HRSA, headquartered in this suburban Washington office building, would be empowered to audit 340B covered entities to see how they use income from 340B drug purchases, under a Biden administration proposal issued today.

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HHS Wants to Audit 340B Providers to See How They Use 340B Net Income

The Biden administration this afternoon proposed amending the 340B statute to let federal health officials audit 340B covered entities “to determine how net income from purchases under [340B] are used by the covered entity.”

The proposed legislation is included in the administration’s fiscal year 2022 budget proposal for the U.S. Health and Human Services Department (HHS), which the White House issued today. It was not mentioned, however, in the U.S. Health Resources and Services Administration’s FY 2022 budget justification to Congress, also issued today. HRSA’s annual budget justification normally describes and explains proposed significant changes of this sort to the 340B program.

The President’s annual budget proposal is largely aspirational and Congress often disregards the requests.

Lobbyists for 340B covered entities expressed surprise at the proposal’s inclusion in a Democratic administration’s federal budget. Hospital groups are an important Democratic constituency, and they likely will not embrace an expansion of government audits targeting them and other covered entities.

“We are disappointed to see the budget include policies from the previous administration that would undermine the value of the 340B Drug Pricing Program,” Bruce Siegel, President and CEO of America’s Essential Hospitals, said in a statement. “Congress intended the 340B program not only to make drugs more affordable but to help hospitals provide more services for low-income patients and underserved communities. We believe the program operates just as Congress intended, and these policy proposals seek a solution to a problem that does not exist.”

In order for the covered entity audit proposal to take effect, Congress would have to pass legislation, and HHS would have to publish and finalize regulations.  340B hospitals have been particularly trigger shy about opening up the 340B statute but nonetheless have supported various 340B bills over the years.

The administration’s proposal would amend the 340B statute’s section on requirements for covered entities. The statute’s subsection (a)(5)(C) now lets the HHS secretary and drug manufacturers audit entities to review entities’ compliance with the statute’s prohibitions on duplicate discounts and diversion. The legislative proposal would let the secretary, but not manufacturers, audit an entity’s records to determine how they use net income from 340B drug purchases.

There does not appear to be any penalty associated with the findings of any such audit. For now, the audits appear to be for informational purposes only. The 340B statute imposes no conditions on how covered entities use their savings from 340B drug purchases and revenues from 340B drug billings. Non-hospital entities often point out that under federal regulations, they must use program income—including all revenue derived from their participation in 340B—for the purposes and under the conditions of their federal grants.

Highlights from HRSA’s annual budget justification include:

No user fee

This marks the first time in 10 years that a presidential administration has not sought a 0.1% user fee on 340B program sales to boost 340B program funding. This will be welcomed by 340B provider groups who described it as a tax on the cost of drugs and have lobbied each year to kill the proposal.

Funding increase

The administration proposes raising spending on HRSA’s Office of Pharmacy Affairs (OPA) from its current $10.2 million to $17.2 million. HRSA said the extra money would go toward running  the 340B program’s new administrative dispute resolution (ADR) process. HRSA also wants to increase its annual number of covered entity audits from 200 to 225 and its annual number of manufacturer audits from 5 to 10. In an appendix to the justification document, HRSA said the percentage of audits conducted annually for manufacturers is 0.7 percent (5/700) and for covered entities is 1.5 percent (200/12,670). It said its audits of manufacturers “should not only increase compliance, but also provide greater insight into the tools and mechanisms used by companies to comply with 340B statutory requirements and guide future technical assistance.”

General rulemaking authority

HRSA asked Congress to grant it “general rulemaking authority to reform the 340B Program. HRSA’s enforcement ability is limited, as guidance does not provide HRSA appropriate enforcement capability. Binding and enforceable regulations for all aspects of the 340B Program would provide HRSA the ability to more clearly define and enforce policy and would significantly strengthen HRSA’s oversight of the Program. These reforms would strengthen program integrity and oversight activities. HRSA would also address issues raised by various stakeholders to assist covered entities and manufacturers in their ability to satisfy 340B Program expectations and where oversight needs to be enhanced.”

In an appendix, it said: “While HRSA continues to conduct audits of covered entities and manufacturers, HRSA does not have regulatory authority to enforce all of the compliance elements that it evaluates during its audits unless there is a clear tie to the statute. There is past litigation that has impacted HRSA’s authority, in addition to multiple, ongoing lawsuits (by covered entities and manufacturers) that challenge HRSA’s authority to establish and enforce program requirements. While HRSA is unable to comment on ongoing litigation, HRSA’s limited authority has impacted the ability to enforce compliance to its fullest, and as a result, reported audit findings have decreased.”

340B program statistics

HRSA said, “in 2019, total sales in the 340B program were approximately $29 billion. Covered entities saved between 25 to 50 percent on what they would have otherwise paid for covered outpatient drugs. HRSA estimates 340B sales are approximately 6 percent of the total U.S. drug market.”

“As of April 1, 2021, participation levels included 13,214 covered entities and 37,738 associated sites participating in the 340B program, for a total of 51,952 registered sites,” HRSA said.

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