340B final rule: Feds will fine drug companies that overcharge hospitals

drugs
Under a new rule released Wednesday, the Health Resources and Services Administration of the Department of Health and Human Services can issue fines of up to $5,000 per incident to drug manufacturers that knowingly and intentionally overcharge 340B hospitals for drugs purchased under the program.

The federal government released a long-awaited final rule Wednesday that penalizes drug companies that knowingly overcharge hospitals for medication purchased under the 340B drug discount program.

Under the new rule (PDF), the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services can issue fines of up to $5,000 for each incident to drug manufacturers that knowingly and intentionally overcharge 340B hospitals for drugs purchased under the program. The new regulation also outlines the methodology that manufacturers must use when estimating the ceiling price for a new covered outpatient drug.

The guidance will be published Thursday in the Federal Register and takes effect on Feb. 28. However, the agency doesn’t plan to enforce the requirements until April 1.

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The final rule came as welcome news to 340B Health, a membership organization of more than 1,200 public and private nonprofit hospitals and health systems in the federal 340B drug pricing program. The 340B program was created in the early 1990s to provide discounts on outpatient prescription drugs to safety-net providers.

“Today’s new 340B drug discount program rule should help prevent the drug industry from overcharging America’s 340B health providers for lifesaving medicines. It’s a welcome development in light of public outrage about the unsustainable cost of prescription drugs,” said Randy Barrett, vice president of communications for 340B Health, in an emailed statement.

Barrett said the organization is especially pleased that the rule reaffirms HRSA’s long-standing policy that a manufacturer must sell a drug at a penny if it raises the drug’s price to such a high degree that it triggers an inflationary penalty and results in a 340B ceiling price calculation of $0.00.

It will also require manufacturers to offer refunds for overcharges on new drugs instead of the current rule that participating providers request refunds.

The HRSA noted in the final rule that it has received pushback after publication of the proposed rule last year, as some commenters believe that the agency doesn’t have the rulemaking authority to issue a binding ceiling price regulation. But HRSA argues it has statutory authority to develop and publish a final rule that precisely defines standards and methodology to calculate the 340B ceiling prices.

The agency also noted that the final rule will not have an economic impact of $100 million or more in any one year. “The 340B Program as a whole creates significant savings for entities purchasing drugs through the program, with total savings estimated to be $6 billion in CY 2015,” the final rule noted. “However, this final rule would not significantly impact the program.”

The 340B program has come under fire in recent years when reports surfaced that hospitals in North Carolina were reselling the discounted drugs at full price. A recent report also found that many hospitals that participate in the discount drug program don’t give their patients enough information about charity care.

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