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Healthcare organizations require astute handling of strategy implementation. The

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Healthcare organizations require astute handling of strategy implementation. The processes must be followed with a contingency plan in place for failed strategic objectives leading to the goal.
Review the stages of implementation (scope, funding, risk management, and schedule (which is discussed as part of the work breakdown)—may also be inputs, alongside program objectives, outcomes, and governance considerations connected to the strategic decision-making process.
Review “340B Drug Pricing Program Oversight” provided.
Provide a written analysis of the implementation phases that were used/excluded in the “340B Drug Pricing Program Oversight” case.
Explain what the literature (external scholarly source) suggest(s) regarding health implementation strategy regarding drug pricing.
Conclude with a summary of your research.
*****Case 13 340B Drug Pricing Program Oversight*****
Section 602 of the Veterans Health Care Act of 1992 was titled “Limitations on Prices of Drugs Purchased by Certain Clinics and Hospitals.” It amended the Public Health Services Act by adding a new section, Section 340B, to that act. Section 602 of the Veterans Health Care Act read in part:
Part D of title III of the Public Health Service Act is amended by adding the following subpart: “SUBPART VII – DRUG PRICING AGREEMENTS” LIMITATION ON PRICES OF DRUGS PURHASED BY COVERED ENTITIES “Sec. 340B (a) Requirements for Agreement with Secretary – “(1) In general. The Secretary shall enter into an agreement with each manufacturer of covered drugs under which the amount required to be paid … to the manufacturer for covered drugs … does not exceed an amount equal to the average manufacturer price for the drug under title XIX of the Social Security Act in the preceding quarter, reduced by the rebate percentage described in paragraph (2). “Rebate percentage defined. – (A) In general. For a covered outpatient drug … the ‘rebate percentage’ is the amount equal to – “(i) the average total rebate required under Section 1927(c) of the Social Security Act … for a unit of the dosage form and strength involved during the preceding quarter divided by “(ii) the average manufacturer price for such a unit of the drug during such quarter….”
Section 340B applied Medicaid drug discounts to drugs purchased for clinics that served many outpatients who were not eligible for Medicaid at qualified safety-net institutions. For the most part, eligible clinics were associated with hospitals receiving disproportionate share payments under Medicare, pediatric hospitals, and community health centers. Also included were specialized clinics and projects for HIV/AIDS, hemophilia, black lung, tuberculosis, and family planning, as well as those serving Native Americans and Native Hawaiians. Hospitals were required to be governmental or nonprofit with a contractual commitment to provide services supported by governments, have a disproportionate share percentage greater than 11.75, and not obtain the covered drugs through a group purchasing agreement. The drugs had to be used for patients of the covered entity and could not be resold.
A key provision of Section 340B read “(10) No prohibition on larger discount. Nothing in this subsection shall prohibit a manufacturer from charging a price for a drug that is lower than the maximum price that may be charged under paragraph (1).” The Patient Protection and Affordable Care Act (ACA or PPACA) increased the 340B discount to 13% on generic drugs and 23.1% on branded drugs. Specific discounts have been reported to range from 15–60% on prescription drugs. The law prohibits getting both a state Medicaid rebate and a 340B discount on a drug.
In the 1980s, Congress established a discount drug purchasing program for the Veterans Administration. In 1990, it extended this discount program to Medicaid purchases on behalf of low-income and uninsured enrollees under the Medicaid Drug Rebate Program. Soon it became clear that this law conflicted with another requirement that state Medicaid programs receive discounts matching the lowest prices offered in non-Medicaid markets. Congress moved to remedy this problem. Otherwise, the participating pharmaceutical and biotechnology companies would choose to stop offering discounts across the board.
The 340B program is administered by the Office of Pharmacy Affairs within Health Resources and Services Administration (HRSA) of the Department of Health and Human Service. This office is tasked with auditing compliance with program requirements, especially the eligibility of covered entities, and program integrity concerning diversions and duplicate discounts and manufacturer pricing. However, this office has a very limited staff, and the number of institutions taking advantage of the program has been growing rapidly. HRSA also supports a number of other programs, such as the Ryan White HIV/AIDS program and community and rural health centers that are covered entities for 340B drug discounts.
The HRSA website describes the intent of 340B in a listing of Frequently Asked Questions to be “to permit covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services” [HR Rep. No. 102-384 384(II) at 12 (1992)].
Although there are limitations on billings to Medicaid patients, there are no constraints on billings to non-Medicaid patients.
The ACA freed up hospitals to choose among discount sources such as 340B and their group purchasing organizations. The ACA also made a number of provisions to strengthen program integrity.
Section 1703 of the ACA called for a Government Accounting Office (GAO) study of the program:
… that examines whether those individuals served by the covered entities under the program under section 340B of the Public Health Service Act (42 U.S.C. 256b) (referred to in this section as the “340B program”) are receiving optimal health care services.
(b) RECOMMENDATIONS. – The report under subsection
(a) shall include recommendations on the following:
(1) Whether the 340B program should be expanded since it is anticipated that the 47,000,000 individuals who are uninsured as of the date of enactment of this Act will have health care coverage once this Act is implemented.
(2) Whether mandatory sales of certain products by the 340B program could hinder patients access to those therapies through any provider.
(3) Whether income from the 340B program is being used by the covered entities under the program to further the program objectives.
That study was issued by the GAO in September 2011. In the conclusions it noted:
The 340B program allows certain providers within the U.S. health care safety net to stretch federal resources to reach more eligible patients and provide more comprehensive services, and we found that the covered entities we interviewed reported using it for these purposes. However, HRSA’s current approach to oversight does not ensure 340B program integrity, and raises concerns that may be exacerbated by changes within the program. According to HRSA, the agency largely relies on participants’ self-policing to ensure compliance with program requirements, and has never conducted an audit of covered entities or drug manufacturers. As a result, HRSA may not know when participants are engaging in practices that are not in compliance. Furthermore, we found that HRSA has not always provided covered entities and drug manufacturers with guidance that includes the necessary specificity on how to comply with program requirements. There also is evidence to suggest that participants may be interpreting guidance in ways that are inconsistent with the agency’s intent. Finally, participants have little incentive to comply with program requirements, because few have faced sanctions for noncompliance …
PPACA [i.e., ACA] outlined a number of provisions that, if implemented, will help improve many of the 340B program integrity issues we identified. For example, PPACA requires HRSA to recertify eligibility for all covered entity types on an annual basis … Additionally, PPACA requires HRSA to develop a formal dispute resolution process, including procedures for covered entities to obtain information from manufacturers, and maintain a centralized list of 340B prices—provisions that would help ensure covered entities and manufacturers are better able to identify and resolve suspected violations. PPACA also requires HRSA to institute monetary penalties for covered entities and manufacturers, which gives program participants more incentive to comply with program requirements. Finally, PPACA requires HRSA to conduct more direct oversight of manufacturers, including conducting selective audits to ensure that they are charging covered entities the correct 340B price.
However, we identified other program integrity issues that HRSA should also address. For example, the law does not require HRSA to audit covered entities or further specify the agency’s definition of a 340B patient. While HRSA has developed new proposed guidance on this definition, it is uncertain when, or if, the guidance will be finalized.
Because the discounts on 340B drugs can be substantial, it is important for HRSA to ensure that covered entities only purchase them for eligible patients both by issuing more specific guidance and by conducting audits of covered entities to prevent diversion. Additionally, while PPACA included a provision prohibiting manufacturers from discriminating against covered entities in the sale of 340B drugs, HRSA does not plan to make any changes to or further specify its related nondiscrimination guidance.
Absent additional oversight by the agency, including more specific guidance, access challenges covered entities have faced when manufacturers’ have restricted distribution of IVIG at 340B prices may continue and similar challenges could arise for other drugs in the future. (GAO, 2011, pp. 33–34)
The ACA and the GAO report said little about getting the resulting savings to the patient’s bill. As the law has been modified over the years, the direct link to the low-income, uninsured patient has weakened. The discounted drugs can even be used for commercially insured patients. The 2011 GAO report found that “some covered entities passed 340B savings on to patients by providing lower-cost drugs to uninsured patients. For example, many covered entities determined the amount that a patient is required to pay based on the lower cost of 340B-priced drugs” (p. 17). The report noted that some covered entities had indicated that without the discounts they would have to close their pharmacy or curtail other services.
For a number of reasons, operating the 340B program in the hospital environment creates more opportunities for drug diversion compared to other covered entity types. First, hospitals operate 340B pharmacies in settings where both inpatient and outpatient drugs are dispensed and must ensure that inpatients do not get 340B drugs. Second, hospitals tend to have more complex contracting arrangements and organizational structures than other entity types—340B drugs can be dispensed in multiple locations, including emergency rooms, on-site clinics, and off-site clinics. In light of this and given HRSA’s nonspecific guidance on the definition of a 340B patient, broad interpretations of the guidance may be more likely in the hospital setting and diversion harder to detect. Third, hospitals dispense a comparatively larger volume of drugs than other entity types—while representing 27 percent of participating covered entities, according to HRSA, DSH hospitals alone represent about 75 percent of all 340B drug purchases. (GAO, 2011, p. 29)
The ACA added a number of classes of institutions, including affordable care organizations, freestanding cancer hospitals, clinical access hospitals, rural referral centers, and sole community hospitals. Many millions of uninsured individuals are to receive insurance. This would greatly increase the consumption of 340B drugs, even though one might argue that the original need for the 340B program was partially mitigated.
In early 2013, the Biotechnology Industry Organization (BIO) issued a white paper subtitled “A Review and Analysis of the 340B Program.” It was cosponsored by the Community Oncology Alliance (COA), the National Community Pharmacists Association (NCPA), National Patient Advocate Foundation (NPAF), the Pharmaceutical Care Management Association (PCMA), and the Pharmaceutical Research and Manufacturers of America (PhRMA). The report’s executive summary cited:
Areas of most concern included the following:
• Concerns that some uninsured, indigent patients may not be experiencing direct benefit from the program’s existence.
• Anecdotal evidence that clinical decision-making may be skewed by efforts to take advantage of the 340B discount.
• Growing evidence of displacement of non-340B providers who serve a key role in providing patient access to important health care services. (BIO, 2013, p. 1)
The same executive summary cited the concerns expressed in the GAO report, as well as insufficient resources at HRSA to carry out its responsibilities under 340B and the ACA, the need for clearer guidance, and HRSA’s use of “subregulatory” procedures to clarify definitions and establish interpretive guidelines.
The HRSA website contained the following observation:
HRSA chose to publish guidelines in the Federal Register rather than regulations to administer the Section 340B program. Guidelines are the quickest and most flexible way to convey to all concerned parties how HRSA interprets the Section 340B requirements. Guidelines are also used to disseminate procedures that are acceptable under the statute. To ensure that the guidelines were as appropriate and responsive as possible to the legitimate concerns of the covered entities and manufacturers, comments were solicited on all of the guidelines before HRSA published them in a final notice.
The BIO white paper cited the changed guidance that allowed covered entities to use contract pharmacies as an example of HRSA expanding this program by administrative means. Subsequently, the number of 340B contract pharmacy arrangements climbed from about 3,000 in 2010 to more than 9,000 in 2012, with more than 12,000 projected for 2012. The white paper claimed these arrangements were forcing some community pharmacies out of business.
Senator Charles E. (Chuck) Grassley (R-Iowa) has often been critical of nonprofit hospitals, and his concern about their implementation of the 340B program is just one example. His office often follows up on public disclosures that provide an investigative opening and an opportunity to prod HRSA about its oversight of the program.
The UAB Inquiry
For example, as ranking member of the Senate Judiciary Committee, he sent a letter on May 19, 2012, to Dr. Carol Garrison, president of the University of Alabama (UAB) Hospital, stating that:
The original intent of the program was to extend the Medicaid drug discount to the most vulnerable patients at PHS Clinics, those who are mostly, “medically uninsured, on marginal incomes, and have no other source to turn to for preventive and primary care services.” …
On February 16, 2011, Donna Evans, R.Ph., Senior Pharmacist, with University of Alabama (UAB) Hospital gave a presentation at the 340B Annual Conference in San Diego, California. In this presentation, Ms. Evans stated that the purpose of the Purchasing Committee is, among other things, to “maximize savings opportunities.” Ms. Evan’s presentation goes on to state that UAB Hospital tracks the top drug expenses for “possible change in admission[s] process.” As an example of this change in admission process, Ms. Evans lists the drugs Melphalan and Busulfan and stated that the hospital “change[d] treatment protocol/location.” Furthermore, Ms. Evans’ presentation discussed the “discharge [of an IVIG patient] from [the] hospital to [a] Townhouse,” for the purpose of maximizing savings opportunities associated with the 340B drug discount provided in an outpatient setting.
Ms. Evans’ presentation is deeply disconcerting (Grassley, 2012, pp.1-2).
Senator Grassley asked the hospital to document the frequency and economics of such changes in admission status and 340B discounts in general, what the hospital did with the savings, and whether HRSA had ever audited it.
The North Carolina Major Hospitals Inquiry
In 2012, McClatchy newspapers in Charlotte and Raleigh, North Carolina, ran articles about major hospitals buying up oncology practices and substantially raising chemotherapy drug prices in these outpatient settings (Alexander & Garloch, 2012). In September 2012, Senator Grassley sent letters to three major hospitals cited in the articles, asking how much they earned by participating in the 340B Program, the breakdown of the 340B payer mix, and how they had reinvested those 340B dollars into serving the most vulnerable patients. Senator Grassley summarized their replies in a March 27, 2013, letter to Dr. Mary K. Wakefield, HRSA administrator:
First, all three North Carolina hospitals provided a summary of revenue generated by participating in the 340B program from 2008. Below is a revenue summary …
Carolinas Medical Center
2008: $12,970,012
2009: $33,087,329
2009: $88,953,570
2009: $16,697,500
2010: $38,451,076
2010: $109,700,400
2010: $16,910,620
2011: $52,580,763
2011: $131,759,091
2011: $21,065,620
2012: $65,391,050
2012: $135,539,459
These are not small amounts.

These numbers paint a very stark picture of how hospitals are reaping sizeable 340B discounts on drugs and then turning around and upselling them to fully insured patients covered by Medicare, Medicaid, or private health insurance in order to maximize their spread. (Grassley, 2013, pp. 1–2)
All three hospitals were able to provide their 340B payer mix for the period 2008–2010. The data for 2010 taken from Senator Grassley’s letter is presented in the table below:
The Raleigh News & Observer of April 3, 2013, reported on Senator Grassley’s inquiry and stated that “Last year, Duke University Hospital purchased $65.8 million in drugs through the program and received $135.5 million in revenue. Duke says it saved $48.3 million buying the drugs through the 340B program. That means the hospital made a profit of $69.7 million, instead of $21.4 million if it had not participated in the program”(Alexander, Neff, & Garloch, 2013, p. A1).
Sen. Grassley’s letter then goes on to ask a series of questions seemingly aimed at getting HRSA to collect this type of data routinely.

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