340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement
Fast Facts
If drug manufacturers want certain drugs covered by Medicaid, they must participate in both “340B” and Medicaid Drug Rebate programs. The 340B program allows certain hospitals and clinics to buy discounted drugs. The rebate program allows state Medicaid programs to request manufacturer rebates on certain drugs dispensed to their beneficiaries.
Drugs that hospitals and clinics buy through 340B can’t also qualify for Medicaid rebates—as that would create a duplicate discount.
We recommended that the Department of Health and Human Services improve oversight of these programs to prevent duplicate discounts.
Pills spilling out of a prescription bottle
Highlights
What GAO Found
The 340B Drug Pricing Program (340B Program) and the Medicaid Drug Rebate Program require manufacturers to provide discounts on outpatient drugs in order to have their drugs covered by Medicaid. These discounts take the form of reduced sales prices for covered entities participating in the 340B Program—eligible hospitals and federal grantees—and rebates on drugs dispensed to Medicaid beneficiaries, shared by states and the federal government. However, federal law prohibits subjecting manufacturers to “duplicate discounts” in which drugs provided to Medicaid beneficiaries are subject to both 340B Program discounted prices (i.e., are 340B drugs) and Medicaid rebates. To prevent duplicate discounts, state Medicaid programs must know when covered entities dispense 340B drugs to Medicaid beneficiaries, so the state programs can exclude those drugs from their Medicaid rebate requests.
GAO found that limitations in the Department of Health and Human Services's (HHS) oversight of the 340B and Medicaid Drug Rebate Programs may increase the risk that duplicate discounts occur.
HHS's Centers for Medicare & Medicaid Services (CMS) conducts limited oversight of state Medicaid programs' efforts to prevent duplicate discounts. CMS does not track or review states' policies or procedures for preventing duplicate discounts, and GAO found that the procedures states used to exclude 340B drugs are not always documented or effective at identifying these drugs. As a result, CMS does not have the information needed to effectively ensure that states exclude 340B drugs from Medicaid rebate requests. CMS also does not have a reasonable assurance that states are seeking rebates for all eligible drugs, potentially increasing costs to state and federal governments due to forgone rebates.
HHS's Health Resources and Services Administration's (HRSA) audits of covered entities do not include reviews of states' policies and procedures for the use and identification of 340B drugs. As a result, the audits are unable to determine whether covered entities are following state requirements, and taking the necessary steps to comply with the prohibition on subjecting manufacturers to duplicate discounts.
GAO reported in 2018 that HRSA had not issued guidance on, and did not audit for, duplicate discounts in Medicaid managed care and recommended the agency do so as the majority of Medicaid enrollees, prescriptions, and spending for drugs are in managed care. HRSA is working to determine next steps to address these recommendations. In this report, GAO found that, unlike Medicaid fee-for-service, when duplicate discounts in Medicaid managed care claims are identified, HRSA does not require covered entities to address them or work with manufacturers to repay them. As a result, manufacturers may be subject to duplicate discounts for drugs provided under managed care.
Given these limitations in federal oversight, HHS does not have reasonable assurance that states and covered entities are complying with the prohibition on duplicate discounts.
Why GAO Did This Study
Covered entities can receive substantial discounts on outpatient drugs through the 340B Program, an estimated 25 to 50 percent of the cost of the drugs, according to HRSA. Additionally, Medicaid drug rebates are an important source of savings for states and the federal government, saving more than $36 billion in fiscal year 2018. However, ensuring that manufacturers are not subject to both discounts requires coordination within HHS, and between covered entities and states. GAO was asked to provide information on the prevention of duplicate discounts. Among other things, this report examines HHS's efforts to ensure compliance with the prohibition on duplicate discounts. GAO reviewed documentation, including federal policies and those from all 50 states and Washington, D.C. on preventing duplicate discounts. GAO also interviewed officials from CMS, HRSA, and 16 covered entities from four states selected to obtain variation in the types of entities and other factors.
Recommendations
GAO is making three recommendations, namely that: 1) CMS ensure that state Medicaid programs have written policies and procedures that are designed to prevent duplicate discounts and forgone rebates; and that HRSA 2) incorporate covered entities' compliance with state policies into its audits, and 3) require covered entities to work with manufacturers regarding repayment of identified duplicate discounts in managed care. HHS agreed with the recommendation to CMS, but disagreed with those to HRSA. GAO continues to believe these are needed to improve oversight and the integrity of the 340B Program, as explained in the report.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Centers for Medicare & Medicaid Services | The Administrator of CMS should ensure that state Medicaid programs have written policies and procedures that specify the extent to which covered entities can use 340B drugs for Medicaid beneficiaries, are designed to effectively identify if 340B drugs were used, and if so, how they should be excluded from Medicaid rebate requests. The policies and procedures should be made publically available and cover FFS, managed care, and all of the dispensing methods for outpatient drugs. (Recommendation 1) |
HHS concurred with this recommendation. In November 2022, CMS issued, what it refers to as, a State Note describing the National Council for Prescription Drug Programs coding updates to correctly identify 340B prescription drug claims. Furthermore, in April 2024, CMS provided information to show that it asked states through quarterly all-state webinars and presentations during pharmacy association meetings to publicly post their 340B program policies and procedures. In November 2024, CMS issued a final rule that requires Medicaid managed care plans that provide covered outpatient drugs to include a Medicaid-specific identifier on health insurance cards. While this requirement does not assist in identifying claims for drugs purchased under the 340B Program, it should make it easier for covered entities and pharmacies to identify whether a patient is covered under Medicaid, which could in turn help them to determine whether drugs for the patient are 340B-eligible. While these actions are positive steps, CMS acknowledged that it has not validated state Medicaid programs' 340B policies and procedures or monitored their methods for making them publicly available.
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| Health Resources and Services Administration | The Administrator of HRSA should incorporate assessments of covered entities' compliance with state Medicaid programs' policies and procedures regarding the use and identification of 340B drugs into its audit process, working with CMS as needed to obtain states' policies and procedures. (Recommendation 2) |
HHS did not concur with this recommendation and, as of March 2024, did not plan to take any actions to implement the recommendation. As noted in our report, covered entities' compliance with state Medicaid programs' policies and procedures is fundamental to preventing duplicate discounts. Thus, we continue to believe that HRSA's audit process should include an assessment of covered entities' compliance with state Medicaid programs' policies and procedures related to 340B drugs as it is necessary to ensure covered entities have adequate mechanisms in place to prevent duplicate discounts and to ensure covered entities' compliance with 340B Program requirements.
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| Health Resources and Services Administration | The Administrator of HRSA should require covered entities to work with affected drug manufacturers regarding repayment of identified duplicate discounts in Medicaid managed care. (Recommendation 3) |
HHS did not concur with this recommendation and, as of March 2024, did not plan to take any actions to implement the recommendation. As noted in our report, HRSA officials told us that covered entities' obligations for preventing duplicate discounts are the same for Medicaid fee-for-service and managed care. Thus, we continue to believe that when duplicate discounts related to Medicaid managed care have been identified, the agency should require covered entities to work with manufacturers to remedy them as they do for duplicate discounts related to Medicaid fee-for-service to help ensure compliance with 340B Program requirements.
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