Thursday, February 06, 2014

New OIG Report Confirms Our Worst Fears About 340B Contract Pharmacy Abuses

Moments after yesterday's post on the booming 340B contract pharmacy market, the Office of Inspector General (OIG) released the first of its three planned reports on the 340B drug discount program: Contract Pharmacy Arrangements in the 340B Program.

OIG’s research confirms many long-suspected problems regarding oversight, diversion, and the mystery methodologies for identifying 340B-eligible prescriptions.

But here's what's most troubling: the neediest patients are not benefiting from 340B discounts. In OIG’s sample, two-thirds of the hospitals do not offer the 340B price to uninsured patients. Wow.

These 340B contract pharmacy shenanigans need to stop. Based on the OIG report, uninsured and indigent patients aren’t benefiting from 340B drug discounts. Hospitals should stop hiding behind vague language about “stretching scare federal resources” and come clean about who really gains from 340B contract pharmacies.

Read on for highlights from this depressing report on the out-of-control 340B program.


OIG studied 30 covered entities—15 community health centers and 15 Disproportionate Share Hospitals (DSH). The 30 covered entities had contract pharmacy arrangements with 199 unique contract pharmacies, or 6.6 pharmacies per entity. Five entities had networks with 10 or more contract pharmacies. For background on 340B contract pharmacies, see yesterday’s related article Walgreens Still Dominates Booming 340B Contract Pharmacy Market, with CVS and Rite Aid Right Behind.

Here’s the OIG’s most shocking revelation:
“Additionally, we found that some covered entities in our study do not offer the discounted 340B price to uninsured patients at their contract pharmacies. Neither the 340B statute nor HRSA guidance addresses whether covered entities must do so; however, if covered entities do not, uninsured patients pay the full non-340B price for their prescription drugs at contract pharmacies.”
Using data buried in the text on page 13, I created the following summary chart.

[Click to Enlarge]

Your eyes do not deceive you. Thirteen of the community health centers reported offering the discounted 340B price to uninsured patients in at least one of their contract pharmacy arrangements. However, only five hospitals offer the 340B discount price to uninsured patients, who pay the full non-340B price for prescriptions filled at contract pharmacies.

Where’s the money from this soak-the-poor strategy? No one knows.

I will reiterate the conclusion from my editorial Hospitals twist prescription assistance program for their own benefit in The Hill:
“To ensure that the program’s funds are being used appropriately, Congress should require that hospitals fully disclose how they use their 340B pharmacy profits. By allowing hospital’s to retain and then spend all 340B pharmacy profits, neither Medicare nor patients benefit from 340B drug discounts... Hospitals’ use of contract pharmacy networks should be scrutinized to be consistent with the program’s true intent. It’s time to modernize the 340B program and help the neediest patients access valuable medicines.”

The OIG’s report uncovers many other unpleasant (but not unexpected) problems due to the lack of regulatory standards and proper oversight.

Different entities have different standards for identifying 340B-eligible prescriptions. On pages 10-12, the OIG highlights four common scenarios that would result in differing determinations of 340B eligibility across covered entities, i.e., “two covered entities may categorize similar types of prescriptions differently (i.e., 340B-eligible versus not 340B-eligible) in their contract pharmacy arrangements.”

Put another way, diversion is in the eye of the beholder. This also means that OIG exaggerates the extent of oversight activities, especially given hospitals' for-profit mentality when it comes to contract pharmacy networks.

The OIG states: “Twenty-five of thirty covered entities reported that they monitor their contract pharmacy arrangements internally to detect potential diversion or duplicate discounts.” This is laughable. Since there are no consistent standards for identifying 340B-eligible prescriptions, 340B entities are monitoring diversion based on widely-varying, self-determined definitions of diversion. So, nothing to see here, move along?

The OIG is silent on many crucial questions:
  • How (if at all) do 340B entities track the profits generated by 340B prescriptions? Where do these profits go?
  • How are 340B entities monitoring mega-networks with 50 or more pharmacies? How do they monitor out-of-state mail pharmacies?
  • How are contract pharmacy fees determined?
  • Why won't 340B entities identify 340B-eligible third-party prescriptions paid by Medicare Part D and commercial health plans? (These are the hidden “duplicate manufacturer discounts” that no one ever mentions.)
Hopefully, the OIG report signals a long-overdue reconsideration of this out of control program. Will Congress force HRSA to listen?


  1. Dr. Fein –

    I follow your observations regularly…I believe the spike in 340B contracted pharmacies must have had a similar spike in pharma product sold at 340B pricing – a clear hit to their bottom line and I speculate a clear driver of double-digit price hikes.

    It would be interesting to overlay the 340B pharmacy graph with a graph showing average brand name drug price increases year over year to see if there is a similar spike.

    Thank you

  2. Let the lobbying begin. I hope a compromise is not in the cards as the administration of the 340B program has not followed the "Spirit & Intent" of the law. The Eligible Patient delimitation should be better defined but I think this is the sacred cow. Obama Care will cut into the pharmacy spread as more individual's will be enrolled in Medicaid for prescription drugs.

  3. Adam,
    Thanks for the summary and view on the OIG report. We work with manufacturers on 340b and medicaid data. The things we see makes you wonder. I agree with the comments below, manufacturers are taking a hit in a number of ways that are not readily apparent. But even more important is that the people the law was designed to help are not getting that help. Keep up the good work!

  4. Specialty Pharmacy new comers must key in on two concepts ... quality and consistency. Once they have proven they can be an SP that will perform the chance of success grows ... live long and prosper.
    Dick Domann
    VP, Pharmacy Services
    TrialCard, Inc.

  5. Adam – I agree with you 100% on what is happening with 340B – but you are not taking into consideration the deal the hospitals did the with Obama Admin when negotiating to get the AHA on board for ACA. No doubt – there was deal with the hospitals and the administration in helping hospitals make money thru 340B. Politically – it will be hard to materially alter 340B for years to come.

  6. Many branded drugs also have a generous patient assistance program so some hospitals are using these programs to get free drugs for their uninsured patients. They may also use copay cards to help with the patient responsibility of their commercially insured patients and foundations to help with the patient responsibility of their patients on government programs. Should 340B entities even be able to use copay cards? So where does all of the 340B $ go....?

  7. Larry D
    Many years ago there was a strong Alternate Vendor Source and it allowed, through tiered pricing by manufacturers, for a strong push on diversion. Many got caught up in this fad. Buying and selling through arbitrage. The pharmaceutical suppliers put a pretty good stop to it, even though they created it, through their fee for service arrangements with wholesalers. Now its back again as a result of the 340B program. Diversion is back and growing. Some are buying product, billing it to a 340B contract member then the 340B contracter sells it to another entity at a reduced price who in turn sells it to a diverter who sells it via telemarketing and flyers to Pharmacies at reduced prices over what legitimate wholesalers can acquire it for honestly. And the product moves once!
    Also the highest paid in hospital settings get their prescriptions filled at the hospital 340B Pharmacy at the 340B pricing. Just not right.
    Senator Chuck Grassley is involved in trying to investigate and change this poorly thought out government program. I hope he is successful.

  8. Thanks. Our little pharmacy is looking at becoming a contract pharmacy and it is so confusing to understand our involvement. Right now, I know how we serve the uninsured. We match Wal*Mart's $5 drug plan list. With 340B, it really is very confusing to understand who will benefit and how.