Fraud And The “340B” Program

The 340B Discount Drug Program was established by Section 602 of the Veterans Health Care Act of 1992 (P.L. 102-585), which, in turn, established Section 340B of the Public Health Service Act. The 340B Drug Pricing Program requires drug manufacturers to provide outpatient drugs at a reduced price to certain “covered entities,” such as federally-qualified health center look-alikes, and qualified disproportionate share hospitals. The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, expanded the types of covered entities eligible to participate in the 340B Program to include certain children’s hospitals, free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals. Covered entities serve more than 17 million people in all 50 states, plus commonwealths and territories.

Under the 340B Drug Program, participating drug manufacturers sign an agreement stipulating that they will charge covered entities at or below a maximum price, known as the “Ceiling Price.” Pharmaceutical companies are required to use the Best Price and the Average Manufacturer Price (“AMP”) to calculate the maximum price. The AMP and the Best Price are calculated under the statutory formula used in the Medicaid Rebate Program.

Thus, if a drug manufacturer reports a Best Price that does not include all discounts for Medicaid rebate purposes, both the rebate amount and the 340B Ceiling Price may be adversely affected – the Medicaid program may receive smaller rebates, and the 340B covered entities may pay too much for the drug. Under such circumstances, liability under the False Claims Act may be found.

If you know or suspect that a pharmaceutical company or device manufacturer is manipulating the pricing of drugs under the 340B Drug Program, contact Michael S. Bigin or Laurence J. Hasson.