OIG report finds drugmakers overcharging 340B hospitals


A new OIG report finds that drug manufacturers are overcharging disproportionate share hospitals that serve indigent patients



OIG report finds drugmakers overcharging 340B hospitals

Pharmaceutical manufacturers are overcharging hospitals and clinics that serve indigent patients. Investigators from the Office of the Inspector General at the Department of Health & Human Services found that drugmakers overcharged low-income pharmacy providers by 18%, more than $40 million, in a single month. The findings were released in June.

"Many of us have suspected there are problems," said Andy Wilson, Pharm.D., director of pharmacy services at Virginia Commonwealth University Health System. "OIG has characterized the magnitude of the problem as much larger than anyone realized. It applies to half of our drug purchases." Virginia Commonwealth is one of about 10,500 healthcare organizations that spent an estimated $3.4 billion on outpatient drugs for indigent care in 2003. All participate in the federal 340B drug discount program.

Established in 1992 as part of the Public Health Service (PHS) Act, 340B requires manufacturers to set ceiling prices for 19 types of ambulatory care centers that typically serve low-income populations.

Price ceilings are based on the best price drugmakers give to state Medicaid programs. Discounts are at least 15% lower than prices the same buyer would pay without the program, according to OIG. Savings are typically in the 20% to 30% range, but not in all cases. Investigators found that 31% of sampled prices exceeded the 340B ceiling price during September 2002. Of the 37 340B entities sampled, 36 overpaid for drugs. Fully 53% of drugs purchased exceeded the ceiling price at least once.

According to Gary Stein, ASHP director of federal regulatory affairs, HRSA, the Health Resources & Services Administration, the HHS branch that oversees the 340B program, was reorganized in February 2003. Stein noted that the Pharmacy Services & Assistance Branch, which administers the 340B program, has about half the staff as its predecessor, the Office of Pharmacy Affairs. "Inadequate staffing had a lot to do with the problems that OIG reported," he said.

OIG estimated that 340B purchases totaled $269 million for the one month they reviewed, 18% above ceiling prices that should have totaled $227.9 million. On an annualized basis, the one-month overcharge of $41.1 million translates into $493.2 million in overcharges to safety net providers.

"It confirms what we long suspected," said Ted Slafsky, executive director of the Public Hospital Pharmacy Coalition. PHPC represents more than 200 hospitals nationwide. "We have never before had any way to verify the overcharges we believed were there."

It is not the first time drugmakers have been caught overcharging 340B customers. In 2001, PHPC submitted sales data from six member hospitals to HRSA and asked for a price check. HRSA found that 37 of 50 drug prices the hospitals paid were between 10% and 100% higher than the 340B price ceiling.

The problem, OIG found, is that HRSA does not effectively manage or operate the 340B program. Price ceilings are set by manufacturers, not by buyers or by HRSA. HRSA does not verify manufacturer calculations and does not have legal authority to penalize overcharges if it uncovers them.

"I don't know what the right 340B price is," said Jim Jorgenson, director of pharmacy services at the University of Utah Hospitals & Clinics. "I have to hope the companies are giving me the right price and I don't think they always do."

Because 340B prices are based on Medicaid pricing and 340B buyers use state funds, Wilson suggested that individual states could demand repayment from drugmakers. "I expect to see a number of states exploring their options for recovery from manufacturers," he said.

The OIG report did not consider state-by-state recovery, but inspectors made several recommendations:

• Random reviews of 340B transactions

• Legislative authority for HRSA to penalize 340B violations

• A secure Web site that allows 340B buyers to check for price ceiling violations

• A list of 340B selling prices from the program prime vendor

• Quarterly comparisons of manufacturer price ceilings against CMS calculations

In response, HRSA said it does not support the development of a specific legislative proposal at this time. HRSA prefers to continue exploring its options before making a decision to go forward with a legislative proposal.

Fred Gebhart


Fred Gebhart. OIG report finds drugmakers overcharging 340B hospitals.

Drug Topics

Aug. 9, 2004;148:28.

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