GAO: Feds have to improve oversight to stop drug companies from doling out duplicate 340B, Medicaid discounts

hospital money
A report from a federal watchdog found the federal government has limited ways to prevent a hospital from getting a rebate from Medicaid and a drug discount from 340B. (Getty/PraewBlackWhile)

Editor's note: A previous version of this story incorrectly identified who receives the drug discounts.

The federal government isn't doing a good job of determining whether a drug company has to provide both 340B discounts and rebates for Medicaid, a federal watchdog said. 

The Government Accountability Office (GAO) said in a report Tuesday (PDF) that the Centers for Medicare & Medicaid Services (CMS) only provides limited oversight of state efforts to quash duplicate discounts. Audits from the Health Resources and Services Administration (HRSA) are also lacking, the report found.

A safety net hospital can qualify to get a 25% to 50% discount for drug products under 340B, but those facilities are not eligible for drug rebates from Medicaid. A drug that a hospital or clinic buys from 340B cannot also qualify for a rebate under Medicaid because this creates a duplicate discount, GAO said. 

A state Medicaid program has to know when a 340B facility dispenses 340B drugs to people on Medicaid. This will ensure that the state programs can exclude those drugs from their Medicaid rebate requests, GAO said. 

But the watchdog found that the process to ensure this occurs gets minimal federal oversight. GAO’s report found CMS does not track or review states’ policies and procedures for preventing duplicate discounts. Any procedures that states do use are “not always documented or effective,” the report said.

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CMS also isn’t sure that states are seeking rebates for all eligible Medicaid drugs, “potentially increasing costs to state and the federal government for forgone rebates,” GAO added.

HRSA, which administers the program, audits 340B facilities but doesn’t review state policies and procedures for identifying and using 340B drugs. Therefore, the agency cannot determine whether a 340B hospital is following state requirements and taking the necessary steps to avoid duplicate discounts, GAO said.

GAO already reported back in 2018 that HRSA doesn’t give guidance on or audit for duplicate discounts in Medicaid managed care.

GAO recommends that CMS call for state Medicaid programs to have in place written procedures addressing duplicative discounts. HRSA should also incorporate compliance with such procedures into their audits of 340B facilities and require facilities to work with manufacturers on any repayment of duplicate discounts.

While the Department of Health and Human Services (HHS) agreed with the recommendation for CMS, it did not agree with recommendations for HRSA. HHS told GAO that HRSA doesn’t have the regulatory authority to determine if a state Medicaid policy is adequate enough to prevent duplicate discounts. The agency added it has asked Congress multiple times to extend HRSA’s authority to no avail.

Congress requested GAO look at how the federal government prevents drug companies from doling out both a 340B discount and a Medicaid rebate because of explosive growth in the 340B program. From 2010 to 2019, the number of facilities participating increased from nearly 9,700 to nearly 13,000, GAO said.

The number of contract pharmacies that contract and pay to dispense 340B drugs has also increased from 1,300 in 2010 to 23,000 in 2019.

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The report could become the latest salvo in an entrenched lobbying war between the pharmaceutical industry and providers over the scope of the 340B program.

The pharma lobby argues that the 340B program has gotten too big and incentivizes hospitals to get higher-priced drugs to get a bigger discount. But the hospital industry has argued safety net hospitals can funnel the savings into programs to improve patient health outcomes.

340B advocates seized on a report by the Medicare Payment Advisory Commission that found the program is not incentivizing hospitals to get higher-priced drugs.

The hospital industry also remains in a protracted legal fight with CMS over the agency’s authority to impose a $1.6 billion cut to 340B payments. A federal judge has ruled CMS does not have the authority to make the payments, but the agency went ahead with another round of cuts in 2020.