A Purdue Pharma-owned drug maker is one of two companies under federal sanctions after overcharging for prescriptions that must be offered at a discounted rate to qualified healthcare facilities or programs.
The Health Resources and Services Administration hit Rhodes Pharmaceuticals, owned by Purdue, and United Kingdom-headquartered Cycle Pharmaceuticals with sanctions earlier this year, requiring them to repay the entities they overcharged.
The HRSA website indicates that the Corrective Action Plan for Rhodes Pharmaceuticals has been approved, while Cycle’s remains outstanding.
The companies are accused of violating the terms of the 340B program, created by Congress in 1992 under which drug companies sell outpatient drugs at discounted prices to healthcare providers in underserved communities: rural health centers, hospitals serving large numbers of low-income patients, and clinics treating HIV/AIDS or tuberculosis.
The goal is to help these safety-net providers stretch scarce resources to serve more patients, offer more services, or reduce drug costs for uninsured and underinsured people.
The program has grown significantly since its inception, hitting a record high of $66.3 billion in drug purchases in 2023. That is an increase from $53.7 billion in 2022, marking a 23.4 percent year-over-year growth.
Manufacturers must participate in 340B as a condition of being in the Medicaid Drug Rebate Program. However, some large pharmaceutical companies have been caught violating the terms of the program, and the Pharmaceutical Research and Manufacturers of America has made no secret of its desire to drastically change the program, or end it entirely.
Rachel Weissman, PhRMA’s deputy vice president of policy and research, said in March that, on average, 340B hospitals charge patients more for a prescription than their non-340B counterparts. The industry accuses the hospitals and clinics of using the 340B program to generate more revenue.
Supporters say the program is vital to serving rural and low-income communities. They point to audits showing that it’s the drug companies that are trying to game the system.
“The drug companies who are trying to gut the 340B drug savings program in order to make more money aren’t playing by the rules right now and have not been for some time — they’re not making available the discounts they’re supposed to, by law, and screwing over rural, working-class Americans who depend on this program,” said David Poole, a public health consultant.
HRSA annually audits five drug manufacturers and 200 covered entities (healthcare providers who purchase the discounted drugs). Between 2020 and 2024, 60 percent of drugmaker audits resulted in repayments to covered entities because companies charged covered entities too much. Just 21.6 percent of the audits resulted in repayments to manufacturers for program noncompliance.
There are 750 drug manufacturers participating in the 340B program.
“These statistics indicate that manufacturers are roughly three times more likely to violate the 340B statute’s requirements than covered entities,” said Mark Ogunsusi, a pharmacist and attorney with Powers Law who represents 340B covered entities.
“This might suggest that manufacturers are taking a ‘wait and see’ approach to compliance and merely are waiting to be caught instead of actively managing their compliance to the requirements of a vital safety net program upon which the nation’s public health infrastructure relies. On the other hand, these statistics could reflect inadvertent mistakes by members of the drug industry.”
Audits of covered entities focus on two compliance areas: diversion and duplicate discounts. Under diversion, auditors see whether any discounted drugs were provided to non-eligible patients through covered entities. They also analyze the discounts to ensure that the same drugs are not getting discounts under Medicaid and 340B.
The posted results of 2024 audits of 155 covered entities indicate that more than 30 were sanctioned and required to provide repayment to drug manufacturers for either diversion or duplicate discounts. Several entities were terminated from the program or were needed to shut down ineligible, offsite outpatient facilities.
That same year, two of the five drug manufacturers audited were sanctioned.
HRSA posts 10 years of audit results. In 2016 and 2017, none of the five companies audited were sanctioned, while between one and four companies audited from 2018 to 2023 were sanctioned. One manufacturer was audited in 2015, and there were no sanctions levied.
Ogunsusi said that the program needs more transparency and reporting, including less flexibility and more concrete requirements for manufacturer reporting.
“HRSA’s five-per-year manufacturer audit maximum seems woefully insufficient to deter them from overcharging our safety net providers,” he said.
And Ogunsusi doesn’t believe sanctions alone will be enough to keep big drug companies in line. “Some safety net providers believe that more manufacturer audits should be undertaken by the government and stricter penalties against manufacturers should be enforced, given the importance of the U.S. safety net, especially in rural and low-income urban parts of the country,” he said.
