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States and the 340B Drug Pricing Program

Updated:  April 25, 2008                                            
Jump to References and Sources                                                                    

The federal 340B Drug Pricing Program provides access to reduced price prescription drugs to over 12,404 health care facilities certified by the U.S. Department of Health and Human Services (HHS) as "covered entities". These clinics, centers and hospitals in turn serve more than 10 million people in all 50 states, plus commonwealths and territories.

Office of Pharmacy Affairs (OPA): An Overview
"The 340B Drug Pricing Program was established in response to the passage of Section 340B of U.S. Public Law 102-585, the Veterans Health Care Act of 1992. Section 340B of this law limits the cost of drugs to federal purchasers and to certain grantees of federal agencies. Significant savings on pharmaceuticals may be seen by those entities who participate in this program." The program is administered by the Office of Pharmacy Affairs (OPA) of HRSA, under the federal Department of Health and Human Services (HHS). Note: In 2003 and early 2004 the office name changed to Pharmacy Affairs Branch (PAB), but the "OPA" name has been restored as of July 2004.

340B Contacts: If state legislators have questions regarding the 340B Program visit the OPA web site at: http://hrsa.gov/opa. You also may contact them by calling (301) 594-4353 or 1-800-628-6297. In addition, you may write to them at this address: Office of Pharmacy Affairs , HRSA, 5600 Fishers Lane, Parklawn Bldg, Room 10C-03, Rockville, Maryland 20857.

The Office of Pharmacy Affairs established the Pharmacy Services Support Center: http://pssc.aphanet.org/default.htm is under contract with the American Pharmaceutical Association (APhA) to provide, among other things, education and technical assistance on 340B issues. Harry Hagel is in charge of the Support Center and can be reached at: HRSA Pharmacy Services Support Center, American Pharmacists Association, 2215 Constitution Ave, NW Washington, D.C. 20037; (202) 237-2742; email: pssc@aphanet.org.

The 340B Prime Vendor Program (PVP) will maximize your state's participation in the 340B drug purchasing program.  Click here for more info on the 340B PVP.

  NEW MATERIALS AVAILABLE!     Jump to References and Sources  

State Savings Analysis Available!

Heinz Family Philanthropies has undertaken the pioneering work on 340B for a number of states, and their analysis has demonstrated significant savings to state legislators. This work is often done at no cost (or little cost) for states and the results are dramatic.  The chief architect of the Heinz work is Jeffrey Lewis, president of the Heinz Family Philanthropies (jlewis@heinzoffice.org).  For a copy of the Rhode Island state report click here: The Rhode Island 340B Analysis: Creating an Opportunity.
For more information, contact:
Jeffrey R. Lewis, President
Heinz Family Philanthropies
1101 Pennsylvania Ave. N.W. Suite 350
Washington, D.C.  20004

NCSL Spring Forum Special Briefing on 340B, April 19, 5:15-6:15pm, Columbia-C.

Attendees found out how the 340B Federal Drug Pricing Program can save state funds and increase access to quality pharmaceutical services for citizens. There was a brief overview of the program, followed by Q&A and discussion about how Office of Pharmacy Affairs, Pharmacy Services Support Center and NCSL can help states maximize a state's federally qualified entities' utilization of the program, quality and savings potential.  Please click here to request a copy of the slides.

Speakers
Jimmy Mitchell, R.Ph., M.P.H., M.S., Director, Office of Pharmacy Affairs, HRSA, Rockville, Maryland
Harry Hagel, R.Ph., M.S., Director, HRSA Pharmacy Services Support Center, Washington, D.C.

Web conference on "340B in the States" held September 28, 2006 1pm-2pm ET. 
Featuring:
Harry Hagel, R.Ph.- Senior Director, HRSA Pharmacy Services Support Center. Download Slides Only
William (Bill) Wood, R.Ph.- Manager, 340B Programs, University of Utah Department of Pharmacy Services.
Moderated by Karmen Hanson- Senior Policy Specialist, NCSL. Download slides only
To view the archive, go to http://www.vcall.com/replay then enter replay # 31124645

Types of Health Providers approved for prescription discounts
Federal Grantee covered entity sites as of April 1, 2008*
Total sites = 12,979

Entity Type	Number
Consolidated Health Centers (FQHC)	3404
AIDS clinics and drug purchasing programs (Ryan White Title I-IV)	507
Black Lung Clinics	12
Hemophilia Treatment Centers	88
Urban Indian Clinics	21
Tribal Centers	134
Family Planning Clinics, Title X	4056
Sexually Transmitted Disease Clinics	1346
Tuberculosis Clinics	1098
Native Hawaiian Health Center	11
Federally Qualified Health Center  look-a-likes	207
Certain Disproportionate Share Hospitals (DSH)	2095

*For more information like this chart, please see 340B website at: http://opanet.hrsa.gov/opa/Login/MainMenu.aspx

Recent State Laws About Expanding Pharmaceuticals through 340B

Although safety net health facilities have existed for decades, states' searches for solutions to high prescription drug costs have led to new laws authorizing expanded use of the 340B programs. Examples include:

NOTE: Some hyperlinks below may not be active, depending on the state's archive/database system.  We try to keep these links as up to date as possible. We appreciate your feedback.

• Arkansas HB 2498 of 2001 authorizes expanded use, creation or designation of federally qualified health centers to get "substantially discounted prescription drug prices."
• California AB 77 Would authorize the Department of Corrections to establish a pilot project to determine whether the department may reduce the cost of providing health care to inmates, including the furnishing of prescription drugs to inmates at the 340B discounted price, by contracting for the provision of those health care services from certain covered entities. (Signed by governor as Chapter 503, 10/4/05)
• California SB 340 of 2001. Expands dispensing options for California safety net clinics; §4126 authorizes 340B eligible clinics to contract with a community pharmacy to dispense 340B drugs. (As of January 2004, 59 clinics have contract pharmacy agreements.) (Signed by Governor Davis as Chapter 631, 10/8/01)
• California SB 708 of 2005 Requires the State Department of Health Services to develop a standard contract for private nonprofit hospitals whereby a hospital agrees to provide medical care to indigent patients, as a condition of participation in the 340B drug discount program established under federal law.
• Connecticut SB 1123 of 2003. Provides loans to federally qualified health centers for the cost of establishing a pharmacy facility or a partnership with a community pharmacy to serve as a centralized prescription drug distributor for federally qualified health centers that have established affordable pharmaceutical drug programs for qualified low income patients of such centers. The Commissioner of Social Services will assist any federally qualified health center that is applying for a loan by providing non-individual identifying information concerning potential participants in the affordable pharmaceutical drug program.
  (Signed by Governor as Public Act 03-166, 6/10/03)
•  Maine HP 1591 / LD 2231 of 2008 by Rep. Treat requires the Governor's Office of Health Policy and Finance to "coordinate with the Department of Health and Human Services and other state agencies and representatives of state employees, health care providers and federally qualified health centers to identify opportunities no later than July 1, 2009 to provide prescription drugs through Section 340B for the following, if the costs of implementing such a plan are less than the current cost of providing prescription drugs: 1) State-funded managed care plans; 2) MaineCare (Medicaid); 3) State bulk purchasing initiatives and 4) Populations using high-cost chronic care and specialty drugs.  Also requires the Department of Corrections to convene a working group to maximize use of the 340B. The effective date is April 16, 2008.  (Filed 2/26/08; passed House and Senate 4/15/08; signed by governor as PS Chapter 43, 4/16/08)
• Maine HP 923 / LD 1324  Among other things, Would establish the Pharmacy Cost Management Council to develop and implement measures to control the cost of prescription drugs and expand the State's purchasing power, pooled purchasing for public sectors and including employers, use of PBMs, PDLs, disease management, and research purchasing and coordination of benefits related to maximizing use of federal programs (Medicare, 340B) and purchasing from outside the US. (Signed into law by governor as Chapter 343, 6/8/05)
• Maine LD 711 of 2003. Legislative resolve requires the Department of Human Services to study and report on "the feasibility of providing discounted prescription drugs to Maine's most vulnerable patient populations through the use of Section 340B" by January 1, 2004. [text below] (Signed by governor as chapter 29, 5/19/03)
• Maine LD 46 of 2003. Allows certain health care facilities that provide primary and preventive care services to purchase through state agencies or state contracts, prescription drugs and medical supplies for patients to whom they provide free care.
  (signed by governor as Chapter 79, 4/25/03)
• Maryland HB 6 of 2001 requires the state to study the feasibility of purchasing prescription drugs through federally qualified health centers.
• New Mexico SJM 35 of 2002 requests the state Medicaid, Human Services Department and others to "identify all avenues to maximize prescription drug discounts that may be achieved by using the federal 340B program."
• New Mexico SB 338, now Chapter 315 of 2003.  Requires Medicaid to "identify entities that are eligible to participate in 340B. "The department shall make a reasonable effort to assist the eligible entities to enroll in the program and to purchase prescription drugs under the federal drug pricing program. The department shall ensure that entities enrolled in the federal drug pricing program are reimbursed for drugs purchased for use by Medicaid recipients at acquisition cost and that the purchases are not included in a rebate program."  Range of General Fund Savings $500,000-$1.5 million.   
• New Mexico HB 88 of 2004 ensures that all eligible entities participate in the federal drug pricing program under Section 340B of the federal Public Health Service Act.  Allows entities receiving greater discounts to opt out.
• New York A 7298 of 2005 implements the 340B pharmacy savings program.  Prohibits state Medical Assistance payments to 340B covered entities or to contracted pharmacies for drugs that are eligible for purchase through 340B by outpatients. (Filed, passed House, passed Senate 4/12/05; signed by governor 4/13/05 as Chpt. 63)
• Texas HB 2292 of 2003 among other things, provides that "community mental health centers may form a referral relationship with community health centers, federally qualified health centers, disproportionate share hospitals, and/or other eligible entities for the purpose of obtaining federal 340B pricing for pharmaceuticals." Allows such referrals to "other lower cost drug programs regardless of any statewide preferred drug list or vendor drug program which may be adopted." (§ 2.152.)
• Texas HB 915 of 2001 creates the Interagency Council on Pharmaceuticals Bulk Purchasing, which must investigate options for using the 340B program: "The council shall investigate any and all options for better purchasing power, including ... using rebate programs, hospital disproportionate share purchasing, and health department and federally qualified health center purchasing."
• Texas SB 347 of 2001 authorizes the Texas Department of Criminal Justice to provide prescription drug services to the Texas prison population through the 340B Prescription discount program. The law establishes a contract with two university hospital pharmacy systems that are qualified as providers within the 340B program. The law became effective October 1, 2001. 
•  UT  H 74 text of 2008 by Rep. Litvack requires the Department of Health and Human Services to explore the feasibility of expanding the use of 340B drug pricing programs in the state Medicaid program, which limits the cost of covered outpatient drugs to federally qualified health centers including consolidated health centers, migrant health centers, health care for the homeless, Healthy Schools/Healthy Communities and Tribal Programs.
  (Prefiled 12/14/07; passed House 1/23/08; passed Senate 2/7/08; signed into law by governor 3/14/08 )
• Utah HB 33 of 2005 creates a five-year pilot program within the Comprehensive Health Insurance Pool Act for disease and pharmaceutical management of bleeding disorders; permits enrollees in the pilot program to participate in a federal 340B discounted drug pricing program; requires the Pool to report pharmaceutical costs under the pilot program.
• Vermont H 768 (Appropriations bill) of 2004 among other things, would study the use and potential expansion of using 340B purchasing in the state for correctional facilities, state funded managed care plans and state bulk purchasing initiatives. (Signed by the governor 6/10/04)  http://www.leg.state.vt.us/docs/legdoc.cfm?URL=/docs/2004/acts/ACT122.HTM see Sec. 128g.  33 V.S.A. § 2008

2005-2006 Legislative Session Bills (not enacted)

(Please see www.ncsl.org/programs/health/drugbill07.htm for 2007 bills.  Please see www.ncsl.org/programs/health/drubill06.htm for 2006 bills and  www.ncsl.org/programs/health/drugdisc05.htm for 2005 bills. ALL LAWS ARE POSTED ABOVE.)

• California AB 76 Among other things, would authorize establishing "a formulary or formularies for state programs"; Pursuing "all opportunities for the state to achieve savings through the federal 340B program including the development of cooperative agreements with entities covered under the 340B program that increase access to 340B program prices for individuals receiving prescription drugs through state programs. It would "develop an outreach program to ensure that hospitals, clinics, and other eligible entities participate in the program. (Passed by both chambers; vetoed by governor.)
• Colorado HB 1052 Among other things, would require state agencies to “maximize prescription drug discounts within the programs administered by the departments through the utilization of the federal 340B drug pricing program” in order to receive the maximum state budget savings. (Passed by both chambers; vetoed by governor.)
• Colorado HB 1252 Among other things, would require the administering entity to maximize prescription drug discounts through the use of the federal 340B drug pricing program. (Did not pass House Committee 5/1/06.)
• Connecticut SB 648 Among other things, would allow any Federally Qualified Health Center that has received Department of Social Services funds to establish a “§ 340B” affordable pharmaceutical drug program for qualified low-income patients or expand an existing drug program to include qualified low-income patients according to “§ 340B,” to use these funds for administrative, operational and capital costs associated with the programs. (Passed Senate, but did not pass House by end of 2006 session.)
• Hawaii HB 1058 and SB 868 Would appropriate funds to the DOH for federally qualified health centers and the Medicine Bank to provide pharmacy services and supplies to low-income patients by using the 340B program. (Did not pass before end of 2006 session.)
• Massachusetts H 2700 Would require “all programs, clinics, hospitals and other health-related centers and entities that are eligible under Section 340B” to participate in the federal prescription drug price discount program, unless they demonstrate greater savings through other purchasing. (Accompanied a study order H 4830, 4/4/06.)
• Minnesota HF 1422 Among other things, would require Hemophilia drugs to be obtained from a 340B approved health facility. (Did not pass by end of 2006 regular session.)
• New Mexico SB 11  Would appropriate funds to pharmacy services in primary care clinics in rural and medically underserved areas of the state, pursuant to the Rural Primary Health Care Act.  (Which would lead to an increase in patients using 340B pricing in federally qualified/rural health centers.)
• Rhode Island SB 806 Would create a "Pharmaceutical Prudent Purchasing and Accountability Act," directing five departments to make various state drug benefit programs more cost effective, including a coordinated preferred drug list for RIPAE and state employees, a coordinated pharmaceutical contracting system or multi-state Rx program on behalf of all individuals served or covered by state programs and expanded use of 340B discounted pricing.

2004 Legislative Session Bills (not enacted)

• Colorado HJR 1070  Would encourage all health care facilities that may qualify as covered entities under the federal 340B drug pricing program to maximize the utilization of the program, and have all state agencies explore all avenues with 340B "to receive maximum state budget savings."
• Connecticut HB 5040 of 2004 would have directed federally qualified health centers to enroll in 340B, but the language was stricken from an amended version.
• Kentucky HJR 38 of 2004 would have directed the Cabinet for Health Services to study the expansion of the federal 340B prescription drug discount program and require a report to Legislative Research Commission by October 30, 2004. *Died at end of session.
• Maryland HB 1271 and SB 715 of 2004 would develop a revolving loan program to assist Community Health Centers in obtaining prescription drugs through the 340B program.
• Maryland HB 290 & SB 189 would create the Federally Qualified Health Centers Grant Program; authorizes the Board of Public Works to provide grants under the Program for the conversion of public buildings to Federal Qualified Health Centers for specified purposes; authorizes specified entities to apply to the Department of Health and Mental Hygiene for grants.
• Minnesota HF 2280/SF 1760 would require a study of the feasibility of expanded use of the 340B drug pricing for targeted populations.  Would authorize contracted use for hemophilia disease management; also requires compilation and description of "all health care providers and facilities in the state potentially eligible" for 340B discount pharmaceuticals.
• Vermont S 288 of 2004 among other things, would study the use and potential expansion of using 340B purchasing in the state for correctional facilities, state funded managed care plans and state bulk purchasing initiatives. (Passed Senate, 3/18/04)
• Virginia HB 359 of 2004 would require the state to establish a mechanism by 2005 so that all clinics that maintain pharmacy services "shall continue to provide free or low-cost prescription drugs (on a sliding fee scale) to any low-income patients who do not have any prescription drug benefit and whose primary and specialty health care services have been transferred to a community health clinic", also requires use of manufacturer free drug programs where available.
  (Filed and sent to committee 1/14/04; tabled, did not pass House 1/27/04)
  

2003 Legislative Session Bills (not enacted)

• Kentucky HJR 16 (BR 498) Would require the Cabinet for Health Services to lead a work group to study the possibility of expanding participation in the federal 340B prescription drug discount program and report its findings to the Legislative Research Commission, the Interim Joint Committee on Appropriations and Revenue, and the Interim Joint Committee on Health and Welfare by October 30, 2003.
  (Filed 1/7/03; died at end of session) 
• Washington SJM 8025 Non-binding resolution urging the US Congress to repeal the federal OBRA '90 and 340B drug pricing provisions, and "and pass new laws which separate the cost of a prescription drug from the delivery of service, thus letting the free market work."
  (Filed 4/25/03; did not pass Senate by end of regular or special sessions, 6/11/03)

Additional References and Sources*

* Reduced cost or free copies of these publications may be made available to legislators and legislative staff at the discretion of the publishers. Please contact them directly for more information.

• AN “OLDIE BUT GOODIE”: THE 340B PROGRAM, from NCSL's State Health Notes by Kory Mertz, Volume 28, Issue 491, May 14, 2007.

• RX at NCS"s Annual Meeting in Boston:  Achieving Pharmaceutical Access: The Roles of Disclosure and Privacy 
  August 6, 2007 - 3:00 - 5:00 PM, hosted by the Health Committee

  Most Americans rely on the private market for their medicines. This session will examine two hotly-debated prescription drug policies facing states and pharmacists. First, should states set standards for Pharmacy Benefit Managers (PBMs), the middlemen that negotiate prices and transactions for 200 million Americans? Second, should prescription records identifying doctors or patients be available for marketing purposes by industry professionals?

  • Welcome/Introduction: Senator Leticia Van de Putte, Texas Senate; NCSL President
  • Presiding: Senator Durell Peaden, Florida; Vice-Chair, NCSL Health Committee
  • Donna Boswell, Hogan & Hartson, Washington DC  | PowerPoint
  • Representative Cindy Rosenwald, New Hampshire; Chair, NH Health and Human Services Committee | PowerPoint
  • Barbara Levy,  Pharmaceutical Care Management Association (PCMA)  | PowerPoint
  • Mark Riley, Vice President, National Community Pharmacists Association (NCPA), Arkansas  | PowerPoint
    

• 340B Coalition's 4th Annual Winter Conference: Update on Key Operational and Compliance Issues: January 30-February 1, 2008
  For slides, click here: http://www.drugdiscountmonitor.com/2008_winter/index.html
  The conference will address several vital areas of the 340B drug discount program including:
      - The use of contract pharmacies to dispense 340B-discounted drugs.
      - The 340B impact of state Medicaid changes under the Deficit Reduction Act of 2005 (DRA).
      - Compliance with 340B inventory management and anti-diversion standards.
      - Legislative and regulatory update from Washington, DC.
  The conference agenda has been organized into two tracks to meet the interests of conference attendees. Track One is designed for covered entities and other parties that are interested in learning about how to operationalize the 340B program. Track Two will appeal to the broader community of 340B stakeholders, including the pharmaceutical industry, that might be more interested in hearing about recent developments involving 340B policy and compliance and expert analysis of such developments. All attendees are free to attend any Track One or Track Two session that interests them.
  For more information: http://www.340bconferences.org/conferences/2008_winter/agenda.cfm

• HRSA: Medicare Part D Rx Information for 340B Providers 

• Survey of rural hospitals and their use and understanding of the 340B program:  http://www.shepscenter.unc.edu/research_programs/rural_program/WP90.pdf

• The Oregon Blueprint: Coordinated Contracting of Prescription Drugs - A Fiscal and Policy Strategy for the State of Oregon - A report by the Heinz Family Philanthropies about OR and the use of 340B in the state. July, 2006.

• "Prescription Drug Discounts: from 340B to Consumer Cards."  NCSL Annual Meeting session, August 16, 2006: - For the 40+ million Americans not on Medicare or comprehensive private insurance, access to prescription drugs remains a visible concern. The federal 340B drug discount program provides one significant option - including a fast-expanding network of clinics and pharmacies in every state.  In addition, user-friendly industry-sponsored assistance cards and new state discount laws keep pharmaceuticals near the top of policymakers' priority lists.
    * Harry Hagel, Senior Director, HRSA Pharmacy Services Support Center, Washington, DC  PowerPoint Online

• 340B Coalition's 3rd Annual Winter Conference: Major Changes on the Horizon for the 340B Drug Discount Program
  The winter 340B Coalition Conference was held February 26-28, 2007 at the Hilton Salt Lake City Center in Salt Lake City, UT.  To download the conference brochure or visit the conference Web site at http://www.340bconferences.org/conferences/index.htm. 
   To see some of the presentations, go here: http://www.drugdiscountmonitor.com/2007_winter/index.html

• 340B Coalition's 11th Annual Conference was held July 23-25, 2007 at the Wardman Park Marriott in Washington, DC. For copies of the slides and more information, please see : www.340Bconferences.org  or http://www.340bconferences.org/conferences/2007_annual/index.htm#orders
  

•  The Safety Net Hospitals for Pharmaceutical Access (SNHPA), formerly known as the Public Hospital Pharmacy Coalition has a new name and website.  Please see: http://www.safetynetrx.org/public/index.cfm for more information.

•  340B Coalition's 10th Annual Conference on Improving Access to Pharmaceutical Care and Ensuring Compliance with Federal and State Laws was held July 17-19, 2006 at the Omni Hotel in Washington, DC.  This conference provided timely information on how to provide high quality pharmaceutical care and handle various compliance issues related to the Public Health Service 340B Drug Discount Program.  Sessions included strategies for encouraging 340B participation in your state; pharmacy reimbursement models that create savings for Medicaid by incentivizing 340B pharmacies to serve more Medicaid patients; pricing investigations with recovery implications for both Medicaid and 340B; and innovative partnerships that qualify state-funded populations (Medicaid, corrections, mental health, etc.) for 340B-priced drugs.  For more information click here: www.340Bcoalition.org 
  To view the presentation slides, please go here: http://www.drugdiscountmonitor.com/2006_July/index.html

• 2005 340B Audioconference Archive
  NCSL and the National Governors Association hosted a webconference on August 5, 2005 regarding 340B Drug Purchasing Options for states.  States can benefit from the 340B program when Medicaid clients or other state programs purchase discounted pharmaceuticals through participating federally qualified community health centers (FQHCs).  Further, many states and communities have used 340B to expand access to prescription drugs and improve patient safety.  340B also uses a Prime Vendor to negotiate pharmaceutical pricing below the 340B price as well as improving access to affordable medications by establishing a distribution network for pharmaceuticals to covered entities.   This allows health care organizations participating in the 340B Prime Vendor program to recognize additional savings and value.  For more information on the 340B Drug Pricing Program, please read this webpage or see NGA’s fact sheet at the following link:  http://preview.nga.org/Files/pdf/032503FACTS340B.pdf  Presenters provided the states with the basics on 340B, as well as some innovative actions that states have taken so far.  Presenters were:
  Diane Goyette, RPh, JD- Senior Director, HRSA Pharmacy Services Support Center, American Pharmacists Association
  Karmen Hanson, MA- Senior Policy Specialist, Health Care Program, NCSL
  Senator Dede Feldman, New Mexico State Legislature
  Todd D. Sorenson, PharmD, Associate Professor, University of Minnesota College of Pharmacy
    To hear the archive of the session, please click here: mms://media.nga.org/Webconf340B2005/Track01.wma 

• The 340B Prime Vendor Information- In September 2004, the Health Resources and Services Administration (HRSA) signed a competitively awarded agreement with HealthCare Purchasing Partners International (HPPI) to be the Prime Vendor for entities participating in the 340B Drug Pricing Program. The Prime Vendor negotiates sub-340B pricing on pharmaceuticals, establishes distribution solutions and networks that improve access to affordable medications and provides other value-added products and services. The program is voluntary, free and risk-free to 340B-covered entities. A participant may continue to use its existing drug distributor or select one of the program’s authorized distributors. The program has recruited over 1600 participating entities and has secured sub-ceiling discounts on over 2000 pharmaceuticals.   For more information on how to participate, visit the Prime Vendor’s Web site at www.340bpvp.com or call (888) 340-2787.

• *Rx for Access:  Drug Cost Management and Value for Vulnerable Populations: http://www.rxforaccess.org/..  This newsletter addresses many topics other than the 340B program and may be of interest to a wide range of readers.
  
• *Sign up for the Federal Drug Discount and Compliance Monitor: The Inside Source on the Public Health Service 340B Drug Discount Program. The Monitor is the definitive source for the latest news on the Public Health Service 340B drug discount program and related developments in the federal drug discount arena. The Monitor's Washington DC-based staff has the inside scoop on 340B, a program that affects over 11,000 health care providers and over 500 pharmaceutical manufacturers. From new developments in the regulatory front to the latest news from Capitol Hill, you can count on the Monitor as your guide to the 340B program. The Monitor will also track the latest developments in drug pricing litigation impacting 340B and the Medicaid drug rebate programs.
  
• U.S. Office of Pharmacy Affairs: Overview of the 340B Drug Pricing Program - Frequently Asked Questions, updated 2002.
  
• Review of 340B Prices (OEI-05-02-00073; 07/06) - This report reviews 340B prices charged to a subset of covered entites and compares them to the 340B ceiling prices  This report’s hyperlink is http://oig.hhs.gov/oei/reports/oei-05-02-00073.pdf
  
• 340B- Opportunities for States and Medicaid Programs - PowerPoint slide presentation by Bill von Oehsen, June 26, 2002
  
• Information on HEALTH CENTERS (http://www.ncsl.org/programs/health/Communityhc.htm)
  Currently, the Community Health Center federal grant program is authorized under section 330 of the Health Centers Consolidation Act of 1996. According to HHS Secretary Tommy G. Thompson, "Community health centers are the core of the health care safety net for underserved and uninsured Americans." In 2002, President Bush announced the Health Center Initiative, which plans to increase the number of health centers and increase primary health care access to more Americans.
  
• The Rhode Island 340B Analysis: Creating an Opportunity- A report by the Heinz Family Philanthropies about RI and the use of 340B in the state. Mar. 2005.
  
• "State Spending on Medical Supplies and Pharmaceuticals" A detailed Virginia legislative study of 340B and other state Rx options, released by JLARC, Dec. 2002. [52 pages - see especially pages 20-24, 43]
  
• An NCSL LegisBrief, "Prescription Discounts for Health Centers published January 2002, provides an overview of the program and related state legislative activity. This web page provides supplemental information, including material too lengthy or technical to fit in the basic publication.
  LegisBrief available online to NCSL members only: htm version | Adobe version
  
• HHS Secretary Tommy G. Thompson approves demonstration projects in Minnesota and Georgia to expand safety-net patients' access to prescription drugs. - HHS News release, April 1, 2002.
  
• "Thompson Approves Demos in Washington and N.Y. state to Expand Safety-Net Patients' Access to Prescription Drugs..." - HHS News Release, Dec. 28, 2001.
  
• New HHS Initiative will expand access to prescription drugs - HHS news release, June 18, 2001.
  
• "Pharmaceutical Manufacturers Overcharged 340B-Covered Entities," Report by the HHS Office of the Inspector General, March 10, 2003 (A-06-01-00060)
  
• "Pharmaceutical Discounts Under Federal Law: State Program Opportunities," a comprehensive report by Bill von Oehsen on opportunities and obstacles for state drug assistance programs to use federal drug discount programs. NCSL participated in the editorial review. August 10, 2001 (48 pages).
  
• "Indigent drug program, Section 340B, helps more than the poor" - Drugtopics.com, November 5, 2001
  
• "Prescription Drug Coverage, Spending, Utilization, and Prices: Report to the President," by the U.S. Department of Health and Human Services, April 2000 (240 pages).

340B Drug Pricing Program: Practical Details *

To understand the genesis of the 340B program, one must begin with OBRA'90 and, in particular, the best price mechanism established by Congress to calculate the rebate amounts for brand name drugs. As a result of the best price mechanism, many pharmaceutical companies had a disincentive to continue giving deep discounts on drugs because they would have to extend the same discounts to the Medicaid program.

When manufacturers began raising their prices, the federal and state savings achieved through the Medicaid rebate program were being offset by increased government spending on drugs purchased by other federal- and state-supported providers. To correct this situation, Congress included in the Veterans Health Care Act of 1992 legislation intended to extend relief to other governmental payors of drugs - including the Big 4, federal agencies and other purchasers buying various safety net providers and programs funded by the Public Health Service.  One area of statutory relief involved enactment of section 340B of the Public Health Service Act.^[50] This program, often referred to as the PHS drug discount program or the 340B program, is administered by the Office of Pharmacy Affairs (OPA) which was called the Office of Drug Pricing until it was renamed in early 2000. OPA is located within the Bureau of Primary Health Care (BPHC) which, in turn, is located within the Health Resources and Services Administration (HRSA). OPA, BPHC, and HRSA are all agencies within HHS. OPA is responsible for interpreting, implementing, and overseeing compliance with section 340B.

Section 340B requires pharmaceutical manufacturers whose drugs are covered by the Medicaid program to enter into an agreement with the secretary of HHS obligating manufacturers to comply with the terms of section 340B. ^[51]  A parallel provision exists in the Medicaid rebate statute. ^[52] Under the 340B participation agreement, a manufacturer agrees to provide discounts on covered drugs purchased by specified PHS and government-supported facilities, called "covered entities," that serve the nation's most vulnerable patient populations. The amount of these discounts is calculated using the same rebate formulas specified in OBRA'90; however, covered entities are free to negotiate even deeper discounts than the Medicaid rebate amount . ^[53] The agreement also requires, among other things, that manufacturers check the OPA website each quarter to determine which covered entities are participating in the program. Manufacturers may not charge more than the 340B ceiling price regardless of whether the covered entity purchases pharmaceuticals through a wholesaler or directly from the manufacturer. The definition of "covered entities" includes certain nonprofit disproportionate share hospitals owned by or under contract with state or local government, as well as specified PHS grantees including certain federally qualified health centers (FQHCs), FQHC "look-alikes," state operated AIDS drug assistance programs (ADAPs), the Ryan White CARE Act Title 1, Title 11, and Title III programs, tuberculosis, black lung, family planning, and sexually transmitted disease clinics, hemophilia treatment centers, public housing primary care clinics, homeless clinics, urban Indian clinics and Native Hawaiian health centers. ^[54] Some 8,900 eligible covered entities participate in the 340B program. ^[55]

Covered entities participating in the PHS drug discount program are subject to two important restrictions. First, section 340B prohibits the resale or transfer of discounted outpatient drugs to anyone other than a patient of the covered entity. ^[56] An individual may, be considered a patient of a covered entity if he or she satisfies a test set forth in OPA guidelines. ^[57] The penalty for failing to comply with the 340B antidiversion provision is forfeiture of the discounts back to the manufacturer or disqualification from the program. ^[58] Manufacturers and OPA have the right to audit the records of covered entities to determine whether diversion has occurred. ^[59] Second, the 340B law states that a drug purchased through the 340B program shall not be subject to both a 340B discount and a Medicaid rebate. ^[60] The purpose of this restriction is to protect manufacturers from giving duplicate discounts on the same drug - a 340B discount up front when the covered entity purchases the drug, plus a Medicaid rebate paid to the state after the drug is billed to Medicaid. OPA has established two mechanisms for covered entities to comply with the 340B prohibition against duplicate discounts. ^[61] The most common procedure involves covered entities submitting their Medicaid pharmacy numbers to OPA for use by state Medicaid agencies in identifying covered entity pharmacy bills and excluding them from the rebate program. ^[62]

Finally, the 340B program offers a contract pharmacy option for covered entities. When Congress enacted section 340B, Congress did not consider that some covered entities - especially FQHCs, city and county health departments, and other small facilities -would not be able to participate due to the lack of an in-house pharmacy capable of purchasing and dispensing the discounted drugs. These facilities began complaining to OPA about their inability to participate. OPA responded to these complaints by developing guidelines that allow covered entities to use contract pharmacies to dispense discounted drugs. ^[63] The guidelines essentially allow a covered entity to enter into a "ship to, bill to" arrangement with a community pharmacy or other pharmacy contractor such that the covered entity purchases the 340B drug and the manufacturer bills the entity for the drug purchased, but ships the drug to the contract pharmacy. In addition, the contractor must provide the covered entity quarterly financial statements, a detailed status report of collections, and a summary of receiving and dispensing records. The contractor is also required to establish and maintain a tracking system to prevent diversion of drugs to individuals who are not patients of the covered entity. The contract pharmacy model is primarily used by FQHCs and other smaller covered entities. It is difficult to implement in some states, such as California, because of perceived conflicts with state pharmacy laws. ^[64]

A recent study estimates that, during fiscal year 1997, 1,075 entities purchased outpatient drugs at these discounts with a total net purchase amount between $893 million and $1.2 billion. ^[65] Estimated purchases in fiscal year 2000 are approximately $1.7 billion. ^[66] On average, 340B prices are estimated to be 51 percent lower than AWP, 39 percent lower than AMP and 19 percent lower than the Medicaid net price. ^[67]

* Excerpted from "Pharmaceutical Discounts Under Federal Law: State Program Opportunities," by William von Oehsen, August, 2001.  pp.13-14

Definitions and Footnotes for William von Oehsen paper

Such term does not include a wholesale distributor of drugs or a retail pharmacy licensed under state law.

49 - Veterans Health Care Act of 1992, Pub. L. No. 102-586, 106 Stat. 4943 (1992). Id § 602 (C

"Covered outpatient drug" has a lengthy statutory definition. 42 U.S.C.A. § 1396r-8(k)(2). In part, the term includes a prescribed drug (1) which is approved under the Food, Drug and Cosmetic Act; (2) which was commercially used or sold in the U.S. before enactment of the Federal Food, Drug and Cosmetic Act; and (3) which has not been the subject of a final determination by the Secretary that it is a "New Drug" under the Food, Drug and Cosmetic Act. Also included are identical, similar or related drugs, a biological product which may only be dispensed by prescription, is licensed, and produced by a licensed establishment. The term excludes any drug, biological product, or insulin provided with inpatient hospital services, hospice services, dental services (except where state plan authorizes direct reimbursement to dispensing dentist), physician office visits, outpatient hospital emergency room visits, and outpatient surgical procedures. Finally, nonprescription drugs prescribed by a physician, or other authorized prescriber, may be regarded as covered outpatient drugs.

"Manufacturer" means any entity which is engaged in -
(A) the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis, or (B) in the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products. 42 U.S.C.A. § 1396r-8(k)(5) (West Supp. 2000).
odified at 42 U.S.C.A. § 256b (West Supp. 2000)
50 - Id.
51 - 42 U.S.C.A. § 256b(a)(1) (West Supp. 1999).
52 - 42 U.S.C.A. § 1396r-8(a)(1) and 8(a)(5) (West Supp. 2000).
53 - 42 U.S.C.A. § 256b(a)(2) (West Supp. 1999).
54 - Id. § 256b(a)(4).
55 - See OPA, Entity and Manufacturer's List, at http://www.hrsa.gov/odpp.htm
56 - 42 U.S.C.A. § 256b(a)(5)(B) (West Supp. 1999).
57 - 61 Fed Reg. 55,156 (1996).
58 - 42 U.S.C.A. § 256b(a)(5)(D) (West Supp. 1999).
59 - Id. § 256b(a)(5)(C).
60 - Id. § 256b(a)(5)(A).
61 - 58 Fed. Reg. 34,058 (1993) (rebate exclusion option); 65 Fed. Reg. 13,983 (2000) (Medicaid carve-out option).
62 - 58 Fed. Reg. 34,058 (1993).
63 - 61 Fed. Reg. 43,549 (1996).
64 - This problem would be remedied by legislation introduced by Senator Speier on February 20, 2001. S.B. 340.
65 - Mathematica Policy Research, Inc., Washington, D.C., "An Analysis of Purchases, Savings and Participation in the PHS Drug Pricing Program," (Sept. 30, 1999).
66 - Telephone Interview with Jim Mitchell, Director of OPA (Apr. 2, 2001).
67 - See Table 3. (link, p. 12 of 48 in web .pdf file)

Legislators and staff may obtain information from NCSL by contacting Karmen Hanson or Richard Cauchi.
This material was compiled in cooperation and consultation with the HRSA Office of Pharmacy Affairs.

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