Tuesday, September 20, 2016

Track D: 340B Guidance for Pharmaceutical Manufacturers: Fundamentals, Operations, and Compliance

After a short introduction by Christopher Schott (Counsel, Hogan Lovells), the Symposia got off to a great start with Dennis Kim (Director, Dohmen Life Sciences) and “Addressing Key Areas Covered Within the 340B Guidance. Dennis went through an overview of the PHS/340B Program, including basics of the program and then moved to a review of the “Mega Guidance,” including administration of Medicaid Exclusion File, Manufacturer Restrictions (overcharges, limited distribution plans, recertification, potential audits). Activity expected in 2016 that is likely to be of interest to manufacturers is guidance regarding “penny pricing” and limited distribution arrangements. There are also two comment periods currently open related to civil monetary penalties and the administrative dispute resolution process.

Dennis also provided an explanation of Duplicate Discounts and Diversion, what constitutes a “Covered Patient,” and the use and growth of contract pharmacies which served as a great foundation for the next session.  In it, Steve Zielinksi (Director, Kalderos) discussed in-depth the Contract Pharmacy Model.  This model grew as covered entities (“CEs”) were allowed to use multiple contract pharmacies and the entire industry shifted as contract pharmacies and CEs were attempting to maximize revenue.   When serving as a contract pharmacy, the pharmacy can maintain either a physical or virtual inventory model.  In the physical inventory model, there can be no “borrowing” of inventory from the 340B inventory for non-340B patients, or vice versa.  In the virtual inventory model, the “reconciliation” or maintenance of inventory occurs electronically so a pharmacy only maintains one physical batch of inventory.  An overwhelming majority of contract pharmacies use the virtual inventory model today and software exists to assist.

Contract pharmacies fall into four categories.  The first is an independent pharmacy where the internal controls for compliance with the program requirements can vary significantly.  The CEs actually can have a fair amount of control in this relationship.  Chain pharmacies are the second type of contract pharmacy.  Chains pharmacies have a lot more control in the relationship with the CE and are heavily focused on the business outcome.  The third type of contract pharmacy is a former CE pharmacy that has been created by a restructuring of the facilities associated with the CE so they are a different legal entity.  The internal controls are usually stronger like a CE because of their familiarity with the program requirements.  And finally, specialty pharmacies can serve as a contract pharmacy.  These entities focus on complex products/diseases and the CEs have the least amount of control with them.

Manufacturer reporting requirements were covered by Elizabeth Wicyk-McGovern (Senior Analyst, Hospira).  Besides providing a good example of the 340B ceiling price calculations, including how a product can result in penny pricing.  One important issue is how to calculate a price when [AMP – URA] is less than $0.01/Medicaid unit.  Many manufacturers apply the “penny pricing” concept after the [AMP – URA] has been calculated but some apply it at the Medicaid unit level.  For example, if [AMP – URA] is $0.0002/Medicaid Unit and there are 1,000 units/package, the calculation would be either [$.0002 * 1,000 = $2.00] or [$0.01 * 1,000 = $10.00]. 

HRSA has scheduled five manufacturer audits scheduled for 2016 after having only one in 2015.  In the 2015 manufacturer audit, there were no findings.

About the author: 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 over 15 years.  As a GP consultant, Katie’s areas of primary focus are audits/assessments, training, ongoing calculations, and policies/procedures. Katie is the principal/owner of Government Pricing Specialists, LLC which she started in 2010 to provide a cost-effective consulting option for manufacturers.

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