Monday, August 31, 2015

HRSA Releases Proposed “Mega” Guidance

On Thursday, August 27, 2015, the Health Resources and Services Administration (“HRSA”) issued a copy of the much anticipated Proposed Guidance for manufacturers and Covered Entities (“CEs”) regarding the 340B/PHS Program. A summary of the most important points for pharmaceutical manufacturers is below but as always, I strongly recommend a thorough review by each organization to determine what issues affect your organization. Comments are due October 27, 2015.

340B Program Eligibility and Registration
The Proposed Guidance details the eligibility for hospital and non-hospital sites, as well as “parent” and “child” sites and the effect when an associated facility loses its eligibility. It also goes on to allow three exceptions to the GPO Prohibition for DSH hospitals, children’s hospitals, and free standing cancer hospitals:

1. An off-site outpatient clinic of a 340B hospital that does not participate in the 340B Program itself and purchases drugs through a separate account from the 340B hospital;
2. A GPO-purchased drug provided to an inpatient who, upon subsequent review, results in the designation of that patient as an outpatient for payment purposes; or
3. A hospital which can only access a covered outpatient drug through a GPO contract and has documented its attempts to purchase the drug at the 340B price and WAC, and has notified HHS of its attempts.

Drugs Eligible for Purchase Through the 340B Program
The 340B Program has used the definition of, “Covered Outpatient Drugs” based on the Medicaid Drug Rebate Program and excludes those drugs that are reimbursed as part of an associated service, regardless of the payer. With the Proposed Guidance, this limiting definition would apply only to those products when the payer is Medicaid.

Individuals Eligible to Receive 340B Drugs (Patient Definition)
With the Proposed Guidance, the requirements for individuals who are eligible to receive 340B drugs are stricter. To be considered an eligible patient, all of the criteria listed below must be met:

1. The patient receives a health care service at a CE site;
2. The health care service is from a provider employed by the CE or who is an independent contractor of the CE “such that the CE may bill for services on behalf of the provider;”
3. The patient receives a drug that is ordered or prescribed by the provider as a result of the service described in 2. above, but not if the only health care received is the infusion or dispensing of a drug;
4. The patient receives a service that is consistent with the CE’s scope of grant, project, or contract;
5. The patient is considered an “outpatient” when the drug is ordered or prescribed. However, patients who are self-pay, uninsured, or whose cost of care is provided by the CE will be considered an patient if the CE has clearly defined policies and procedures that it follows to classify these patients consistently;
6. The individual has a relationship with the CE, auditable health care records are maintained that demonstrate the provider-to-patient relationship, the CE has a responsibility of care, and that “each element of this patient definition in this section is met for each 340B drug.”

One exception to the patient definition is for AIDS Drug Assistance Programs (“ADAPs”) which considers patients as any individual enrolled in a Ryan White HIV/ADAP funded by Title XXVI of the PHS Act. A second exception is in the case of a public health emergency.

CE Requirements
CEs are already prohibited from receiving duplicate discounts from manufacturers (when a state obtains a rebate on a drug that was also purchased at the discounted 340B rate). The Proposed Guidance would expand the Medicaid exclusion file currently in use to include Medicaid Managed Care Organization (“MCO”) patients. However, CEs would be able to make this determination by location as well as MCO and could make a different election than the Medicaid Fee for Service patients.

CEs would also continue to be able to use a “replenishment model” for their purchases as long as they maintain auditable records.

Contract Pharmacy Arrangements
Currently CEs may enter into an agreement with an unlimited number of contract pharmacies and the Proposed Guidance does not change this. It does require CEs to, “conduct quarterly reviews and annual independent audits of each contract pharmacy location…” placing the responsibility for program compliance with the CE.

Manufacturer Responsibilities
Manufacturers must enter into an agreement (Pharmaceutical Pricing Agreement, or “PPA”) to participate in the 340B Program. The PPA is expected to be revised to include requirements of the Affordable Care Act but no mention is made of these changes. The Proposed Guidance includes a “must offer” provision that would require manufacturers to submit to HRSA a “limited distribution plan” if a product is distributed through, “a specialty pharmacy or a restricted distribution network, or needing to limit distribution due to potential or actual shortages.” There’s no criteria listed as to when this would be required so all products that are distributed through specialty pharmacies might qualify.

In the event that a manufacturer overcharges a CE, regardless of the reason, the manufacturer will be expected to refund the difference within 90 days of this determination and must notify HHS. Refunds must be calculated by NDC and manufacturers would not be allowed to aggregate purchases, offset undercharges nor could they exclude de minimis amounts. In the event that a CE does accept a direct repayment amount within 90 days of receipt, the CE has in effect waived its right to the repayment.

The Proposed Guidance also includes a provision that manufacturers review and update their 340B database on an annual basis.

Rebate Option for AIDS Drug Assistance Programs
ADAPs can access the 340B price through a rebate or through the 340B contract. Most choose the rebate option which would be allowed to continue along with a “hybrid” model for those ADAPs that act as a secondary payer for patients. For ADAPs receiving rebates, the following is required:

1. The ADAP must indicate that it will participate in the rebate or hybrid option;
2. The ADAP is expected to make a “qualified payment” for an eligible patient; and
3. The ADAP is expected to submit claims level detail to the manufacturer with a rebate request.

A “qualified payment” is defined as either a direct purchase of a covered outpatient drug by the ADAP at a price greater than the 340B ceiling price, or a payment by the ADAP for the client’s health insurance premium, copayment, coinsurance, or deductible.

As with other CEs, an ADAP is not allowed to receive a duplicate discount.

Program Integrity
The Proposed Guidance reiterates the previous guidance issued that manufacturers may audit CEs if there is “reasonable cause” and the manufacturer and CE cannot resolve the issue. An audit plan must be submitted to HHS and an “independent certified public accountant” must be used to perform the audit.

For all participants in the 340B Program, all documentation and supporting records would be required to be retained for five years.

It’s important to note that this is “Proposed Guidance” and not a “Proposed Rule” and there is no clear indication as to the enforceability of these items. When HRSA issued the orphan drug rule, PhRMA challenged their ability to impose requirements based on solely on interpretation. We are awaiting a decision in that case which may help clarify how stakeholders are to interpret this Proposed Guidance. As with all things GP-related, it is important that each manufacturer determine what is best and appropriate for their organization.

If you would like more information or assistance in developing comments for submission before the October 27 deadline, please reach out to me. And I look forward to seeing you in Chicago at MDRP where I’m sure we’ll have a great discussion about this topic! Katie Lapins, Government Pricing Specialists, LLC, 303.993.6466,

Katie Lapins
Katie Lapins has worked in the pharmaceutical and medical device industries in the areas of commercial and government contracting, compliance, finance and sales operations for 15 years. As a consultant, Katie’s areas of primary focus are government programs, corporate compliance and commercial operations. Within these areas, she has developed policies and procedures, assisted manufacturers with voluntary disclosures/restatements, led audits and assessments, calculated and submitted statutory pricing requirements (AMP, BP, ASP, Non-FAMP, PHS and TRICARE), processed Medicaid/ SPAP/ Supplemental invoices, validated PHS eligibility, handled Class of Trade projects with over 100K entities, and created training for onsite and web-based instruction for 2 – 200 employees. Katie’s experience within the industry includes government contract administration, pricing analysis, commercial operations, specialty pharmaceutical distribution agreements and commercial contract management.

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