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United States Government Accountability Office:
GAO: 

Report to Congressional Committees: 

September 2011: 

Drug Pricing: 

Manufacturer Discounts in the 340B Program Offer Benefits, but Federal 
Oversight Needs Improvement: 

GAO-11-836: 

GAO Highlights: 

Highlights of GAO-11-836, a report to congressional committees. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-11-836]. For more 
information, contact Debra A. Draper at (202) 512-7114 or 
draperd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

340B Revenue Generated by Covered Entities Varied, but All Entities 
Reported That the Program Was Used to Support or Expand Access to 
Services: 

Manufacturers' Distribution of Drugs at 340B Prices Generally Did Not 
Affect Providers' Access to Drugs Except in Two Situations: 

HRSA's Oversight of the 340B Program Is Inadequate: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Selection of Interviews with Program Stakeholders: 

Appendix II: Select Information on Entities Eligible to Participate in 
the 340B Program: 

Appendix III: Comments from the Department of Health and Human 
Services: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: HRSA's Definition of a Patient Eligible for Discounted Drugs 
under the 340B Program: 

Table 2: Key 340B Program Integrity Provisions Included in PPACA: 

Figures: 

Figure 1: Growth in Covered Entity Sites, 2001 to 2011: 

Figure 2: 340B Program Participation among Hospitals and Their 
Affiliated Sites, 2005 and 2011: 

Abbreviations: 

ADAP: AIDS Drug Assistance Program: 

CMS: Centers for Medicare & Medicaid Services: 

DSH: disproportionate share hospital: 

FQHC: federally qualified health center: 

GPO: group purchasing organization: 

HHS: Department of Health and Human Services: 

HRSA: Health Resources and Services Administration: 

IVIG: intravenous immune globulin: 

PHSA: Public Health Service Act: 

PPACA: Patient Protection and Affordable Care Act: 

PSSC: Pharmacy Services Support Center: 

PVP: Prime Vendor Program: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 23, 2011: 

The Honorable Tom Harkin: 
Chairman: 
The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Fred Upton: 
Chairman: 
The Honorable Henry A. Waxman: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

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.[Footnote 1] 
The program, created in 1992 and named for the statutory provision 
authorizing it in the Public Health Service Act (PHSA),[Footnote 2] 
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.[Footnote 3] 

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.[Footnote 4] 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.[Footnote 5] 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.[Footnote 6] As of July 2011, there 
were more than 16,500 covered entity sites enrolled in the program-- 
about double the number reported in 2001.[Footnote 7] 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.[Footnote 8] 
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.[Footnote 9] 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,[Footnote 10] 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.[Footnote 11] 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.[Footnote 12] 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.[Footnote 13] 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),[Footnote 
14] 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[Footnote 15]--in this report 
we refer to these hospitals as DSH hospitals.[Footnote 16] 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.[Footnote 17] 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.[Footnote 18] 
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.[Footnote 19] 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. 

Background: 

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.[Footnote 20] HRSA, through its Office of 
Pharmacy Affairs, is responsible for administering and overseeing the 
340B program,[Footnote 21] 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.[Footnote 22] 

Program Participants: 

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 
figure 1). 

Figure 1: Growth in Covered Entity Sites, 2001 to 2011: 

[Refer to PDF for image: vertical bar graph] 

Year: 2001; 
Number of covered entity sites: 8,605. 

Year: 2002; 
Number of covered entity sites: 9,193. 

Year: 2003; 
Number of covered entity sites: 10,325. 

Year: 2004; 
Number of covered entity sites: 11,442. 

Year: 2005; 
Number of covered entity sites: 12,162. 

Year: 2006; 
Number of covered entity sites: 11,926. 

Year: 2007; 
Number of covered entity sites: 12,404. 

Year: 2008; 
Number of covered entity sites: 13,139. 

Year: 2009; 
Number of covered entity sites: 14,076. 

Year: 2010; 
Number of covered entity sites: 14,725. 

Year: 2011; 
Number of covered entity sites: 16,572. 

Source: GAO analysis of HRSA data. 

[End of figure] 

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,[Footnote 23] 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.[Footnote 24] 

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.[Footnote 25] 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,[Footnote 26] 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.[Footnote 27] 

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. 

Program Structure and Operation: 

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.[Footnote 28] 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;[Footnote 29] 
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.[Footnote 30] 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.[Footnote 31] 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. 

Key Program Requirements: 

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. 

Table 1: HRSA's Definition of a Patient Eligible for Discounted Drugs 
under the 340B Program: 

Criteria for patient eligibility[A]: 

1. The covered entity has established a relationship with the 
individual, such that the covered entity maintains records of the 
individual's health care. 

2. The individual receives health care services from a health care 
professional who is either employed by the covered entity or provides 
health care under contractual or other arrangements (e.g., referral 
for consultation) such that responsibility for the care provided 
remains with the covered entity[B]. 

3. The individual receives a health care service or range of services 
from the covered entity which is consistent with the service or range 
of services for which grant funding or FQHC look-alike status has been 
provided.[C] 

Source: GAO analysis of HRSA guidance. 

Notes: HRSA guidance on the definition of a patient eligible for 
discounted drugs under the 340B program was issued in 1996. See Notice 
Regarding Section 602 of the Veterans Health Care Act of 1992 Patient 
and Entity Eligibility, 61 Fed. Reg. 207, 55156 (Oct. 24, 1996). 

[A] These criteria do not apply to ADAPs; rather, an individual will 
be considered a patient of an ADAP if enrolled in the ADAP program. 

[B] An individual is not considered a patient if the only health care 
service received from the covered entity is the dispensing of a drug 
or drugs for subsequent self-administration or administration in the 
home setting. 

[C] DSH hospitals are exempt from this requirement. 

[End of table] 

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).[Footnote 32] 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. 

340B Revenue Generated by Covered Entities Varied, but All Entities 
Reported That the Program Was Used to Support or Expand Access to 
Services: 

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. 

About Half of Covered Entities Reported Generating 340B Revenue That 
Exceeded Drug-Related Costs, and Revenue Generated Depended on Several 
Factors: 

Thirteen of the 29 covered entities we interviewed reported that they 
generated revenue through the 340B program that exceeded drug-related 
costs.[Footnote 33] 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:[Footnote 34] 

* 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.[Footnote 35] 
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.[Footnote 36] 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.[Footnote 37] 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.[Footnote 38] 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,[Footnote 
39] 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.[Footnote 
40] 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. 

Covered Entities Reported Using the 340B Program to Support or Expand 
Access to Services: 

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; 
[Footnote 41] 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.[Footnote 42] 

Manufacturers' Distribution of Drugs at 340B Prices Generally Did Not 
Affect Providers' Access to Drugs Except in Two Situations: 

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.[Footnote 43] The two situations 
were: (1) for intravenous immune globulin (IVIG), a lifesaving immune 
deficiency drug, the supply of which is inherently limited;[Footnote 
44] 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.[Footnote 45] 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, 
[Footnote 46] or from GPOs.[Footnote 47] 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.[Footnote 48] 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. 
[Footnote 49] 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.[Footnote 50] 

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. 

HRSA's Oversight of the 340B Program Is Inadequate: 

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. 

HRSA's Oversight Is Inadequate to Ensure Participants' Compliance with 
340B Program Requirements: 

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.[Footnote 51] 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.[Footnote 52] 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.[Footnote 53] 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.[Footnote 54] 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.[Footnote 55] 

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.[Footnote 56] 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.[Footnote 57] 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.[Footnote 58] 

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.[Footnote 59] 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.[Footnote 60] 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. 

Changes in the Settings Where the 340B Program Is Used May Heighten 
Concerns about HRSA's Inadequate Oversight: 

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.[Footnote 61] 
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 figure 2).[Footnote 62] 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. 

Figure 2: 340B Program Participation among Hospitals and Their 
Affiliated Sites, 2005 and 2011: 

[Refer to PDF for image: vertical bar graph] 

Hospitals: 
2005: 591; 
2011: 1,673. 

Hospitals and affiliated sites: 
2005: 1,233; 
2011: 4,426. 

Source: GAO analysis of HRSA data. 

Note: 2005 was the earliest year data were reliable for hospitals 
without their affiliated sites. 

[End of figure] 

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.[Footnote 63] 

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.[Footnote 64] 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.[Footnote 65] 
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.[Footnote 66] 

HRSA's Plans to Improve Oversight of the 340B Program Are Uncertain 
and May Not Address All Areas of Concern: 

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. 

Table 2: Key 340B Program Integrity Provisions Included in PPACA: 

Program participant: Covered entities; 
Requirements for HRSA: Conduct annual recertification of eligibility 
for all covered entity types; 
Required start date: Not specified[A]; 
Implementation status as of August 2011: Developing implementation 
plan[B]. 

Program participant: Covered entities; 
Requirements for HRSA: Develop more detailed guidance on the 
procedures covered entities can follow to avoid the Medicaid duplicate 
discount; 
Required start date: Not specified[A]; 
Implementation status as of August 2011: Not started. 

Program participant: Covered entities; 
Requirements for HRSA: Establish a standard identification system for 
all covered entities by which each covered entity site can be 
identified for the purposes of ordering, purchasing, and delivery of 
340B drugs; 
Required start date: Not specified[A]; 
Implementation status as of August 2011: Not started. 

Program participant: Covered entities; 
Requirements for HRSA: Impose certain sanctions on covered entities 
that knowingly and intentionally divert 340B drugs, by one or more of 
the following: 
* requiring a covered entity to pay manufacturers interest on the 
discounts they received for those drugs; 
* if the violation was also systematic and egregious, terminating the 
covered entity from the program and prohibiting re-enrollment for a 
period of time; and; 
* referral to federal authorities; 
Required start date: Not specified[A]; 
Implementation status as of August 2011: Not started. 

Program participant: Manufacturers; 
Requirements for HRSA: Improve mechanisms to ensure manufacturers 
charge the correct 340B prices on drugs, including: 
* making a centralized list of HRSA-verified 340B prices available to 
covered entities; 
* conducting selective audits of manufacturers, and; 
* establishing procedures by which manufacturers repay covered 
entities for overcharges; 
Required start date: Not specified[A]; 
Implementation status as of August 2011: Not started. 

Program participant: Manufacturers; 
Requirements for HRSA: Impose civil monetary penalties on 
manufacturers that knowingly and intentionally charge covered entities 
more than the 340B price; 
Required start date: Must issue regulations 180 days after enactment; 
Implementation status as of August 2011: Issued advanced notice of 
proposed rulemaking. 

Program participant: Both; 
Requirements for HRSA: Develop a formal dispute resolution process, 
including: 
* establishing procedures for covered entities to obtain information 
from manufacturers,[C] and; 
* requiring manufactures to audit covered entities prior to submitting 
a request to initiate the dispute resolution process; 
Required start date: Must issue regulations 180 days after enactment; 
Implementation status as of August 2011: Issued advanced notice of 
proposed rulemaking. 

Source: GAO analysis of Pub. L. No. 111-148, § 7102, 124 Stat. 119, 
823 and interviews with HRSA officials. 

[A] PPACA provides that these activities are to be conducted from 
amounts appropriated under a new authorization of appropriations. As 
of August 2011, no such appropriations have occurred. 

[B] HRSA officials told us that the Office of Pharmacy Affairs' fiscal 
year 2011 budget allowed for the planning of a phased approach to 
recertification of all entity types, which is scheduled to begin in 
the fall of 2011. As of August 2011, officials were not able to tell 
us which entity types would be phased in first. 

[C] Prior to PPACA, covered entities did not have access to 340B 
pricing data in order to monitor manufacturers because the Social 
Security Act prohibited the disclosure of the data by HRSA and state 
Medicaid agencies. 42 U.S.C. § 1396r-8(b)(3)(D). PPACA added a 
provision to Section 340B requiring that covered entities be allowed 
access to 340B pricing data. Pub. L. No. 111-148, § 7102(a), 124 Stat. 
119, 824 (adding 42 U.S.C. § 256b(d)(1)(iii)). 

[End of table] 

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.[Footnote 
67] 

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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 [hyperlink, 
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. 

Signed by: 

Debra A. Draper: 
Director, Health Care: 

[End of section] 

Appendix I: Selection of Interviews with Program Stakeholders: 

Type of stakeholder: Covered entities; 
Number of stakeholders interviewed: 29; 
Interview details: 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[A]; 
- 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[B]; 
* 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. 

Type of stakeholder: Drug manufacturers; 
Number of stakeholders interviewed: 6; 
Interview details: Selected based on market share and those that 
produce drugs with reported challenges related to their distribution 
at 340B prices. 

Type of stakeholder: Organizations representing drug manufacturers and 
others involved in drug distribution; 
Number of stakeholders interviewed: 6; 
Interview details: Includes 4 manufacturer trade organizations, 1 
distributor, and 1 pharmacy benefits manager[C]. 

Type of stakeholder: Organizations representing providers; 
Number of stakeholders interviewed: 16; 
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)[D]. 

Type of stakeholder: Federal agencies and contractors; 
Number of stakeholders interviewed: 4; 
Interview details: HRSA, the contractors that help administer the 340B 
program, and the Centers for Medicare & Medicaid Services. 

Type of stakeholder: Total; 
Number of stakeholders interviewed: 61. 

Source: GAO. 

[A] Medicaid is a joint federal-state program that finances health 
care for certain categories of low-income individuals. 

[B] In 2006, Massachusetts implemented comprehensive state-level 
health insurance reform that was similar to PPACA's national-level 
reform. 

[C] Distributors manage the sale of drugs to purchasers on behalf of 
manufacturers. Pharmacy benefit managers administer the prescription 
drug benefits of health insurance plans on behalf of plan sponsors. 

[D] GPOs contract with providers, such as hospitals, and, on behalf of 
their members, aggregate purchasing volume to negotiate discounts on 
drugs from drug manufacturers or distributors. 

[End of table] 

[End of section] 

Appendix II: Select Information on Entities Eligible to Participate in 
the 340B Program: 

Federal Grantees: 

Entity type: Federally-qualified health center (FQHC)[B,C]; 
How entity qualifies for 340B: Receives a section 330 grant under the 
Public Health Service Act (PHSA) (42 U.S.C. § 254b); meets the 
requirements to receive such a grant; or is an outpatient health 
program or facility operated by certain tribal or urban Indian 
organizations; 
Description of covered entity type: Urban or rural health centers that 
provide comprehensive community-based primary and preventive care 
services to medically underserved populations; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 4,826; 
Administering agency within the Department of Health Human Services 
(HHS): Health Resources and Services Administration (HRSA). 

Entity type: Urban Indian organizations[E]; 
How entity qualifies for 340B: Receives funds under title V of the 
Indian Health Care Improvement Act (25 U.S.C. §§1651 et seq.); 
Description of covered entity type: Provide a variety of health 
programs to eligible individuals; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 26; 
Administering agency within the Department of Health Human Services 
(HHS): Indian Health Service. 

Entity type: Family planning clinics (Title X); 
How entity qualifies for 340B: Receives a grant or contract under 
Section 1001 PHSA (42 U.S.C. § 300); 
Description of covered entity type: Provide comprehensive family 
planning services; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 3,868; 
Administering agency within the Department of Health Human Services 
(HHS): Office of Population Affairs. 

Entity type: Sexually transmitted diseases grantee; 
How entity qualifies for 340B: Receives funds under Section 318 of the 
PHSA (42 U.S.C. § 247c) and is certified by the Secretary of HHS; 
Description of covered entity type: Provide screening and treatment 
for sexually transmitted diseases; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 1,472; 
Administering agency within the Department of Health Human Services 
(HHS): Centers for Disease Control and Prevention. 

Entity type: Tuberculosis grantee; 
How entity qualifies for 340B: Receives funds under Section 317E of 
the PHSA (42 U.S.C. § 247b-6) and is certified by the Secretary of HHS; 
Description of covered entity type: Provide treatment for tuberculosis; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 1,221; 
Administering agency within the Department of Health Human Services 
(HHS): Centers for Disease Control and Prevention. 

Entity type: Native Hawaiian Health Centers; 
How entity qualifies for 340B: Receives funds under the Native 
Hawaiian Health Care Act of 1988 (42 U.S.C. §§ 11701 et seq.); 
Description of covered entity type: Provide comprehensive health 
promotion and disease prevention services to Native Hawaiians; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 11; 
Administering agency within the Department of Health Human Services 
(HHS): HRSA. 

Entity type: State-operated Ryan White AIDS Drug Assistance Program 
(ADAP); 
How entity qualifies for 340B: Receives financial assistance under 
title XXVI of the PHSA (42 U.S.C. §§ 300ff-11 et seq.); 
Description of covered entity type: 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; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 90[F]; 
Administering agency within the Department of Health Human Services 
(HHS): HRSA. 

Entity type: Other Ryan White grantees; 
How entity qualifies for 340B: Receives a grant under Part C of title 
XXVI of the PHSA or non-governmental grantees that receive any 
financial assistance under title XXVI of the PHSA if certified by the 
Secretary of HHS; 
Description of covered entity type: Provide primary care and support 
services to individuals with HIV or AIDS; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 520; 
Administering agency within the Department of Health Human Services 
(HHS): HRSA. 

Entity type: Hemophilia treatment centers; 
How entity qualifies for 340B: Receives a grant under section 
501(a)(2) of the Social Security Act (42 U.S.C § 701(a)(2)); 
Description of covered entity type: Provide medical care to 
individuals with hemophilia; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 99; 
Administering agency within the Department of Health Human Services 
(HHS): HRSA. 

Entity type: Black lung clinics; 
How entity qualifies for 340B: Receives funds under Section 427(a) of 
the Black Lung Benefits Act (30 U.S.C. § 937(a)); 
Description of covered entity type: Provide medical treatment to 
individuals disabled from pneumoconiosis (black lung) as a result of 
their employment at U.S. coal mines; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 13; 
Administering agency within the Department of Health Human Services 
(HHS): HRSA. 

Hospitals: 

Entity type: Disproportionate share hospitals (DSH); 
How entity qualifies for 340B: 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[G]; 
Description of covered entity type: General acute care hospitals paid 
under the Medicare inpatient prospective payment system; 
Year added to 340B program: 1992[D]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 3,061; 
Administering agency within the Department of Health Human Services 
(HHS): Centers for Medicare & Medicaid Services (CMS). 

Entity type: Children's hospitals; 
How entity qualifies for 340B: 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[G]; 
Description of covered entity type: Primarily provide services to 
individuals under 18 years of age; 
Year added to 340B program: 2006[H]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 147; 
Administering agency within the Department of Health Human Services 
(HHS): CMS. 

Entity type: Critical access hospitals; 
How entity qualifies for 340B: 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)[G]; 
Description of covered entity type: Located in rural areas, provide 24-
hour emergency care services, and have no more than 25 inpatient beds; 
Year added to 340B program: 2010[I]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 941; 
Administering agency within the Department of Health Human Services 
(HHS): CMS and HRSA. 

Entity type: Sole Community Hospitals; 
How entity qualifies for 340B: Sole community hospital as defined 
under Section 1886(d)(5)(D)(iii) of the Social Security Act (42 U.S.C. 
§ 1395ww(d)(5)(D)(iii))with a DSH adjustment percentage equal to or 
greater than 8[G]; 
Description of covered entity type: Isolated from other hospitals by 
distance, weather, or travel conditions; 
Year added to 340B program: 2010[I]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 200; 
Administering agency within the Department of Health Human Services 
(HHS): CMS and HRSA. 

Entity type: Rural Referral Centers; 
How entity qualifies for 340B: Rural referral center as defined under 
Section 1886(d)(5)(C)(i) of the Social Security Act (42 U.S.C. 
§1395ww(d)(5)(C)(i)) with a DSH adjustment percentage equal to or 
greater than 8[G]; 
Description of covered entity type: Large rural hospitals that provide 
services for patients from a wide geographic area; 
Year added to 340B program: 2010[I]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 72; 
Administering agency within the Department of Health Human Services 
(HHS): CMS and HRSA. 

Entity type: Free-standing cancer hospitals; 
How entity qualifies for 340B: Free-standing cancer hospital as 
described under Section 1886 (d)(1)(B)(v) of the Social Security Act 
(42 U.S.C. § 1395ww(d)(1)(B(v))with a DSH adjustment percentage 
greater than 11.75[G]; 
Description of covered entity type: Not a unit of another hospital, 
has a primary purpose of treating or conducting research on cancer; 
Year added to 340B program: 2010[I]; 
Number of sites enrolled by entity type (July 1, 2011)[A]: 5; 
Administering agency within the Department of Health Human Services 
(HHS): CMS. 

Total: 
Number of sites enrolled by entity type (July 1, 2011)[A]: 16,572. 

Source: GAO analysis of federal laws and regulations. 

[A] Data are the most recent available from HRSA's covered entity 
database and represent both covered entities and their associated 
sites. Because a covered entity may enroll under any and all eligible 
grant types it receives, it is possible that a site is reflected in 
the database more than once. However, HRSA estimates that this overlap 
represents less than 5 percent of all listings in the database. 

[B] 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. 

[C] 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. 

[D] Eligible to participate in the 340B program from its inception. 
See Pub. L. No. 102-585, § 602, 106 Stat. 4943, 4967. 

[E] 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. 

[F] According to HRSA, some states have both direct purchase and 
rebate programs, which are counted separately in the 340B covered 
entity database, which is the reason for the difference in the number 
of ADAPs in the database versus the number of states that have ADAP 
programs overall. 

[G] Facility must also 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. 
Medicaid is the joint federal-state program that finances health care 
for certain low-income people, and Medicare is the federal health care 
program for the elderly and disabled. Children's hospitals and free-
standing cancer hospitals do not receive payments under Medicare's 
inpatient prospective payment system; however, they must have a payer 
mix that would result in a DSH adjustment percentage greater than 
11.75 percent. Facilities except critical access hospitals, Rural 
Referral Centers, and Sole Community Hospitals, must not obtain 
covered outpatient drugs through group purchasing. 

[H] While PPACA explicitly added children's hospitals to the list of 
covered entities under the 340B program in the PHSA, they were 
originally made eligible under the Social Security Act through the 
Deficit Reduction Act of 2005. Pub. L. No. 109-171, § 6004, 120 Stat. 
4, 61 (2006). 

[I] Became eligible to participate in the 340B program under PPACA. 
Pub. L. No. 111-148, § 7101, 124 Stat. 119, 821 as amended by the 
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111- 
152, § 2302,124 Stat.1029, 1082. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Health and Human 
Services: 

Note: Page numbers in the draft report may differ from those in this 
report. 

Department Of Health & Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

September 7, 2011: 

Debra A. Draper: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. Draper: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) draft report entitled: "Drug Pricing: Manufacturer Discounts in 
the 340B Program Offer Benefits, but Federal Oversight Needs 
Improvement" (GA0-11-836). 

The Department appreciates the opportunity to review this report 
before its publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

[End of letter] 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled, 
"Drug Pricing: Manufacturer Discounts In The 340B Program Offer 
Benefits, But Federal Oversight Needs Improvement" (GA0-11-836): 

The Department appreciates the opportunity to review and comment on 
this draft report. We offer the following general comments on several 
content areas of the report: 

The extent to which covered entities generate 340B revenue, factors 
that affect their revenue generation, and how entities use the program: 

On Page 16, the report states that in Massachusetts where the state 
implemented universal health care, low-income patients gained private 
insurance, but "these patients often could not afford associated 
copayment or deductibles and the entity covered these costs". HRSA 
requests that the report reflect that this finding is consistent with 
the Health Resources and Services Administration's (HRSA) assessment 
that low-income patients will continue to require such assistance and 
the covered entities will provide valuable services to the safety net 
community. 

On Page 18, the report states that "Even though the uses of revenue 
generated through the 340B Program were for similar purposes, some 
covered entities relied on 340B revenue more than others." The report 
goes on to state differences in revenue for FQHCs versus hemophilia 
centers. HRSA requests that the following explanation be incorporated 
into the report: Because each 340B entity type is unique in the types 
of services it provides and the patients it treats, the drug purchases 
of each entity type vary greatly (i.e., generics versus brand or 
certain specialty drugs); therefore, their savings will also vary 
greatly. 

Regarding how manufacturers' distribution of drugs at 340B prices 
affects providers' access to drugs, whether those providers are 
covered entities or non-340B providers: 

On Page 20, the report states that "One IVIG manufacturer reported 
that it restricted its distribution of IVIG by allocating its supply 
based on the amount of drug purchased by providers in 2004--allocating 
95 percent of the projected monthly sales to non-340B providers and 
the remaining 5 percent to covered entities at the 340B Price" and 
"this manufacturer states that its distribution was fair and changing 
the distribution plans to increase the amount of IVIG drugs available 
at 340B prices could negatively affect non-340B providers' access to 
the drugs." HRSA requests that the report be edited to include: 

"HRSA does not believe that using the 2004 allocation of 95 percent to 
non-340B providers and 5 percent to 340B providers for a critical life 
saving drug is fair or sufficient. In 2005, there were 77 Hemophilia 
Treatment Centers and 591 Disproportionate Share Hospitals (DSH) 
purchasing IVIG through the 340B Program. This number has increased 
significantly to 99 Hemophilia Treatment Centers and 1,673 hospitals 
that now include children's hospitals, critical access hospitals, 
disproportionate share hospitals, free standing cancer hospitals, and 
rural referral centers. The allocation of IVIG drugs to 340B providers 
needs to be correlated to the increase in the 340B hospitals, as many 
of the same hospitals that purchased IVIG with no problems as non-340B 
providers in 2004 are now having tremendous difficulty in purchasing 
IVIG in 2011 as 340B providers. With 340B hospitals representing 
almost 33 percent of the hospitals of in the U.S. in 2011, 5 percent 
allocation for a life saving drug is not adequate." 

On Page 21, the report states that some covered entities have 
stockpiled drugs when the price of a drug dropped. HRSA recommends 
that the report note that HRSA has worked with manufacturers in the 
past during an expected drop in price to develop an allocation process 
that is equitable across 340B and non-340B entities to prevent 
stockpiling. In addition, HRSA also encourages manufacturers to work 
with the agency to develop allocation processes to prevent issues with 
stockpiling. 

HRSA's oversight of the 340B Program: 

On Page 24, the report states that HRSA has not issued guidance 
specifying the criteria under which hospitals that are not publicly 
owned or operated can qualify for the 340B program. HRSA requests that 
the report reflect that while HRSA has not published formal guidance 
in this area, HRSA has both criteria and a process in place to ensure 
hospitals satisfy 340B requirements. These criteria are utilized 
during the enrollment process and include: 

* The criteria for hospital eligibility to participate in the 340B 
Program is outlined in section 340B(a)(4)(L)(i) which states the 
hospital "is owned or operated by a unit of State or local government, 
is a public or private non-profit corporation which is formally 
granted governmental powers by a unit of State or local government, or 
is a private non-profit hospital which has a contract with a State or 
local government to provide health care services to low income 
individuals who are not entitled to benefits under title XVIII of the 
Social Security Act or eligible for assistance under the State plan 
under this title." This information is on the HRSA Office of Pharmacy 
Affairs (OPA) website. 

* Prior to enrolling a hospital into the Program, OPA verifies that 
the hospital meets the three statutory requirements for participation 
in the 340B program: 1) nonprofit status is verified by IRS 
documentation; 2) DSH eligibility, if applicable, is verified by the 
Medicare-cost report and 3) private hospitals must have a contract 
with state or local governments to provide health care services to low 
income individuals who are not entitled to benefits under Title XVIII 
of the Social Security Act or eligible for assistance under the State 
plan of Title XIX of the Social Security Act. As part of the 
registration process, the hospital must submit a form that attests to 
the aforementioned statement that is signed by both an authorized 
public official and a hospital executive. Contracts are selectively 
reviewed if further clarification is necessary. 

* OPA provides hospitals a list of recommendations during the 
enrollment process that can be used in developing a contract. HRSA 
strongly recommends and encourages the covered entity to seek legal 
counsel when preparing these contracts. 

On page 24, the report states that some stakeholders expressed concern 
about the application of the requirements against non-discrimination. 
The conclusion of the report states that absent additional guidance, 
"access challenges covered entities have faced when manufacturers' 
have restricted distribution of certain drugs at 340B prices may 
continue." The language in the conclusion suggests that several 
challenges are known and identified; however, in its report the only 
access challenges identified involved IVIG. HRSA has been working with 
the Department of Justice (DOJ) to evaluate and improve access to IVIG 
for 340B entities. HRSA recommends that GAO provide additional detail 
regarding the access challenges found in order for HRSA to address 
these concerns and take appropriate action. 

On Page 25, the report states that HRSA verifies eligibility for 340B 
at enrollment, but does not periodically recertify eligibility for all 
covered entity types. HRSA requests that the report reflect that HRSA 
has been meeting the statutory requirement; HRSA recertified and 
continues to recertify STD, TB, and HIV/AIDS programs annually as 
expressly required under section 340B (a)(7) of the Public Health 
Services Act (42 U.S.C. 256b). These were the only entities that 
required annual certification by the Secretary prior to the PPACA. In 
addition, HRSA monitors DSH percentages and FQHC grant status on a 
quarterly basis. Each quarter OPA verifies the proprietary status of 
participating hospitals by matching its list of participating 
hospitals with CMS's list of hospitals to ensure that ineligible 
private hospitals are not participating. As a result of the PPACA, 
HRSA is required to annually recertify all 340B covered entities. 
OPA's FY2011 budget of $4.4M will allow for the planning of and 
initiation of a phased approach to recertification to begin in fall of 
2011. 

On Page 31, footnote (a) states that no appropriation has occurred for 
annual recertification. HRSA recommends that this statement be 
replaced with the following, "HRSA program FY2011 budget of $4.4M will 
allow for the planning and initiation of a phased approach to 
recertification to begin in fall 2011." 

On Page 32, the report states that the PPACA specifically requires 
HRSA to conduct selective audits of manufacturers but it did not 
establish the same requirement for audits of covered entities. HRSA 
requests that the report clarify that the agency has had the authority 
to audit covered entities under section 340B(a)(5)(C) of the Public 
Health Service Act since the inception of the program. 

GAO Recommendations: 

HRSA agrees with the recommendations and will continue to build on 
program integrity efforts and work to prioritize efforts based on 
funding. Implementation of a cost recovery fee as outlined in the FY 
2012 President's budget would allow for the initiation of the 
implementation of all recommendations and program integrity provisions 
outlined in PPACA. The 340B Drug Pricing program integrity risk 
assessment is scheduled to begin in the fall of 2011.
GAO Recommendation #1: Conduct selective audits of 340E covered 
entities to deter potential diversion. 

HRSA Actions: 

* HRSA and the manufacturers have the authority to audit 340B covered 
entities. HRSA will continue to work with the manufacturers to 
identify potential diversion and work with manufacturers to develop 
audit plans where evidence suggests potential diversion may be 
occurring. 

* HRSA will develop and implement a comprehensive educational and 
communication plan which will build on existing tools and resources, 
such as targeted webinars on diversion, peer to peer learning, FAQs, 
policy letters to covered entities, and more assistance to covered 
entities in assessing risk. 

GAO Recommendation #2: Finalize new, more specific guidance on the 
definition of a 340B patient. 

HRSA Actions: 

* HRSA will review the draft of the proposed patient definition 
guidelines in view of PPACA changes and develop revised guidelines for 
publication. 

Recommendation #3: Further specify its 340B 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. 

HRSA Actions: 

* HRSA will develop and implement a comprehensive educational and 
communication plan which will specify the existing policy regarding 
340B nondiscrimination and drug distribution to include, webinars, and 
policy letters to manufacturers regarding non-discrimination guidance. 

* HRSA will continue to work with manufacturers to provide clearer 
guidance for manufacturers on working with HRSA and develop specific 
allocation plans where needed. 

* HRSA will continue to work with DOJ when fair, voluntary allocation 
plans are not developed. 

Recommendation #4: 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. 

HRSA Actions: 

* HRSA will further publicize its existing criteria for hospital 
participation in the 340B program by placing the criteria and process 
on the program website and issuing policy letters to affected covered 
entities outlining these criteria. 

* HRSA will initiate a phased approach to recertification for all 
participating entities, including hospitals, beginning in fall of 
2011. This recertification process will enable HRSA to verify that 
hospitals continue to meet the statutory requirements for program 
participation. 

* HRSA will develop and implement a comprehensive educational and 
communication plan which will build on existing tools and resources 
such as targeted webinars on the hospital criteria, peer to peer 
learning, FAQs, and letters to covered entities. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Debra A. Draper, (202) 512-7114 or draperd@gao.gov: 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] Outpatient drugs covered under the 340B program may include: 
prescription drugs approved by the Food and Drug Administration; 
certain over-the-counter drugs provided as prescriptions; biological 
products, other than vaccines, that can be dispensed only by a 
prescription; and insulin approved by the Food and Drug 
Administration. 42 U.S.C. §§ 256b(b)(2), 1396r-8(k)(2). When payment 
for an outpatient drug is bundled with payment for other services, the 
drug is not covered by the 340B program. 

[2] 42 U.S.C. § 256b. 

[3] Medicaid is a joint federal-state program that finances health 
care for certain categories of low-income individuals. Medicaid 
programs vary from state to state. 

[4] HRSA bases this view on language in a House Energy and Commerce 
Committee Report pertaining to language similar to what eventually 
became section 340B of the PHSA. See H. Rep. No. 102-384, Pt. 2, at 12 
(1992) (discussing bill to amend the Social Security Act); See also 
Veterans Health Care Act of 1992, Pub. L. No. 102-585, § 602(a), 106 
Stat. 4943, 4967 (adding section 340B to the PHSA). 

[5] For this report, we define 340B revenue as all monies received by 
covered entities for drugs they purchase at the 340B price, whether or 
not the revenue meets or exceeds the costs paid for the drugs. 

[6] In 1996, HRSA issued a definition of a 340B patient that defines 
the situations under which covered entities can use drugs purchased at 
340B prices for their patients. While income and insurance status do 
not dictate whether a patient is eligible under the program, certain 
patients, such as those who do not receive health care services 
consistent with the scope of a grant that made an entity eligible for 
the program or those whose only service from the covered entity is the 
dispensing of drugs, are prohibited from receiving drugs purchased at 
the 340B price. Notice Regarding Section 602 of the Veterans Health 
Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg. 55156 
(Oct. 24, 1996). 

[7] Data are the most recent available from HRSA's covered entity 
database and represent both unique covered entities and all their 
eligible sites, such as satellite clinics. According to HRSA, there 
are about 3,200 unique organizations currently participating in the 
program--the agency was unable to provide historical data on unique 
organizations for all entity types. Additionally, because a covered 
entity may enroll under any and all eligible grant types it receives, 
it is possible that certain unique organizations and eligible sites 
are reflected in the database more than once. However, HRSA estimates 
that this overlap represents less than 5 percent of all listings in 
the database. 

[8] 42 U.S.C. § 256b(a)(5)(B). 

[9] Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Entity Guidelines, 58 Fed. Reg. 68922 (Dec. 29, 1993). 

[10] According to HRSA, while there are no 340B-specific requirements, 
all covered entities eligible for the program based on their grantee 
status may be required to use 340B revenue in accordance with their 
grant requirements. 

[11] Entities that became eligible for the 340B program through PPACA 
include certain critical access hospitals, sole community hospitals, 
rural referral centers, and freestanding cancer hospitals. See Pub. L. 
No. 111-148, § 7101, 124 Stat. 119, 821 (2010) as amended by the 
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-
152, § 2302, 124 Stat. 1029, 1082. 

[12] Pub. L. No, 111-148, § 7102(b). 

[13] For this report, we consider providers as having access to a drug 
if they are able to obtain the amount necessary to meet the needs of 
their patients--for covered entities this includes being able to 
obtain the drug at the 340B price. 

[14] FQHCs are urban or rural health centers that provide 
comprehensive community-based primary and preventive care services to 
medically underserved populations and have received a "Federally 
Qualified Health Center" designation from the Centers for Medicare & 
Medicaid Services (CMS). 

[15] General acute care hospitals are eligible for the 340B program 
when they have a Medicare DSH adjustment percentage of greater than 
11.75 percent and meet certain other requirements. Medicare is the 
federally financed health insurance program for persons aged 65 or 
over, certain individuals with disabilities, and individuals with end- 
stage renal disease. The Medicare DSH adjustment percentage is an 
additional Medicare payment to acute care hospitals paid under the 
inpatient prospective payment system--a Medicare reimbursement method 
based on a predetermined, fixed amount. A hospital's DSH adjustment 
percentage is generally based on its DSH patient percentage, which is 
a statutory formula created to identify hospitals that treat a 
significantly disproportionate number of low-income Medicare and 
Medicaid patients. 

[16] While additional types of hospitals are eligible for the 340B 
program, we only interviewed DSH hospitals because the remaining 
hospital types had only recently started participating in the program. 

[17] In 2006, Massachusetts implemented comprehensive state-level 
health insurance reform that was similar to PPACA's national-level 
reform. 

[18] We conducted multiple interviews with certain organizations for a 
total of 65 interviews. 

[19] HHS agencies that administer the grants that make entities 
eligible for the 340B program include HRSA, Indian Health Services, 
Office of Population Affairs, and the Centers for Disease Control and 
Prevention. CMS calculates Medicare DSH adjustment percentages for 
hospitals. 

[20] The Medicaid Drug Rebate Program was established through the 
Omnibus Budget Reconciliation Act of 1990 and requires drug 
manufacturers to pay rebates to states as a condition of having their 
drugs covered by Medicaid. Pub. L. No. 101-508, § 4401, 104 Stat. 
1388, 1388-143 (adding 42 U.S.C. § 1396r-8). 

[21] The Pharmacy Services Support Center (PSSC) and the Prime Vendor 
Program (PVP) assist HRSA with the administration of the 340B program 
and are managed by contractors. The PSSC provides guidance and free 
technical assistance to covered entities and helps ensure that 
patients of covered entities receive comprehensive pharmacy services. 
The PVP establishes a distribution network for pharmaceuticals to 
covered entities and negotiates prices for a portfolio of drugs below 
the 340B price. Participation in the PVP is free and voluntary for 
covered entities. 

[22] See GAO, Standards for Internal Control in the Federal 
Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999). 

[23] 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. 

[24] See Pub. L. No. 111-148, § 7101, 124 Stat. 119, 821 as amended by 
the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 
111-152, § 2302, 124 Stat. 1029, 1082. While PPACA explicitly added 
children's hospitals to the list of covered entities under the 340B 
program in the PHSA, they were originally made eligible under the 
Social Security Act through the Deficit Reduction Act of 2005. Pub. L. 
No. 109-171, § 6004, 120 Stat. 4, 61 (2006) (amending 42 U.S.C. § 
1396r-8(a)(5)(B)). 

[25] To be eligible for the 340B program, rural referral centers and 
sole community hospitals must have a DSH adjustment percentage that is 
equal to or greater than 8 percent, and DSH, children's, and free- 
standing cancer hospitals must have a DSH adjustment percentage that 
is greater than 11.75 percent. Although children's and free-standing 
cancer hospitals do not receive payments under the Medicare inpatient 
prospective payment system, they must have a payer mix that would 
result in a DSH adjustment percentage of greater than 11.75 percent. 

[26] According to HRSA, a hospital is said to be "formally granted 
governmental powers" when the state formally delegates to the hospital 
a type of power(s) usually exercised by the state, for the purpose of 
providing health care services to the medically indigent population of 
the state. 

[27] Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Outpatient Hospital Facilities, 59 Fed. Reg. 180, 47884 (Sept. 
19, 1994). 

[28] Notice Regarding 340B Drug Pricing Program--Contract Pharmacy 
Services, 75 Fed. Reg. 10272 (March 5, 2010). 

[29] In general, the 340B price for a drug is calculated quarterly by 
subtracting the unit rebate amount used in the Medicaid Drug Rebate 
Program from the drug's average manufacturer price. See 42 U.S.C. § 
256b (a)(1). Average manufacturer price is the average price paid to a 
manufacturer for drugs distributed to retail community pharmacies. It 
includes direct manufacturer sales to retail community pharmacies, as 
well as sales by wholesalers. 42 U.S.C. §§ 256b(b), 1396r-8(k). 

[30] 42 U.S.C.§ 256b(a)(10). 

[31] When a drug's average manufacturer price increases more quickly 
than the rate of inflation, the government requires the manufacturer 
to pay an additional rebate amount. This may cause the drug's unit 
rebate amount to be greater than the drug's average manufacturer 
price, which would result in a negative 340B price. 

[32] GPOs contract with providers, such as hospitals, and, on behalf 
of their members, aggregate purchasing volume to negotiate discounts 
on drugs from drug manufacturers or distributors. 

[33] For this report, we define 340B revenue as all monies received by 
covered entities for drugs they purchase at the 340B price, whether or 
not the revenue meets or exceeds the costs paid for the drugs. When 
data provided by covered entities was used to determine revenue 
generation, the most recent year of reported data was used. 

[34] Even though 6 covered entities were unable to report the amount 
of revenue they generated through the program, they were able to 
report what factors affected overall revenue generation. 

[35] Medicare reimburses outpatient prescription drugs either through 
Medicare Part B or Part D. Part B covers drugs administered by 
physicians, such as chemotherapy drugs, and payment for those drugs is 
set by a fee schedule established quarterly by CMS. Part D sponsors 
are typically private insurers that contract with CMS to cover 
outpatient prescription drugs and negotiate reimbursement rates 
directly with health care providers. 

[36] A dispensing fee is typically a set dollar amount per 
prescription that covers the overhead costs of dispensing a drug, such 
as pharmacy staff time. 

[37] State Medicaid agencies may reimburse entities at actual 
acquisition cost, because when entities decide to use drugs purchased 
at 340B prices for Medicaid patients, the state can no longer claim 
Medicaid rebates for those drugs. 

[38] These contractual agreements are commonly referred to as shared 
savings agreements. Shared savings agreements provide covered entities 
reimbursement above actual acquisition cost, for example, by paying a 
higher dispensing fee to covered entities than the fee paid to other 
providers. According to the HHS Office of Inspector General, states 
may be interested in shared savings agreements with covered entities 
because 340B prices can be considerably lower than states' standard 
Medicaid reimbursement rates and entering into such agreements could 
encourage entities to use 340B drugs for Medicaid patients while still 
saving money for states. 

[39] PPACA contains provisions to expand private health insurance and 
Medicaid coverage to more Americans. See, e.g., Pub. L. No. 111-148, § 
2001, 124 Stat. 119, 271. 

[40] HRSA officials told us that this statement is consistent with 
their belief that low-income patients will continue to require 
assistance with health care costs after gaining insurance. 

[41] Case management services facilitate access to appropriate health 
care, and are not typically reimbursed by payers. 

[42] The organizational structure of hemophilia treatment centers we 
interviewed varied, and those that operated stand-alone programs were 
more dependent on 340B revenue than those that were integrated into 
hospitals. 

[43] While stakeholders consistently reported two situations in which 
manufacturers' distribution of drugs at 340B prices affected 
providers' access to these drugs, some, such as covered entities, 
reported other situations that had effects on access, but it was not 
clear that the other situations were related to manufacturers' 
distribution of drugs at 340B prices. 

[44] IVIG is primarily used to treat patients with immune deficiency 
diseases, a group of disorders in which the immune system fails to 
produce enough antibodies, thereby predisposing individuals to 
increased risk of infection. Factors inherent to the development and 
distribution of IVIG limit its supply making it susceptible to 
shortages, including that IVIG is made from human plasma, which is an 
inherently scarce resource, and that IVIG takes between seven and 12 
months to manufacture. Additionally, only a few manufacturers develop 
and distribute these drugs in the United States. 

[45] Hospitals are the primary purchaser of IVIG in the United States. 

[46] Specialty pharmacies handle and distribute drugs that, among 
other things, have a high acquisition cost and require special 
handling practices. 

[47] In general, 340B hospitals are prohibited from purchasing 
outpatient drugs through GPOs. While no DSH hospital we interviewed 
reported purchasing IVIG through GPOs, GPOs we interviewed told us 
that 340B hospitals have purchased IVIG through this avenue when they 
are unable to access it at the 340B price. During a December 2005 
congressional hearing on the 340B program, an organization 
representing 340B hospitals argued that in situations when hospitals 
are unable to purchase IVIG at 340B prices, they are faced with either 
violating federal law by purchasing IVIG through GPOs, buying IVIG at 
cost-prohibitive retail prices, or denying their patients access to 
these drugs. See "Oversight and Administration of the 340B Drug 
Discount Program: Improving Efficiency and Transparency," Hearing 
before the Subcommittee on Oversight and Investigations, Committee on 
Energy and Commerce, U.S. House of Representatives, December 15, 2005. 
While 340B hospitals can receive the benefits of group purchasing 
through the PVP, the PVP does not have any contracts for IVIG. 

[48] This manufacturer reported that it based its allocation of IVIG 
on 2004 purchasing patterns, because this was the last period before 
demand exceeded supply for the product and an allocation system became 
necessary. While data on the number of hospitals participating in the 
340B program in 2004 are not available, the number of 340B hospitals 
has grown from 591 in 2005 to 1,673 in 2011. 

[49] While certain 340B hospitals are prohibited from purchasing 
outpatient drugs through GPOs, all 340B hospitals can purchase 
inpatient drugs through GPOs. 

[50] The Department of Justice is examining the IVIG market in the 
United States, in part, due to concerns about the distribution of 
these drugs at 340B prices. 

[51] Prior to PPACA, covered entities did not have access to 340B 
pricing data in order to monitor manufacturers because the Social 
Security Act prohibited the disclosure of the data by HRSA and state 
Medicaid agencies. 42 U.S.C. § 1396r-8(b)(3)(D). PPACA added a 
provision to Section 340B requiring that covered entities be allowed 
access to 340B pricing data. Pub. L. No. 111-148, § 7102(a), 124 Stat. 
119, 824 (adding 42 U.S.C. § 256b(d)(1)(iii)). 

[52] In May 2011, HRSA published its first proposed regulation on the 
340B program, Exclusion of Orphan Drugs for Certain Covered Entities 
Under the 340B Program, 76 Fed. Reg. 29, 183 (proposed May 20, 2011). 
Until this point the agency had provided program guidance through 
notices published in the Federal Register, which were typically 
finalized after a notice and comment period, as well as more informal 
guidance on its web site. 

[53] We use the term hospitals that are not publicly owned or operated 
to refer to public and private, nonprofit corporations as well as 
private, nonprofit hospitals that may be eligible for the 340B 
program. The term does not include private, for-profit hospitals as 
these hospitals are not eligible for the 340B program. 

[54] HRSA officials told us that contracts are selectively reviewed if 
further clarification is necessary. 

[55] In a 2006 report, the HHS Office of Inspector General found that 
manufacturers did not always follow HRSA's penny pricing policy. Both 
in this report and in a 2005 report, the Office of Inspector General 
recommended that HRSA formalize its penny pricing policy in writing. 
See HHS Office of Inspector General, Review of 340B Prices, OEI-05-02- 
00073 (Washington, D.C.: 2006); and HHS Office of Inspector General, 
Deficiencies in the Oversight of the 340B Drug Pricing Program, OEI-05-
02-00072 (Washington, D.C.: 2005). 

[56] HRSA currently recertifies eligibility for sexually transmitted 
diseases, tuberculosis, and Ryan White grantees, consistent with 
requirements under the PHSA. In addition, HRSA verifies the grantee 
status of FQHCs as well as hospitals' DSH percentages on a quarterly 
basis. As resources allowed, HRSA has also periodically recertified 
340B eligibility for other entity types. For example, HRSA recertified 
eligibility for family planning clinics in 2010. PPACA added a 
provision requiring HRSA to conduct annual recertification of 
eligibility for all covered entity types. HRSA officials told us that 
the Office of Pharmacy Affairs' fiscal year 2011 budget allowed for 
the planning of a phased approach to recertification of all entity 
types, which is scheduled to begin in the fall of 2011. As of August 
2011, officials were not able to tell us which entity types would be 
phased in first. 

[57] HRSA officials told us that while they do not conduct audits, if 
a potential violation of program requirements is brought to their 
attention, they will refer the matter to the HHS Office of Inspector 
General. Officials said that they have made two such referrals in the 
past year related to the diversion of 340B drugs. 

[58] HRSA previously operated a voluntary pilot program with 
manufacturers to improve the integrity of 340B pricing calculations. 
Twelve manufacturers participated in the program, which was 
discontinued in March 2008 due to concerns regarding the 
confidentiality of drug pricing data and a lack of funding to run the 
program. 

[59] For example, a covered entity we interviewed said that it 
suspected certain drug manufacturers of implementing strategies to 
avoid offering drugs at correct 340B prices, but because of the lack 
of transparency in how 340B prices are calculated, could not determine 
this on its own. According to the entity, when it contacted HRSA about 
these strategies, agency officials said that they did not have the 
resources to help. However, HRSA officials told us that they were 
unaware of any instances where the agency has not helped a covered 
entity under these circumstances. Officials from one manufacturer 
reported that it provided HRSA with evidence that a covered entity had 
engaged in multiple instances of diversion, and after attempting to 
resolve the instances with the entity on its own, requested a hearing 
through the dispute resolution process in January of 2010. HRSA 
officials told us that the agency dismissed the manufacturer's request 
to initiate the process, because the covered entity disputed the 
manufacturer's claim that it had attempted to resolve the issue on its 
own, and that the agency is currently considering the manufacturer's 
appeal of this dismissal. 

[60] In a 2005 report on the 340B program, the HHS Office of Inspector 
General noted that terminating a manufacturer from the 340B program 
also means that the manufacturer would be terminated from the Medicaid 
program, making it a difficult sanction to put into practice, given 
the effects on access to medications for Medicaid beneficiaries. See 
HHS Office of Inspector General, Deficiencies in the Oversight of the 
340B Drug Pricing Program, OEI-05-02-00072 (Washington, D.C.: 2005). 

[61] HRSA was unable to provide the precise rate of growth of contract 
pharmacies within the 340B program due to data limitations. 
Specifically, HRSA currently only tracks contract pharmacy 
arrangements and is working to develop the ability to capture 
individual contract pharmacies. Data on the number of contract 
pharmacy arrangements are the most recent available from HRSA's 
covered entity database. 

[62] One reason for hospital growth could be that more hospitals may 
have become eligible as a result of state-level Medicaid expansions in 
recent years. The number of Medicaid patients served by a hospital 
affects its DSH adjustment percentage, which helps determine hospital 
eligibility for the 340B program. 

[63] Some covered entities have in-house pharmacies that also serve as 
retail pharmacies for the broader community. However, among the 
covered entities we interviewed, we found that this was not often the 
case. 

[64] According to HRSA, over 400 additional DSH hospitals may be 
eligible for the 340B program based on their DSH adjustment 
percentage. This estimate does not include the additional hospital 
types made eligible for the program through PPACA. 

[65] See MedPAC, Report to the Congress: Medicare Payment Policy 
(Washington, D.C.: 2007), pp.78-79. 

[66] See for example, Barbara Wynn, et. al., "Analysis of the Joint 
Distribution of Disproportionate Share Hospital Payments," PM-1387- 
ASPE (Washington, D.C.: 2002); and Megan McHugh, Raymond Kang, and 
Romana Hasnain-Wynia, "Understanding the Safety Net: Inpatient Quality 
of Care Varies Based on How One Defines Safety-Net Hospitals," Med 
Care Research and Review, published online April 27, 2009. 

[67] Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Definition of a "Patient," 72 Fed. Reg. 1543 (Jan. 12, 2007). 

[End of section] 

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