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HRSA's Failures, Drug Overcharges Lead to Overhaul of 340B Agency

Donna Young

A year and a half after the Bush administration shook up, downsized, and renamed the Office of Pharmacy Affairs (OPA)the agency responsible for administering the 340B program, which provides certain hospitals and federally funded grantees access to low prices on pharmaceutical productsthe government has reinstated the agency's original name and has moved it to another program in the Health Resources and Services Administration (HRSA).

OPA, which was briefly known as the Pharmacy Services and Assistance Brancha name that never caught on and was rarely used by officialshas been moved from the Bureau of Primary Health Care to HRSA's Special Programs Bureau (SPB), an agency that oversees a mishmash of programs, including the National Vaccine Injury Compensation Program and the Division of Transplantation.

"The change will place the office in a bureau whose other programs are as broad and complex as those of Pharmacy Affairs," said HRSA Deputy Administrator Dennis Williams.

Like the 340B program, he said, SPB's programs often involve "considerable interaction" with the Department of Health and Human Services (HHS) and other federal agencies.

Williams announced OPA's changes on July 12 at the 340B Coalition's annual three-day conference in Washington, D.C.

The agency's move to SPB, he said, "will not reduce Pharmacy Affairs' role in supporting HRSA's primary health care programs. It will, we believe, enhance Pharmacy Affairs' visibility and its ability to carry out our plan to improve the program."

OPA will also be adding up to four new employees, according to an HRSA spokesperson. The 340B agency had its staff cut last year from 11 employees to 6.

Why the change? HRSA's latest overhaul of OPA, Williams said, was initiated in part because of findings and recommendations by HHS's Office of Inspector General (OIG), which released two reports in June that rebuked HRSA for failing to have protocols for ensuring that the 10,500 entities enrolled in the 340B program receive appropriate discounts from drug makers and practices for detecting overcharges and resolving those discrepancies with manufacturers.

"HRSA has not focused its resources on ensuring that those safety net providers participating in the 340B program receive the full extent of the discount," investigators stated in their report.

review by OIG of drug purchases made in September 2002 revealed that 31% of products bought by a sample of 340B-covered entities exceeded the ceiling pricethe highest price a manufacturer is permitted by the 340B statute of the Public Health Service Act to charge participating entities for a drug.

OIG estimated that 340B-covered entities paid $41.1 million in overcharges for the one month alone.

Funds lost to overcharges, investigators proclaimed, "might instead be used to lower the cost of acquiring outpatient drugs so that covered entities can serve more patients and improve the quality of service."

If the 340B program continues to operate with a 31% error rate, OIG warned, "it is at risk for persistent financial loss."

"Such a significant overpayment undermines the intent of the 340B program," investigators admonished.

Powerless. But, according to OIG, there are no penalties in place to punish drug makers who violate the 340B statute. Unlike the Medicaid program, the law does not impose civil penalties for noncompliance with the 340B statute, according to OIG.

Incorrect data interfere with 340B's success

A poorly run database in the Office of Pharmacy Affairs (OPA) may have caused some entities eligible to receive discounts under the 340B program to unnecessarily pay higher prices for their drug products, according to a June report from the Department of Health and Human Services Office of Inspector General (OIG).

Section 340B of the Public Health Service Act requires OPA to maintain accessible data on the identity of participating entities.

But inspectors conducting an investigation of prices paid by 340B-covered entities for prescription drugs found that 38% of sampled entities are incorrectly listed in OPA's database as participants in the drug-pricing program.

Participating entities that are not listed in the database could be inadvertently overcharged by a manufacturer.

The database had incorrect addresses for 43% of the entities listed, investigators found.

Erroneous or incomplete information in the database, OIG's report stated, hinders a pharmaceutical manufacturer's ability to verify entity enrollment and increases the risks for drug diversion.

"Any incorrect information in the database compromises both the participants and the manufacturers," inspectors said.

If an entity's contact information is wrong, OIG said, a manufacturer may have to delay shipping the product until it can verify the information, which could directly affect patient care.

A manufacturer could unknowingly sell items at 340B prices to ineligible entities that are incorrectly listed as participating in the program, according to OIG.

"The integrity of the 340B program is weakened if prohibited transactions occur," investigators admonished.

Dennis Williams, deputy administrator for the Health Resources and Services Administration, said his agency has "taken some steps to improve the program database."

But, he added, most of OIG's recommendations to fix the database "will require additional resources."

"Until those resources are identified, I cannot give you a timetable for when specific improvements will occur," he said.

To participate in the Medicaid program, drug companies must offer safety-net providers prices at or below the ceiling price.

Manufacturers are required to pay rebates to state Medicaid programs based on the difference between a drug's average manufacturer price (AMP) and the best price offered to private-sector purchasers, with a minimum rebate of 15.1% of the AMP.

Pharmaceutical companies must use AMP and the best price offered to calculate the 340B-ceiling price. The ceiling price is based on a manufacturer's calculation of the Medicaid rebate percentage applied to the AMP.

Drug makers must report their drugs' AMP and the best price to the Centers for Medicare and Medicaid Services (CMS), but the law does not require them to report 340B-ceiling prices to the agency or OPA.

340B-covered entities do not have access to the AMP, best price, or calculated ceiling price, and, according to OIG, are therefore unable to determine if they are receiving the full discount to which they are entitled.

Safety-net providers are forced to assume that manufacturers are complying with the law. The only alternative available for 340B-covered entities, OIG stated, is the use of wholesaler price lists to establish a "proxy" ceiling price.

So that OPA can verify that a manufacturer's selling price does not exceed the ceiling price, CMS provides the agency with estimated ceiling prices using reported AMP and best-price data from manufacturers, investigators noted.

But, OIG found, OPA "does not conduct audits of entities' or manufacturers' prices to ensure that the program's participants do not pay in excess of the 340B ceiling price."

If HRSA does detect evidence of overcharges, investigators said, "it does not have the legislative, regulatory, or contractual authority to effectively remedy the situation."

HRSA has a dispute resolution process designed to resolve problems with overcharges, OIG noted, but the practice has gone unused.

Use the force. OIG advised HRSA to seek legislative authority to establish civil and monetary penalties for drug makers who violate the 340B statute of the Public Health Service Act.

But in its response to OIG's report, the Bush administration resisted a legislative approach.

"HRSA prefers to continue exploring its options and evaluate the impact of the ultimate action plan before making a decision to go forward with a legislative proposal," said Betty James Duke, the agency's administrator, in her response.

Some participants at the 340B Coalition conference in July speculated that HRSA and OPA officials are afraid to pursue a legislative approach because it could open the door for drug-industry lobbyists to influence lawmakers to amend the 340B program out of existence.

In a July 26 letter to HHS Secretary Tommy G. Thompson, Senator Charles Grassley (R-Iowa), chairman of the Senate Finance Committee, said he was "disturbed by the brevity of HRSA's response" to OIG and asked Thompson to explain why HRSA should not have the ability to impose fines and civil penalties on drug companies to ensure that 340B-covered entities receive full discounts.

"In the light of pennies-on-the-dollar settlements some drug companies have paid in recent years, it seems to me that America's taxpayers are continually being taken to the cleaners," the Iowa senator contended.

At some point, he exclaimed, the federal government "needs to say enough is enough and put some real teeth into regulating its drug programs."

Deja vu. Grassley reminded Thompson that "this is not the first time the OIG found that drug companies overcharged 340B entities."

OIG reported in March 2003 that five manufacturers of 11 prescription drugs had overcharged 340B-program participants $6.1 million for sales occurring from October 1998 through September 1999.

The government kept secret the identities of the drug companies investigated for that report.

Grassley told Thompson that the Senate Finance Committee is "taking a close look at the drug pricing practices of many drug companies participating in federal health care programs."

He asked the HHS secretary to explain in detail what steps, if any, the agency has taken to recoup the $6.1 million, and he demanded to know the names of the pharmaceutical firms and the 11 medications that OIG examined for its 2003 report.

Show me the money. An HRSA spokesperson declined to confirm or deny whether the agency has sought to recover the overcharged amounts, and directed all inquiries about the case to the Department of Justice (DOJ)which is the same response the agency gave seven months ago.

A DOJ spokesperson responded that his agency had no comment as to whether the governmentHRSA, DOJ, or HHSis seeking recovery of the $6.1 million for 340B-covered entities.

Bayer Corporation and GlaxoSmithKline (GSK) agreed in April 2003 to pay a combined amount of more than $344 million to settle Medicaid fraud charges. 340B-covered entities were also included in the settlements and received payments from the two drug companies for overcharges.

However, because the safety-net providers do not have access to drug company pricing data, it is unclear if the entities were reimbursed the full amounts for which they were overcharged.

The U.S. Attorney's Office for the Eastern District of Pennsylvania announced on July 30 that Schering-Plough Corporation agreed to plead guilty to violating federal antikickback laws and pay $52.5 million in criminal fines and $290 million to resolve its civil liabilities in connection with its illegal and fraudulent pricing of its allergy medication Claritin, which at the time of the infractions, was available only by prescription.

340B-covered entities will get $10.6 million under the settlement, according to an HRSA spokesperson.

However, it is unclear whether the settlements made by GSK, Bayer, and Schering-Plough will reconcile the overcharges found by OIG in its March 2003 report.

Class action. In the meantime, one safety-net provider in Alabama is not waiting for the government to act.

Central Alabama Comprehensive Healthcare Inc. filed a class-action lawsuit in the U.S. District Court in Alabama against several large pharmaceutical makers, claiming that the firms charged prices above what is allowed by the law.

"The suit seeks to represent all public hospitals and community health centers nationwide that were allegedly overcharged by the drug companies," according to a press release from Hagens Berman, the Seattle, Washington, law firm that is representing the Alabama health care provider.

The suit cites OIG's June report and asks the court for a "full accounting to determine the extent of the overcharging by drug companies, injunctive relief to prevent further overcharging, and relief from past overcharges," according to the law firm's statement.

But the Public Hospital Pharmacy Coalition (PHPC) is advising its members not to join the suit "at this time," said Edith S. Marshall, a partner with Powers Pyles Sutter & Verville, the firm representing PHPC.

"We think it is better to watch the situation for at least the time being," she said. "We are not saying that, 'no, you should never litigate.' Just not at this time."

Marshall said that there "are other avenues that may be a better prospect of getting swift action," meaning the ongoing investigations of some drug companies by DOJ and state attorneys general and cases filed under the Federal Civil False Claims Act.

If 340B-covered entities settle with drug companies under a class-action lawsuit, she contended, there may be no chance of entities recouping overcharges discovered by government investigations.