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Chapter 8: Health and Human Services
Improve Drug Purchasing
by the Texas Department
of Criminal Justice
Summary
The University of Texas Medical Branch at Galveston purchases pharmaceutical
drugs for the Texas prison system through a drug consortium. While this reduces
costs, even lower prices are available through the federal “340B”
drug pricing program. To qualify for this program, the Texas Department of
Criminal Justice should modify its correctional health services agreement with
the Correctional Managed Health Care Committee.
Background
Prescription drugs play an increasingly important role in modern medicine
and, thus, in the state budget, since Texas provides a wide variety of medical
services. The rising cost of pharmaceuticals makes it important that Texas make
every effort to obtain the lowest possible drug prices. In fiscal 1999, Texas
spent about $28 million for prison drugs.[1]
Congress addressed the rising cost of pharmaceuticals by creating a Medicaid
rebate program in 1990. This program required drug companies to enter into a
rebate agreement with the US Secretary of Health and Human Services as a
precondition of participating in Medicaid. Under the rebate program, drug
manufacturers were required to give Medicaid the “best price” for
each outpatient drug covered under the plan. Drug manufacturers, however,
attempted to minimize the impact of the rebates on the large Medicaid market by
raising their “best prices,” consequently increasing rather than
easing the burden on federal and state
providers.[2]
In 1992, Congress enacted Section 340B of the Public Health Service Act to
correct the problems resulting from the Medicaid rebate program. The 340B Drug
Pricing Program requires pharmaceutical manufacturers participating in Medicaid
to enter into a second agreement with the federal government to provide
additional, negotiated discounts on covered drugs purchased by certain
government-supported facilities serving vulnerable patient populations. Under
the program, providers are eligible for the Medicaid “best price,”
but may negotiate even larger discounts.
The federal government is very specific about which facilities are eligible
for 340B discounts. Generally, eligible providers include hospitals that care
for large numbers of indigent persons (“disproportionate share”
hospitals); state-operated AIDS drug assistance programs; federally-qualified
health centers; certain treatment programs for tuberculosis, black lung, and
sexually transmitted diseases; and primary care clinics. Non-Medicaid patients
may receive 340B drugs if they are patients of an eligible entity. An individual
is considered a patient of an eligible entity if they meet the following
criteria:
- the covered entity has established a relationship with the individual, such
that the covered entity maintains records of the individual’s health care;
- the individual receives health care services from a health care professional
that is either employed by the covered entity or provides health care under
contractual or other arrangement (e.g., referral for consultation) such that
responsibility for the care provided remains for the covered entity; and
- the individual receives a health care service or range of services from the
covered entity that is consistent with the service or range of services for
which grant funding has been provided to the
entity.[3]
According to the Public Hospital Pharmacy Coalition (PHPC), pharmaceutical
prices available under Section 340B are significantly lower than both wholesale
and retail prices. A recent analysis of 100 popular outpatient drugs found that,
on average, 340B prices are 34 percent lower than wholesale prices. Another
survey indicated that 340B prices are 22 percent lower than those available to
group purchasing organizations such as
HMOs.[4]http://www.hrsa.gov/odpp/faqs.html). (Internet document.)
Still another report found that the 340B price is about 60 percent of the
manufacturer’s price, and thus much lower than the retail prices charged
to customers at
pharmacies.[5]http://www.drugpricing.org/drugdisovr.html). (Internet document.)
PHPC estimates that participating hospitals have saved an average of more than
$2 million annually since Congress enacted the 340B
Program.[6](Internet document.)
Purchasing Prescription Drugs for Texas Prisons
The Texas Department of Criminal Justice (TDCJ) maintains a contract with the
Correctional Managed Health Care Committee (CMHCC) to obtain correctional health
services through the University of Texas Medical Branch at Galveston (UTMB) and
Texas Tech University Health Sciences Center. UTMB serves about 78 percent of
the prison population, while Texas Tech cares for the remaining 22 percent.
As a large disproportionate share hospital, UTMB qualifies for the 340B
program. Yet UTMB negotiates all state prison prescription drug prices through a
pharmaceutical drug consortium, including prescription drugs for prisoners
served by Texas Tech. While the consortium does negotiate lower prescription
drug prices, they cannot always match the savings possible through 340B. The
340B prices available to disproportionate share hospitals, however, are not
available for Texas prison outpatient drug purchases due to certain federal
requirements. For example, to receive the 340B drug discount, the Huntsville
pharmacy would have to be added to UTMB hospital’s Medicaid cost report.
To be eligible for 340B drug prices, as noted above, federal law requires
patients to receive care from a health care professional employed by or under
contract with an eligible entity, in this case UTMB. Consequently, for prisoners
receiving services from Texas Tech to be eligible for 340B prices, UTMB rather
than CMHCC would have to contract with Texas Tech and its health care providers.
According to PHPC, Texas could save about 22 percent on prison outpatient drug
purchases by implementing these
changes.[7]http://www.drugpricing.org/drugdisovr.html). (Internet document.)
Recommendation
State law should be amended to require the Texas
Department of Criminal Justice (TDCJ) to modify its contract with the
Correctional Managed Health Care Committee (CMHCC) so that the University of
Texas Medical Branch at Galveston (UTMB) can purchase prescription drugs for the
prison population at federal 340B prices. Texas Tech University should cooperate
with UTMB in this effort.
To be eligible to participate in the federal 340B drug pricing program, TDCJ,
CMHCC, UTMB, and the Texas Tech University Health Sciences Center should make
the necessary administrative and contract modifications. UTMB should use its
expertise in purchasing pharmaceutical drugs to make sure it complies with
federal requirements under the 340B program. TDCJ and CMHCC should amend their
contract so that UTMB rather than CMHCC can contract directly with Texas Tech
health care providers for health care services.
Fiscal Impact
Texas could save up to 22 percent on prison outpatient drug purchases if the
state qualifies to purchase outpatient pharmaceutical drugs for prisoners at
340B prices. statewide. This recommendation would produce no additional costs
for the state.
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Fiscal
Year
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Savings/(Cost) to the
General Revenue Fund
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2002
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$ 4,915,000
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2003
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$ 4,973,000
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2004
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$ 5,069,000
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2005
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$ 5,191,000
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2006
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$ 5,295,000
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[1] Matt Keith, UTMB/TDCJ
Managed Health Care, Department of Pharmacy, April 24, 2000. (Faxed
communication.)
[2] US General Accounting
Office, Drug Prices: Effects of Opening Federal Supply Schedule for
Pharmaceuticals Are Uncertain (Washington, DC, June 1997), p. 4.
[3] US Department of Health and
Human Services, Health Resources and Services Administration, Office of Pharmacy
Affairs, “Overview and Frequently Asked Questions: 340B Drug Pricing
Program” (
[4] Public Hospital Pharmacy
Coalition, “An Overview of The Section 340B Drug Pricing Program”
(
[5] US Department of Health and
Human Services, Report to the President: Prescription Drug Coverage,
Spending, Utilization, and Prices (Washington, DC, April 2000), p. 108
(http://aspe.hhs.gov/health/reports/drugstudy/index.htm).
[6] Public Hospital Pharmacy
Coalition, “An Overview of The Section 340B Drug Pricing Program”
(
[7] Telephone interview with
William H.E. von Oehsen, founder of the Public Hospital Pharmacy Coalition,
Washington, DC, March 9, 2000.
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