United States: Omnibus 340B Guidance Raises New Issues For Covered Entities

The Department of Health and Human Services (HHS) released its proposed 340B Drug Pricing Program Omnibus Guidance (Omnibus Guidance) on August 28, 2015. The Omnibus Guidance offers comprehensive – and, in some cases, new – guidance for 340B Drug Pricing Program (340B Program) covered entities (including providers such as disproportionate share hospitals, critical access hospitals, and federally qualified health centers), participating drug manufacturers, and other stakeholders, including pharmacies that may contract with covered entities for the distribution of 340B Program drugs (340B Drugs).

The Omnibus Guidance replaces the " Mega-Regs" that HHS initially had drafted in April 2014. HHS withdrew the Mega-Regs prior to issuance in response to court decisions limiting the scope of HHS' regulatory authority. While HHS has not proposed the Omnibus Guidance as regulations, the scope of HHS' authority to offer binding, enforceable interpretations of 340B Program requirements has not been judicially resolved.

Some of the key updates and changes proposed in the Omnibus Guidance impacting 340B Program covered entities are summarized below. Stakeholders are invited to comment on the Omnibus Guidance on or before October 27, 2015. HHS intends to finalize its interpretations of 340B Program requirements following the receipt of those comments.

Covered Entity Eligibility and Registration

The Omnibus Guidance clarifies the requirements for establishing eligibility for the 340B Program. With regard to non-hospital covered entities, the Omnibus Guidance clarifies the ability to register associated health care delivery sites located at a different address. For hospital covered entities, the Omnibus Guidance addresses the meaning of statutory requirements to either document public status, be "formally granted governmental powers," or have a contract with the state or local government to provide health care services to low-income beneficiaries who are not entitled to either Medicare or Medicaid.

The Omnibus Guidance also sets forth the requirements for covered entities to register and annually recertify with HHS that all conditions of eligibility are met. Hospital covered entities are currently completing their annual recertification process for 2015.

Additionally, HHS proposes to clarify when a covered entity can re-enroll in the 340B Program after being removed for a violation of an eligibility requirement, including the prohibition on using group purchasing organizations. HHS is seeking comments on what type of information a covered entity would submit to demonstrate compliance to re-enroll.

Treatment and Registration of Off-Campus Hospital "Child Sites"

The Omnibus Guidance addresses the inclusion and registration of hospital covered entity sites that are located outside the main address of a 340B Program covered entity, but which are associated with and an integral part of the 340B Program covered entity. While the Omnibus Guidance proposes to continue the current reliance on a hospital covered entity's most recently filed Medicare cost report to determine whether this standard is met, HHS states that it is "actively seeking comments" on alternative methods for demonstrating the eligibility of off-site outpatient clinics. In addition, HHS specifies that the outpatient clinic services have associated outpatient Medicare costs and charges.

New 340B Program Definition of "Patient"

Among the most hotly anticipated areas in the Omnibus Guidance is the long-awaited update to the 340B Program definition of an eligible patient. While the 340B Program statute prohibits participating covered entities from "reselling or transferring" 340B Drugs to individuals who are not "patients" of the covered entity, the statute does not define what it means to be a patient. The Omnibus Guidance proposes a significant update to HHS' definition of patient for the 340B Program, which would narrow the scope of individuals who may receive 340B Drugs.

The Omnibus Guidance restates the definition of patient as a six part test:

  1. The individual receives a health care service at a covered entity site which is registered for the 340B Program and listed on the public 340B Program database;
  2. The individual receives a health care service from a health care provider employed by the covered entity or who is an independent contractor of the covered entity such that the covered entity may bill for services on behalf of the provider;
  3. An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2). An individual will not be considered a patient of the covered entity if the only health care received by the individual from the covered entity is the infusion of a drug or the dispensing of a drug;
  4. If applicable, the individual receives a health care service that is consistent with the covered entity's scope of grant, project or contract;
  5. The individual is classified as an outpatient when the drug is ordered or prescribed;
  6. The individual has a relationship with the covered entity such that the covered entity maintains access to auditable health care records which demonstrate that the covered entity has a provider-to-patient relationship, that the responsibility for that care is with the covered entity, and that each element of this patient definition is met for each 340B Drug.

Several elements of this proposed definition could serve to restrict the availability of 340B Drugs. The definition removes current language that recognizes the ability of covered entities to, in some circumstances, provide 340B Drugs for patients treated by physicians unaffiliated with the covered entity, such as when the covered entity refers the patient outside its facilities for treatment. HHS also notes that the individual's treating physician having privileges or credentials at a covered entity would not be sufficient to demonstrate that the individual is an eligible 340B Program patient. In addition, the Omnibus Guidance could adversely impact the availability of 340B Drugs for infusion centers operated by covered entities, as it would expressly require services in addition to the receipt of an infusion to qualify an individual as an eligible patient. The definition also proposes to introduce a new requirement that the covered entity be able to bill for services on behalf of the employed or contracted professional that provides services to the patient. In addition, the Omnibus Guidance would also prohibit covered entity hospitals from prescribing 340B Drugs upon the discharge of an inpatient.

Importantly, the Omnibus Guidance specifies that covered entities are expected to work with manufacturers regarding repayment within 90 days of identifying a violation of the 340B Program prohibition on diversion of 340B Drugs to ineligible patients or sites.

Scope of Drugs Eligible for Purchase under the 340B Program

The Omnibus Guidance proposes additional clarity regarding the application of the definition of "covered outpatient drug," which defines the scope of drugs eligible for 340B Program discounts. It proposes that prescription drugs that are billed to and reimbursed by the Medicaid program under a bundled rate with certain other services (e.g., physicians services, outpatient hospital services, etc.), and which are provided as part of, or as incident to and in the same setting as, those services are not eligible for 340B Program discounts.

New Guidance on Prohibiting Duplicate Discounts for Medicaid Managed Care Patients

Another area covered by the Omnibus Guidance is the coordination of 340B Program purchases with purchasing for Medicaid Managed Care Organizations (MCOs). Covered entities are currently required to report whether they use 340B Drugs for drugs billed to the Medicaid fee-for-service program. The Omnibus Guidance provides that covered entities may similarly choose whether to use 340B Drugs for drugs billed to Medicaid MCOs, if they have mechanisms in place to identify Medicaid MCO patients, and information detailing any distinction in the treatment of Medicaid managed care and fee-for-service patients is made available to HHS. However, HHS notes the increased risk for duplicate discounts with respect to covered entities' contract pharmacies, noting that that when a contract pharmacy is registered on the 340B Program public database, it will be presumed that it will not dispense 340B Drugs to Medicaid fee-for-service or MCO patients. If the covered entity wishes to purchase and dispense 340B Drugs to Medicaid fee-for-service or MCO patients through a contract pharmacy arrangement, it must provide HHS a written agreement with its contract pharmacy and State Medicaid agency or MCO that describes a system to prevent duplicate discounts.

It should also be noted that HHS recently proposed new guidelines for Medicaid managed care plans to report information related to drug expenditures, excluding expenditures for 340B Drugs.

Maintenance of Auditable Records for at Least Five Years

Another important provision of the Omnibus Guidance proposes a new standard that would require 340B Program covered entities to maintain auditable records demonstrating compliance with all 340B Program requirements for at least five (5) years. Failure to produce such records could lead to a presumption the covered entity was out of compliance with those requirements, which could result in penalties, including removal from the 340B Program. This standard would apply to records for all child sites and contract pharmacies.

Increased Oversight of Contract Pharmacies

The Omnibus Guidance provides that only covered entities may register or make changes to a contract pharmacy listing on the 340B Program database. In addition, it provides that contract pharmacies may be removed from the database and from participation in the program by HHS if HHS determines the pharmacy is not complying with 340B Program requirements. HHS also emphasizes its expectation that covered entities will conduct quarterly reviews and annual independent audits of each contract pharmacy location it has registered, and will maintain the records of such audits. The Omnibus Guidance states that covered entities should report to HHS "any 340B Program violation" detected through such quarterly reviews or annual audits.

Audits of Covered Entities

HHS proposes in the Omnibus Guidance to establish a "notice and hearing process" under which a covered entity has the opportunity to respond to adverse HHS audit findings or to the loss of 340B Program eligibility. It should be noted that this process would be entirely conducted based on written submissions. Once a notice is sent to the covered entity, the covered entity will have 30 days to respond. The Omnibus Guidance specifies guidelines for the submission of corrective action plans if there are findings of non-compliance.

The Omnibus Guidance also sets forth the guidelines for manufacturer audits of 340B Program covered entities, including procedures for submitting a work plan for HHS approval prior to conducting an audit and examples of what would be considered "reasonable cause" for a manufacturer audit. HHS states that a covered entity's refusal to respond to manufacturer questions may be construed as "reasonable cause" for a manufacturer audit.


The Omnibus Guidance proposes many significant clarifications and changes to current 340B Program guidance. It is important that covered entities carefully review the Omnibus Guidance to determine how, if finalized as currently proposed, the proposed changes would impact their 340B Program policies, procedures, operations, and business strategies. Covered entities interested in commenting on the proposed guidance must do so by October 27, 2015. Foley & Lardner LLP will be providing a complimentary webinar at a date to be determined in September 2015 that provides additional analysis and insights into the Omnibus Guidance. Details on this webinar will be forthcoming.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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