There has been so much in the news lately about 340B Discount Drug Programs and the fraud that accompanies them.

The 340B Discount Drug Program allows manufacturers participating in Medicaid to agree to provide outpatient drugs to certain designated clinics and hospitals at significantly reduced prices. The typical discount ranges from 30% to 50% off the drug’s list price. In turn those clinics/hospitals are able to reach more high-risk, high-need patients and provide more comprehensive services. Each designated clinic/hospital involved in the program is called a “covered entity.”

Covered entities may provide drugs purchased through the 340B Discount Drug Program to all eligible patients of that covered entity, regardless of a patient’s payer status. In order to be a “patient” of a specific covered entity, an individual (1) must have an established relationship with the covered entity such that the covered entity maintains records of the individual’s care; and (2) must receive care from a professional employed by or contracted with the covered entity such that responsibility for the care remains with the covered entity. Under the guidelines, an individual is not considered a patient of the covered entity if the individual only is dispensed a drug for the patient to take at home.

Of course, there are limitations. Drugs dispensed under a 340B discount are prohibited from also being further discounted through a Medicaid rebate. The covered entity is responsible to monitor and ensure compliance with this “duplicate discount prohibition,” even if the drugs are dispensed through a separate pharmacy the covered entity has contracted with for services.

Pharmacies contracted to provide the discount drugs to a covered entities’ patients must provide the covered entity with quarterly financial statements, a detailed status report of collections, and a summary of dispensing records. Further, in order to prevent diversion, each covered entity and pharmacy must maintain a tracking system.

In 2018, the US Government Accountability Office noticed that the 340B Discount Drug Program was subject to abuse and recommended improved federal oversight of the program. Only some covered entities pass on the full 340B discount to the patients. The remainder profit by prescribing discounted medicines purchased through the 340B Program to patients who have insurance and can pay full price. The US Government Accountability Office made 7 recommendations to the Federal Health Resources and Services Administration (“HRSA”) to shore up the 340B Discount Drug Program:

  1. Covered entities should register contract pharmacies for each site of the entity for which a contract exists.
  2. HRSA should issue guidance to covered entities on the prevention of duplicate discounts.
  3. HRSA should incorporate an assessment of covered entities’ compliance with the prohibition on duplicate discounts.
  4. HRSA should issue guidance on a look back period following to assess noncompliance.
  5. Covered entities should be required to specify their methodology for identifying the full scope of noncompliance identified during an audit.
  6. HRSA should require covered entities to provide evidence that their corrective action plans have been successfully implemented prior to closing audits.
  7. HRSA should issue more specific guidance to covered entities regarding contract pharmacy oversight, including the scope and frequency of such oversight.

These recommendations are under advisement, and HRSA has requested regulatory authority to enforce the program in the 2021 federal budget.

In the meantime, and in addition to all other responsibilities a covered entity might have for participation, each 340B Drug Pricing Program covered entities must ensure program integrity and maintain accurate records documenting compliance with all 340B Program requirements. Each program must annually recertify that it has reviewed its program responsibilities and re-attest to being in full compliance.

Covered entities are also subject to audit by drug manufacturers or the federal government. Failure to comply may subject the covered entity liable to manufacturers for refunds of discounts or cause the covered entity to be removed from participation in the 340B Drug Discount Program.


About the author: Ms. Bain is an attorney with the Florida Healthcare Law Firm.