The Obama administration has finalized a rule that imposes fines on drug companies that overcharge hospitals and clinics for medication purchased under the government's 340B drug discount program.
Drug companies must reimburse providers that overpaid for products and they are subject to fines of up to $5,000 per instance if they overcharged "knowingly and intentionally."
The penalties were outlined in a final rule released Wednesday by HHS' Health Resources and Services Administration. The rule also establishes a system for calculating “ceiling prices” for covered outpatient drugs—which some industry stakeholders say the agency lacks the authority to do.
The proposed rule was initially released in 2015 with comments also due that year. However, HHS reopened the comment period last year after commenters said the document did not clearly outline how drug costs would be calculated. The standards for what would constitute a penalty was also unclear, they said.
HRSA will enforce the rule beginning April 1. Manufacturers that offer 340B ceiling prices as of April must comply with the rule. The administration believes that timeline will allow manufacturers time to adjust systems and update their policies and procedures.
Congress created the 340B drug-pricing program in 1992 to help hospitals that serve disproportionately large numbers of low-income patients. Drug companies that participate in Medicaid must provide discounts of 20% to 50% to hospitals and clinics for outpatient drugs.
Watchdogs consider the program prone to abuse. In 2015, the Government Accountability Office found 340B hospitals were billing Medicare for higher drug costs under Part B than non-340B hospitals. Part B drugs are typically provided in a physician's office.. Part B drugs are typically provided in a physician's office.
“This indicates that, on average, beneficiaries at 340B disproportionate-share hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals in GAO's analysis,” the GAO said.
Hospitals argue that the agency used faulty methodology and didn't take into account that 340B hospitals may see sicker patients than other hospitals.
Congress is looking for ways to curb the program's growing budget and President-elect Donald Trump and Republicans leaders have expressed interest in policies that would contain skyrocketing drug costs.
The regulations on ceiling prices are the first that HRSA has attempted to issue on the program since a U.S. District Court struck down a 340B rule in 2014 that entitled providers to discounts on expensive "orphan drugs" for rare diseases if they were being used for common conditions.
HHS noted in the final rule that some commenters wrote that the agency did not have the rulemaking authority to issue a binding ceiling-price regulation. But HHS pushed back on that opinion, saying Congress had instructed it to come up with a way to calculate the ceiling price.
The 340B program has been plagued by other criticism. A 2014 Avalere Health analysis found roughly two-thirds of 340B hospitals provide less charity care than the average U.S. hospital.
But an analysis conducted in 2015 by healthcare policy consulting firm Dobson DaVanzo & Associates found 340B hospitals provided nearly twice as much care to Medicaid and low-income Medicare beneficiaries compared with hospitals not participating in the program.
HRSA estimates the program saved providers $6 billion in 2015 in drug costs, up from $3.8 billion in 2013.