United States: Summary Of The "340B Drug Pricing Administrative Dispute Resolution" Proposed Rule

Last Updated: August 24 2016
Article by Ross Margulies and Christian Springer

Overview & Analysis

On August 12, 2016, the Health Resources and Services Administration (HRSA) published a proposed rule entitled "340B Drug Pricing Program; Administrative Dispute Resolution" (Proposed Rule). The Proposed Rule follows the Advanced Notice of Proposed Rulemaking (APRM) issued by HRSA on September 20, 2010 and aims to establish requirements and procedures for the 340B Program's administrative dispute resolution (ADR) process. Interested parties may submit written comments on or before October 11, 2016.

The Proposed Rule, if finalized, will replace the 340B Program's 1996 guidelines on the informal dispute resolution process published on December 12, 1996. Unlike the prior guidelines, which were never codified, the Proposed Rule expressly aims to codify the 340B ADR process into new regulations at 42 CFR Part 10. In doing so, the Proposed Rule would create a separate decision-making body tasked exclusively with adjudicating disputes between manufacturers and covered entities. The Proposed Rule would also establish actual mechanisms governing how aggrieved parties may seek relief, although there appears to remain many details to hash out. Notwithstanding, the changes are arguably improvements over the previous voluntary and dated dispute resolution program.

The Proposed Rule does not treat covered entities and manufacturers equally, however. Although the Proposed Rule would allow both covered entities and manufacturers to consolidate claims against an opposing party, only associations and organizations on behalf of covered entities, but not manufacturers, may consolidate their claims. HHS justifies its position on the grounds that the statutory authority implementing the 340B ADR process explicitly permits consolidated claims by organizations or associations on behalf of covered entities, yet is silent with respect to manufacturers. HHS does not provide a rationale as to why the statute's silence on this point necessarily means that the consolidation of claims by organizations and associations on behalf of manufacturers is inconsistent with the 340B ADR process.

Additionally, the Proposed Rule conditions the ability of multiple manufacturers to consolidate their claims against a single covered entity upon a determination that consolidation is consistent with the "goals of fairness and economy of resources." Although HHS correctly identifies these conditions as stemming from the statutory language itself, it does not offer any details of what constitutes fairness and economy of resources.

The Proposed Rule's Response to Comments Submitted In Response to the APRM

Generally, the Proposed Rule fails to incorporate many of the manufacturer comments submitted in response to the APRM. In comments, PhRMA expressed a hope that the 340B ADR process would extend to disputes beyond diversion, duplicate discounts, and overchargining, considering how the government price metrics for drugs are interrelated and how a change in one component can spill over to other areas. The Proposed Rule did not propose extending the scope of the 340B ADR Process. Additionally, PhRMA commented that the ADR process should remain confidential, but HHS has proposed to publish claims that went through the 340B ADR process on the HRSA website in its discretion. PhRMA also requested an option to request a formal ALJ hearing, but the Proposed Rule does not adopt such an option.

Moreover, both BIO and PhRMA expressed concern that the ADR model proposed by HHS was inadequate and both organizations submitted comments recommending specific ADR models that HHS should consider. The Proposed Rule did not explicitly address these recommendations and appears to maintain intact the previous ADR model. Furthermore, the Proposed Rule was largely silent on many of the specific comments relating to threshold requirements, applicable burden of proofs, and discovery procedures.

On the other hand, the Proposed Rule seems to indicate that covered entities cannot dispute the manufacturer data underlying the 340B Discount Program calculation, in accordance with manufacturer comments. Rather, challenges by covered entities will be limited to a showing that they were unlawfully charged over the 340B ceiling price. That said, it will be vitally important that manufacturers use the comment period as an opportunity to work with HHS to outline the scope of discovery and ensure that pricing data remains confidential. The proposed composition of the 340B ADR Panel also aligns with commenters' recommendations that a single decision-making entity with 340B Program expertise oversee the ADR process.

Summary of Major Provisions

Purpose of the 340B ADR Process

In the Proposed Rule, the Department of Health and Human Services (HHS) describes the purpose of the ADR process as being the resolution of "(1) claims by covered entities that they have been overcharged for covered outpatient drugs by manufacturers, and (2) claims by manufacturers, after a manufacturer has conducted an audit...that a covered entity has violated the prohibition on diversion to ineligible patients or duplicate discounts." HRSA states that the 340B ADR process is not intended to be a trial-like proceeding with the formal review of evidence and procedure, but rather an administrative process designed to facilitate efficient resolution to disputes.

The 340B ADR Panel

HRSA proposes to establish a decision-making body, entitled the "340B ADR Panel," to review and resolve claims in the 340B ADR Process. The proposed Panel would include three members alternating from claim to claim, and one ex-officio, non-voting member to facilitate the review and resolution of claims within a reasonable time frame. The three panel members will be selected from a "roster" of eligible individuals whom are (1) employees from the Center for Medicare and Medicaid (CMS) or the Department of Veteran Affairs and, (2) have demonstrated expertise or familiarity with the 340B Program. The ADR panel will not be compensated.

For each filed claim that is reviewed, individuals of the three-member 340B ADR Panel with expertise or familiarity with the appropriate aspects of the 340B Program will be assigned to oversee the dispute. Individuals serving on a 340B ADR Panel may be removed for cause and replaced with another individual from the 340B ADR Panel roster. HHS also proposes to screen 340B ADR Panel members before reviewing a claim in order to ensure there are no conflicts of interest present. HHS intends to describe the specific screening procedures in future guidance.

Duties of the 340B ADR Panel

HHS proposes that the 340B Panel will consider all documentation provided by the parties but will review claims in a session closed to the parties involved and their legal representatives. HHS proposes that the 340B ADR Panel may consult with subject matter experts within the Office of Pharmacy Affairs (OPA) regarding 340B program requirements while reviewing a claim. The 340B ADR Panel's final decision must represent the decision of a majority of the Panel members.

Requirements for Filing A Claim

HHS proposes that a claim must be written and submitted to the Healthcare Systems Bureau (HSB) within 3 years of the date of the sale (or payment) at issue. Any claim not filed within 3 years will be time barred. HHS asserts that 3 years is consistent with the record retention expectations for the 340B program and will ensure that the parties have access to the relevant records.

Once a claim has been submitted to HSB and the opposing party notified, any file, document, or record associated with the claim must be maintained by the parties until the 340B ADR Panel renders a final decision.

Covered Entity Claims

HHS proposes that a covered entity's claim must contain sufficient documentation to show that the covered entity was overcharged by the manufacturer, including any additional documentation requested by HSB in evaluating the veracity of the claim. HHS believes that the required documentation is readily available to a covered entity through the usual course of business, but it does seek comment on the feasibility or production of the documentation as proposed. Additionally, HHS asserts that it may request a covered entity to produce a written summary of attempts to work in good faith with the manufacturer to resolve the dispute.

HHS also noted that it continues to develop a system to verify the ceiling price of a 340B drug, but until such a system is developed, it will ensure the 340B ADR Panel has access to the 340B drug ceiling price data. Covered entities will also be able to access the ceiling price information through this system.

Manufacturer Claims

HHS proposes that a manufacturer's claim must contain sufficient documentation to show that the covered entity has violated the prohibition on diversion and/or duplicate discount, along with any additional information requested by HSB to evaluate the veracity of the claim. HHS similarly asserted that it may request a manufacturer to submit a written summary of its attempts to work in good faith with the covered entity to resolve the dispute.

Consolidation of Claims

HHS proposes that, upon request, covered entities or manufacturers may consolidate their individual claims. In the instance where multiple covered entities jointly assert claims of overcharges by the same manufacturer, HHS proposes that the claim must list each covered entity and include documentation from each covered entity demonstrating that covered entity meets all of the requirements for filing a claim with HHS. Accompanying this, HHS also proposes to require a letter requesting the consolidation of claims and it must document that each covered entity consents to the consolidation.

HHS also proposes to permit consolidated claims on behalf of covered entities by organizations or associations representing the interests of the covered entities so long as the covered entities are members of the association or organization, and each covered entity meets the requirements for filing a claim with HSB. The proposed consolidated claim must assert overcharging by the same manufacturer for the same drug(s). HHS also proposes requiring that a letter requesting consolidation accompany the claim, and that each covered entity must document their consent to the organization or association to act on its behalf.

The consolidation of claims will also be permitted at the request of two or more manufacturers against the same covered entity if consolidation "is consistent with the statutory goals of fairness and economy of resources." The same documentation requirements applicable to the consolidation of claims by covered entities is also applicable to manufacturers. However, HHS has declined to permit consolidated claims by associations or organizations on behalf of manufacturers, asserting that such an option is not contemplated by the statutory authority for implementing the 340B ADR process.

Deadlines and Procedures for Filing A Claim

HHS proposes that parties must file a claim with HSB demonstrating that they satisfy the requirements described in subsection (b) and that the filing party send a written notice to the opposing party within three business days of submitting the claim. This written notice must include a summary of the documentation submitted relating to the claim. The filing party must submit confirmation of the opposing party's receipt or acknowledgement of the notice within 3 business days.

If additional information is requested by HSB before accepting the claim for review by the 340B ADR Panel, the filing party will have twenty business days of receipt of the request to respond. Review by the 340B ADR Panel will not commence until the filing party responds to the request for additional information. Additionally, review will not commence if the alleged violation occurred more than three years before the date of filing of the claim.

HSB will make a determination of whether all requirements for submitting a claim are met and will notify all parties in writing within 20 business days after receiving the completed claim. In the event that the claim does not move forward to review by the 340B ADR Panel, HSB will identify the basis for its decision and will advise the party that it may revise and refile the claim if there is new information to support the alleged violation.

Responding to a Submitted Claim

The opposing party will have 20 business days to submit a written response to the allegation to the 340B ADR Panel and filing party. If an opposing party does not respond to a request for information or elects not to participate in the 340B ADR process, the 340B ADR Panel will make a decision on the claim based on the information submitted before it.

Information Requests by Covered Entities

HHS proposes that the 340B ADR Panel will facilitate information requests made by a covered entity alleging it was overcharged by a manufacturer. The covered entity must submit a written request for information to the Panel no later than twenty business days after it is notified that the Panel will review its claim. The 340B ADR Panel will evaluate the request to ensure that it is reasonable and within the scope of the asserted claim. The Panel will then submit the request to the manufacturer, which must respond within twenty days.

The manufacturer is responsible for obtaining the relevant information from wholesalers or other third parties that may facilitate sales or distribution of its drugs to covered entities. If the manufacturer anticipates not being able to fully respond within the set deadline, the manufacturer will be allowed to request one extension in writing within 15 days. The extension request must explain why the deadline is not feasible, and outline a proposed timeline for compiling a full response. The Panel will grant or deny the extension request. If a manufacturer makes no response at all, the Panel will render a decision based on the information in the claim package that moved forward for review.

Final Agency Decision

HHS proposes a process whereby the 340B ADR Panel will send a draft decision to all parties involved, which will then have 20 business days to respond to the Panel. After the Panel reviews the submitted comments to the draft decision, it will prepare and issue a final agency decision letter to all parties. This final decision letter may incorporate rebuttals from the parties that were considered by the Panel. This final decision letter will conclude the administrative resolution process and the final decision letter will serve as the basis for HSB to take enforcement action or apply sanctions, as appropriate. The Panel's final decision letter will be binding upon the parties involved, unless invalidated by a court order of competent jurisdiction.

HHS also proposes to retain the discretion to publish a summary of the claims that have gone through the 340B ADR process on the HRSA website, including the names of the parties and the nature of the 340B ADR Panel's findings. HHS anticipates issuing future sub-regulatory guidance on this issue.

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