Late Friday, the House Energy and Commerce Committee staff circulated to a small number of organizations a “discussion draft” of 340B program legislation that could significantly alter the 340B program.  There is a possibility that the discussion draft, which one committee staffer described as a bipartisan effort of Committee staff members, will be added to the 21st Century Cures legislation at a mark-up session by the House Energy and Commerce Committee that is slated to begin tonight with opening statements.   A copy of the discussion draft and a document showing Section 340B with the discussion draft changes applied are embedded in this memorandum.

Purpose

  • The purpose section states that the intent of the program is “to enable covered entities who serve as safety net providers for uninsured, underinsured, underserved, and medically vulnerable patients to utilize scarce resources to the maximum extent practicable for purposes of increasing such patients’ access to, and receipt of, health care services.” Note that this purpose is similar to the committee language from the original 340B legislation – “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  The new language, like the current language, places the focus on covered entities, but the new language specifies how the savings should be used.

Patient Definition

  • The patient definition is similar to existing guidelines, but adds a requirement that the individual must have an “in-person” clinical or medical visit and must receive a prescription for the drug as the result of a health care service received from the covered entity.
  • The patient definition maintains the “consistent with the service or range of services for which grant funding has been provided” language from the third prong of HRSA’s 1996 patient definition. This is the prong that only applies to grantees and subgrantees.
  • The patient definition does not change AIDS Drug Assistance Program eligibility.

Medicaid

  • HRSA would be required to share 340B ceiling prices with state Medicaid agencies. We suspect that states would use this pricing data to establish and/or enforce actual acquisition cost billing requirements.
  • The draft includes an ambiguous “rule of construction” that might be read to preclude mandatory carve-in arrangements (like those in Illinois and California), but this is not clear.

Recordkeeping

  • Covered entities would be required to maintain auditable records.
  • Covered entities would be subject to a five-year record retention requirement.

Limits on Amounts Charged to Uninsured Patients

  • HRSA would establish a methodology to limit how much covered entities may charge uninsured patients for 340B drugs.

Corrections

  • Correctional facilities may not qualify as covered entities.
  • Covered entities may not share 340B “revenues” with correctional institutions. This provision is puzzling because covered entities do not generally share revenues with correctional institutions, but we understand the provision is intended to prevent correctional institutions from benefiting from 340B savings.

Contract Pharmacy

  • A contract pharmacy agreement must include a mechanism for tracking the income of covered entity patients and the amount paid by the patients for 340B drugs.
  • Covered entities would be required to hire a third party to audit its contract pharmacies annually.
  • Covered entities would be required to report the distance between the covered entity and the contract pharmacy when registering the contract pharmacy arrangement with HRSA.
  • The Comptroller General must issue a report on the use of contract pharmacies by all covered entities, disaggregated by type of covered entity and distance from the covered entity to the contract pharmacy.

Manufacturer Requirements

  • Manufacturers would report on the covered outpatient drugs sold to each covered entity in the prior year. The apparent purpose of this requirement is to assist HRSA in calculating the user fees owed by covered entities (discussed below).
  • Manufacturers must maintain auditable records for five years.

Audits

  • To select covered entities for audit, HRSA would prioritize covered entities that (1) have high purchase volumes, (2) have reported or identified vulnerabilities, (3) have not met reporting requirements (applicable to hospitals only), and (4) are not subject to other oversight as a grant recipient.
  • Covered entities with a high volume of 340B purchases (a group which includes, at a minimum, those whose purchases place them in the top 10% of all covered entities for the year) must conduct an independent audit each year and submit the audit report to HRSA.
  • HRSA would receive authority to hire up to 10 new employees for oversight.

Reporting Requirements

  • Hospitals must provide detailed annual reports including payer mix, aggregate reimbursement received for 340B drugs, aggregate amount spent on 340B drugs, how 340B revenue was used, how duplicate discounts are being prevented, the number of outpatient drugs dispensed through a contract pharmacy, the amount and percentage of uncompensated care provided, the name of any third party vendors, and additional information at HRSA’s discretion. HRSA must provide this information to the House Energy and Commerce and Senate Health, Education, Labor and Pensions Committees.  Hospitals that fail to meet these reporting requirements may be removed from the program or subject to civil monetary penalties.
  • HRSA must analyze options for replacing the disproportionate share adjustment percentage currently used to qualify hospitals and submit that analysis to the House Energy and Commerce and Senate Health, Education, Labor and Pensions Committees.

Enforcement

  • Under current law, covered entities are subject to interest penalties on amounts owed to manufacturers for knowing and intentional violations of the prohibition against diversion. The draft discussion document would add that covered entities that knowingly and intentionally violate the duplicate discount prohibition would also be subject to interest penalties.
  • Currently, HRSA may remove a covered entity from the 340B program for violations of the diversion prohibition if the conduct is knowing, intentional, systematic and egregious. Under the discussion draft, if HRSA determines that that a violation of either the diversion or duplicate discount has occurred and the conduct is knowing, intentional and systemic (but not egregious), it must remove the covered entity from the program for at least five years.
  • If HRSA determines that a covered entity failed to take corrective action of a program violation in a “timely manner”, HRSA must remove the covered entity for a period of not less than five years.

User Fee

  • Covered entities would pay a user fee of up to 0.1% of 340B drug purchases to be used for oversight.

Regulatory Authority

  • HRSA would have regulatory authority over covered entity eligibility, patient definition, contract pharmacy requirements, and reporting requirements, and would be required to propose regulations within 180 days of enactment.
  • HRSA would also have the authority to issue regulations on duplicate discounts, limitations on charges to low-income patients, correctional care issues, penalties for violators, and imposition of the user fee, and would be required to propose regulations within two years of enactment.

Effective Date

  • The changes would be effective 180 days after enactment.

We are monitoring the situation very closely.  At least one group, America’s Essential Hospitals, has issued a statement opposing the discussion draft.  340B Health (formerly SNHPA) has also weighed in, saying “[n]ot only do we believe that there is not adequate time to evaluate the proposed changes, we believe a number of the concepts in the draft would be harmful to our membership and their ability to provide care to our most vulnerable.”  It is not clear yet whether HRSA and PhRMA support the discussion draft or any part of it.  Though the House has made 21st Century Cures a priority for this summer, the Senate Health, Education, Labor and Pensions Committee has indicated that it likely will not take the bill up until next year.  We will keep you posted on further significant developments.

Please contact Bill von Oehsen at William.vonOehsen@ppsv.com or 202-872-6765 for more information or if you have questions.