not  generalizable. In addition, we reviewed relevant documentation from  interviewees, and analyzed industry data as well as data from HRSA’s  covered entity database to determine the number of hospitals in the U.S.  currently participating in the 340B program. We reviewed data-related  documentation and interviewed agency officials, and determined these  data were sufficiently reliable for our purposes.
To examine HRSA’s oversight of the 340B program, we conducted  interviews with the 61 program stakeholders discussed above and  reviewed relevant documentation. We reviewed information from HRSA  and other HHS agencies, including those that administer the grants that  make entities eligible for the 340B program. We also reviewed key laws,  guidance, and relevant literature related to the program and to safety net  providers. We analyzed data from HRSA’s covered entity database to  determine changes in 340B program participation among covered entity  types since 2001. We reviewed data-related documentation and  interviewed agency officials, and determined these data were sufficiently  reliable for our purposes.
We conducted our performance audit from September 2010 through  September 2011 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The 340B program was created in 1992 following the enactment of the  Medicaid Drug Rebate Program and gives certain safety net providers  discounts on outpatient drugs comparable to those made available to  state Medicaid agencies. HRSA, through its Office of Pharmacy Affairs,  is responsible for administering and overseeing the 340B program,  which according to federal standards, includes designing and  implementing necessary policies and procedures to enforce agency  objectives and assess program risk. These policies and procedures  include internal controls that provide reasonable assurance that an  agency has effective and efficient operations and that program  participants are in compliance with applicable laws and regulations.
subsections: section_title: Program Participants
paragraphs: Eligibility for the 340B program is defined in the PHSA. Entities generally  become eligible by receiving one of 10 federal grants or by being one of  six hospital types. (See appendix II for a complete list of covered entity  types and their eligibility requirements.) To participate in the 340B  program, eligible entities must register with HRSA and be approved.  Entity participation in the 340B program has grown over time to include  over 16,500 covered entity sites (see fig. 1).
Federal grantees are eligible for the 340B program by virtue of receiving  certain federal grants administered by different agencies within HHS.  Eligible grantees include clinics that offer primary and preventive care  services, such as FQHCs, family planning clinics, and clinics that target  specific conditions or diseases that raise public health concerns or are  expensive to treat, such as hemophilia treatment centers. Participating  clinics may offer eligible services at one or multiple sites. They also  include state-operated ADAPs, which serve as a “payer of last resort” to  cover the cost of providing HIV-related medications to certain low-income  individuals.
Hospitals eligible for the 340B program include certain DSH hospitals,  children’s hospitals, freestanding cancer hospitals, rural referral centers,  sole community hospitals, and critical access hospitals. While DSH  hospitals have been eligible for the program since its inception, children’s  hospitals became eligible in 2006, and the remaining hospital types  became eligible through PPACA.
Hospital eligibility for the 340B program has more elements than that of  federal grantees, because unlike federal grantees, hospitals do not qualify  for the program based on receipt of a federal grant. Rather, they must  meet certain requirements intended to ensure that they perform a  government function to provide care to the medically underserved. First,  hospitals generally must meet specified DSH adjustment percentages to  qualify; however, critical access hospitals are exempt from this  requirement. Additionally, all hospitals must be (1) owned or operated  by a state or local government, (2) a public or private, nonprofit  corporation that is formally delegated governmental powers by a unit of  state or local government, or (3) a private, nonprofit hospital under  contract with a state or local government to provide health care services  to low income individuals who are not eligible for Medicaid or Medicare.  Clinics and other sites affiliated with a hospital, but not located in the main  hospital building, are eligible to participate in the 340B program if they are  an integral part of the hospital, which HRSA has defined as reimbursable  sites on the hospital’s most recently filed Medicare cost report.
All drug manufacturers that supply outpatient drugs are eligible to  participate in the 340B program and must participate if they want their  drugs covered by Medicaid. To participate, manufacturers are required to  sign a pharmaceutical pricing agreement with HHS in which both parties  agree to certain terms and conditions and submit this agreement to  HRSA.
section_title: Program Structure and Operation
paragraphs: Covered entities typically purchase and dispense 340B drugs through  pharmacies and can structure their programs in different ways. Entities  can have (1) an in-house pharmacy model, in which the pharmacy is  housed within the covered entity, (2) a contract pharmacy model, in which  the entity contracts with an outside pharmacy to dispense drugs on their  behalf, or (3) both. Historically, only covered entities that did not have an  in-house pharmacy were allowed to contract with a single outside  pharmacy to provide services. In March 2010, however, HRSA issued  guidance allowing all covered entities—including those that have an in- house pharmacy—to contract with multiple outside pharmacies. Some  covered entities use HRSA’s Pharmacy Services Support Center (PSSC)  or private companies that provide technical assistance, information  technology, and other services to help develop, implement, and manage  their 340B pharmacy program.
The 340B price for a drug—often referred to as the 340B ceiling price—is  based on a statutory formula and represents the highest price a drug  manufacturer may charge covered entities; however, the provision  establishing the 340B pricing formula indicates that manufacturers may  sell a drug at a price that is lower than the ceiling price. As such,  covered entities may negotiate prices below the ceiling price.  Manufacturers are responsible for calculating the 340B price on a  quarterly basis. Occasionally the formula results in a negative price for a  340B drug. In these cases, HRSA has instructed manufacturers to set  the price for that drug at a penny for that quarter—referred to as HRSA’s  penny pricing policy.
section_title: Key Program Requirements
paragraphs: Covered entities must follow certain program requirements as a condition  of participating in the 340B program. For example, covered entities are  prohibited from diverting any drug purchased at a 340B price to an  individual who does not meet HRSA’s current definition of a patient. This  definition was issued in 1996 and outlines three criteria which generally  state that diversion occurs when 340B discounted drugs are given to  individuals who are not receiving health care services from covered  entities or are only receiving non-covered services, such as inpatient  hospital services, from covered entities. (See table 1 for more information  on HRSA’s definition of a 340B patient.) Covered entities are permitted to  use drugs purchased at the 340B price for all individuals who meet the  definition of a patient, whether or not they are low income, uninsured, or  underinsured.
Covered entities also are prohibited from subjecting manufacturers to  duplicate discounts whereby drugs prescribed to Medicaid patients are  subject to both the 340B price and a rebate through the Medicaid Drug  Rebate Program. To avoid duplicate discounts, covered entities can  either purchase drugs for Medicaid patients outside the 340B program, in  which case the state Medicaid agency may claim the rebate, or they can  use drugs purchased at 340B prices, in which case the agency may not  claim the rebate. Covered entities that decide to use 340B drugs for  Medicaid patients must notify HRSA so that it can coordinate with state  Medicaid agencies for billing purposes. Further, certain covered entities— DSH hospitals, children’s hospitals, and freestanding cancer hospitals— are prohibited from purchasing outpatient drugs through any group  purchasing organization (GPO). However, they may purchase drugs  through the specified HRSA contractor, the Prime Vendor Program  (PVP). Rural referral centers, sole community hospitals, and critical  access hospitals participating in the 340B program are allowed to  purchase outpatient drugs through any GPO.
Drug manufacturers also must follow certain 340B program requirements.  Specifically, they must sell outpatient drugs to covered entities at or below  the statutorily determined price. In addition, HRSA’s nondiscrimination  guidance prohibits manufacturers from distributing drugs in ways that  discriminate against covered entities compared to other providers. This  includes ensuring that drugs are made available to covered entities  through the same avenue that they are made available to non-340B  providers, and not conditioning the sale of drugs to covered entities on  restrictive conditions, which would have the effect of discouraging  participation in the 340B program.
section_title: 340B Revenue Generated by Covered Entities Varied, but All Entities Reported That the Program Was Used to Support or Expand Access to Services
paragraphs: About half of the covered entities we interviewed reported that they  generated 340B program revenue that exceeded drug-related costs—the  costs of purchasing and dispensing a drug—and revenue generation  depended on several factors. Regardless of the amount of 340B revenue  generated or the savings realized through 340B discounts, covered  entities generally reported using the 340B program to support or expand  access to services.
subsections: section_title: About Half of Covered Entities Reported Generating 340B Revenue That Exceeded Drug- Related Costs, and Revenue Generated Depended on Several Factors
paragraphs: Thirteen of the 29 covered entities we interviewed reported that they  generated revenue through the 340B program that exceeded drug-related  costs. Of the 16 remaining, 10 did not generate enough 340B revenue  to cover all drug-related costs, and 6 covered entities were unable or did  not report enough information for us to determine the extent to which they  generated 340B revenue due, in part, to their inability to track 340B- specific financial information.
In general, 340B revenue—whether exceeding drug related costs or not— was generated through reimbursement received for drugs dispensed by  340B in-house or contract pharmacies, though several factors affected  the extent to which the covered entities we interviewed generated  revenue through the program:    Third-party reimbursement rates: Eighteen of the 29 covered  entities we interviewed generated 340B revenue by receiving  reimbursement from third-party payers and tracked revenue by payer  source. Of the 18, most reported that they generated more 340B  revenue from patients with private insurance and Medicare compared  to other payers. However, a few of these covered entities reported  that their ability to generate 340B revenue from private insurers,  including Medicare Part D plans, was decreasing because some  insurers were reducing contracted reimbursement rates for drugs  based on the entity’s status as a 340B provider. Of the 18 covered  entities, most of those that used 340B drugs for Medicaid patients  reported that state-determined Medicaid reimbursement rates for  these drugs were generally lower, compared to private insurers and  Medicare. For example, most reported that Medicaid reimbursement  for a 340B drug was set at the price paid for the drug—the 340B price  or any lower price—plus a dispensing fee, the latter of which generally  did not cover the costs of dispensing the drug. This is typically  referred to as reimbursement at actual acquisition cost, which reduces  a covered entity’s ability to generate revenue because the state,  rather than the entity, benefits from any savings from purchasing  drugs at the 340B price. However, a few covered entities generated  more 340B revenue through Medicaid than others because they had  contractual agreements with their states to share 340B-related  savings. Covered entities in two of the five states included in our  selection had such agreements. Finally, a majority of the 18 covered  entities reported that revenue generated from uninsured patients was  lower than that from all other payers.    ADAP status: Factors that affected 340B revenue generation for the  five ADAPs we interviewed were different than for other entity types,  because unlike other covered entity types, ADAPs do not receive  third-party reimbursement for drugs. Rather, ADAPs serve as a “payer  of last resort” to cover the cost of providing HIV-related medications to  certain low-income individuals who, for example, are uninsured and  cannot afford to pay for drugs or who cannot afford their health  insurance coverage for drugs. ADAPs can choose to cover costs of  drugs by either paying for the drugs directly or by assisting patients  with the costs associated with health insurance, including payments  for premiums and co-payments or deductibles. When ADAPs  purchase drugs directly, they realize 340B savings on drugs—either at  the point of purchase or after the fact through manufacturer rebates— but do not generate revenue through the program. When ADAPs  assist with patients’ health insurance by paying for co-payments or  deductibles on a drug, they sometimes generate revenue by collecting  the rebates representing the full 340B discount on a drug for which  they may have only paid a portion of the price. Three of the five  ADAPs we interviewed reported generating revenue this way.    Ability to leverage resources to access the lowest drug prices:  Some of the 29 covered entities we interviewed reported leveraging  resources, such as through their larger parent organizations or the  PVP, to access drugs at prices below the 340B ceiling price,  potentially increasing the difference between the price paid for the  drug and the reimbursement received. In addition, some covered  entities said they had access to sophisticated information  technology—for example by contracting with private companies—or  had more staff to help ensure that they were obtaining the lowest  priced drugs.
As more people gain insurance coverage under PPACA, covered entities  may serve more patients with private insurance and Medicaid, which  may affect the extent to which they generate 340B revenue. One covered  entity located in Massachusetts reported that after the state implemented  universal health care, while they received more revenue from  reimbursement for low-income patients that gained private insurance,  these patients often could not afford associated co-payments or  deductibles, and the entity covered these costs. In addition, according to  one ADAP we interviewed, as more individuals gain private insurance, the  ADAP may increasingly choose to pay for health insurance for patients  rather than paying for patients’ drugs directly. This may enable it to  generate revenue through the 340B program if it can claim more rebates  for drugs for the newly insured patients. According to some covered  entities, the impact of serving more Medicaid patients may depend on the  Medicaid reimbursement rate that entities receive. For example, patients  that gain Medicaid coverage may begin to seek services from covered  entities, and for those entities that lose money on Medicaid patients, this  may decrease their ability to generate 340B revenue. Conversely, for  covered entities that have contractual agreements to share 340B-related  savings with their states, the increased Medicaid population may increase  their ability to generate 340B revenue.
section_title: Covered Entities Reported Using the 340B Program to Support or Expand Access to Services
paragraphs: Regardless of the amount of revenue generated through the program, all  of the 29 covered entities we interviewed reported that the 340B program,  including the up-front savings they realized on the cost of drugs, allowed  them to support their missions by maintaining services and lowering  medication costs for patients, which is consistent with the purpose of the  program. For example, some covered entities reported that they used the  340B revenue generated by certain patients to offset losses incurred from  other patients, which helped support the financial stability of the  organization and allowed them to maintain services. Further, one covered  entity reported that without 340B revenue or the savings on drugs through  its participation in the program, it would be unable to offer all the services  it provides—both pharmaceutical and clinical—and another reported that  it would have to close its outpatient pharmacy without the program. In  addition to maintaining services, some covered entities passed 340B  savings on to patients by providing lower-cost drugs to uninsured  patients. For example, many covered entities determined the amount that  a patient is required to pay based on the lower cost of 340B-priced drugs.
In addition, the 13 covered entities that generated 340B revenue that  exceeded drug-related costs were able to use this revenue to serve more  patients and to provide services that they might not have otherwise  provided, including additional service locations, patient education  programs, and case management, which is also consistent with the  purpose of program. One covered entity, for example, reported that it  used the revenue generated through the 340B program to provide  additional service delivery sites in other parts of the state, which  eliminated the need for some patients to travel more than 60 miles to  receive services. A few covered entities reported using 340B revenue to  support patient and family education programs, such as those where  pharmacists provide education on drug interactions. Additionally, one  covered entity reported using 340B program revenue to fund a case  management program that did not generate any revenue on its own;  some services provided through this program included arranging  transportation for patients to receive clinical services, coordinating  necessary specialty care, and providing translation services.
Even though the uses of revenue generated through the 340B program  were for similar purposes, some covered entities relied on the program  more than others. For example, one FQHC reported that 340B revenue  accounted for approximately 5 percent of its total budget, and was used  to provide additional services within the organization. However, one  hemophilia treatment center reported that 340B revenue accounted for  about 97 percent of its total budget and was used to support all of its  program operations.
section_title: Manufacturers’ Distribution of Drugs at 340B Prices Generally Did Not Affect Providers’ Access to Drugs Except in Two Situations
paragraphs: According to stakeholders we interviewed, manufacturers’ distribution of  drugs at 340B prices generally did not affect providers’ access to drugs.  For example, 36 of the 61 program stakeholders we interviewed did not  report any effect on covered entities’ or non-340B providers’ access to  drugs related to manufacturers’ distribution of drugs at 340B prices.  These stakeholders represented a wide range of perspectives on the  340B program, including those representing manufacturers, covered  entities, and non-340B providers.
The remaining 25 program stakeholders—also representing a wide range  of perspectives on the 340B program—reported that manufacturers’  distribution of drugs at 340B prices affected providers’ access to drugs  primarily in two situations. The two situations were: (1) for intravenous  immune globulin (IVIG), a lifesaving immune deficiency drug, the supply  of which is inherently limited; and (2) when there was a significant drop  in the 340B price of a drug, which may result in increased demand for the  drug by covered entities. Both situations relate to the restricted  distribution of drugs, which may occur during shortages or when  shortages are anticipated.
Stakeholders reported that manufacturers’ restricted distribution of IVIG at  340B prices resulted in 340B hospitals having to purchase some IVIG at  higher, non-340B prices in order to meet their demand for the drug.  Manufacturers restrict the distribution of IVIG on an ongoing basis,  because it is susceptible to shortages. Stakeholders, including five of the  seven DSH hospitals we interviewed, reported that because of the  restricted distribution of IVIG at 340B prices, 340B hospitals often must  purchase some IVIG at higher, non-340B prices to meet their patients’  needs. For example, DSH hospitals reported that when they were unable  to access IVIG at 340B prices, additional IVIG was available for purchase  at higher, non-340B prices directly from manufacturers, from specialty  pharmacies, or from GPOs. Moreover, one DSH hospital reported that  it had to purchase about one-third of the IVIG it needed at non-340B  prices—paying about $20,000 to $25,000 more per month than what it  would have paid if it could have purchased it at 340B prices.
Although manufacturers’ distribution of IVIG at 340B prices may not meet  340B hospitals’ demand, some stakeholders, such as drug  manufacturers, reported that changes in the amount of IVIG allocated for  sale at 340B prices could negatively affect non-340B providers’ access to  these drugs. For example, one IVIG manufacturer reported that it  restricted its distribution of IVIG by allocating its supply based on the  amount of the drug purchased by providers in 2004—allocating 95  percent of its projected monthly sales to non-340B providers and the  remaining 5 percent to covered entities at the 340B price. This  manufacturer stated that its distribution was fair, and that changing  distribution plans to increase the amount of IVIG drugs available at 340B  prices could negatively affect non-340B providers’ access to the drugs.  However, HRSA officials told us that the allocation of IVIG in this way is  not sufficient or fair. Nearly a third of the nation’s hospitals currently  participate in the 340B program, and one large GPO we interviewed  reported that 340B hospitals tended to be the bigger hospitals in the  company’s membership base. Thus, if other manufacturers similarly  restrict the distribution of IVIG at 340B prices, it is unlikely that covered  entities’ demands will be met at the 340B price.
Stakeholders reported that manufacturers’ distribution of drugs at 340B  prices also affected providers’ access to drugs when the 340B prices  dropped significantly. In certain cases, when the 340B price of a drug  dropped, some covered entities stockpiled the drug, which resulted in  shortages in the supply for other providers, including other covered  entities. For example, two covered entities we interviewed reported  challenges accessing drugs when their 340B prices dropped, because  other entities purchased large amounts of these drugs. In other cases  when the 340B prices dropped, manufacturers restricted the distribution  of those drugs at 340B prices to ensure that all providers had equitable  access. For example, one manufacturer reported that after the price of an  oral contraceptive dropped to a penny as a result of HRSA’s penny  pricing policy, it received an order from a covered entity that exceeded  the manufacturer’s current national supply by 50 percent. In response,  this manufacturer consulted with HRSA to ensure compliance with the  agency’s nondiscrimination guidance and restricted the distribution of  drugs at 340B prices by allocating its supply based on the projected  demand in the market and providers’ past purchasing patterns.
section_title: HRSA’s Oversight of the 340B Program Is Inadequate
paragraphs: HRSA’s oversight of the 340B program is inadequate because it primarily  relies on participants’ self-policing to ensure compliance. Changes in the  settings where the program is used may heighten concerns about the  inadequacy of HRSA’s oversight, and HRSA’s plans for improving  oversight are uncertain.
subsections: section_title: HRSA’s Oversight Is Inadequate to Ensure Participants’ Compliance with 340B Program Requirements
paragraphs: HRSA’s oversight of the 340B program is inadequate because it primarily  relies on covered entities’ and manufacturers’ self-policing—that is,  participants ensuring their own compliance with program requirements.  Upon enrollment, HRSA requires both covered entities and manufacturers  to certify that they will comply with applicable 340B program requirements  and any accompanying agency guidance. As part of this certification,  agency officials told us that they expect participants to develop the  procedures necessary to ensure compliance, maintain auditable records  that demonstrate compliance, and inform HRSA if violations occur. For  example, covered entities must develop adequate safeguards to prevent  drugs purchased at 340B prices from being diverted to non-eligible  patients, such as inventory tracking systems that separately purchase  and dispense 340B drugs, and manufacturers must ensure that they  properly calculate the 340B price of their drugs. In both cases, program  participants must keep auditable records that can show that they have  complied with program requirements and produce that documentation if  requested by HRSA.
HRSA officials told us that covered entities and manufacturers can also  monitor each other’s compliance with program requirements, but in  practice, participants may face limitations to doing so. For example, two  covered entities we interviewed reported that it is difficult to determine  whether they have been charged correctly for drugs because  manufacturers’ calculations of 340B prices are not transparent—namely,  there is no centralized list of 340B prices. An organization representing  covered entities also told us that its members had reported this difficulty.  Similarly, three drug manufacturers we interviewed reported that,  although they sometimes have suspected covered entities of diverting  340B drugs, it is difficult to prove diversion took place. An organization  representing some manufacturers explained that, although manufacturers  have the authority to audit covered entities, they have only conducted  them in egregious circumstances, because agency requirements for  these audits—such as a requirement to hire an independent third party to  conduct the audits—are costly and administratively burdensome.
HRSA’s guidance on key program requirements often lacks the  necessary level of specificity to provide clear direction, making it difficult  for participants to self-police or monitor others’ compliance and raising  concerns that the guidance may be interpreted in ways that are  inconsistent with its intent. For example, HRSA’s current guidance on  the definition of a 340B patient is sometimes not specific enough to define  the situations under which an individual is considered a patient of a  covered entity for the purposes of 340B and thus, covered entities could  interpret it either too broadly or too narrowly. Stakeholders we  interviewed, including those representing covered entities and drug  manufacturers, raised concerns that the guidance will be interpreted too  broadly leading to cases of unintended diversion—that is, using 340B  drugs for individuals who HRSA did not intend as eligible patients, but  who may not be clearly prohibited in the guidance. However, one of these  stakeholders representing covered entities also noted that, in order to  ensure compliance, some entities may adhere to a narrow interpretation  of the guidance and thus, limit the benefit of the program for their  organization. The agency itself has recognized the need to further specify  the definition of a 340B patient to ensure that it is interpreted correctly.
For example, HRSA officials told us that the definition currently includes  individuals receiving health care services from providers affiliated with  covered entities through “other arrangements,” as long as the  responsibility for care provided remains with the entity. However, HRSA  does not define “other arrangements,” and officials told us that what is  meant by responsibility for care also needs to be clarified. As a result of  the lack of specificity in the guidance, the agency has become concerned  that some covered entities may be broadly interpreting the definition to  include individuals such as those seen by providers who are only loosely  affiliated with a covered entity and thus, for whom the entity is serving an  administrative function and does not actually have the responsibility for  care.
In addition, HRSA has not issued guidance specifying the criteria under  which hospitals that are not publicly owned or operated can qualify for the  340B program. Rather, the agency bases eligibility for these hospitals  on the application of broad statutory requirements that they are either  formally delegated governmental powers by a unit of a state or local  government or have a contract with a state or local government to provide  services to low-income individuals who are not eligible for Medicaid or  Medicare. HRSA has stated that the determination of whether hospitals  meet the first requirement is evaluated by the agency on a case-by-case  basis. For the second requirement, HRSA requires a state or local  government official and a hospital executive to certify that a contract  exists to meet the requirement, but does not require hospitals to submit  their contracts for review or outline any criteria that must be included in  the contracts, including the amount of care a hospital must provide to  these low-income individuals. Therefore, hospitals with contracts that  provide a small amount of care to low-income individuals not eligible for  Medicaid or Medicare could claim 340B discounts, which may not be what  the agency intended.
Moreover, HRSA’s nondiscrimination guidance is not specific in the  practices that manufacturers should follow to ensure that drugs are  equitably distributed to covered entities and non-340B providers when  distribution is restricted. Some stakeholders we interviewed, such as  covered entities, have raised concerns about the way IVIG manufacturers  have interpreted and complied with the guidance in these cases, because  covered entities have sometimes had to purchase IVIG at higher, non- 340B prices. Additionally, given current guidance, one stakeholder  reported that manufacturers can offer a certain amount of drugs at 340B  prices, and while the distribution may not be equitable, still contend that  they are complying with the guidance. Although PPACA included a  provision prohibiting manufacturers from discriminating against covered  entities in the sale of 340B drugs, officials told us they do not have plans  to provide any additional specificity to the nondiscrimination guidance.
Finally, in the case of HRSA’s penny pricing policy, agency officials told  us that it is well understood by 340B stakeholders and manufacturers we  interviewed were generally aware of the policy. However, the agency has  never formalized guidance in writing and there have been documented  cases of manufacturers charging covered entities more than a penny for  drugs when the policy should have been in effect.
Beyond relying on participants’ self-policing, HRSA engages in few  activities to oversee the 340B program and ensure its integrity, which  agency officials said was primarily due to funding constraints. For  example, HRSA officials told us that the agency verifies eligibility for the  340B program at enrollment, but does not periodically recertify eligibility  for all covered entity types. As a result, there is the potential for  ineligible entities to remain enrolled in the program. In addition, HRSA  officials told us that they do not require a review of the procedures  participants put in place to ensure compliance, and, although the agency  has the authority to conduct audits of program participants to determine  whether violations have occurred, it has never done so. For example,  officials said that they do not verify whether covered entities have  systems in place to prevent diversion. Also, while HRSA encourages  manufacturers to work with the agency to develop processes for  restricting the distribution of drugs that are equitable to covered entities  and non-340B providers, the agency only reviews manufacturers’ plans to  restrict access to drugs at 340B prices if a manufacturer contacts HRSA  or concerns with a plan are brought to the agency’s attention. Similarly,  although HRSA calculates 340B prices separately from manufacturers,  officials told us that, at this time, the agency does not use these  calculations to verify the price that manufacturers charge covered entities,  unless an entity reports a specific pricing concern.
HRSA’s oversight activities are further limited because the agency lacks  effective mechanisms to resolve suspected violations and enforce  program requirements when situations of non-compliance occur. If  covered entities and manufacturers are not able to resolve conflicts on  their own, HRSA has had an informal dispute resolution process in place  since 1996 through which program participants can request that HRSA  review evidence of a suspected violation and the agency then decides  whether to initiate the process. However, despite reports by program  participants about suspected violations they were unable to resolve on  their own, HRSA officials told us that they have only initiated the dispute  resolution process twice since its inception. Additionally, HRSA has not  issued regulations implementing monetary penalties for non-compliance  established by PPACA, and HRSA has rarely utilized the sanctions that  existed prior to PPACA. For example, participants found to be in violation  of 340B program requirements face termination from the program. Yet  according to HRSA officials, since the program’s inception, only two  covered entities have been terminated from the program due to findings  of program violations and no manufacturer has ever been terminated for  this reason. Covered entities also are expected to pay back  manufacturers for discounts received while out of compliance, and  manufacturers are expected to pay back covered entities for overcharges.  However, HRSA has not enforced these expectations and officials were  unable to tell us the extent to which repayments have occurred.
Because of HRSA’s reliance on self-policing to oversee the 340B  program as well as its nonspecific guidance, the agency cannot provide  reasonable assurance that covered entities and drug manufacturers are  in compliance with program requirements and is not able to adequately  assess program risk. As a result, covered entities may be inappropriately  claiming 340B discounts from drug manufacturers or qualifying for the  program when they should not be, potentially increasing the likelihood  that manufacturers will offset providing lower prices to covered entities  with higher prices for others in the health care system. Additionally,  manufacturers may be charging covered entities more than the 340B  price for drugs, which would limit the benefit of the program for these  entities.
section_title: Changes in the Settings Where the 340B Program Is Used May Heighten Concerns about HRSA’s Inadequate Oversight
paragraphs: Over time, the settings where the 340B program is used have shifted to  more contract pharmacies and hospitals than in the past. According to  HRSA officials, the number of covered entities using contract pharmacies  has grown rapidly since its new multiple contract pharmacy guidance was  issued in March 2010—as of July 2011, there were over 7,000 contract  pharmacy arrangements in the program. Hospitals’ participation in the  340B program has also grown markedly in recent years. In 2011, the  number of hospitals participating in the program was nearly three times  what it was in 2005, and the number of these organizations, including  their affiliated sites, was close to four times what it was in 2005 (see   fig. 2). Further, although participation in the 340B program has  increased among other covered entity types over time, hospitals’  participation in the 340B program has grown faster than that of federal  grantees. In 2005, hospitals represented 10 percent of program  participants, and as of July 2011, they represented 27 percent.
Increased use of the 340B program by contract pharmacies and hospitals  may result in a greater risk of drug diversion, further heightening concerns  about HRSA’s reliance on participants’ self-policing to oversee the  program. Operating the 340B program in contract pharmacies creates  more opportunities for drug diversion compared to in-house pharmacies.  For example, contract pharmacies are more likely to serve both patients  of covered entities and others in the community; in these cases more  sophisticated inventory tracking systems must be in place to ensure that  340B drugs are not diverted—intentionally or unintentionally—to non- 340B patients.
Also, for a number of reasons, operating the 340B program in the hospital  environment creates more opportunities for drug diversion compared to  other covered entity types. First, hospitals operate 340B pharmacies in  settings where both inpatient and outpatient drugs are dispensed and  must ensure that inpatients do not get 340B drugs. Second, hospitals  tend to have more complex contracting arrangements and organizational  structures than other entity types—340B drugs can be dispensed in  multiple locations, including emergency rooms, on-site clinics, and off-site  clinics. In light of this and given HRSA’s nonspecific guidance on the  definition of a 340B patient, broad interpretations of the guidance may be  more likely in the hospital setting and diversion harder to detect. Third,  hospitals dispense a comparatively larger volume of drugs than other  entity types—while representing 27 percent of participating covered  entities, according to HRSA, DSH hospitals alone represent about   75 percent of all 340B drug purchases.
The increasing number of hospitals participating in the 340B program has  raised other concerns for some stakeholders we interviewed, such as  drug manufacturers, including whether all of these hospitals are in need  of a discount drug program. Nearly a third of all hospitals in the U.S.  currently participate in the 340B program, and HRSA estimates that more  may be eligible. The number of hospitals eligible to participate may  increase due to PPACA’s Medicaid expansion, because the number of  Medicaid patients served by a hospital affects its DSH adjustment  percentage—one factor that determines hospital eligibility. Further, one  organization we interviewed questioned whether the DSH adjustment  percentage is the best measure to determine hospitals’ eligibility for the  340B program, because of research indicating that it may not be an  adequate proxy for the amount of uncompensated care a hospital  provides. The DSH hospitals we interviewed reported a wide range of  payer mixes—with the percentage of Medicaid and uninsured patients  ranging from about 15 percent of total patient volume for one hospital to  about 85 percent for another. However, payer mix may not be the only  factor to consider when identifying hospitals that provide care to the  medically underserved and are part of the health care safety net. There is  no established definition of a safety net hospital, and some researchers  have argued that it should include factors other than payer mix, for  example the disproportionate provision of critical services, that are either  too expensive or unprofitable for other hospitals to provide, such as  emergency room or trauma care.
section_title: HRSA’s Plans to Improve Oversight of the 340B Program Are Uncertain and May Not Address All Areas of Concern
paragraphs: While PPACA’s 340B program integrity provisions address many of the  deficiencies in HRSA’s current approach to oversight, the agency has  taken few steps to implement these provisions. PPACA requires HRSA to  increase oversight of both covered entities and manufacturers, and  outlines specific steps for HRSA to take in accomplishing this goal. (See  table 2 for the 340B program integrity provisions included in PPACA.)  However, according to officials, the agency does not have adequate  funding to implement the integrity provisions. Officials also noted that  once funding is secured, it could take several years to develop the  systems and regulatory structure necessary to implement them.
Independent of the provisions in PPACA, HRSA also has recently  developed guidance to further specify the definition of a 340B patient.  While the Office of Management and Budget completed its review of this  definition in April 2011, as of August 2011, HRSA had not yet released it  for stakeholder comment. In 2007, HRSA also proposed updating this  guidance, but it was never finalized.
Even if HRSA implements PPACA’s provisions and updates its definition  of a patient, these steps may not be sufficient to address all areas of  concern. For example, PPACA specifically requires HRSA to conduct  selective audits of manufacturers, but it did not establish the same  requirement for audits of covered entities. As such, the effectiveness of  HRSA’s oversight of covered entities will, in part, be dependent on what  additional steps the agency takes to ensure program integrity. Similarly, if  in implementing PPACA’s provision prohibiting manufacturers from  discriminating against covered entities in the sale of 340B drugs, HRSA  does not add specificity to the existing nondiscrimination guidance, it may  be inadequate to ensure that all providers are able to equitably access  drugs, particularly when manufacturers restrict the distribution of drugs at  340B prices. Also, as part of its 2007 proposed guidance on the definition  of a patient, HRSA requested stakeholder comment on the elements that  should be required in private, nonprofit hospitals’ contracts with state or  local governments as well as the different situations in which hospitals  that are not publicly owned or operated should be formally granted  government powers. However, HRSA officials told us that they have not  issued additional guidance on these issues, and that they are not  addressed in the clarifying guidance on the definition of a patient currently  awaiting agency approval.
section_title: Conclusions
paragraphs: The 340B program allows certain providers within the U.S. health care  safety net to stretch federal resources to reach more eligible patients and  provide more comprehensive services, and we found that the covered  entities we interviewed reported using it for these purposes. However,  HRSA’s current approach to oversight does not ensure 340B program  integrity, and raises concerns that may be exacerbated by changes within  the program. According to HRSA, the agency largely relies on  participants’ self-policing to ensure compliance with program  requirements, and has never conducted an audit of covered entities or  drug manufacturers. As a result, HRSA may not know when participants  are engaging in practices that are not in compliance. Furthermore, we  found that HRSA has not always provided covered entities and drug  manufacturers with guidance that includes the necessary specificity on  how to comply with program requirements. There also is evidence to  suggest that participants may be interpreting guidance in ways that are  inconsistent with the agency’s intent. Finally, participants have little  incentive to comply with program requirements, because few have faced  sanctions for non-compliance. With the program’s expansion, program  integrity issues may take on even greater significance unless effective  mechanisms to monitor and address program violations, as well as more  specific guidance are put in place. For covered entities, this may be  particularly true in settings where there is heightened concern about the  opportunities for the diversion of 340B drugs.
PPACA outlined a number of provisions that, if implemented, will help  improve many of the 340B program integrity issues we identified. For  example, PPACA requires HRSA to recertify eligibility for all covered  entity types on an annual basis, which would help ensure entities that  lose eligibility for the program do not remain enrolled. Additionally,  PPACA requires HRSA to develop a formal dispute resolution process,  including procedures for covered entities to obtain information from  manufacturers, and maintain a centralized list of 340B prices—provisions  that would help ensure covered entities and manufacturers are better able  to identify and resolve suspected violations. PPACA also requires HRSA  to institute monetary penalties for covered entities and manufacturers,  which gives program participants more incentive to comply with program  requirements. Finally, PPACA requires HRSA to conduct more direct  oversight of manufacturers, including conducting selective audits to  ensure that they are charging covered entities the correct 340B price.
However, we identified other program integrity issues that HRSA should  also address. For example, the law does not require HRSA to audit  covered entities or further specify the agency’s definition of a 340B  patient. While HRSA has developed new proposed guidance on this  definition, it is uncertain when, or if, the guidance will be finalized.  Because the discounts on 340B drugs can be substantial, it is important  for HRSA to ensure that covered entities only purchase them for eligible  patients both by issuing more specific guidance and by conducting audits  of covered entities to prevent diversion. Additionally, while PPACA  included a provision prohibiting manufacturers from discriminating against  covered entities in the sale of 340B drugs, HRSA does not plan to make  any changes to or further specify its related nondiscrimination guidance.  Absent additional oversight by the agency, including more specific  guidance, access challenges covered entities have faced when  manufacturers’ have restricted distribution of IVIG at 340B prices may  continue and similar challenges could arise for other drugs in the future.
Also, current HRSA guidance may allow some entities to be eligible for  the program that should not be. Hospitals qualify for the 340B program in  part based on their DSH adjustment percentage. Even though the PHSA  establishes additional eligibility requirements for hospitals that are not  publicly owned or operated, these requirements are broad, and HRSA  has not issued more specific guidance to implement them. We found that  nearly a third of all hospitals in the U.S. are participating in the 340B  program, more are currently eligible and not participating, and more may  become eligible as Medicaid is expanded through PPACA. As the number  of covered entities enrolled in the 340B program increases and more  drugs are purchased at 340B prices, there is the potential for unintended  consequences, such as cost-shifting to other parts of the health care  system. As such, it is important that HRSA take additional action to  ensure that eligibility for the 340B program is appropriately targeted.  While HRSA officials reported that the agency does not have the  resources to implement the PPACA provisions or otherwise increase  oversight of the 340B program, limited resources could be prioritized to  address areas of greatest risk to the program.
section_title: Recommendations for Executive Action
paragraphs: PPACA contained several important program integrity provisions for the  340B program, and additional steps can also ensure appropriate use of  the program. Therefore, we recommend that the Secretary of HHS  instruct the administrator of HRSA to take the following four actions to  strengthen oversight:  conduct selective audits of 340B covered entities to deter potential  diversion;  finalize new, more specific guidance on the definition of a 340B  patient;  further specify its 340B nondiscrimination guidance for cases in which  distribution of drugs is restricted and require reviews of  manufacturers’ plans to restrict distribution of drugs at 340B prices;  and  issue guidance to further specify the criteria that hospitals that are not  publicly owned or operated must meet to be eligible for the 340B  program.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, HHS stated that it agreed with our  recommendations. HHS also had additional comments on several content  areas of the report, and we made changes as appropriate to address  these comments. (HHS’ comments are reprinted in appendix III.) Finally,  HHS provided technical comments, which we incorporated as  appropriate.
HHS stated that HRSA would continue to work on 340B program integrity  efforts and prioritize these efforts based on available funding. HHS also  outlined steps that HRSA plans to take in response to each of our  recommendations. While we appreciate HHS’ commitment to improving  oversight of the 340B program, we are concerned that the steps are not  sufficient to ensure adequate oversight.
With regard to our first recommendation that HRSA conduct selective  audits of covered entities to deter potential diversion, HHS stated that  HRSA will continue working with manufacturers to identify and address  potential diversion and implement a plan to better educate covered  entities about diversion. However, HHS did not state that HRSA will  conduct its own audits of covered entities and we reiterate the importance  of the agency doing so as part of its ongoing oversight responsibilities.
With regard to our second recommendation that HRSA finalize new, more  specific guidance on the definition of a 340B patient, HHS stated that  HRSA will review the draft of proposed guidance to update the definition  and revise this guidance in light of changes in PPACA. While we agree  that it may be important for HRSA to consider the impact of PPACA on  the definition, given that PPACA became law more than a year ago, and  the potential for broad interpretations of current guidance, we encourage  HRSA to complete its review in a timely fashion.
With regard to our third recommendation, that HRSA further specify its  non-discrimination guidance for cases in which distribution of drugs is  restricted and require reviews of manufacturers’ plans to restrict  distribution of drugs at 340B prices, HHS stated that HRSA will:  implement a plan to specify existing policy regarding 340B non- discrimination and drug distribution; provide clearer guidance to  manufacturers for working with HRSA and develop specific allocation  plans where needed; and continue to work with the Department of Justice  when fair, voluntary allocation plans are not developed. However, we are  concerned that these steps do not require reviews of manufacturers’  plans to restrict distribution of drugs at 340B prices. Without taking this  step, HRSA may not know when manufacturers are inequitably  distributing drugs to covered entities and non-340B providers.
With regard to our fourth recommendation that HRSA issue guidance to  further specify the criteria that hospitals that are not publicly owned or  operated must meet to be eligible for the 340B program, HHS stated that  HRSA will implement a plan to better educate covered entities on existing  criteria for hospital participation in the program and initiate a phased  approach to recertifying eligibility for all participating covered entities.  Here, we are concerned that these steps do not include further  specification of eligibility criteria for hospitals that are not publicly owned  or operated, because we determined that additional specification of  statutory requirements was needed to ensure that the 340B program is  appropriately targeted.
We are sending copies of this report to the Secretary of HHS and  appropriate congressional committees. In addition, the report is available  at no charge on the GAO web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or at draperd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Selection of Interviews with Program Stakeholders
subsections: section_title: Type of stakeholder
paragraphs: 29    27 were selected to take into account certain criteria:  Entity Type:    We selected five types of covered entities and specifically interviewed: 7 federally  qualified health centers (FQHC), 5 disproportionate share hospital (DSH) hospitals,  5 hemophilia treatment centers, 5 family planning clinics, and 5 AIDS Drug  Assistance Programs (ADAP). (See appendix II for a list of all entities eligible to  participate in the program.)    We picked these types based on:    variation in operational structure,    variation in services and drugs provided,    high levels of 340B participation,    experience with the program, and    potential difficulty accessing drugs at 340B prices.
Location:    We selected entities in five states: Illinois, Massachusetts, Tennessee, Texas, and  Utah.  States were selected based on variation in a number of factors, including:  geography, percent of uninsured individuals, and Medicaid reimbursement policies.  We included Massachusetts to gain a better understanding of the potential effect of  the Patient Protection and Affordable Care Act (PPACA) health insurance reforms  on the 340B program.    We used information provided by trade organizations representing covered entities to  help select individual covered entities to interview.  2 additional DSH hospitals were selected based on concerns raised in stakeholder interviews  about how these entities were using the program.  6    Selected based on market share and those that produce drugs with reported challenges  related to their distribution at 340B prices.
Includes 4 manufacturer trade organizations, 1 distributor, and 1 pharmacy benefits  manager.
section_title: Type of stakeholder
paragraphs: Interview details  Includes organizations representing providers, including covered entities and non-340B  providers:  9 organizations that represent covered entities, including 6 trade organizations and   3 private companies that provide services and information technology to help covered  entities establish and manage their 340B programs.  2 organizations representing non-340B providers, including 1 trade organization and   1 non-340B provider.  5 organizations that represent both covered entities and non-340B providers, including   3 trade organizations and 2 group purchasing organizations (GPO).  4    HRSA, the contractors that help administer the 340B program, and the Centers for Medicare  & Medicaid Services.
section_title: Appendix II: Select Information on Entities Eligible to Participate in the 340B Program
subsections: section_title: Entity type Federal Grantees
paragraphs: Number of  sites enrolled  by entity type  (July 1, 2011)
Administering  agency within  the Department  of Health Human  Services (HHS)
Urban or rural health  centers that provide  comprehensive  community-based  primary and preventive  care services to  medically underserved  populations. and Services  Administration  (HRSA)
Receives funds under title V of the  Indian Health Care Improvement  Act (25 U.S.C. §§1651 et seq.)
Provide a variety of  health programs to  eligible individuals.
Receives a grant or contract under  Section 1001 PHSA (42 U.S.C.  § 300)
Provide comprehensive  family planning  services.
Provide screening and  treatment for sexually  transmitted diseases.
Provide treatment for  tuberculosis.
Receives funds under the Native  Hawaiian Health Care Act of 1988  (42 U.S.C. §§ 11701 et seq.)
Provide comprehensive  health promotion and  disease prevention  services to Native  Hawaiians.
Receives financial assistance  under title XXVI of the PHSA   (42 U.S.C. §§ 300ff-11 et seq.)
Serve as a “payer of last  resort” to cover the cost  of providing HIV-related  medications to low- income individuals who  are uninsured or  underinsured and  cannot afford to pay for  drugs or who cannot  afford their health  insurance coverage for  drugs.
Number of  sites enrolled  by entity type  (July 1, 2011)
Administering  agency within  the Department  of Health Human  Services (HHS)
Description of covered  entity type  Provide primary care  and support services to  individuals with HIV or  AIDS.
Receives a grant under section  501(a)(2) of the Social Security  Act (42 U.S.C § 701(a)(2))
Provide medical care to  individuals with  hemophilia.
Black lung clinics  Receives funds under Section  427(a) of the Black Lung Benefits  Act (30 U.S.C. § 937(a))
Provide medical  treatment to individuals  disabled from  pneumoconiosis (black  lung) as a result of their  employment at U.S.  coal mines.
General acute care  hospitals paid under the  Medicare inpatient  prospective payment  system.
3,061 Centers for  Medicare &  Medicaid  Services (CMS)
Primarily provide  services to individuals  under 18 years of age.
DSH as defined under Section  1886(d)(1)(B) of the Social  Security Act (42 U.S.C.   § 1395ww(d)(1)(B)) with a DSH  adjustment percentage greater  than 11.75  Children’s hospital as described  under Section 1886 (d)(1)(B)(iii) of  the Social Security Act with a DSH  adjustment percentage greater  than 11.75  Critical access hospital as  determined under Section  1820(c)(2) of the Social Security  Act (42 U.S.C. § 1395i-4(c)(2))   (no DSH requirement)
Located in rural areas,  provide 24-hour  emergency care  services, and have no  more than 25 inpatient  beds.
Isolated from other  hospitals by distance,  weather, or travel  conditions.
Number of  sites enrolled  by entity type  (July 1, 2011)
Administering  agency within  the Department  of Health Human  Services (HHS)
Large rural hospitals  that provide services for  patients from a wide  geographic area.
Not a unit of another  hospital, has a primary  purpose of treating or  conducting research on  cancer.
section_title: Total
paragraphs: Not all FQHCs receive federal grants. Providers that meet all of the requirements for the FQHC  program but do not receive federal grants are referred to as FQHC look-alikes and are eligible to  participate in the 340B program.  This category includes: FQHC look-alikes; Consolidated Health Centers; Migrant Health Centers;  Health Care for the Homeless; Healthy Schools/Healthy Communities; Health Centers for Residents  of Public Housing; and Tribal Organizations created under the Indian Self Determination Act (Pub. L..  No. 93-638) and administered by the Indian Health Service.  Section 1905(l)(2)(B) of the Social Security Act includes outpatient health programs or facilities  operated by an urban Indian organization receiving funds under title V of the Indian Health Care  Improvement Act for the provision of primary health services in the definition of FQHCs.
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Gerardine Brennan, Assistant  Director; Jennie Apter; Kristin Ekelund; Kelli Jones; Dawn Nelson; Rachel  Svoboda; and Jennifer Whitworth made key contributions to this report.