The following summarizes the provisions of the 340B drug pricing program omnibus guidance released by the Health Resources and Services Administration on August 28, 2015, and identifies key issues raised by it.  The Proposed Guidance is attached to this summary.  The Proposed Guidance touches on every area of the 340B Program and, in some areas, proposed substantial changes.  HRSA is soliciting public comments on the Proposed Guidance.  Comments are due on October 27, 2015.

A.PROGRAM ELIGIBILITY AND REGISTRATION

1.Covered Entities
a. Non-Hospital Eligibility

The Proposed Guidance describes the types of non-hospital covered entities based on their receipt of federal grants, federal contracts, or federal designations or establishing federal projects.  It notes that associated health care delivery sites that are “off-site” by virtue of having a different address from the covered entity’s main facility, may be registered as child sites of such covered entities.  Child site registrations are contingent on demonstrating that the site is authorized under the relevant grant or contract that it is receiving federal funds and that the HHS division which oversees the grant or project verifies its eligibility.  The preamble indicates that sub-recipients of federal grants may be enrolled with their own 340B identification numbers separate from their parent entities if certain information is provided.  There is no corollary language in the Proposed Guidance.

Presumably, private sub-grantees to grant entities such as state and local governments qualify for covered entity or child site status in appropriate cases.

b. Eligibility of Off-Site Outpatient Facilities and Clinics (Child Sites)

The Proposed Guidance reiterates that off-site entities requiring child site registration are those not at the same physical address as the parent covered entity.  It also stresses that all such off-site facilities and clinics must then be registered separately even if they have the same physical address and/or share a common off-site location.  This seems to mirror current HRSA policy and practice.

HRSA explains its current policy that, to be registered as child sites, these entities must be listed on a reimbursable line of the covered entity’s Medicare cost report and have associated outpatient Medicare costs and charges for their services.  The reference to “charges” may be problematic for some clinics that serve indigent, correctional, or employee populations.  Notably, however, HRSA is seeking alternatives to this test.  In this regard, it mentions that it has considered a provider-based test (42 C.F.R. § 413.65) or use of CMS Form 855A (Medicare Enrollment Application for Institutional Providers).  HRSA has previously rejected these alternatives as insufficient for a variety of reasons.  In actively soliciting comments on alternative tests, HRSA states that parties proposing other CMS forms should include relevant information as to why, in effect, they would be fairer or more reliable.  The child site enrollment test has been a major issue for many covered entities so potential alternatives will likely be recommended by covered entity advocates.

c. Non-Hospital Loss of Eligibility

The preamble to the Proposed Guidance elaborates on the circumstances under which a non-hospital covered entity and/or its child sites would lose 340B eligibility. The preamble states that a covered entity is liable to manufacturers for repaying 340B discounts received during any period of ineligibility.  The actual Proposed Guidance, however, only indicates that a covered entity may be liable in these situations.

Issue:  Retroactive repayment liability of covered entities somewhat vague as has been the case under current practice.

 d. Compliance and Loss of 340B Program Eligibility

The preamble states that covered entities must meet all applicable 340B statutory requirements while enrolled, and they are responsible for the compliance of their child sites and contract pharmacies as well.  More specifically, the preamble indicates that the parent covered entity and its authorizing official “will be responsible” for child site compliance.  It does not elaborate, however, on the exact nature of that responsibility or the implications (particularly for the authorizing official) in cases of non-compliance.  The Proposed Guidance does not have a separate, identifiable section on this subject.

2. Registration and Termination
 a.  Registration

The preamble and Proposed Guidance explain HRSA’s registration policies and procedures.  Both mention that special registration opportunities apply where the Secretary has declared a public health emergency. The 340B website will contain information as to the geographic scope and duration of these opportunities.  In what is a precursor to narrowing of the definition of an eligible patient, it is emphasized that the fact that a covered entity is part of a larger health system or organization does not make the larger organization 340B eligible or automatically qualify those receiving services from that system or organization as patients for 340B purposes.  Accountable care organizations are specifically cited as an example.

The preamble notes that hospitals eligible as more than one type of entity are only registered as one type.  But, non-hospital covered entities are supposed to be listed under each of their entity eligibility types.   Consistent with current policy, pharmacies are not listed on the database or assigned a 340B identification number.  In-house pharmacies, defined as “owned by and a legal of” the covered entity, are listed as ship-to sites.  Central fill pharmacies and repackaging firms can also be listed as ship-to sites.

b. Termination

Covered entities must immediately notify HRSA upon loss of eligibility of the parent or any child site or the termination of any contract pharmacy arrangement; they must also cease purchasing and use of 340B drugs at the terminated site(s).  In such cases, the covered entity is to submit certain information, including the reason why eligibility has been lost.  Significantly, both the preamble and Proposed Guidance specify that a covered entity is liable to manufacturers for repayment of 340B discounts when there was ineligibility for any reason.

There is also an effort to clarify when a covered entity may re-enroll in the 340B after it has been removed for violation of an eligibility requirement.  Satisfactory demonstration must be made that the entity will comply with all statutory requirements and that it has completed or is in the process of offering repayments to affected manufacturers.  The entity may then re-enroll during the next regular enrollment period.  HRSA is soliciting comments on the type of information entities would need to submit to demonstrate the compliance necessary for re-enrollment.

Issue:  HRSA is apparently interested in creating a new administrative process, potentially a difficult process, for re-enrollment of covered entities.  For example, re-enrollment after termination due to program violations may be contingent on a satisfactory showing of repayments to affected manufacturers.

3. Annual Recertification

HRSA has described the annual recertification process and what it entails.  The certification of compliance during recertification means that the covered entity attests that it:

  • employs effective business practice as to compliance, including self-audits where appropriate;
  • maintains accurate 340B database information; and
  • notifies HRSA as to program ineligibility or violation of any program requirement subject to audit.

Importantly, the attestation requiring self-disclosure to HRSA is not conditioned on the violation being “material.”  Covered entities will likely object to this proposed change.

Where voluntary termination occurs at recertification or another time, the covered entity is to submit information, including an explanation for the termination.  This parallels the language in the earlier termination section.  If this information is not provided, it will be considered by HRSA with respect to possible liability to manufacturers and if re-enrollment is sought later.  The Proposed Guidance expressly states that the covered entity is responsible for repaying discounts to manufacturers for 340B purchases after covered entity or child site ineligibility.

B. DRUGS ELIGIBLE FOR PURCHASE UNDER 340B

The 340B statute states that only “covered outpatient drugs” may be purchased with 340B discounts.  HRSA proposes to define covered outpatient drug to exclude a drug if it is: 1) provided as part of, incident to, or in the same setting as certain services, including hospital outpatient services and physicians services; and 2) billed to, and reimbursed by, the Medicaid program on a bundled basis.

Drugs provided in a hospital or physician setting (as well as other settings listed in the regulation) do not meet the definition of covered outpatient drug (and therefore cannot be purchased at 340B discounts) only if they are billed to and reimbursement by Medicaid on a bundled basis.  Conversely, drugs provided in these settings are covered outpatient drugs if they are billed to and reimbursed by other insurers or the patient, whether or not they are bundled.  Retail prescriptions are never bundled and would not be excluded from the definition of covered outpatient drugs.

Issue:  Covered entities will not be able to obtain 340B discounts for many drugs provided to Medicaid patients because Medicaid programs often bundle reimbursement for drugs with other services. This will likely create operational challenges for covered entities, especially when a patient’s payer status changes from Medicaid to non-Medicaid or vice versa or when a covered entity serves Medicaid patients from multiple states.  Interestingly, HRSA reminds manufacturers that they may not condition the sale of its drugs on the covered entity’s compliance with the covered outpatient drug definition.  HRSA’s comment appears to be in response to letters sent by some manufacturers that their drugs fall outside the definition and therefore are not eligible to be purchased at 340B prices.

C. INDIVIDUALS ELIGIBLE TO RECEIVE 340B DRUGS

1. New Patient Definition Proposed

The draft guidance includes sweeping changes to the patient definition. The current three-pronged definition, which dates back to 1996, would be replaced with six new and more stringent criteria which would have to be met for each prescription or order for 340B drugs.  In the preamble, HRSA provides additional comments and examples elaborating on the new criterion.  The proposed criteria (with HRSA’s additional comments in italics) are:

  • The individual receives a health care service at a covered entity site which is registered for the 340B Program and listed on the public 340B database;

HRSA clarifies that the use of telemedicine might be permissible.  HRSA notes, however, that prescriptions generated as the result of follow-up care at an ineligible site will not be eligible.  Prescriptions related to care provided by sites affiliated with a covered entity also will not be eligible under the Proposed Guidance.

  • The individual receives a health care service provided by a covered entity provider who is either employed by the covered entity or who is an independent contractor for the covered entity, such that the covered entity may bill for services on behalf of the provider;

The preamble notes that faculty practice arrangements, residency, internship, locum tenens, and volunteer health care provider programs would meet the definition.  Privileges or credentials alone are not enough to create the requisite relationship.  HRSA again repeated that prescriptions generated as the result of a referral to an outside prescriber would not be eligible.

  • An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2), above. An individual will not be considered a patient of the covered entity if the only health care received by the individual from the covered entity is the infusion of a drug or the dispensing of a drug;

HRSA clarifies in the summary that it would expect a “covered entity provider-to-patient encounter” before 340B drugs could be infused or dispensed.

  • The individual’s health care is consistent with the scope of the federal grant, project, designation, or contract (this criteria would not apply hospital covered entities);

This prong only applies to non-hospital participants.  The summary notes that if a child site has a more limited scope than its parent, the scope of grant test is applied using the more narrow focus with respect to that child site.

  • The individual’s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient; and

HRSA would characterize a service as outpatient if it is billed to the patient’s insurer or third party payor as an outpatient service.  If the patient is uninsured or covered by a charitable program, the hospital must document how it will apply the billing test.

  • The individual has a relationship with the covered entity such that the covered entity maintains access to auditable records which demonstrate that the covered entity has a provider-to-patient relationship, that the responsibility for care is with the covered entity, and that each element of this patient definition in this section is met for each 340B drug.

The records must demonstrate a provider-to-patient relationship for the health care service that results in the order or prescription, and that the covered entity retains responsibility for the care that results in a 340B drug being ordered, dispensed, or prescribed to an individual.

Issue:  These new criteria make sweeping changes to the existing patient definition guidelines published in 1996.  The changes would apply to both the administration and dispensing of 340B drugs during a visit or encounter at a covered entity as well as to filling prescriptions with 340B drugs.  With respect to the first category of drugs, sometimes referred to as physician-administered drugs, current policy has generally recognized the eligibility of such drugs if administered or dispensed within a facility registered on the OPA database.  The Proposed Guidance appears to exclude some drugs that, under current standards, would otherwise be eligible.  For example, infusion drugs ordered outside the covered entity would no longer qualify.  Nor would drugs used prior to an admission that are billed on an inpatient basis.  For self-administered drugs dispensed pursuant to a prescription, current policy allows using 340B to fill prescriptions that originate outside the hospital in certain circumstances, for example, as a result of a referral or part of follow-up care.  The Proposed Guidance appears to eliminate 340B use for any prescription written outside the walls of the registered parent or child site.  Covered entity advocates are likely to object to theses significant changes to patient definition.

2. Eligibility for Covered Entity Employees

The draft guidance specifically addresses use of 340B for employees of covered entities. Specifically, the agency notes that employees of covered entities are not eligible to receive 340B drugs solely due to their employment status. It also states that the being financially responsible for an employee’s health care and having contracts with health care professionals loosely affiliated or unaffiliated with the covered entity would not be sufficient.

3. Exceptions to Patient Definition Requirements
 a.  AIDS Drug Assistance Programs (ADAPs)

HRSA proposed to reaffirm its position that an individual enrolled in a Ryan White HIV/AIDS Program ADAP will be considered a patient of the covered entity for purposes of this definition.

 b. Emergency Provisions

HRSA proposes that during public health emergencies declared by the Secretary it will be flexible in the requirements needed to demonstrate that an individual meets the patient definition and may allow for use of alternative methods.

4. Drug Inventory/Replenishment Models

The draft guidance clarifies that a covered entity that uses a drug replenishment model may only order 340B drugs based on actual prior usage for eligible patients of the covered entity.  The preamble notes that the covered entity must maintain documentation showing that a drug was dispensed or administered to a 340B eligible patient in order for that drug to be recorded in the 340B accumulator.  Improper accumulation leads to diversion, although the entity and manufacturer can remedy the violation using credit and rebill within 30 days of the drug’s improper purchase.  Recharacterization of a 340B drug to a non-340B drug is only permissible if the covered entity is fully transparent with the affected manufacturers.  HRSA also recommends in the preamble that the covered entity maintain policies and procedures to address returns, expired drugs, waste and inventory discrepancies.  Absence of appropriate documentation can lead to a finding of diversion.

Issue:  This clarifies that any model using prospective replenishment will not be permitted.  The covered entity must be able to justify each unit in a replenishment order before the order may be placed.  Covered entities are likely to object to only having 30 days to correct a misreplenishment problem using credit and rebill.

5. Repayment

The Proposed Guidance states that in cases of diversion attributable to the covered entity, a child site or a contracted pharmacy, covered entities are responsible for notifying affected manufacturers and offering repayment within 90 days of identifying the violation.  HRSA also notes that manufacturers retain discretion whether to accept payments provided they do so in a way that does not violate applicable laws including the federal anti-kickback law.  Manufacturers are also reminded of their price reporting requirements under the Medicaid Drug Rebate Program.

D. COVERED ENTITY REQUIREMENTS

1. Prohibition of Duplicate Discounts
 a.  Medicaid Exclusion File

HRSA will continue to use the Medicaid Exclusion File to prevent duplicate discounts.

i.  Medicaid Fee for Service

HRSA will list the Medicaid billing number or NPI of a covered entity or child site if the covered entity or child site carves in.   Listing of the Medicaid billing number or NPI signifies that the covered entity or child site will use 340B drugs for all claims billed under those numbers.  If the Medicaid billing number or NPI for a covered entity or child sites is not listed, the covered entity should not use 340B drugs for any claims submitted under those numbers.

ii. Medicaid Managed Care

Covered entities may elect to use 340B drugs for their Medicaid managed care patient population even though they are not doing so for their Medicaid fee-for-service population and vice versa.  They may also make different elections by covered entity site and by managed care organization (MCO) if they notify HRSA.  HRSA does not specify how it should be notified and is soliciting comments in this area.  Given that carve-in/carve-out status can vary by covered entity site and by MCO, the notification process could be complex.  HRSA states that this information “may” be made available publicly through the Medicaid Exclusion File or “other mechanism.”  The covered entity must have a mechanism to identify Medicaid MCO patients.  This would be an important change in policy because identification of Medicaid MCO patients and claims is currently a matter of private negotiation between the covered entity and MCO or its pharmacy benefit manager (PBM).  The Proposed Guidance would appear to elevate identification of 340B MCO claims to a federal requirement.

  b.  340B Medicaid Exclusion File Changes

Covered entities must inform HRSA of any changes to their carve in/out election.  Changes may be made at any time, but are not effective until the start of the next calendar quarter.  HRSA is soliciting comments on possible changes to the Medicaid Exclusion File to allow for greater flexibility and a more “nuanced approach” for reporting and changing carve-in/carve-out status.

  c.  Contract Pharmacy

HRSA assumes that contract pharmacies do not use 340B drugs for Medicaid FFS or MCO beneficiaries.  If a covered entity would like one of its contract pharmacies to use 340B drugs for Medicaid beneficiaries, it must provide HRSA with a written agreement with its contract pharmacy and State Medicaid agency or MCO that describes a system to prevent duplicate discounts.  By requiring submission of a written agreement with the state for HRSA’s review and apparent approval, the Proposed Guidance would make it difficult for contract pharmacy arrangements to carve-in Medicaid managed care claims, which would likely have a significant adverse financial impact on covered entities that serve large Medicaid managed care populations.

d.  State Notification

If a covered entity is not able to use a 340B drug for a Medicaid FFS or MCO beneficiary in a particular situation, it should document the reason and notify the State Medicaid agency and MCO.  The basis of this policy is presumably to protect states from being deprived of rebates that would otherwise be entitled to collect.  Some might argue that, since this policy is based on an interest in maximizing collection of rebates rather than protecting against duplicate discounts, it should be handled at the state level instead of by HRSA.

 e.  Repayment

If the information provided to HRSA does not reflect the covered entity’s billing practices for Medicaid beneficiaries, the covered entity could be found to be in violation of the duplicate discount prohibition and required to repay manufacturers for any duplicate discounts.

2. Maintenance of Auditable Records

Maintenance of auditable records by covered entities is a program eligibility requirement, and a failure to comply with this requirement is grounds for termination.  HRSA has never furnished a precise definition of auditable records, and it does not do so in the Proposed Guidance.  At the same time:

  • HRSA proposes a five year record keeping requirement that applies to covered entities and their child sites and contract pharmacies, including retention of records for five years after program termination. In the preamble, HRSA states that, if there is a pattern of failure to comply with 340B statutory requirements, it is not precluded from accessing records prior to that five year period.  But, it does not explain how those records would exist if the requirement is only five years.  Assumedly, it could do so only if the covered entity had voluntarily retained records for a longer period.  Of course, this furnishes a strong disincentive to do so.
  • HRSA distinguishes between systematic record keeping violations, which would lead to program exclusion, and non-systematic violations. The latter would occur when the covered entity generally has available records but cannot produce a specific record showing program compliance (g., a record for a particular 340B patient).  In such cases, the covered entity would not be removed from the program though it may be liable for manufacturer repayment due to violation of other program requirements (e.g., diversion).

HRSA is relatively clear about the fact that systematic record violations would result in termination.  In the preamble, it states that the covered entity “may” be liable for repayments in these cases; the guidance section is less vague, stating that the covered entity “would” be liable.

Issue:  Covered entities are currently subject to a three year record retention policy, so some may object to a five year record keeping requirement.  Covered entities are likely to push for greater clarification of the difference between a systematic and non-systematic violation of the record auditability requirement.  Systemic violations of auditability requirements lead to program termination and retroactive liability.  Non-systemic (isolated) violations may result in a finding that other program requirements have been violated and may trigger repayment liability.

E. CONTRACT PHARMACY ARRANGEMENTS

The Proposed Guidance continues to recognize that contract pharmacy arrangements, in which a covered entity contracts with a pharmacy to serve as its agent for dispensing drugs purchased through the 340B Program, are permitted under state law.  HRSA notes that each covered entity should ensure that its contract pharmacy arrangements are constructed to benefit the covered entity in accordance with the intent of the 340B Program.  For the first time, HRSA would define a contract pharmacy which, according to the Proposed Guidance, is a pharmacy that is “not covered by the covered entity.”  This definition could threaten existing contract pharmacy arrangements involving pharmacies that are not legally separate from the covered entity.

HRSA reiterates that a single covered entity may contract with multiple pharmacies to serve itself or its child sites.  A covered entity is also permitted to contract with a pharmacy “corporation” (in the summary) or “company” (in the guidance) that includes multiple contract pharmacy locations.  A group or network of covered entities may not contract on behalf of multiple individual covered entities.  This may reflect an attempt to discourage contract pharmacy administrators from linking networks of covered entities with networks of contract pharmacies similar to a PBM model.

Contract pharmacy arrangements must comply with the federal antikickback statute and other federal laws.  HRSA will refer any suspected violations of the antikickback statute to the office of the Inspector General (OIG).  A non-hospital covered entity also must ensure that the terms of its grant or program authorization are not violated by the use of a contract pharmacy.

1. Registration

The quarterly registration windows applicable to covered entity and child registrations apply to contract pharmacies.  HRSA will only register a contract pharmacy once a written agreement is in place and the covered entity registers the agreement.  Only the covered entity may register a contract pharmacy, and the covered entity must attest to certain compliance elements when registering a contract pharmacy.  HRSA suggests that a more rigorous registration process would be used, requiring submission of documentation that “would include a series of compliance requirements and a covered entity’s attestation regarding its arrangement with the contract pharmacy.”

The covered entity may not begin using a contract pharmacy to dispense 340B drugs until the start date reflected in the public 340B database.  Once a contract pharmacy arrangement is terminated, it must immediately cease using 340B drugs.  Changes to arrangements must be executed via an online change request.  In the event of a declared public health emergency, HRSA might permit the registration of sites on a temporary or expedited basis.

Issue:  Only covered entities may register a contract pharmacy arrangement.  Under current practice, contract pharmacies often register themselves on behalf of the covered entity, and the covered entity must confirm the registration.  Covered entities would also be subject to new attestation and documentation requirements which could be burdensome or have a chilling effect.

2. Compliance with Statutory Requirements

The Proposed Guidance reiterates that each covered entity retains responsibility for the 340B Program compliance of its contract pharmacies.  HRSA expects that the covered entity and contract pharmacy will have a system in place to verify patient eligibility and prevent diversion.  HRSA also states that the contract pharmacy may not dispense 340B drugs to Medicaid patients unless the covered entity has submitted notice to HRSA regarding its arrangement to ensure that no duplicate discounts can occur.  As noted in section D.1.d, HRSA is also proposing to preclude contract pharmacies from dispensing 340B drugs to enrollees in a Medicaid MCO unless a similar arrangement is in place.

HRSA is proposing that covered entities are expected to conduct two forms of contract pharmacy oversight.  First, covered entities will be expected to conduct quarterly reviews of contract pharmacy dispensing records, and compare them to its prescribing records.  Second, covered entities will be expected to engage an auditor to conduct independent audits of each contract pharmacy location at least annually.  HRSA is proposing that the results of these reviews would be part of the covered entity’s recordkeeping requirements.  Any violations detected during review must be disclosed to HRSA.

Issue:  By making the contract pharmacy audit results part of the 340B Program recordkeeping requirements, HRSA might expect to review them when it audits a covered entity.  HRSA did not reference the “essential compliance elements” in its 2010 contract pharmacy guidance, and it is unclear whether this guidance supplants that document.  HRSA comments that contract pharmacy agreements must contain the requirements set forth in the Proposed Guidance, raising the question about whether all existing contract pharmacy agreements would need to be amended to accommodate the new requirements.

3. Diversion, Duplicate Discounts, and Removal from the 340B Program

HRSA reiterates that the covered entity is liable for any diversion or duplicate discounts occurring in a contract pharmacy.  HRSA proposes that it may remove a contract pharmacy that is not complying with requirements.

F. MANUFACTURER RESPONSIBILITIES

1. Pharmaceutical Pricing Agreement

A drug manufacturer is required to offer 340B discounts by executing a Pharmaceutical Pricing Agreement (PPA) in order for its drugs to be covered under Medicaid or Medicare Part B.   Manufacturers may also voluntarily participate in the 340B Program.  HRSA has the following expectations for manufacturers that participate in the 340B Program:

  • If the manufacturer enrolls in the Medicaid drug rebate program, it must sign a PPA to participate in the 340B Program within 30 days;
  • Manufacturers must submit timely updates to the 340B database and their PPA to ensure any new covered outpatient drug is added to the 340B Program;
  • Manufacturers must maintain auditable records for no less than five years; and
  • Manufactures must permit HRSA compliance audits.

When a manufacturer withdraws from the Medicaid Drug Rebate Program, HRSA will presume that the manufacturer will continue to participate in the 340B Program until the manufacturer advises HRSA otherwise.   A manufacturer that voluntary participates in the 340B Program may terminate in accordance with the terms of the PPA, but must provide HHS with an explanation and documentation of the termination, the timing of the termination, and the date that the manufacturer will cease offering 340B discounts.  A manufacturer that terminates from the 340B Program must maintain auditable records for five years after the termination.  Refunds and credits may still be imposed for drugs sold above the 340B ceiling price during the manufacturer’s participation in the 340B Program.  This suggests that the look-back period for issuing refunds and credits is based on the period in which the PPA is in effect rather than on the five year record retention period.

2. Obligation to Offer 340B Prices to Covered Entities

The effective date for manufacturers to offer 340B pricing is:  1) for manufacturers participating in the Medicaid drug rebate program, the date that the drug is first included in that program; 2) for manufacturers voluntarily participating in the 340B Program, the effective date of PPA; and 3) for newly approved drugs produced by manufactures that have a PPA, the date that the drug is first available for sale.

Manufacturers must rely solely on the OPA database to determine whether a covered entity is eligible for 340B pricing.

 a. Limited Distribution of Covered Outpatient Drugs

HRSA acknowledges that certain covered outpatient drugs may be required to be dispensed by specialty pharmacies through a restricted network of pharmacies that do not fall under the terms of a contract pharmacy agreement or wholesaler contract and that manufacturers may not have sufficient supplies of a certain covered outpatient drug to meet demand in some instances.   HRSA allows manufacturers to develop a limited distribution plan in these circumstances, which must be provided to HRSA in writing prior to implementation.  The plans should include a description of product information (drug name, dosage, form, and NDC) and details of a plan to ensure that 340B-entities are treated the same as non-340B providers, including:

  • an explanation of the product’s limited supply or special distribution and rationale for restricted distribution;
  • an assurance that manufacturers will impose restrictions equally on 340B and non-340B covered entities;
  • specific details of the allocation plan, including a mechanism to allocate sales to purchasers with no previous purchase history;
  • dates that the restricted distribution begins and concludes; and
  • a plan for notification to wholesalers and 340B covered entities.

HRSA will review the plan and, if approved, “may” publish the limited distribution plan on the OPA website.  HRSA will work with manufacturers on revisions prior to publication when it has concerns.  If covered entities have concerns about a limited distribution plan, they should attempt to resolve them with the manufacturer, and if unsuccessful, may contact HRSA.

Issue:  The requirement to submit a limited distribution plan appears to be contingent on a drug being in short supply or subject to special handling requirements.  What if a manufacturer establishes a limited distributed network for other reasons, for example, to monitor utilization or outcomes or to gain leverage with payers?  Also covered entities feel strongly that they should be allowed to establish contract pharmacy arrangements with specialty pharmacies participating in a limited distribution network and that manufacturers should honor such arrangements.  The Proposed Guidance is silent on this issue.

 b. Additional Discounts Permitted

A manufacturer may voluntarily offer a covered outpatient drug at below the 340B ceiling price to a covered entity and does not have to offer these additional discounts to all covered entities.

3. Procedures for Issuance of Refunds and Credits by Manufacturers

A manufacturer must offer a credit or refund to a covered entity if it charges the covered entity more than the 340B ceiling price or, in some instances, if a ceiling price is restated.  HRSA proposes to require manufacturers to make the refund or credit within 90 days of a determination by the manufacturer or HHS that an overcharge occurred.  A manufacturer may only calculate the refund by NDC and may not aggregate purchases, fail to repay de minimus amounts, net purchases, or calculate the refund in another way.   Manufacturers must submit to HRSA price recalculation information, an explanation of why the overcharge occurred, how the refund will be calculated, and to which covered entities refunds and credits will be issued.

A covered entity may choose to have the manufacturer apply a credit to its account.  If a covered entity fails to accept a direct repayment (cash or check) within 90 days of a manufacturer’s refund and the amount is undisputed by the covered entity, the covered entity waives its right to repayment.

Issue:  Covered entities may seek reciprocal rights with respect to both the 90 day deadline for repayment (covered entities apparently would only have 30 days) and the 90 day waiver of the right to collect the refund.

4. Manufacturer Recertification

HRSA is proposing that manufacturers review and update their 340B database information annually. Manufacturers should provide HRSA with changes to 340B database information as changes occur.

G. REBATE OPTION FOR ADAPs

ADAPs created under Part B of the Ryan White program are eligible to participate in the 340B Program as covered entities.  The Proposed Guidance reaffirms that ADAPs may choose to participate using a direct purchase model (in which the ADAP purchases 340B drugs like any other covered entity), a rebate model (in which the ADAP claims 340B rebates from drug manufacturers when it pays for a drug), or a hybrid model (combining the two).  The Proposed Guidance discusses the rebate option in detail.  When using a rebate model, HRSA expects the ADAP to register in the public 340B database, only claim rebates when it makes a “qualified payment,” and submit claims-level data to manufacturers to support the rebate claims.  HRSA proposes that it will issue guidance describing the data elements that must be reported.

1. Qualified Payment

To be eligible to claim a rebate on a particular drug, the ADAP must have made a “qualified payment” for the drug.  A qualified payment is either (1) the direct purchase of a covered outpatient drug at a price greater than the 340B ceiling price; or (2) payment by the ADAP of health insurance premiums that cover the covered outpatient drug purchases at issue and payment of a copayment, coinsurance, or deductible for the covered outpatient drug.  In the summary of the guidance, but not in the guidance itself, HRSA notes that it will delay enforcement of the qualified payment requirement until 12 months after the publication of the final guidance.  HRSA also proposes in the summary, but not in the guidance, that ADAPs would be required to maintain transaction-level auditable records to support rebate requests.  ADAPs are subject to audit by HRSA.  HRSA requests comment on the qualified payment proposal and how it might be implemented.

Issue:  The Proposed Guidance would reduce the number of rebates that rebate model ADAPs could collect to the extent that they are currently claiming rebates on drugs when they are only paying a copayment, coinsurance, or deductible for the covered outpatient drug.  Moreover, although the use of the word “purchase” is confusing because rebate model ADAPs pay for but don’t usually purchase drugs, the Proposed Guidance appears to make an ADAP drug unrebatable if it purchases (i.e. reimburses) for the drug below the 340B ceiling price.

2. Multiple 340B Discounts and Rebates

Individuals enrolled in ADAPs are often also patients of other covered entities, including Ryan White clinics and federally qualified health centers (FQHCs).  The Proposed Guidance states that an ADAP may not request a rebate for a drug which was also purchased by another covered entity at or below the 340B ceiling price.  This reflects HRSA’s current policy as stated in the ADAP manual.

3. Obligation to Provide Rebates

Manufacturers must pay requested rebates to ADAPs that made a qualifying payment for a drug.  Given how HRSA proposes to define a “qualifying payment,” manufacturers would probably end up paying fewer rebates than they do under current practices.

4. Rebate Amount

The amount of the rebate is the unit rebate amount calculated in accordance with the Medicaid drug rebate statute (42 U.S.C. § 1927(c)) multiplied by the number of units included in the claim.  This is true even if ADAP is a secondary payer and only pays a fraction of the drug’s cost.  On the other hand, if the ADAP cost-sharing amount in the below the 340B ceiling price, is presumably would not be considered a qualified payment which, in turn, would not qualify the drug for a rebate.

H. PROGRAM INTEGRITY

1. HRSA Audit of a Covered Entity

HRSA states that it has the option to conduct an on-site audit, conduct only a document review or both.  HRSA will allow only one audit at any time of a covered entity, its child sites and contract pharmacies.

 a. Provision of Auditable Records

HRSA proposes that covered entities must provide records or respond to requests for information from HRSA within agency deadlines or risk termination from the 340B Program.

 b.  Notice and Hearing for Noncompliance

HRSA proposes a notice and “hearing” process under which HRSA notifies a covered entity of any audit findings and gives the covered entity 30 days to respond in writing.  HRSA then issues a final written notice.  If the covered entity is found to be ineligible for the 340B Program, HRSA will decide the termination date and the covered entity must make repayment for any 340B discounts received after that date.  Failure to respond to audit findings by the specified date will be considered agreement to the findings, but covered entities may request extensions to respond.

Issue: The Proposed Guidance does not address what happens if the covered entity is dissatisfied with the outcome of its appeal.  Is the burden on the entity to seek judicial relief or can it limit corrective action to prospective changes only?

 c.  Corrective Action Plan for 340B Program Noncompliance

HRSA proposes that a covered entity will be considered compliant with 340B Program requirements if it submits a Corrective Action Plan (CAP) that documents correction of the violation, outlines steps to prevent future noncompliance, includes a plan to offer repayment to manufacturers (if applicable), and provides a timeline for corrective actions.  Covered entities must also work with State Medicaid offices to address duplicate discount findings.  HRSA will work with covered entities to revise CAPs and may verify compliance with a CAP at any time.  Failure to submit a CAP may result in termination from the program.

 d.   Public Information

HRSA proposes that final audit results may be made publicly available.

2. Manufacturer Audit of a Covered Entity

HRSA proposes that manufacturers may audit a covered entity, its child sites and its contract pharmacies regarding violations of the duplicate discount and diversion requirements, provided the manufacturer has “reasonable cause” to believe a violation has occurred.  Manufacturer concerns about a covered entity’s compliance with other 340B Program requirements may be referred to HRSA.

a.  Adherence to the 340B Program Requirements

Manufacturers must offer 340B discounts to a covered entity even if the manufacturer believes the covered entity is noncompliant.  HRSA makes the ultimate decision regarding 340B Program violations.

 b. Procedures for Manufacturer Audits

Prior to audit, manufacturers must first notify a covered entity of its concerns about a covered entity’s compliance with the 340B Program requirements and attempt to resolve the issue in good faith.  If these negotiations are not successful, the manufacturer may submit to HRSA:  1) grounds for reasonable cause to conduct an audit; 2) evidence of an attempt to resolve the issue; and 3) an audit work plan. The elements that are to be included in the audit work plan are enumerated in the guidance.  HRSA may limit the scope of any proposed manufacturer audit or require the manufacturer to modify its work plan.

If HRSA approves a manufacturer audit, covered entities must provide documentation within the scope of the audit, which is limited to drugs provide by the manufacturer and cannot exceed records outside the five year retention standard.  The manufacturer submits its final audit report to the covered entity and the covered entity has 30 days to respond.  The manufacturer then submits copies of the final audit report and the covered entity’s response to HRSA.

Issue: The Proposed Guidance does not address how HRSA reviews and adjudicates the audit report and the covered entity’s defense of its practices.  Does the agency render a decision and, if so, can the decision be appealed?

c. Audit Standards

Though not formally in the mega-guidance, the preamble indicates that standards for manufacturer audits include the use of a certified public accountant consistent with the Government Auditing Standards, protection of patient confidential information, and an audit duration of not more than one year.

3. HRSA Audit of a Manufacturer and its Contractors

HRSA may also audit manufacturers or a manufacturer’s contractors, including wholesalers. HRSA will notify these organizations of an audit in writing.  Audits may include an on-site or off-site component or both.

 a.   Provision of Auditable Records

Manufacturers must provide auditable records within the time frame specified by HRSA.

b. Notice and Hearing Regarding Audit Findings

HRSA proposes that it will provide written notice of proposed audit findings to manufacturers and allow manufacturers 30 days to respond.  HRSA will terminate a manufacturer if it is not meeting program requirements.  HRSA may publish final audit findings.

 c.  Corrective Action Plan

HRSA proposes that manufacturers must submit CAPs within 30 days of receipt of HRSA’s audit findings.  Manufacturer CAPs should address how the manufacturer plans to correct each finding, measures to prevent future noncompliance, offer repayment to covered entities in instances of overcharging and provide a timeline for corrective action.  HRSA will work with manufacturers to develop the CAP and may verify compliance with the CAP at any time.


We are continuing to review the Proposed Guidance and will release a more detailed analysis of its provisions in the next four business days.  For more information or if you have questions Please contact Bill von Oehsen at william.vonoehsen@ppsv.com, Joel Hamme at joel.hamme@ppsv.com, or Barbara Williams at barbara.williams@ppsv.com.