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Comptroller proposal for inmate health care yields millions annually
340B: Rx for Savings

In 2001, the Texas Legislature passed Senate Bill 347, a prescription medication bill that is saving the state millions of dollars a year. The proposal originated in a 2000 Comptroller e-Texas report.

The report recommended that the state's corrections system take advantage of a federal program, typically called "340B," to earn major price breaks on prescription medications provided to prisoners held by the Texas Department of Criminal Justice (TDCJ). The law became effective on September 1, 2001.

Medicaid and 340B

The 340B drug discount program came about as a result of 1990 federal legislation that created a drug rebate for Medicaid, the state- and federally funded program that supplies medical care for those who cannot afford it.

The rebate program required drug manufacturers wishing to participate in Medicaid to offer the system a "best price" for each outpatient drug covered under the plan. This arrangement, however, discouraged drug companies from offering price breaks to other state and federal programs, since such discounts might create newer and lower "best prices," thus lowering their returns from Medicaid drug sales.

To extend the benefit of lower drug prices to other programs, in 1992 Congress enacted a new Section 340B of the Public Health Service Act. Section 340B requires drug companies that participate in Medicaid to provide substantial discounts on pharmaceuticals to a specific list of entities. These include certain health centers, AIDS drug programs, homeless clinics and "disproportionate share" hospitals--those that receive state and federal funding for serving large numbers of low-income patients who lack insurance.

The U.S. Department of Health and Human Services reports that 340B prices are roughly 50 percent less than average wholesale prices for medications.

Prisons need drugs

Providing Texas' burgeoning prison population with adequate medical care is a multimillion-dollar activity. The University of Texas Medical Branch at Galveston (UTMB) provides medical services for about 80 percent of TDCJ's inmates, as well as juvenile offenders incarcerated by the Texas Youth Commission, and prisoners in several county jails and a federal prison facility--about 167,000 people in all. The remaining TDCJ inmates are served though a contract with Texas Tech University Health Sciences Center.

According to UTMB, its Correctional Managed Care pharmacy fills about 300,000 medication orders for prisoners each month.

UTMB also operates a network of hospitals and clinics, including a disproportionate share hospital, which opened the way for the Comptroller's proposal.

"The federal law is very limited in scope, but 'dispro' hospitals--hospitals that service indigent populations--are eligible," said Maria Mendez-Lewis, a Comptroller analyst who worked on the original e-Texas proposal. "So, since UTMB was providing health care for the prison system, they could be

340B slashes prices

Texas' pursuit of 340B pricing for prisoner medications was a unique initiative at the time. Bill von Oehsen, a Washington attorney who represents the National Association of Public Hospitals and Health Systems, said that Virginia has used 340B to obtain medicine for correctional institutions, as have county jails, such as Dade County's in Florida and San Bernadino County's in California. In Texas, 340B has translated into significant savings. In April 2006, Allen Hightower, executive director of the state's Correctional Managed Health Care Committee, told a House legislative committee that the program is generating an estimated $10 million a year in savings.

"Savings are 30 to 35 percent [over previous prices]," said Dick Cason, director of pharmacy for UTMB's Correctional Managed Care program. "It has done exactly what it was supposed to do, for patient care as well as the taxpayers of the state of Texas. It's an effective program--it's been nothing but positive."

Bruce Wright

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