On November 30, 2018, the Department for Health and Human Services (“HHS”) Health Resources and Services Administration (“HRSA”) will publish its final rule to change the effective date for its 340B Drug Pricing Program ceiling price and manufacturer civil monetary penalty final rule to January 1, 2019.

After two years of proposed rulemaking, HHS published a final rule on January 5, 2017 outlining requirements of manufacturers to calculate the 340B ceiling price for a covered outpatient drug and the process by which HRSA can levy civil monetary penalties on drug manufacturers for knowingly and intentionally charging beyond the statutory ceiling price. This final rule was initially announced to be effective March 6, 2017 but was delayed on several instances. HHS’s most recent delay was announced on June 5, 2018, when HHS published a second final rule delaying the regulation’s effective date until July 1, 2019 so it could develop “comprehensive policies to address the rising costs of prescription drugs.” HHS then issued a proposed rule on November 2, 2018 soliciting comments on potentially changing the effective date from July 1, 2019 to January 1, 2019 to eliminate further delay. HHS’s latest announcement solidifies the effective date as January 1, 2019.

HHS maintains that finalizing the 340B ceiling price and civil monetary penalty rule will not interfere with its plan to develop separate drug pricing policies. Commenters expressed concern that HHS has not established adequate guidance to implement the rule appropriately, responded to public questions, or provided adequate rationale for its change of view on the need for additional rulemaking. HHS addressed these concerns by explaining that issuing additional guidance is unnecessary to implement the rule and that it would be more efficient for the rule to go into effect sooner and to “assess the need for further rulemaking and guidance after the rule is in effect.” Other commenters feared that they would be unable to achieve compliance in time for a January 1, 2019 effective date. HHS responded that, since HHS published the initial final rule in January 2017, these stakeholders have had “sufficient time” to adjust their systems and update their policies and procedures.

After January 1, 2019, drug manufacturers must calculate the 340B ceiling price for covered drugs on a quarterly basis consistent with the January 5, 2017 final rule. Most significantly, drug manufacturers will newly be subject to financial sanctions for knowingly and intentionally overcharging a covered entity, although HRSA anticipates using such penalties in “rare situations.”   For additional information about the issues discussed above, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.

On March 24, 2015, the House of Representatives Energy and Commerce Health Subcommittee[1] (the “Subcommittee”) held a 340B Program hearing with testimony from the Deputy Administrator of Health Resources and Services Administration (“HRSA”), the Director of the Office of Pharmacy Affairs (“OPA”) of HRSA,[2] the Director of Health Care of the Government Accountability Office (“GAO”), and Assistant Inspector General of the Office of Evaluation and Inspection of the U.S. Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”).

The purpose of the hearing was to assess the functionality of the 340B Program, and, in particular, HRSA’s activities to address the findings in the GAO report, issued in September 2011, titled “Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement,”[3] and OIG report, issued in February, 2014, titled “Contract Pharmacy Arrangements in the 340B Program.”[4]

The GAO issued a follow-up report on March 24, 2015, titled “Drug Discount Program, Status of GAO Recommendations to Improve 340B Pricing Program Oversight.”  The follow-up report stated that HRSA had implemented two of the GAO’s four recommendations and that HRSA plans to address the remaining two recommendations to clarify the patient definition and hospital criteria for eligibility.  The OIG also recommended that HRSA clarify patient definition, particularly in to the context of contract pharmacies.  The OIG provided examples of how eligibility determinations in the contract pharmacy setting can result in diversion based on the lack of clarity in the patient definition.  Additionally, the OIG stated that HRSA could increase 340B Program transparency by sharing 340B ceiling prices with providers and Medicaid state agencies (though the OIG acknowledged that HRSA lacked the authority to share 340B prices with Medicaid state agencies).

Throughout the hearing, several members of the Subcommittee expressed their support for the Program and acknowledged that the 340B Program is necessary for hospitals, health centers, and other Covered Entities to serve underserved populations.  At the same time, Subcommittee members expressed concerns that the 340B Program needs greater clarity, oversight by HRSA, and transparency.  Subcommittee Chairman Joseph R. Pitts’ (R.-PA) opening statement sums up the message delivered by Congress:

“This program, designed to stretch scarce federal dollars, is critically important for indigent and low-income patients who may otherwise be unable to access needed drugs or afford treatment. . . . One thing I hope we can all agree on, is that to preserve the 340B program and ensure that it is serving those who most need help, greater oversight and transparency is needed to increase the program’s accountability. Today’s hearing marks the first step in that direction.”[5]

The following are several themes that were discussed during the hearing:

  • Chairman Pitts suggested that Medicaid expansion as a result of the Affordable Care Act may lead to more hospitals meeting the disproportionate share hospital (“DSH Hospitals”) percentage, and thus, becoming Covered Entities under the 340B Program. Chairman Pitts questioned whether the DSH percentage was an appropriate proxy for determining the extent to which a hospital serves low income populations and whether a different methodology would be more appropriate.
  • A few Subcommittee members expressed concern that DSH Hospitals have no obligation to report how 340B savings are used to benefit underserved patients. One member expressed the more specific concern that there was no transparency to determine the extent to which the 340B discount is passed on to uninsured individuals.   The Subcommittee members contrasted this with HRSA grantees, such as health centers, which are required to reinvest proceeds to advance grant purposes. HRSA’s Deputy Administrator noted that such reporting and use of 340B savings by DSH hospitals is not required by the statute and, in response, a member of the Subcommittee suggested that this was an issue being discussed among the members that could potentially require a legislative fix.
  • A few Subcommittee members broached the topic whether, in light of HRSA’s limited rulemaking authority, whether HRSA’s issuance of guidance was a “long term solution” and whether HRSA needed more expansive rulemaking authority. Although HRSA’s Deputy Administrator acknowledged that enforcement of rules would strengthen HRSA’s oversight, the Deputy Administrator did not explicitly request rulemaking authority or other legislative change and stated simply that HRSA would use all the tools at its disposal to enforce 340B Program compliance.
  • Certain Subcommittee members expressed concern over the lack of clarity surrounding the patient eligibility definition; noting that compliance cannot be enforced if the definition is unclear.
  • Several Subcommittee members expressed concern and asked questions regarding the transparency of 340B ceiling prices to Covered Entities and the length of time it has taken HRSA to implement the pricing database. HRSA noted that the secure website would be operational later this year. Other Subcommittee members posed questions regarding whether the ceiling prices needed to be shared with state Medicaid agencies, even though HRSA does not have such authority.

Based on the Subcommittee’s questions and the testimony, it appears that the Subcommittee is intent on “preserving” the 340B Program, and exploring whether legislative “fixes” are needed.  The Subcommittee discussed some areas that can only be addressed through the legislative process, such a change of methodology to 340B hospitals, and transparency requirements with respect to the utilization of 340B savings.

However, there currently does not appear to be any consensus on the scope of such legislation, or even whether legislation is needed.  Ultimately, legislation will likely depend on HRSA’s ability to ensure 340B Program compliance with its current tools, including Covered Entity and manufacturer audits, limited rulemaking authority, and the issuance of guidance.

[1] The full Energy and Commerce committee has primary jurisdiction over the 340B Program in the House of Representatives.

[2] The Office of Pharmacy Affairs is tasked with Administratoring the 340B Program.

[3] http://www.gao.gov/products/GAO-11-836

[4] http://oig.hhs.gov/oei/reports/oei-05-13-00431.pdf

[5] Opening Statement of Subcommittee Chairman Joseph R. Pitts, available at http://energycommerce.house.gov/hearing/examining-340b-drug-pricing-program.

By Constance Wilkinson, Alan Arville, and Jonathan Hoerner

On July 23, 2014, the Health Resources and Services Administration (“HRSA”) issued an “interpretive rule” entitled “Implementation of the Exclusion of Orphan Drugs for Certain Covered Entities under the 340B Program” (the “Interpretive Rule”).[1] The Interpretive Rule follows the ruling by the U.S. District Court for the District of Columbia on May 23, 2014, that vacated the final rule previously released by HRSA on the treatment of orphan drugs under the 340B program (the “Final Rule”).[2]

By way of background, the 340B program, created in 1992 and administered by HRSA, requires drug manufacturers to give discounts to entities covered under the law—known as “Covered Entities”—in order to have their drugs covered by Medicaid. The Affordable Care Act, along with the Medicare and Medicaid Extenders Act of 2010, expanded the definition of Covered Entities to include critical access hospitals, free-standing cancer hospitals, rural referral centers, and sole community hospitals. For these categories of Covered Entities only, drugs designated by the Food and Drug Administration as drugs “for a rare disease or condition” (“Orphan Drugs”) are excluded from covered outpatient drugs subject to mandatory 340B pricing requirements (the “340B Orphan Drug Exclusion”).[3] Other Covered Entities, such as disproportionate share hospitals, are not subject to the Orphan Drug Exclusion.

Interpretive Rule on Orphan Drugs in the 340B Drug Pricing Program

Consistent with the now vacated Final Rule, the Interpretive Rule states that the 340B Orphan Drug Exclusion only excludes Orphan Drugs when those drugs are “transferred, prescribed, sold, or otherwise used for the rare condition or disease,” for which the drug was designated orphan status. For example, even though Prozac (fluoxetine) is an Orphan Drug for the treatment of autism, under HRSA’s interpretation of the 340B Orphan Drug Exclusion, a Covered Entity subject to the 340B Orphan Drug Exclusion may purchase Prozac for its eligible patients at the 340B discount price when it is prescribed for depression, a non-orphan condition.[4] To support its position, HRSA states that its interpretation is consistent with the FDA’s interpretation of the orphan drug provisions in the Federal Food, Drug, and Cosmetic Act, including the FDA’s application of incentives for the development of orphan drugs (e.g., market exclusivity, tax credit, user fee exemption) to only the use of the drug intended to treat the rare disease or condition and not non-orphan drug indications.

The Interpretive Rule also discusses Section 340B’s requirement that prohibits certain hospitals, including free-standing cancer hospitals subject to the 340B Orphan Drug Exclusion, from purchasing covered outpatient drugs through a group purchasing organization (“GPO”). As with the Final Rule, the Interpretive Rule states that this prohibition does not apply to Orphan Drugs when they are used for the orphan designated rare condition or disease. Therefore, free-standing cancer hospitals can use a GPO to purchase an Orphan Drug for such rare condition or disease but cannot use a GPO when the drug is being used for other non-orphan purposes.

In order to facilitate the identification of drugs with an orphan designation for 340B Program purposes, the Interpretive Rule states that on the first day of the month prior to the end of the calendar quarter, HRSA will publish a listing of orphan drug designations, providing the name of the drug and the designated indication. HRSA also repeats its position in the Final Rule that a Covered Entity cannot purchase Orphan Drugs through the 340B program if the Covered Entity does not have the ability to track the indication for drug use. Notably, the Interpretive Rule does not include the requirement of the Final Rule that Covered Entities must notify HRSA if they cannot or do not wish to maintain auditable records sufficient to demonstrate compliance with the 340B Orphan Drug Exclusion.[5]

Previous Court Decision

After HRSA issued the Final Rule in July 2013, the Pharmaceutical Research and Manufacturers of America (“PhRMA”) brought suit against HRSA claiming that the rule was invalid because it contravened the plain language of the statute.[6] First, the court determined that the Final Rule was a legislative rule, a rule which carries the force of law. Next, the court concluded that HRSA lacked the statutory authority to promulgate the Final Rule as a legislative rule.

In addition to arguing that it had the requisite authority to issue a legislative rule, HRSA also took the alternative position that the Final Rule was not a legislative rule and should be viewed and upheld as an interpretive rule. As opposed to a legislative rule, an interpretive rule provides clarifications or explanations of a statute and does not create a new law, modify an existing law, or create an enforceable right. Even though an interpretive rule does not carry the force of law like a legislative rule, courts will generally give deference to an agency’s interpretive rule.

Calling HRSA’s argument “half-hearted,” the court noted that the Final Rule underwent notice and comment rulemaking and had a “legal effect” on the parties, two components of the D.C. Circuit’s test for a legislative rule. However, the court concluded that it lacked sufficient information to decide if the Final Rule could be considered a valid interpretive rule. HRSA declined the opportunity to make additional arguments on this issue and instead chose to separately promulgate the rule as the Interpretive Rule.

Future Implications

Immediately after HRSA released the Interpretive Rule, PhRMA filed a court document arguing that HRSA’s Interpretive Rule was an attempt to “evade the Court’s holding” that HRSA did not have authority to issue this rule.[7] Thus, it is likely that litigation will continue over the scope of HRSA’s ability to engage in rulemaking, which will likely impact HRSA’s issuance of the proposed 340B “mega-rule.” The “mega-rule” would address multiple key components of the 340B program including the definition of an eligible patient, compliance requirements for contract pharmacy arrangements, and hospital eligibility including criteria for off-site facilities. HRSA had planned to release the “mega-rule” as early as June 2014, but given the questions surrounding HRSA’s authority to engage in rule-making, the “mega-rule” will likely continue to be delayed.

In the absence of a grant of general rulemaking authority in the 340B statute, HRSA’s custom has been to administer the 340B program through a series of Notices issued through the Federal Register, as well as other sub-regulatory guidance. Whether HRSA reverts to this practice as a result of, or in the absence of, a judicial determination regarding its rulemaking authority remains to be seen.


ENDNOTES

[1] HHS HRSA, Interpretive Rule: Implementation of the Exclusion of Orphan Drugs for Certain Covered Entities Under the 340B Program, (July 21, 2014), http://www.hrsa.gov/opa/programrequirements/interpretiverule/.

[2] 340 Drug Pricing Program, 42 C.F.R. pt. 10 (2014).

[3] Public Health Service Act § 340B(e), 42 U.S.C. 256b(a) (2012).

[4] Pharm. Research & Mfrs. of Am. v. United States HHS, No. 13-1501, 2014 U.S. Dist. LEXIS 70894, at *2 (D.D.C. May 23, 2014).

[5] 340 Drug Pricing Program, 42 C.F.R. § 10.21(c)(3).

[6] Pharm. Research & Mfrs. of Am. v. United States HHS, No. 13-1501, 2014 U.S. Dist. LEXIS 70894 (D.D.C. May 23, 2014).

[7] Supplemental Memorandum in Support of PhRMA’s Motion for Miscellaneous Relief, ECF No. 52.

By Constance Wilkinson, Alan Arville, and David Gibbons

The U.S. Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) released a Report [1] on February 5th based on in-depth interviews with a sample of thirty 340B Covered Entities – half were disproportionate share hospitals (“DSH”) and half were community health centers (“CH”) – and eight contract pharmacy administrators to gain a better understanding of how contract pharmacy arrangements operate under the 340B Drug Discount Program, codified as Section 340B of the Public Health Service Act (“340B Program”).

By way of background, the 340B Program, created in 1992 and administered by the Health Resources and Services Administration (“HRSA”), requires drug manufacturers to give discounts to entities covered under the law – known as “Covered Entities” – in order to have their drugs covered by Medicaid. The manufacturer must agree to sell each of its outpatient prescription drugs to Covered Entities enrolled in the 340B Program “at or below a ceiling price” that is derived from the same Average Manufacturer Price and Unit Rebate Amount calculated under the Medicaid Drug Rebate Program.[2] Covered Entities are subject to certain compliance requirements, including preventing duplicate discounts (i.e., preventing Medicaid rebate claims for prescriptions that were filled with drug purchased at the 340B price by reporting how they bill Medicaid on the Medicaid Exclusion File) and preventing diversion of 340B drugs (i.e., ensuring that only eligible patients receive 340B drug in accordance with the 340B program definition of a patient). According to HRSA’s subregulatory guidance, a Covered Entity may enter into agreements with one or more specified pharmacies to dispense drugs purchased at 340B discounts to the Covered Entity’s eligible patients.[3]

The Report provides a useful overview of the contract pharmacy arrangement “replenishment” model in use today and notes that the use of contract pharmacies by Covered Entities as well as the number of contract pharmacy arrangements has increased dramatically over the past several years. The Report focuses on the statutory prohibitions of diversion and duplicate discounts and also on access to discounted prices for 340B eligible uninsured patients. Notably, the Report does not discuss the applicability of the Federal Anti-Kickback Statute to 340B contract pharmacy arrangements. While limited in its scope, the Report raises some significant issues that HRSA will need to consider as it develops comprehensive regulations anticipated to be released later this year.

First, the OIG found that Covered Entities are taking inconsistent approaches to interpreting HRSA’s definition of an “eligible patient” under the 340B Program.[4] The OIG found that Covered Entities differ with respect to how they classify prescriptions as 340B-eligible, with regard to when the determination is performed (before or after the prescription is written), the time limits applied to when a prescription can be 340B-eligible relative to a physician visit, and the data used to determine eligibility. For example, eligible patients must receive health care services from providers that are either employed by or under a contractual or other arrangement with the Covered Entity such that the Covered Entity is responsible for the health care services delivered to eligible patients. In practice however, these providers sometimes provide services in their private offices, which creates some ambiguity as to whether such services, including prescribing of drugs otherwise covered by the 340B Program, meet the eligibility requirements. When the OIG examined how contract pharmacies operate in scenarios such as this, they found that Covered Entities categorized 340B eligibility differently and used different means to make such categorizations, resulting in inconsistencies among Covered Entities in similar circumstances regarding the utilization of 340B drug.

Second, Covered Entities encounter difficulties in identifying 340B eligible prescriptions for patients enrolled in Medicaid managed care plans. To comply with the statutory prohibition against duplicate discounts (noted above), Covered Entities choose whether or not they will dispense 340B drugs to Medicaid beneficiaries; if they do dispense 340B drugs to Medicaid beneficiaries, Covered Entities must provide HRSA with their pharmacy Medicaid Provider number, which is then entered in the HRSA Medicaid Exclusion File. The HRSA Medicaid Exclusion File is provided to state Medicaid agencies and manufacturers to ensure that a Medicaid rebate is not sought from a manufacturer for drugs already sold at the 340B discount. The difficulty in complying with this provision for Medicaid managed care patients arises from a lack of information available from state Medicaid agencies and managed care plans using the same routing numbers for their Medicaid managed care patients as for privately insured patients.

Third, the Report noted that eight of the thirty Covered Entities included in the study do not offer the 340B discounted drug price to their uninsured patients who are dispensed prescriptions through a contract pharmacy. Most of the 340B contract pharmacy administrators serving these entities revealed that the determination of eligibility is made after the drug is dispensed. Therefore, the contract pharmacy charges the uninsured patient the full cost of the prescription at the time it is dispensed. Among the eighteen Covered Entities interviewed that do offer 340B discounts to uninsured patients, it is common for the Covered Entity to address the underlying issue by providing their 340B eligible uninsured patients with a 340B discount card that, when presented to the pharmacy, notifies the pharmacy to charge the discounted rate.

The Report does not provide any recommendations in response to the inconsistencies in contract pharmacy arrangement operations identified by the OIG, but notes that comments or questions concerning the Report can be submitted by April 5. The OIG states that recommendations could be forthcoming in a future report as the agency continues to review contract pharmacy arrangements.

An accompanying podcast is available at available at https://oig.hhs.gov/newsroom/podcasts/reports.asp#pharmacy.

 


ENDNOTES

[1] HHS OIG, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program (Feb. 5, 2014), https://oig.hhs.gov/oei/reports/oei-05-13-00431.asp.

[2] Section 340B(a)(1) of the Public Health Service Act. 42 U.S.C. § 256b(a)(1) (2011), http://www.hrsa.gov/opa/programrequirements/phsactsection340b.pdf.

[3] HRSA, Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. Reg. 10272 (Mar. 5, 2010).

[4] HRSA, Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg., 55156, 55157-55158 (Oct. 24, 1996).