New Ruling Will Fine Drug Companies for Overcharging 340B Hospitals

The Department of Health & Human Services (HHS) issued a new rule that imposes a $5,000 fine on drug companies each time they “knowingly and intentionally” overcharge hospitals and clinics for medication purchased under the government’s 340B Drug Discount program, unless the companies reimburse providers themselves. The rule also establishes a system for calculating “ceiling prices” for covered outpatient drugs.

The 340B program was created by Congress in 1992 to help hospitals that serve disproportionately large numbers of low-income patients; the program mandates that drug companies participating in Medicaid must provide discounts of 20 to 50 percent to hospitals and clinics for outpatient drugs.

The Health Resources and Services Administration (HRSA) said the rule is effective February 28, 2017, but they do not plan to enforce it until April 1, 2017, giving manufacturers more time to comply.

In 2015, the Government Accountability Office (GAO) found that 340B hospitals were billing Medicare for higher drug costs under Medicare Part B than non-340B hospitals. “This indicates that, on average, beneficiaries at 340B disproportionate-share hospitals either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in GAO’s analysis,” the report noted.

However, hospitals argue that the agency used faulty methodology and did not take into account that 340B hospitals may see sicker patients than other hospitals.

HHS argued that some of the rule’s opponents suggested that the agency did not have the authority to issue a binding ceiling-price regulation, while noting that HHS was under instructions from Congress to devise a method for calculating the ceiling price.

HRSA estimates that the 340B program saved providers $6 billion in drug costs in 2015, an increase from $3.8 billion in 2013.

Visit amazonaws.com/public-inspection.federalregister.gov/2016-31935.pdf to read the ruling.

Sources: Bloomberg, January 5, 2017; Federal Register, “340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation.”

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