Illegal abuse of 340B hurts us all

There is clear evidence many hospitals are exploiting loopholes in the 340B program, driving up costs for patients, employers and taxpayers in the process. They prescribe more expensive medicines and are less likely to prescribe biosimilars. They are driving provider consolidation, buying up smaller hospitals and physician practices. And they significantly mark up medicine prices.

One of the ways they exploit the program is through duplicate discounting, which is rampant and, in many cases, illegal.

What is a duplicate discount?

Duplicate discounts occur when manufacturers pay another rebate or price concession on a 340B-priced medicine. While there are different situations in which this can happen, the statute explicitly prohibits 340B hospitals from getting a 340B price for a medicine that also generates a Medicaid rebate.

Program violations are widespread.

Both GAO and the HHS OIG have repeatedly said hospital violations of this statutory prohibition are widespread. GAO has released reports dating back to 2011 calling attention to this problem, including a 2020 report, which found that for HRSA audits in FY 2012-2019, there were more than 400 findings of noncompliance by covered entities with the duplicate discount prohibition.

Many large hospitals are taking a “just trust me” approach to requesting 340B pricing on medicines, and scheming with large pharmacy corporations behind the scenes to further blur the lines, despite well-documented program abuses.

The federal government is failing to stop these statutory violations.

Despite this clear prohibition in law, HRSA and CMS have not taken the steps necessary to adequately prevent and address identified 340B and Medicaid duplicate discounts. GAO has stated, “HHS does not have reasonable assurance that states and covered entities are complying with the prohibition on duplicate discounts.” GAO goes on to say failure to address the issue “not only puts drug manufacturers at risk of providing duplicate discounts, but also compromises 340B program integrity.”

The Inflation Reduction Act (IRA) could make this problem worse.

Under the law, when a medicine selected for a maximum fair price (MFP) is also eligible for 340B pricing, manufacturers are not required to provide both the 340B price and an MFP rebate, if owed, on the same unit of a medicine. The IRA also prohibits including 340B-priced medicines in the calculation of Part D inflation rebates. In both cases, CMS is not developing the systems for preventing these duplicate discounts.

But wait, there’s more.

In addition to statutorily prohibited duplicate discounts, there is other illegal activity that is happening in the program. The 340B statute also prohibits 340B hospitals from getting a 340B price for someone who does not meet the definition of a ‘patient’ of the 340B hospital, referred to as “diversion.” HHS OIG noted that HRSA program guidance that permitted unlimited use of contract pharmacies created “complications in preventing diversion.”  Congress expressly prohibited diversion under the statute, yet HRSA is abdicating its role in overseeing that diversion does not occur.

For too long have the problems of this well-intentioned program been ignored. Congress must rein in the rampant abuse hospitals are perpetrating at the expense of the American public.

Learn more at PhRMA.org/340B.