Public Health Service Act, Section 340B340B Drug Discount Program: Compliance Risks Associated With Contract Pharmacy Arrangements

Abstract

The 1980’s was marked by rapid escalation in health care costs.  In 1989, Medicaid State Agencies paid more than $3.6 billion for prescription drugs.  In an attempt to reduce the federal deficit, Congress passed the Omnibus Budget Reconciliation Act of 1990 (OBRA 90), which created the Medicaid Drug Rebate Program (MDRP).   Prior to the creation of the MDRP, pharmaceutical manufacturers could voluntarily offer state Medicaid program discounts on prescription drugs purchased by Medicaid patients.   The passage of OBRA 90 made it mandatory for pharmaceutical manufacturers to offer discounts to the government if they wanted to sell their products to these patients.   In 1992, Congress realized that there was an imbalance with the discounts offered to other agencies of the federal government, so they created the Veterans Health Care Act of 1992 (VHCA).   Title VI of the VHCA amends the Federal veterans’ benefits law to require agreements between The U.S. Department of Health and Human Services Department (HHS) and pharmaceutical manufacturers to limit the purchase price of drugs procured by the VA and certain other Federal agencies.

Section 602 of the Veterans Health Care Act of 1992 established the 340B Program in section 340B of the Public Health Service Act (PHS Act).  Congress meant for the savings from 340B-purchased drugs “to enable covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”   The congressional record states the intent of the program was to extend Medicaid drug discounts to the most vulnerable of patients of safety net health care organizations, those who are mostly, “medically uninsured, on marginal incomes and have no other sources to turn to for preventive and primary care services.”  The executive purpose was that additional program resources would be generated if drug acquisition costs were lowered, but revenue from grants or health insurance reimbursements were maintained or not reduced as much as the 340B discounts or rebates.  The 340B program does not make a particular patient category eligible for the program; rather, the program makes safety-net providers eligible for the program because of their dedication to serving the low-income and most vulnerable patients.