GAO Report Reaction





Responsibility in Research of 340B Contract Pharmacies

August 13, 2018

On June 21, 2018, the GAO issued a report, ”Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement,” outlining areas of concern in 340B contract pharmacy programs. The report relies on entity interviews, review of the contracts between entities and pharmacies, and an examination of HRSA’s Audits and Corrective Action Plans.  

To summarize, the GAO report points out the potential for duplicate discounts with Medicaid MCOs, gaps in the HRSA audit process that might leave compliance issues undiscovered or unfixed, and the concern that only half of covered entities are using contract pharmacies to provide subsidized prescriptions to low-income uninsured patients.

  • The first issue, duplicate discounts, can be a program violation, even though covered entities don’t have the data need to avoid them in all cases
  • The last issue, full cost prescriptions to low-income patients, is political dynamite.  It is a very nuanced area to exhaustively study across several entity types and very easy to misunderstand.

The GAO report makes seven recommendations that would offer guidance on duplicate discounts, require a much more complicated registration process, modify specific audit processes, and establish more overall guidance on contract pharmacies.

We agree that contract pharmacy oversight is a topic worth exploring.  340B, like all government programs, is a work in progress. Stakeholders’ needs in 2018 are different than 1992.  In particular, the 340B contract pharmacy market has changed drastically over the last ten years and there are a lot of questions about program setup, contract terms, patient qualification, prevention of duplicate discounts and use of margin. At the same time, this is an incredibly complicated and nuanced program and all is not as it always seems.  Unless you are seriously in the weeds of 340B data and processes like we are, it can be easy to misunderstand and latch on to inaccurate messaging.

What follows are four points that cover our reaction to the GAO report. Our objectives are to offer improved ways of thinking about the program and discuss important variables that should be a part of responsible research going forward.


Point 1: The Importance of Asking the “Right” Questions

In our opinion as researchers and 340B compliance experts, there are several things the GAO study did not explore and the conclusions do not always make sense given the data collected.

The GAO investigates HRSA’s oversight, demographics of entities with contract pharmacies, types of contract agreements, operations around low-income patients and prevention of duplicate discounts. In other words, the report covers too many topics instead of focusing on one or two key questions.

In our opinion, when research is broad and shallow instead of focused and deep, it is easy to miss critical information and can lead to conclusions that are sometimes overreaching. What often follows then is a misinterpretation of a report’s findings, with individuals drawing summary statements that make good sound bites, but with little evidence to back it up.  One critic used the GAO report to support statements such as “startling revelations,” “abusing the 340B program” and “soaking the poor.”

With a program as complex as 340B, the need for precision is paramount, especially from an oversight agency.  During the development of this report, the GAO sent a questionnaire to 60 covered entities. However, the GAO did not release a copy of the questionnaire or indicate who provided answers.  We don’t know what questions were asked or how the questions were phrased. We don’t know if the interviews were structured or open-ended.

It is unclear who in the 340B covered entity was surveyed and if they understood the questions asked. For example, on the topic of passing on the 340B discount to patients, when a question is about “340B drugs”, did the GAO clarify whether they meant drugs that were qualified for 340B or drugs that were dispensed from a pharmacy with a 340B contract? Did they ask about situations where it is cheaper to dispense the pharmacy’s product (not qualify as 340B) and therefore not technically pass through the 340B price? Did they ask about donations/low-income services provided through the entity and not the contract pharmacy?

The GAO reports how many contract pharmacies each covered entity has, and how many miles the contract pharmacy is from the covered entity.  But these simple questions – how many, how far – ignore the complexity of providing prescription medications.

  • Is the contract pharmacy integrated with the entity’s care delivery system?
    • Is the pharmacy a part of the health system, or are there contractual arrangements to coordinate care, which enable more comprehensive care for patients from vulnerable populations?
  • A better measure of volume is to ask, “how many prescriptions are being filled”?
    • Contract pharmacy program size should be measured by the number of qualified 340B prescriptions, not by the number of pharmacies. The number of eligible prescriptions that actually get filled is the relevant measure of contract pharmacy network size, regardless of whether you have 2 or 100 registered pharmacies.  
  • Instead of asking how far the pharmacies are from the covered entity, a better question is, “how well does the contract pharmacy network meet the patients’ needs”?
    • Specialty pharmacies should be measured separately. These pharmacies are almost always mail order so the distance from the covered entity is irrelevant. They are mainly mandated by manufacturer or PBM. The volume of prescriptions may be low, but the contract is necessary for the patients who need the specific medications which are only available through that pharmacy.
    • Geographic and economic variables that have nothing to do with 340B are at play. Some covered entities draw patients from a limited geographic area, others serve the entire region or state.  A better question is to ask “how well does the contract pharmacy network match the covered entities’ service area”?


Based on all of these questions (and we are just getting started….), Rx|X is obviously in favor of examining the 340B contract pharmacy program.  We are just concerned that there has yet to be the deep dive necessary to present a more balanced picture of what entities are able to do versus what they want to do.  The drug supply and price chain is incredibly complex and 340B is just one piece of it.


Point 2: Caution on Conclusions

The June 2018 GAO report has led to some very negative and/or problematic conclusions being drawn about the 340B program.  340B critics are using the report to shame 340B entities for not consistently passing through the 340B price to patients and to accuse covered entities of having perverse incentives for using higher-priced drugs.  Let’s look at one conclusion drawn by the GAO report and two conclusions drawn by outside critics to see the potential harm that can result from asking the wrong questions.


More complex OPAIS registration

The GAO recommends a vastly more complicated registration, based evidently on the assumption that contracts don’t typically cover all child sites.  The GAO is recommending that instead of registering each contract pharmacy on OPAIS database one time for each covered entity, the contract pharmacies should also be registered for each child-site of each covered entity.  If a covered entity has a parent site and 10 child sites and 5 contract pharmacies, it would need to do 55 separate contract pharmacy registrations on the OPAIS database. The GAO argues that this additional registration will allow HRSA to better assess the level of compliance risk for covered entities, and therefore HRSA can better select the highest risk covered entities for audit reviews.  HRSA disagrees with this recommendation.

If the GAO had asked more in-depth questions about the contract pharmacy process they might have better understood that

  • most contract pharmacy agreements include all child-sites (so the extra registrations are just bureaucratic, database overloading, busy work), and
  • that the compliance risk is more dependent on the total volume of prescriptions, the methods used for patient eligibility identification, and the quality of Medicaid MCO data available in that state.


Providing financial support to low-income uninsured patients

The GAO report lists the covered entity responses to questions about “providing low-income, uninsured patients discounts on 340B drugs”.  The report indicates that 25 of to 55 responding covered entities do not pass on the discounts. Critics of 340B are responding with headlines such as “GAO Confirms It: 340B Hospitals and Contract Pharmacies Profit from Low-Income, Uninsured Patients”.

However, the GAO report does not discuss the entirety of an institution’s charity care. The question is just about whether the price is passed through at contract pharmacies and ignores other ways in which hospitals screen for and assist patients without the ability to pay for drugs. Contract Pharmacy is just one access point for patients who may otherwise get drugs directly from the hospital’s retail pharmacy or at discharge. Some covered entities cover the full prescription costs of the low-income uninsured patients, regardless of whether the prescriptions are eligible for 340B discounts – for example covering generic medications even at contract pharmacies that don’t include generics in their 340B contract with the covered entity.  This type of patient support can get missed in the simple questions asked by the GAO.


Higher proportion of brand drugs

One section of the GAO report is an extensive listing of the pricing terms for the various contract pharmacy agreements that were reviewed. The listing of contract pharmacy terms often show that the contracts exclude generics or have higher fees to the pharmacies for brand drugs.   The GAO did not interpret these findings. However, critics of 340B have used this information to assert “Here’s a policy that is maximizing revenue for hospitals and contract pharmacies and perversely going against the intent of the program, which is to provide accessible and affordable health care for vulnerable people”.

Previous research has been done that showed contract pharmacies filling a lower than typical proportion of generic medications.  One 2012 study showed that “generic medications account for 53.8 percent of 340B prescriptions, compared with 82.3 percent of all prescriptions”.    Critics of 340B are claiming that the lower filling of generic meds is a driven by profit motive, to the detriment of patients who must pay higher copays.  Rx|X opines that the report and the subsequential fallout missed these key considerations surrounding potential reasons for the difference between brand and generic dispensing.

  1. The most common reason is that “lower-of -logic” or minimum prescription cost thresholds excludes the lowest price generics from 340B processing since the minimum fee to the pharmacy and the TPA would be more than the potential benefit to the covered entity.  It doesn’t mean that the patients are not getting generics; it just means that many of the generic prescriptions aren’t being processed as 340B.
  2. Covered entities may still be supporting patient access to generic prescriptions, even though the prescription is not 340B eligible in that pharmacy contract.
  3. Covered entities often have no choice about whether the contract will include generics.  The pharmacy will only agree to include brand drugs. We don’t know if that is because the pharmacy is uncomfortable with the lower-of-logic used to exclude low-cost prescriptions or if the pharmacy wants to maintain their generic purchase volume to secure manufacturer rebates, but either way, the covered entity doesn’t have a choice.
  4. Some patient populations require medications that are only available as brand drugs.


Point 3: Questions that the GAO and OIG should be asking

Here are some questions that can only be answered by agencies with access to HRSA audit data, or with the authority to collect information from Medicaid MCOs.  We think the answers to these questions would provide a more nuanced and useful set of data for making 340B policy decisions.

  • Take the transaction data and findings from the HRSA audits and perform a meta-analysis on the standard elements that should be tested:  physician eligibility, clinic eligibility, FFS Medicaid, etc.
    • How often are there errors found, and are they associated with a particular pharmacy, TPA, or covered entity?
    • The GAO report indicated the number of diversion and duplicate discount findings from HRSA audits but did not indicate what percent of total transactions were found to be invalid.
  • Since identifying MCOs is such a problem, what about surveying all MCOs with Medicaid enrollees to determine how many have unique BIN-PCNs.  
    • Show the number of Medicaid enrollees with unique BIN-PCN vs those without.
    • Request sample transaction data with BIN-PCN info from a wide sample of covered entities.  Test for the unique BIN-PCN (including FFS) for duplicate discount and also test for patient pay – how many are self-pay, how big are the dollars?  How big are the copays even for the insured? How many are subsidized by the covered entity?

Other questions that could be asked are:

  • What was the entity’s strategy in setting up their 340B contract pharmacy program?
  • What kind of data was collected to measure where to establish contract pharmacies?
  • How is performance of a 340B contract pharmacy measured?
  • Is the contract pharmacy for a specific patient population or for general use?
  • How does the entity qualify 340B claims?
  • Has the entity measured any outcomes for populations of focus?


Point 4: Questions that covered entities should be asking

Here are some of the questions that covered entities can ask, both to better focus their development and management of their contract pharmacy networks and to provide overall input to 340B program policymaking.

Here are some suggested criteria for development and management of a contract pharmacy network:

  • Financial agreements that leave the CE with the 340B savings dollars, leave the pharmacy with their normal margin and pay the pharmacy a small amount for the additional administrative work.
  • Software or TPA that is a low burden on CE resources, supports high level of compliance and supports patient eligibility criteria as determined by the CE, using the data fields available in the existing transaction data.
  • High level of cooperation for audits and other compliance activities.
  • Good match for patient geographic distribution.  Where are the CE patients going now? What pharmacies have a minimum volume of CE patients so that 340B is practical (filling enough to have full pack sizes)?
  • Support access for financially vulnerable patients, for example by accepting the PBM used by the CE to subsidize prescriptions or by having software that calculates lower price for cash pay patients.
  • Support CE clinical initiatives.  For example, pharmacy does blood pressure tests and reports values back to CE’s patient medical record; or, pharmacy has access to CE’s patient medical record and uses it to counsel patients; making notes on medical record about the counseling.

The question of sharing the benefits of the 340B program with low-income uninsured patients will not go away.  Covered entities need to be able to explain and measure how they are supporting these patients’ access to prescription medications.

There are many published articles criticizing the 340B program.  Try setting up a google news alert on the subject “340B” for one week to get a sense of how relentless the attacks are.  Covered entities need to support research and publications that provide support for the value of continuing and expanding the 340B program.


Here are two suggestions:

Safety-net institutions can collectively work together to proactively update the definition of vulnerable patients. Who are the vulnerable patients in 2018 and beyond?  Uninsured, underinsured (e.g. those with affordable, yet high deductible plans or those with a very limited drug formulary) and those who cannot afford the shocking co-pays on some of the very high-cost medications?   Once defined to reflect current realities in the community, safety-net providers can establish policies and programs to best use 340B savings to care for these patients.

Research can be done and published that reviews all prescriptions written by a CE for low-income and/or uninsured.  Where are they being filled, what percent at a contract pharmacy, how much are patients paying? Let’s look at the transactional data instead of just survey data. Also, include other measurable ways the health system is supporting vulnerable patient populations.