United States: The Proposed 340B Guidance: Who Is The Biggest Loser?

Last Updated: October 12 2015
Article by Ellyn Sternfield and Lauren M. Moldawer

We have now had more than 30 days to digest HRSA's proposed 340B Drug Pricing Program Omnibus Guidance ("Proposed Guidance"), intended to clarify expectations and provide guidance on key issues in the 340B Program. There are several weeks remaining in the comment period on the Proposed Guidance, and there has already been much handwringing over some of the specific provisions. Does HRSA really intend to prohibit the use of 340B drugs to fill discharge prescriptions? Will HRSA really stand by its position that employees of covered entities do not become eligible to receive 340B drugs solely by being employees? Will HRSA actually limit access to 340B drugs to individuals who meet all of the components of the definition of "patient?"

Given that the D.C. District Court has yet to rule on HRSA's authority to issue interpretive rules in the pending 340B orphan drug litigation, whether certain provisions in the Proposed Guidance will even be enforceable is an open question. But before the comment period closes, stakeholders may want to consider some of the clear winners, and just who is the biggest loser, under the Proposed Guidance.

Winner: Contract Pharmacies

Over the last few years, increasesin the number of contract pharmacy arrangements have outpaced the explosive growth in the number of 340B covered entities. Other than registration requirements, HRSA historically placed few compliance responsibilities on the 340B contract pharmacies. Instead, HRSA made covered entities responsible for their contract pharmacies' 340B compliance. As noted in our February 2014 post, HHS-OIG has been critical of the lack of compliance and oversight inherent in 340B contract pharmacy arrangements.

In the interest of reducing the risk of federal program recipient fraud/abuse, HHS has been open to the concept of limiting beneficiaries to the use of just one pharmacy to fill their prescriptions. But 340B covered entities have been free to enter multiple different 340B contract pharmacy arrangements.

Through the Proposed Guidance, HRSA continues to place the responsibility for contracting pharmacy compliance not on those pharmacies, but on the covered entities. The Proposed Guidance sets an expectation that covered entities will audit each of their contract pharmacies quarterly, and will report uncovered legal violations to HRSA. The Proposed Guidance places no limits on the number of contract pharmacy arrangements entered into by a single covered entity.

Winner: Hospital Off-Site Eligibility

One of the reasons for the explosive growth in the number of 340B covered entities is the registration of off-site out-patient facilities and clinics. Under the Proposed Guidance, HRSA continues to allow hospitals covered entities to register such facilities as eligible to utilize 340B drugs. This includesfacilities at different physical locations, as long as the hospital's most recent Medicare cost report demonstrates that (a) each of the facilities or clinics is listed on a line of the cost report that is reimbursable under Medicare and (b) that the services provided at the facility or clinic have associated outpatient Medicare costs and charges. The Proposed Guidance also indicates HRSA is actively seeking comments on alternatives to demonstrating the eligibility of an off-site facility, which may further streamline the registration process.

Loser: State Medicaid Programs

Some covered entities and contract pharmacies deal with the duplicate discount prohibition by excluding Medicaid patients from receiving 340B drugs. But as state Medicaid programs struggled to cope with rising costs, attention turned to the potential cost savings in 340B. Thus, multiple state Medicaid Programs now prohibit Medicaid providers who have 340B covered entity status from excluding Medicaid recipients from receiving 340B drugs. These states may also require covered entities to bill the Medicaid program or Medicaid Managed Care Organizations (MCOs) for those drugs at the 340B acquisition cost with special codes that designate them as exempt from Medicaid drug rebate invoicing.

In its 340B covered entity audits, HRSA has frequently cited covered entities for duplicate discount violations involving Medicaid. In its 340B Contract Pharmacy Report, HHS-OIG stated that the risk of duplicate discount violations was heightened in contract pharmacy arrangements.

In a December 2014 Policy Clarification, HRSA acknowledged the ongoing problems with duplicate discounts, especially when dealing with Medicaid managed care members, and encouraged covered entities to work closely with states on procedures to comply with state regulations or expectations and the duplicate discount prohibition. In theProposed Guidance, HRSA expands on that statement, encouraging "covered entities, States and Medicaid MCOs to work together" to establish compliant practices for Medicaid claims, including state specific billing or reporting requirements.

But when it comes to contract pharmacies, HRSA ignores the states' role altogether, stating that due to the heightened risk of duplicate discounts, "it will be presumed that the contract pharmacy will not dispense 340B drugs for its Medicaid fee-for-service (FFS) or MCO patients." The contract pharmacy can dispense 340B drugs to Medicaid patients only if the covered entity "wishes" to make those drugs available to Medicaid members and provides HRSA with a written agreement describing compliant procedures. HRSA disregards the very real possibility that the state has prohibited the covered entity, and thereby its contract pharmacy, from the conduct HRSA prescribes in excluding Medicaid recipients from receiving 340B drugs.

Loser: Clarity on Program Purpose and the Uninsured Individual

In the Proposed Guidance, HRSA states that one purpose of the Proposed Guidance is to "provide increased clarity in the marketplace for all 340B Program stakeholders."

But in the Proposed Guidance, HRSA dodged one of the issues underlying the ongoing controversy about 340B that we have noted in previous posts: what is the purpose of the 340B Program? Is the Program intended to provide uninsured safety-net patients with access to needed outpatient drugs, or is it intended to provide safety-net providers with enhanced revenue to increase the health services it provides to needy and uninsured patients? And no matter which side you are on, the Proposed Guidance does little to provide clarity.

The Proposed Guidance states that manufacturers must make qualifying 340B drugs available to covered entities at the 340B ceiling price. And while the Proposed Guidance goes on to address when a patient may be provided a 340B drug, there is nothing about when that patient must be provided a 340B drug.

So if the 340B Program is intended to provide uninsured safety-net patients with access to needed outpatient drugs, the Proposed Guidance does nothing to ensure that access. An uninsured individual may meet all the standards of the enhanced definition of a 340B program "patient," yet there is no requirement, or even a recommendation, that a 340B covered entity actually provide that uninsured individual with access to a 340B drug at the 340B ceiling price. And there is no requirement that any billing to that uninsured patient for that drug be at a price no more than the 340B ceiling price

In the alternative, if the 340B Program is intended to provide covered entities with revenue to increase health services provided to needy and uninsured patients, there is no requirement or even a recommendation that the covered entity actually do so, let alone any transparency requirements, reporting requirements, or any oversight to ensure the generated revenue is being used in compliance with the purported purpose.

Biggest Loser: The Needy, Uninsured Individual

In fact, the biggest loser in HRSA's 340B Program Guidance may be that needy, uninsured patient. No matter which side you come down on as to the purpose of the 340B Drug Discount Program in providing outpatient drugs, or health services, to needy uninsured patients, nothing in the Guidance will help those needy uninsured patients receive the benefits of the program purpose.

*Lauren is admitted in New Jersey only. Practicing under the supervision and guidance of Members of the Washington, D.C. office.

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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Ellyn Sternfield
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