United States: 340B Guidance: Eight Key Points Covered Entities Should Consider

On August 27, 2015, the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services (HHS), released the 340B Drug Pricing Program Omnibus Guidance (Guidance). Referred to as "proposed" guidance by HRSA, the Guidance is intended to clarify a multitude of issues for the thousands of registered covered entities participating in the 340B Program, as well as for the contract pharmacies providing services to those covered entities.

While the Guidance covers a number of proposed changes and "clarifications" in some depth, there are several key areas for providers and manufacturers to consider. However, it is important to remember the Guidance is "draft" guidance. Consequently, it is important for both providers and manufacturers to submit their comments on the Guidance. With that said, the following are eight key points that providers and manufacturers should consider:

1. "Child Site" Registration and Eligibility

Generally speaking, "covered entities" are typically Federally Qualified Health Centers and certain types of hospitals or clinics. However, there has long been a question about outpatient clinics associated with these facilities. The Guidance goes into great detail explaining which facilities can be covered entities, particularly in the case of off-site outpatient facilities and clinics affiliated with parent covered entities. Previously, non-hospital covered entities were often considered entities that receive certain federal grants, contracts, designations, or projects. However, the Guidance states that a non-hospital covered entity may also include associated healthcare delivery sites that are located off-campus. The covered entity must demonstrate that these "child sites" satisfy certain requirements and must register them, and the Guidance proposes listing child sites in the public 340B database. HHS is seeking comments on alternatives to demonstrating the eligibility of off-site outpatient facilities.

If a parent covered entity loses its 340B eligibility, all child sites will be removed from the program at the same time according to the Guidance. However, a child site may also lose eligibility separately from the parent covered entity in certain situations.

2. Exception to GPO Prohibition

The Guidance confirms that disproportionate share hospitals, children's hospitals, and freestanding cancer hospitals in the 340B Program are still subject to the group purchasing organization (GPO) prohibition. In other words, these entities cannot "obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement." However, the Guidance also confirms that the GPO prohibition does not extend to inpatient drug purchases. This prohibition extends to any pharmacy owned or operated by these covered entities, and takes effect as of the start date of enrollment in the 340B Program. Covered entities should keep in mind that the GPO prohibition also extends to the use of a GPO in certain 340B replenishment models. However, the Guidance does provide certain exceptions to the prohibition for certain covered entities from using GPOs.

  • A GPO account can be used for an off-site outpatient facility (i.e., one that is not at the same physical address as the parent covered entity) of a covered entity that is not participating in the 340B program or listed in the public 340B database.
  • GPO drugs can be provided to inpatients reclassified as outpatients by a third party, such as an insurer or a Medicare Recovery Audit Contractor, so long as the patients' status is sufficiently documented.

The Guidance also proposes recognizing an exception to the GPO prohibition for hospitals that cannot access a drug at the 340B price or at wholesale acquisition costs to prevent disruptions in patient care.

3. Definition of Eligible Patient

The conditions that must be met for an individual to be considered a patient of a covered entity have increased. Now to be considered a patient, all of the following conditions must be met:

  • The individual receives a healthcare service at a facility or clinic site that is registered for the 340B Program and listed on the 340B database;
  • The individual receives a healthcare service provided by a covered entity provider who is either employed by the covered entity or is an independent contractor for the covered entity, "such that the covered entity may bill for services on behalf of the provider";
  • An individual receives a drug that is ordered or prescribed by the covered entity provider described immediately above as a result of the service;
  • The individual's healthcare is consistent with the scope of the "Federal grant, project, designation, or contract";
  • The individual's drug is ordered or prescribed pursuant to a healthcare service that is classified as outpatient; and
  • The individual's patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.

The Guidance provides that if "normal health care operations are disrupted due to a public health emergency declared by the Secretary, a covered entity may request, and HHS may authorize, a covered entity to temporarily follow alternate patient eligibility criteria."

Finally, HHS has reaffirmed that covered entity employees are not eligible to receive 340B drugs solely by virtue of being employees of the covered entity, "but by being a patient as defined in this guidance."

4. Prohibition of Duplicate Discounts

Currently, covered entities must report whether they use 340B drugs for drugs billed to the Medicaid fee-for-service (FFS) program. In other words, covered entities must report whether they carve in or carve out Medicaid FFS. Interestingly, the Guidance provides that covered entities may choose to make a different determination for patients of Medicaid managed care organizations (MCOs). However, in order to carve in MCO patients, the covered entity must have a process to identify Medicaid MCO patients and should have a plan to prevent duplicate discounting. If the covered entity wishes to purchase and dispense 340B drugs to Medicaid FFS or Medicaid MCO patients through a contract pharmacy arrangement, it must provide HHS with a copy of its agreement with the contract pharmacy and applicable state Medicaid agency or MCO detailing how the arrangement will prevent duplicate discounts.

5. Contract Pharmacy Arrangements

A covered entity may contract with as many contract pharmacies as it deems necessary so long as such arrangements comply with 340B Program requirements and all applicable federal, state, and local laws, including the federal anti-kickback statute. While the Guidance does not propose to limit the number of contract pharmacy arrangements a covered entity may have, only covered entities may register or make changes to a contract pharmacy listing on the 340B Program database. Additionally, HHS may remove contract pharmacies from the database and from participation in the 340B Program if it determines the contract pharmacy is not complying with the requirements of the 340B Program.

6. Manufacturer Responsibilities

The Guidance lays out specific requirements and expectations for pharmaceutical pricing agreements (PPA), when a manufacturer has entered in a Medicaid Drug Rebate Agreement (MDRA), or if the manufacturer is not subject to an MDRA but has decided to voluntarily enter into a PPA for 340B covered drugs. The Guidance addresses transfers of ownership and requires that a PPA be automatically assigned to the subsequent owner. The Guidance also reiterates that pursuant to the PPA, a manufacturer must offer all covered outpatient drugs at no more than the statutory 340B ceiling price and explains the manufacturer's obligation to offer 340B prices to covered entities that are listed in the public 340B database. Further, the manufacturer is prohibited from conditioning an offer of the 340B ceiling pricing on a covered entity's compliance with the 340B Program requirements. With respect to the PPA, the Guidance outlines "expectations" that apply to the manufacturers that participate in the 340B Program. These expectations include:

  • Requiring that the manufacturer sign a PPA within 30 days of enrolling in the MDRA;
  • Updating the 340B database record and PPA to ensure new 340B drugs are included;
  • Keeping records for at least five years; and
  • Allowing for HHS audits.

Importantly, the Guidance also addresses how a manufacturer should handle refunds and credits in the event the manufacturer overcharges a covered entity for a 340B drug. The refund should be the difference between the charged price and the 340B price and should occur within 90 days of the overcharge being identified by the manufacturer or HHS.

7. Rebate Option for AIDS Drug Assistance Program

The Guidance outlines the requirements and procedures for state AIDS Drug Assistance Program participation in the 340B Program. These programs may participate through the rebate option or through a hybrid option, which is participating in the 340B Program using both the direct purchase option and the rebate option. The Guidance warns that AIDS Drug Assistance Programs participating in either of the options may not seek a 340B rebate for a drug that a covered entity purchased at or below the statutory ceiling price.

8. Program Integrity

The Guidance confirms that HHS has the authority to, and will conduct, audits of various covered entities, including registered child sites and contract pharmacies. In the event of an audit, covered entities are required to provide requested records pertaining to 340B Program compliance. Covered entities will be provided with an opportunity for a hearing to respond to a negative audit finding, and will have the opportunity to submit a corrective action plan in the event of a finding of noncompliance. Manufacturers are also permitted to audit the records of covered entities, child sites, and contract pharmacies to assess compliance. In addition, manufacturers, subcontractors, and wholesalers may be subject to HHS compliance audits.

Interested stakeholders are invited to submit comments on the proposed Guidance on or before October 27, 2015.

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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