United States: 340B Update: CMS Proposes To Reduce 340B Drug Reimbursement; Draft Executive Order Could Mean Further Changes To The 340B Program

Last Updated: July 25 2017
Article by Richard P. Church and Ryan J. Severson

The Trump administration is considering significant changes relating to the 340B Drug Pricing Program ("340B Program"), which allows certain categories of safety net providers to access discounted pricing on covered outpatient drugs from manufacturers. In particular, the Centers for Medicare and Medicaid Services ("CMS") recently proposed as part of its Calendar Year 2018 update to the Outpatient Prospective Payment System ("OPPS") to reduce Medicare Part B drug reimbursement for 340B Program covered entities to the drug's average sales price ("ASP") minus 22.5%.1 Moreover, an early draft of the Trump administration's proposed executive order ("EO") on drug pricing issues could result in new limitations on the 340B Program, potentially including new limits on contract pharmacy arrangements. Accordingly, hospitals, contract pharmacies, and other entities affected by the 340B Program should note that these changes may substantially impact the 340B Program as to both reimbursement and scope. As the administration considers these proposals, engagement with decision makers in Department of Health and Human Services is critical for stakeholders to shape the outcome of these new policies.

CMS Proposal Would Cut OPPS Reimbursement for 340B Drugs

As part of its Calendar Year 2018 OPPS proposed rule, released in pre-publication form on July 13, 2017, CMS proposed to apply an average discount of 22.5% of ASP for non-pass-through separately payable drugs purchased under the 340B Program. Discussing the proposal, CMS explains:

Given the growth in the number of providers participating in the 340B program and recent trends in high and growing prices of several separately payable drugs administered under Medicare Part B to hospital outpatients, we believe it is timely to reexamine the appropriateness of continuing to pay the current OPPS methodology of ASP+6 percent to hospitals that have acquired those drugs under the 340B program at significantly discounted rates. This is especially important because of the inextricable link of the Medicare payment rate to the beneficiary cost-sharing amount. In addition, we are concerned about the rising prices of certain drugs and that Medicare beneficiaries, including low-income seniors, are resonsible [sic] for paying 20 percent of the Medicare payment rate for these drugs. We are concerned that the current payment methodology may lead to unnecessary utilization and potential overutilization of separately payable drugs.2

CMS further notes that its goal with the proposal is to "make Medicare payment for separately payable drugs more aligned with the resources expended by hospitals to acquire such drugs while recognizing the intent of the 340B program to allow covered entities, including eligible hospitals, to stretch scarce resources while continuing to provide access to care."3 CMS intends to implement the proposed rule by establishing a modifier, effective January 1, 2018, for hospitals to use with separately payable drugs under the OPPS that are not acquired under the 340B Program. In having hospitals identify which drugs were not acquired under the 340B Program, CMS presumes that separately payable drugs on OPPS claims submitted by 340B covered entities were purchased at 340B pricing.4

CMS also requested comments on several issues, including comments on the methodology and analysis used in the Medicare Payment Advisory Commission ("MedPAC") report that led to ASP minus 22.5% as the proposed payment rate,5 whether CMS should adopt a different rate or phase in the new proposed rate over time, and whether it should require providers to identify their actual acquisition costs for each drug as a way for CMS to not rely on an aggregate rate across all 340B covered entities. Finally, CMS seeks comments on whether certain groups of hospitals (e.g., rural sole-community hospitals) or certain groups of drugs (e.g., hemophilia factor) should be excluded, as well as whether hospital-owned or affiliated ambulatory surgical centers have access to 340B drugs.

Public comments are due by September 11, 2017.

Draft Executive Order Could Significantly Alter The 340B Program

The draft EO, although less specific than the payment reduction included in the OPPS proposed rule, could nevertheless have a far-reaching impact on the 340B Program moving forward. In particular, the draft EO calls for the Health Resources and Services Administration ("HRSA") to rescind or revise administrative actions that have allowed benefits under the 340B Program to accrue to populations and entities other than covered entities and their patients, raising the possibility that HRSA may attempt to limit the scope of the 340B Program.

It is unclear whether the 340B Program language will be included in the final version of President Trump's forthcoming EO;6 nevertheless, the draft EO reflects ongoing efforts by policymakers to address the rising cost of prescription drugs. Major policy proposals so far have called for the federal government to negotiate directly the price of drugs covered by the Medicare program, accelerate the approval of generic drugs, require greater transparency from pharmacy benefit managers ("PBMs"), and allow Americans to import drugs from outside the United States.

In this regard, the draft EO, titled "Reducing the Cost of Medical Products and Enhancing American Biomedical Innovation," does not specifically include any of the proposals above but rather outlines a series of high-level directives involving various federal agencies within the Department of Health and Human Services (including HRSA, the Food and Drug Administration, and the Centers for Medicare and Medicaid Services), as well as the Internal Revenue Service ("IRS"), the Office of the U.S. Trade Representative, the Department of Commerce, the Federal Trade Commission, the Department of State, the Office of Management and Budget, and the Executive Office of the President. These directives focus on issues such as value-based purchasing, reducing regulatory and administrative burdens that distort drug prices and slow commercialization, and international drug purchasing issues including price differentials between foreign governments and the United States, potential revisions to bilateral and multilateral trade agreements to promote competition in the global market, and potential violations of trade agreements. The draft EO also calls for the IRS to update rules relating to the high deductible health plan "preventive care safe harbor" — which allows a health plan to meet the definition of a high deductible health plan for federal tax purposes despite not having a deductible for preventive care — to ensure that plans without a deductible for medications that are intended to prevent chronic disease progression or complications can satisfy the safe harbor.

Background

The draft EO, which was published on June 23, 2017,7 states as follows as it relates to the 340B Program:

The Secretary of Health and Human Services shall ensure that resources provided by the program established by Section 340B of the Public Health Service Act are directed in such a way they primarily benefit the lower income or otherwise vulnerable Americans for which the program was intended, including by rescinding or revising regulatory or other administrative actions that have allowed benefits of the program to accrue to other populations or entities other than the safety net healthcare providers that the program was intended to strengthen.

In this regard, the 340B Program is intended to allow covered entities (i.e., safety net providers who receive discounts on covered outpatient drugs through the 340B Program) to "stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."8 The 340B Program has grown significantly since its enactment, partially as a result of Congress adding new categories of eligible covered entities through the Patient Protection and Affordable Care Act9 but also through developments such as the emergence of contract pharmacy arrangements, which are not specifically identified in the 340B Program statute but which HRSA has permitted through guidance.10 Critics of the 340B Program, responding to this rapid growth, have argued that the benefit of the 340B Program should not accrue to entities such as contract pharmacies and PBMs, but instead should be used exclusively for the covered entities described in the statute and their indigent patients.

Potential Impact

Although the Trump administration has not yet confirmed the contents of the draft EO, its broad language suggests that HRSA could take steps in the months ahead that would impact the 340B Program as it exists today. This could include changing its guidance on contract pharmacies (e.g., by imposing caps on the number of contract pharmacy locations and arrangements a covered entity may have). The draft EO also could be read to allow HRSA to impose limits on prices that covered entities charge to indigent patients for 340B drugs. Similarly, discussion draft legislation reportedly under development by Rep. Chris Collins (R-NY), a member of the House Energy & Commerce Committee, would require covered entities to establish a sliding fee schedule for providing 340B drugs to low-income individuals and those without minimum essential coverage. Under Rep. Collins' draft bill, the Secretary would be required to issue regulations defining "low-income individual," providing a methodology for establishing the sliding fee schedule, and protecting data confidentiality.11

With that said, HRSA also could use the draft EO's directives to declare, for example, that contract pharmacy fees must be in line with fair market value or that PBMs should not be permitted to implement two-tier 340B pricing models in which the PBM reimburses one rate to 340B covered entities and a higher rate to non-340B covered entities, thereby capturing part or all of the 340B discount. Notably, Rep. Collins' discussion draft also calls for capping contract pharmacy fees at fair market value.

Any such action must be consistent with HRSA's existing regulatory authority in order to withstand scrutiny if challenged in court.12 Nonetheless, if the draft EO is finalized in the form that is currently available, it suggests that the administration is open to policy changes to the 340B Program through administrative action beyond what was included in the President's Fiscal Year 2018 budget request to Congress. In this regard, President Trump's budget request generally called for funding of provider education and compliance efforts through HRSA, but otherwise asked Congress to grant broader regulatory authority to HRSA and impose limits on the 340B Program through statute. (See here for our prior alert on this topic.)

340B Stakeholders should continue to monitor the draft EO and other 340B Program-related developments from Congress and the administration.

Footnotes

1. Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs, p. 306, https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-14883.pdf.

2. Id. at 304-05.

3. Id. at 305.

4. Id. at 306.

5. See MedPAC, Report to Congress: Overview of the 340B Drug Pricing Program vii (2015), http://www.medpac.gov/docs/default-source/reports/may-2015-report-to-the-congress-overview-of-the-340b-drug-pricing-program.pdf?sfvrsn=0 (". . . we estimated that, on average, hospitals in the 340B program receive a minimum discount of 22.5 percent of the average sales price for drugs paid under the outpatient prospective payment system.").

6. See Virgil Dickson, Modern Healthcare, Trump May Be Backing Off from Plan to Scale Down 340B, July 12, 2017, http://www.modernhealthcare.com/article/20170712/NEWS/170719964/trump-may-be-backing-off-from-plan-to-scale-down-340b.

7. Sarah Karlin-Smith, POLITICO Pro Health Care, Drug Pricing Executive Order is Pharma-Friendly, June 23, 2017, https://www.politicopro.com/health-care/story/2017/06/draft-drug-pricing-executive-order-is-pharma-friendly-158760.

8. H.R. Rept. No. 102-384 (Pt. 2), at 12 (1992).

9. See Patient Protection and Affordable Care Act, Pub. L. No. 111–148, § 7101(a), 124 Stat. 119, 821–22 (codified as amended at 42 U.S.C. § 256b(a)(4)(M)–(O)).

10. See 75 Fed. Reg. 10,272 (Mar. 5, 2010), https://www.gpo.gov/fdsys/pkg/FR-2010-03-05/pdf/2010-4755.pdf (describing 340B Program requirements between covered entities and contract pharmacies).

11. Although Rep. Collins' office has stated the draft legislation published online is not current, at a minimum it reflects how Rep. Collins' staff was approaching this issue recently. See Brett Norman et al., Republican Pushing Changes to 340B, POLITICO Prescription Pulse, May 30, 2017, http://www.politico.com/tipsheets/prescription-pulse/2017/05/30/gottlieb-signals-priorities-for-fda-including-drug-pricing-220567.

12. Litigation related to the 340B Program's orphan drug exclusion has clarified that HRSA has limited authority to regulate the 340B Program. In Pharm. Research and Mfrs. of Am. v. U.S. Dep't of Health and Human Servs., 43 F. Supp. 3d 28 (2014), the U.S. District Court for the District of Columbia concluded that HRSA has rulemaking under the 340B Program in just three areas: (i) establishing an administrative dispute resolution process; (ii) issuing of drug ceiling price methodologies; and (iii) imposing civil monetary sanctions against manufacturers. Accordingly, the court struck down HRSA's orphan drug regulation as outside the authority granted under the 340B Program statute. After HRSA reissued substantially the same regulation as "interpretive guidance," the court ruled against HRSA again, stating that the interpretive rule amounted to a final agency action that was inconsistent with the statute. Pharm. Research and Mfrs. of Am. v. U.S. Dep't of Health and Human Servs., 138 F. Supp. 3d 31 (2015). As a result of these rulings, HRSA may be reluctant to take steps that could invite challenges in court without a specific grant of authority by Congress.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions