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BREAKING: GAO Criticizes Policing of 340B Duplicate Discounts

BREAKING: GAO Criticizes Policing of 340B Duplicate Discounts

The U.S. Department of Health and Human Services (HHS) lacks “reasonable assurance” that states and healthcare providers are complying with the prohibition against subjecting drug manufacturers to payment of duplicate 340B discounts and Medicaid rebates on the same drugs, the U.S. Government Accountability Office (GAO) said in a report today. Existing limited oversight of 340B and the Medicaid Drug Rebate Program (MDRP) “may increase the risk that duplicate discounts occur,” the congressional watchdog agency said.

GAO recommended that the Centers for Medicare & Medicaid Services (CMS), which oversees MDRP, should ensure that state Medicaid programs have written policies and procedures to prevent duplicate discounts and forgone rebates. It also said the Health Resources and Services Administration (HRSA), which oversees 340B, should incorporate 340B covered entities’ compliance with state policies into its audits, and 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.


This is GAO’s second major report on 340B this month. The first, released Jan. 10, found that weaknesses in the Health Resources and Services Administration’s (HRSA) oversight of 340B may result in some ineligible hospitals receiving discounts. The new GAO report also follows the Centers for Medicare & Medicaid Services’ (CMS) Jan. 8 guidance to states on best practices for avoiding 340B duplicate discounts—including limiting providers’ and their contract pharmacies’ ability to use 340B purchased drugs for Medicaid beneficiaries. (A sentence in today’s report indicates CMS issued this guidance in anticipation of GAO’s findings.) The Medicare Payment Advisory Commission (MedPAC) staff, meanwhile, reported to the commission on Jan. 17 that evidence of slightly higher spending on drugs for lung and prostate cancer at 340B hospitals is idiosyncratic and not generalizable to other cancers or conditions.

These 340B-related reports and guidelines come as members of Congress and Trump administration officials have expressed interest in finding common ground on legislation to address rising drug prices. Drug manufacturers and others that want to scale back hospital participation in 340B will likely seize on government findings of weak 340B oversight to argue for including changes to 340B that they want in any bipartisan drug pricing bill.

It is also noteworthy that today’s GAO report focuses largely on efforts to prevent duplication of 340B discounts and Medicaid rebates specifically on 340B-purchased drugs dispensed to Medicaid managed care (MCO) enrollees. States already are paying more attention to this subject, with an eye toward bolstering their revenue while simultaneously addressing duplicate discounts in the Medicaid MCO sphere. California, for example, is on track starting next year to shift its Medicaid MCO pharmacy benefit into Medicaid fee for service (FFS), under which providers will have to bill Medicaid for the former MCO drugs at actual acquisition cost rather than at higher rates negotiated with managed care contractors. There is a similar proposed Medicaid regulation under consideration in Michigan. On the other hand, providers in Alabama, Indiana, and other states have blocked such rules.

Today’s GAO report was requested by Senate  Health, Education, Labor, and Pensions Chairman Lamar Alexander (R-Tenn.), House Energy & Commerce Ranking Member Greg Walden (R-Ore.), E&C Health Subcommittee Ranking Member Michael Burgess (R-Texas), and E&C Oversight and Investigations Subcommittee Ranking Member Brett Guthrie (R-Ky.).

GAO’s Main Findings

Here’s what GAO found:

GAO said CMS conducts limited oversight of state Medicaid programs’ efforts to prevent duplicate discounts. It said CMS does not track or review states’ policies or procedures for preventing duplicate discounts, and it found that the procedures states used to exclude 340B drugs are not always documented or effective at identifying these drugs. As a result, GAO said, CMS does not have the information needed to effectively ensure that states exclude 340B drugs from Medicaid rebate requests. It said 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.

GAO said 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, it said.

GAO noted that, in a 2018 report on 340B contract pharmacy, it observed that HRSA had not issued guidance on, and did not audit for, duplicate discounts in Medicaid managed care. It recommended in that report that HRSA do so as the majority of Medicaid enrollees, prescriptions, and spending for drugs are in managed care. In today’s report, it said HRSA is working to determine next steps to address those recommendations. In this report, GAO found that, unlike Medicaid FFS, when duplicate discounts in Medicaid MCO claims are identified, HRSA does not require covered entities to address them or work with manufacturers to repay them. As a result, it said, manufacturers may be subject to duplicate discounts for drugs provided under managed care.

GAO’s Recommendations

Here’s what GAO recommended:

First: GAO said 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. It said the policies and procedures should be made publicly available and cover FFS, managed care, and physician administered drugs. HHS concurred with the recommendation and pointed to CMS’s recent guidance to states on preventing duplicate discounts.

Second: GAO said 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. HHS did not concur with the recommendation. It said HRSA lacks authority to enforce covered entities’ compliance with such state policies. Even if it were legal, it would be very hard for HRSA to implement and operationalize, HHS said.

Third: GAO said HRSA should require covered entities to work with affected drug manufacturers regarding repayment of identified duplicate discounts in Medicaid managed care. HHS declined to concur, citing HRSA’s lack of guidance for covered entities related to Medicaid MCO claims.

In the preamble to the comments, HHS said “HRSA is currently evaluating its covered entity audit process and other program integrity efforts as they relate to HRSA’s ability to enforce and require corrective action in the 340B program, which is primarily administered by guidance.”

“Guidance does not provide HRSA appropriate enforcement capability” and HRSA is not pursuing guidance at this time, HHS said. Instead, HRSA is seeking authority from Congress to make binding and enforceable regulations for all aspects of the 340B program.

Also in the preamble to the comments, HHS repeats the observation CMS made earlier this month in its guidance to states about avoiding duplicate discounts: “States may decide to carve-out 340B drugs as a mechanism to prevent duplicate discounts from occurring.”

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