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elements of successful implementation are well known. They involve top
management consideration and support. They require an understanding of
the social context in which change takes place. Would-be implementers
must focus on the players, their roles, their barriers to action, and the roles
of leadership and influencers in bringing about change. From an academic
viewpoint, all of these should be worked out so that strategic policies are
not derailed by the implementation details; however, decision makers are
usually not comfortable with that level of detail as they deal broadly with a
wide range of issues. They are very uncomfortable with surprises after the
fact, but they also do not want to be bogged down reading the fine print.
That is just a managerial reality. Perhaps the best answer is to turn to the
experienced presenters on the team who know the behavior patterns of key
decision makers and ask for their assessment of the appropriate level of
detail to present at each stage.

Case 13 340B Drug Pricing Program Oversight

Section 602 of the Veterans Health Care Act of 1992 was titled
“Limitations on Prices of Drugs Purchased by Certain Clinics and
Hospitals.” It amended the Public Health Services Act by adding a new
section, Section 340B, to that act. Section 602 of the Veterans Health
Care Act read in part:

Part D of title III of the Public Health Service Act is amended by adding the
following subpart: “SUBPART VII – DRUG PRICING AGREEMENTS”
LIMITATION ON PRICES OF DRUGS PURHASED BY COVERED ENTITIES
“Sec. 340B (a) Requirements for Agreement with Secretary – “(1) In general. The
Secretary shall enter into an agreement with each manufacturer of covered drugs
under which the amount required to be paid … to the manufacturer for covered
drugs … does not exceed an amount equal to the average manufacturer price for the
drug under title XIX of the Social Security Act in the preceding quarter, reduced by
the rebate percentage described in paragraph (2). “Rebate percentage defined. – (A)
In general. For a covered outpatient drug … the ‘rebate percentage’ is the amount
equal to – “(i) the average total rebate required under Section 1927(c) of the Social
Security Act … for a unit of the dosage form and strength involved during the
preceding quarter divided by “(ii) the average manufacturer price for such a unit of
the drug during such quarter….”

Section 340B applied Medicaid drug discounts to drugs purchased
for clinics that served many outpatients who were not eligible for
Medicaid at qualified safety-net institutions. For the most part, eligible
clinics were associated with hospitals receiving disproportionate share
payments under Medicare, pediatric hospitals, and community health

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centers. Also included were specialized clinics and projects for
HIV/AIDS, hemophilia, black lung, tuberculosis, and family planning,
as well as those serving Native Americans and Native Hawaiians.
Hospitals were required to be governmental or nonprofit with a
contractual commitment to provide services supported by governments,
have a disproportionate share percentage greater than 11.75, and not
obtain the covered drugs through a group purchasing agreement. The
drugs had to be used for patients of the covered entity and could not be
resold.

A key provision of Section 340B read “(10) No prohibition on
larger discount. Nothing in this subsection shall prohibit a manufacturer
from charging a price for a drug that is lower than the maximum price
that may be charged under paragraph (1).” The Patient Protection and
Affordable Care Act (ACA or PPACA) increased the 340B discount to
13% on generic drugs and 23.1% on branded drugs. Specific discounts
have been reported to range from 15–60% on prescription drugs. The
law prohibits getting both a state Medicaid rebate and a 340B discount
on a drug.

BACKGROUND
In the 1980s, Congress established a discount drug purchasing program
for the Veterans Administration. In 1990, it extended this discount
program to Medicaid purchases on behalf of low-income and uninsured
enrollees under the Medicaid Drug Rebate Program. Soon it became
clear that this law conflicted with another requirement that state
Medicaid programs receive discounts matching the lowest prices
offered in non-Medicaid markets. Congress moved to remedy this
problem. Otherwise, the participating pharmaceutical and
biotechnology companies would choose to stop offering discounts
across the board.

The 340B program is administered by the Office of Pharmacy
Affairs within Health Resources and Services Administration (HRSA)
of the Department of Health and Human Service. This office is tasked
with auditing compliance with program requirements, especially the
eligibility of covered entities, and program integrity concerning
diversions and duplicate discounts and manufacturer pricing. However,
this office has a very limited staff, and the number of institutions taking

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advantage of the program has been growing rapidly. HRSA also
supports a number of other programs, such as the Ryan White
HIV/AIDS program and community and rural health centers that are
covered entities for 340B drug discounts.

The HRSA website describes the intent of 340B in a listing of
Frequently Asked Questions to be “to permit covered entities to stretch
scarce Federal resources as far as possible, reaching more eligible
patients and providing more comprehensive services” [HR Rep. No.
102-384 384(II) at 12 (1992)].

Although there are limitations on billings to Medicaid patients, there
are no constraints on billings to non-Medicaid patients.

The ACA freed up hospitals to choose among discount sources such
as 340B and their group purchasing organizations. The ACA also made
a number of provisions to strengthen program integrity.

Section 1703 of the ACA called for a Government Accounting
Office (GAO) study of the program:

… that examines whether those individuals served by the covered entities under the
program under section 340B of the Public Health Service Act (42 U.S.C. 256b)
(referred to in this section as the “340B program”) are receiving optimal health care
services.

(b) RECOMMENDATIONS. – The report under subsection

(a) shall include recommendations on the following:

(1) Whether the 340B program should be expanded since it is
anticipated that the 47,000,000 individuals who are uninsured
as of the date of enactment of this Act will have health care
coverage once this Act is implemented.

(2) Whether mandatory sales of certain products by the 340B
program could hinder patients access to those therapies
through any provider.

(3) Whether income from the 340B program is being used by the
covered entities under the program to further the program
objectives.

THE 2011 GAO STUDY
That study was issued by the GAO in September 2011. In the

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conclusions it noted:
The 340B program allows certain providers within the U.S. health care safety net to
stretch federal resources to reach more eligible patients and provide more
comprehensive services, and we found that the covered entities we interviewed
reported using it for these purposes. However, HRSA’s current approach to
oversight does not ensure 340B program integrity, and raises concerns that may be
exacerbated by changes within the program. According to HRSA, the agency
largely relies on participants’ self-policing to ensure compliance with program
requirements, and has never conducted an audit of covered entities or drug
manufacturers. As a result, HRSA may not know when participants are engaging in
practices that are not in compliance. Furthermore, we found that HRSA has not
always provided covered entities and drug manufacturers with guidance that
includes the necessary specificity on how to comply with program requirements.
There also is evidence to suggest that participants may be interpreting guidance in
ways that are inconsistent with the agency’s intent. Finally, participants have little
incentive to comply with program requirements, because few have faced sanctions
for noncompliance

…

PPACA [i.e., ACA] outlined a number of provisions that, if implemented, will
help improve many of the 340B program integrity issues we identified. For
example, PPACA requires HRSA to recertify eligibility for all covered entity types
on an annual basis … Additionally, PPACA requires HRSA to develop a formal
dispute resolution process, including procedures for covered entities to obtain
information from manufacturers, and maintain a centralized list of 340B prices—
provisions that would help ensure covered entities and manufacturers are better able
to identify and resolve suspected violations. PPACA also requires HRSA to
institute monetary penalties for covered entities and manufacturers, which gives
program participants more incentive to comply with program requirements. Finally,
PPACA requires HRSA to conduct more direct oversight of manufacturers,
including conducting selective audits to ensure that they are charging covered
entities the correct 340B price.

However, we identified other program integrity issues that HRSA should also
address. For example, the law does not require HRSA to audit covered entities or
further specify the agency’s definition of a 340B patient. While HRSA has
developed new proposed guidance on this definition, it is uncertain when, or if, the
guidance will be finalized.

Because the discounts on 340B drugs can be substantial, it is important for
HRSA to ensure that covered entities only purchase them for eligible patients both
by issuing more specific guidance and by conducting audits of covered entities to
prevent diversion. Additionally, while PPACA included a provision prohibiting
manufacturers from discriminating against covered entities in the sale of 340B
drugs, HRSA does not plan to make any changes to or further specify its related
nondiscrimination guidance.

Absent additional oversight by the agency, including more specific guidance,
access challenges covered entities have faced when manufacturers’ have restricted
distribution of IVIG at 340B prices may continue and similar challenges could arise
for other drugs in the future. (GAO, 2011, pp. 33–34)

HOW IS THE PATIENT HELPED?

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The ACA and the GAO report said little about getting the resulting
savings to the patient’s bill. As the law has been modified over the
years, the direct link to the low-income, uninsured patient has
weakened. The discounted drugs can even be used for commercially
insured patients. The 2011 GAO report found that “some covered
entities passed 340B savings on to patients by providing lower-cost
drugs to uninsured patients. For example, many covered entities
determined the amount that a patient is required to pay based on the
lower cost of 340B-priced drugs” (p. 17). The report noted that some
covered entities had indicated that without the discounts they would
have to close their pharmacy or curtail other services.

For a number of reasons, operating the 340B program in the hospital environment
creates more opportunities for drug diversion compared to other covered entity
types. First, hospitals operate 340B pharmacies in settings where both inpatient and
outpatient drugs are dispensed and must ensure that inpatients do not get 340B
drugs. Second, hospitals tend to have more complex contracting arrangements and
organizational structures than other entity types—340B drugs can be dispensed in
multiple locations, including emergency rooms, on-site clinics, and off-site clinics.
In light of this and given HRSA’s nonspecific guidance on the definition of a 340B
patient, broad interpretations of the guidance may be more likely in the hospital
setting and diversion harder to detect. Third, hospitals dispense a comparatively
larger volume of drugs than other entity types—while representing 27 percent of
participating covered entities, according to HRSA, DSH hospitals alone represent
about 75 percent of all 340B drug purchases. (GAO, 2011, p. 29)

OTHER IMPACTS OF THE ACA
The ACA added a number of classes of institutions, including
affordable care organizations, freestanding cancer hospitals, clinical
access hospitals, rural referral centers, and sole community hospitals.
Many millions of uninsured individuals are to receive insurance. This
would greatly increase the consumption of 340B drugs, even though
one might argue that the original need for the 340B program was
partially mitigated.

MANUFACTURER PUSHBACK
In early 2013, the Biotechnology Industry Organization (BIO) issued a
white paper subtitled “A Review and Analysis of the 340B Program.” It
was cosponsored by the Community Oncology Alliance (COA), the
National Community Pharmacists Association (NCPA), National
Patient Advocate Foundation (NPAF), the Pharmaceutical Care

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Management Association (PCMA), and the Pharmaceutical Research
and Manufacturers of America (PhRMA). The report’s executive
summary cited:

Areas of most concern included the following:

• Concerns that some uninsured, indigent patients may not be experiencing direct benefit
from the program’s existence.

• Anecdotal evidence that clinical decision-making may be skewed by efforts to take
advantage of the 340B discount.

• Growing evidence of displacement of non-340B providers who serve a key role in
providing patient access to important health care services. (BIO, 2013, p. 1)

The same executive summary cited the concerns expressed in the GAO
report, as well as insufficient resources at HRSA to carry out its
responsibilities under 340B and the ACA, the need for clearer guidance,
and HRSA’s use of “subregulatory” procedures to clarify definitions
and establish interpretive guidelines.

The HRSA website contained the following observation:

PROGRAM GUIDELINES
HRSA chose to publish guidelines in the Federal Register rather than regulations to
administer the Section 340B program. Guidelines are the quickest and most flexible
way to convey to all concerned parties how HRSA interprets the Section 340B
requirements. Guidelines are also used to disseminate procedures that are
acceptable under the statute. To ensure that the guidelines were as appropriate and
responsive as possible to the legitimate concerns of the covered entities and
manufacturers, comments were solicited on all of the guidelines before HRSA
published them in a final notice.

The BIO white paper cited the changed guidance that allowed covered
entities to use contract pharmacies as an example of HRSA expanding
this program by administrative means. Subsequently, the number of
340B contract pharmacy arrangements climbed from about 3,000 in
2010 to more than 9,000 in 2012, with more than 12,000 projected for
2012. The white paper claimed these arrangements were forcing some
community pharmacies out of business.

SENATOR GRASSLEY’S INQUIRIES
Senator Charles E. (Chuck) Grassley (R-Iowa) has often been critical of
nonprofit hospitals, and his concern about their implementation of the
340B program is just one example. His office often follows up on

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public disclosures that provide an investigative opening and an
opportunity to prod HRSA about its oversight of the program.

The UAB Inquiry
For example, as ranking member of the Senate Judiciary Committee, he
sent a letter on May 19, 2012, to Dr. Carol Garrison, president of the
University of Alabama (UAB) Hospital, stating that:

The original intent of the program was to extend the Medicaid drug discount to the
most vulnerable patients at PHS Clinics, those who are mostly, “medically
uninsured, on marginal incomes, and have no other source to turn to for preventive
and primary care services.” …

On February 16, 2011, Donna Evans, R.Ph., Senior Pharmacist, with University
of Alabama (UAB) Hospital gave a presentation at the 340B Annual Conference in
San Diego, California. In this presentation, Ms. Evans stated that the purpose of the
Purchasing Committee is, among other things, to “maximize savings
opportunities.” Ms. Evan’s presentation goes on to state that UAB Hospital tracks
the top drug expenses for “possible change in admission[s] process.” As an
example of this change in admission process, Ms. Evans lists the drugs Melphalan
and Busulfan and stated that the hospital “change[d] treatment protocol/location.”
Furthermore, Ms. Evans’ presentation discussed the “discharge [of an IVIG patient]
from [the] hospital to [a] Townhouse,” for the purpose of maximizing savings
opportunities associated with the 340B drug discount provided in an outpatient
setting.

Ms. Evans’ presentation is deeply disconcerting (Grassley, 2012, pp.1-2).

Senator Grassley asked the hospital to document the frequency and
economics of such changes in admission status and 340B discounts in
general, what the hospital did with the savings, and whether HRSA had
ever audited it.

The North Carolina Major Hospitals Inquiry
In 2012, McClatchy newspapers in Charlotte and Raleigh, North
Carolina, ran articles about major hospitals buying up oncology
practices and substantially raising chemotherapy drug prices in these
outpatient settings (Alexander & Garloch, 2012). In September 2012,
Senator Grassley sent letters to three major hospitals cited in the
articles, asking how much they earned by participating in the 340B
Program, the breakdown of the 340B payer mix, and how they had
reinvested those 340B dollars into serving the most vulnerable patients.
Senator Grassley summarized their replies in a March 27, 2013, letter to
Dr. Mary K. Wakefield, HRSA administrator:

First, all three North Carolina hospitals provided a summary of revenue generated

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by participating in the 340B program from 2008. Below is a revenue summary …

Carolinas Medical Center UNC Duke

2008: $12,970,012 2009: $33,087,329 2009: $88,953,570

2009: $16,697,500 2010: $38,451,076 2010: $109,700,400

2010: $16,910,620 2011: $52,580,763 2011: $131,759,091

2011: $21,065,620 2012: $65,391,050 2012: $135,539,459

These are not small amounts.

…

These numbers paint a very stark picture of how hospitals are reaping sizeable
340B discounts on drugs and then turning around and upselling them to fully
insured patients covered by Medicare, Medicaid, or private health insurance in
order to maximize their spread. (Grassley, 2013, pp. 1–2)

All three hospitals were able to provide their 340B payer mix for the
period 2008–2010. The data for 2010 taken from Senator Grassley’s
letter is presented in the table below:

The Raleigh News & Observer of April 3, 2013, reported on Senator
Grassley’s inquiry and stated that “Last year, Duke University Hospital
purchased $65.8 million in drugs through the program and received
$135.5 million in revenue. Duke says it saved $48.3 million buying the
drugs through the 340B program. That means the hospital made a profit
of $69.7 million, instead of $21.4 million if it had not participated in the
program”(Alexander, Neff, & Garloch, 2013, p. A1).

Sen. Grassley’s letter then goes on to ask a series of questions
seemingly aimed at getting HRSA to collect this type of data routinely.

Discussion Questions
1. What seems to be the true intent of the 340B drug discount program?

How would you go about clarifying the legislative intent?

2. What conclusions do you draw from the data provided to Senator

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Healthcare organizations require astute handling of strategy implementation

.

The processes must be followed with a contingency plan in place for failed strategic objectives leading to the goal.

· Review “340B Drug Pricing Program Oversight” case

· Provide a written analysis of the implementation phases that were used/excluded in the “340B Drug Pricing Program Oversight” case.

· Explain what the literature (external scholarly source) suggest(s) regarding health implementation strategy regarding drug pricing.

· Conclude with a summary of your research.

·
ATTACHMENT INCLUDED

.

The paper

· Must be 3 double-spaced pages in length (not including title and reference pages) and formatted according to APA style.

· Must include a separate title page with the following:

· Title of paper

· Student’s name

· Course name and number

· Instructor’s name

· Date submitted

· Must use at least five scholarly sources in addition to the course text.

REFERENCE FOR THE CASE

McLaughlin, C. P., & McLaughlin, C. D. (2014). Health Policy Analysis: An interdisciplinary approach (2nd ed.). Sudbury, MA: Jones and Bartlett Publishers. Print ISBN: 9781284037777