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The Financial Professional's Guide to Healthcare Reform by Gregory Anderson, Mark Dietrich

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Chapter 11

Section 340B Expansion

Overview of the 340B Program and Reforms

The Omnibus Budget Reconciliation Act of 19901 created the Medicaid Drug Rebate Program to lower the costs of pharmaceuticals reimbursed by state Medicaid agencies. The rebate program required drug manufacturers to enter into a national rebate agreement with the secretary of the Department of Health and Human Services (HHS) for states to receive favorable pricing of their outpatient drugs dispensed to Medicaid patients. Because this effectively penalized pharmaceutical manufacturers for offering discounts outside the Medicaid market, many drug companies raised their prices to reduce the amount of Medicaid rebates. The drug rebate program was therefore subsequently amended by the Veterans Health Care Act of 1992,2 which is codified as section 340B of the Public Health Service Act. The Health Resources and Services Administration (HRSA), Office of Pharmacy Affairs (OPA) manages the 340B Drug Discount Program (340B program). Section 1927 of the Social Security Act3 requires drug manufacturers to enter into the Section 340B Drug Pricing Program with HHS. A drug manufacturer is required to sign a pricing agreement with the Centers for Medicare and Medicaid Services (CMS) in order to have its drugs covered by Medicaid.

Participation in the 340B program results in significant savings, estimated at between 20 and 50 percent of the cost of pharmaceuticals for safety-net providers. This enables these providers to ...

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