Southwest Consulting Associates Blog

Michelle Herzog, Deputy Director of the Health Resources and Services Administration Office of Pharmacy Affairs, provided the HRSA update to 340B Summer Coalition participants this week in Washington D.C. She started off by saying that there were NO BREAKING ANNOUNCEMENTS THIS YEAR; HOWEVER, she did mention that HRSA had completed their first manufacturer audit in conjunction with the Office of Inspector General (OIG) last year and that it is an OIG restricted report.  The audit results will not be available to the public.  “HRSA is working on developing their own protocol for manufacturer audits and hope to conduct our own [audit] here soon in FY 2015,” Herzog said.

The proposed rule for 340B Drug Manufacturer Civil Monetary Penalties Regulation posted in the Federal Register June 17, 2015, defines the term “instance” in regards to overcharging a covered entity.  The rule states, “An instance of overcharging is any order for covered outpatient drug, by NDC [National Drug Code], which results in a covered entity paying more than the ceiling price” as defined in the rule “for that covered outpatient drug”.  The 340B program proposed rule also clarifies that:

On Wednesday, June 17, 2015, the proposed rule for 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation was published in the Federal Register for review and comments.  The Department of Health and Human Services (HHS) affirms that the “proposed rule is to provide increased clarity in the marketplace for all 340B Program stakeholders as to the calculation of the 340B ceiling price”.   The proposed rule requires a drug manufacturer to calculate 340B ceiling prices for each covered outpatient drug by National Drug Code (NDC) on a quarterly basis. The proposed rule outlines how to calculate the ceiling price, exceptions when the ceiling price calculation results in a zero or negative 340B price and how to calculate a new drug with no sales data from which to determine the 340B ceiling price.  All requirements for offering the 340B ceiling price to covered entities apply regardless of the distribution system.  The proposed rule declares that, “Manufacturers should consider the wholesaler role in this process and work out issues in good faith and in normal business arrangements regarding the assurance that the covered entity receives the appropriate price as outlined in the regulation”.

Amidst the controversy surrounding the 340B program, let’s take a step back with a little history of the 340B Drug Pricing Program to understand how we got where we are today.  The 340B program was created as part of the Veteran Affairs Act in 1992 and requires pharmaceutical manufacturers that participate in Medicaid to provide discounted prices on covered outpatient drugs to healthcare facilities that serve vulnerable patient populations.  Facilities must meet specific criteria to enroll in the 340B Program and become a “Covered Entity”. Covered entities must abide by program requirements which come from a combination of 340B statute, Federal Register notices, HRSA* policy releases and ‘frequently asked questions’ (FAQ) guidance published on the HRSA website or face savings paybacks and/or potential removal from the program.

We are certain that there will be clarification of the patient definition in the upcoming 340B Mega-Guidance but it is still not known exactly what will be proposed.  It’s important for hospital staff to review how they currently apply patient definition in their covered entity now so they will have a good understanding how the proposed guidance will affect their 340B program and be able to comment on the proposed Mega-Guidance accordingly.

Do you know the ins and outs of your covered entity’s 340B program?  When was the last time that an internal audit was performed on your policies and procedures?  Now is the time to assess your program because changes are imminent as we are seeing in the legislative arena.  The Energy and Commerce Committee considered including 340B language in the 21st Century Cures Act legislation before advancing the bill to the House of Representatives on Thursday, May 21, 2015.  A discussion draft of the 340B language circulated through the Energy and Commerce Committee (“the Committee”) as well as 340B Health (formerly SNHPA).  340B Health was given the opportunity to comment on the discussion draft and expressed concern to the Committee that there was not adequate time to evaluate the proposed changes.  Over 500 health system leaders sent letters to Congress urging them for more time to review the verbiage.  Ultimately, the draft 340B language was pulled from the legislation before the Committee voted to advance the bill.

As speculation regarding what will be within the “Mega-Guidance” swirls around, there seems to be a growing consensus that there may be some change in criteria for hospital eligibility.  Currently, the 340B statute requires that private, non-profit hospitals must have a contract with their state or local governments to provide services (charity care) to low-income individuals who are not covered by Medicare or Medicaid.  At this time, there is no specific requirement for the amount of charity care that must be provided by the hospital for 340B program eligibility.  One theory is that HRSA will propose a specific threshold of charity care that a hospital must provide to be eligible for, or retain eligibility in the 340B program and this, in all likelihood, will be monitored using S-10 data found on the Medicare cost report.

Health Resources and Services Administration (HRSA) sent the 340B Omnibus Guidance (Mega-Guidance) to the Office of Management and Budget (OMB) on May 6, 2015.  Assuming the OMB takes the average 90 days to review, the proposed guidance could be published in the Federal Register for a comment period around mid-August. There is speculation that since the OMB reviewed much of it last year as the “340B Mega-Rule”, the review period may not take as long.  There is no minimum period for reviewing the 340B Omnibus Guidance so it is possible for it to be published sooner.  

Eli Lilly, Parke-Davis, Squibb, and Bayer, just to name a few, are all names I’ve heard since I was small.  There were two pharmacies in the town where I grew up; my grandfather owned one and my father worked at the other. Where some kids have stories about playing on playgrounds after school, I have stories of putting away inventory.  I learned my alphabet by re-shelving drugs at the end of the day.  These names to me are like distant relatives.  They’ve been selling chemical compounds to drugstores for almost 150 years now.  After everyone realized that they couldn’t just use Laudanum for everything, probably the first “drug” that was ever to be patented, produced and sold, was Bayer’s Aspirin.  Eli Lilly was among the first companies to make gelatin capsules and to mass-produce penicillin.  Parke-Davis, now owned by Pfizer, was first known for the drug Cascara, an herbal laxative, which is still used today.  Squibb, now Bristol-Meyers Squibb, got its start by originating the process to make pure Ether and manufacturing Chloroform.  These companies have been around since the mid-19th century and are giants in the drug industry.   

Is your facility at risk of being terminated from the 340B program due to a GPO prohibition violation?

It appears HRSA is aggressively auditing for Group Purchasing Organization (GPO) violations in DSH hospitals participating in the 340B program.  A GPO prohibition violation can remove a covered entity from the 340B program.  During SNHPA’s April 9, 2015 Webinar “Update on 340B Audits”, they mentioned they were aware of at least 9 covered entities since November 2014 with this audit finding.  In fact, SCA is aware of 2 hospitals in the last few months with a GPO prohibition violation audit finding that received an audit recommendation of “immediate removal from the 340B Drug Pricing program”.  These entities are in the process of appealing the finding.