340B Contract Pharmacy Arrangements: What Does the Future Hold?

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A 340B Contract Pharmacy Arrangements: What Does the Future Hold? Structuring Arrangements, Meeting Legal and Regulatory Requirements THURSDAY, DECEMBER 21, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Travis F. Jackson, Partner, King & Spalding, Los Angeles Claire F. Miley, Member, Bass Berry & Sims, Nashville, Tenn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

2 Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial and enter your PIN when prompted. Otherwise, please send us a chat or sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

3 Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you that you will receive immediately following the program. For additional information about continuing education, call us at ext. 35.

4 Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to Conference Materials in the middle of the lefthand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

5 340B Contract Pharmacy Arrangements: What Does the Future Hold? December 21,

6 Outline I. Structuring and implementing contract pharmacy arrangements A. Overview and need for services B. Due diligence C. Fee structures D. What operational and contractual considerations should counsel keep in mind when structuring and implementing these arrangements? E. What compliance challenges must be overcome when structuring a contract pharmacy arrangement? II. 340B entity compliance issues A. Certifications B. Contractor-associated liability C. Covered entity requirements III. A look ahead A. Enforcement and sanctions B. Future of 340B Guidance 6

7 Overview and Need For Services 7

8 340B Program Overview The 340B Drug Pricing Program requires drug manufacturers who participate in Medicaid to provide outpatient drugs to eligible healthcare organizations ( Covered Entities, or CEs ) at significantly reduced prices. 8

9 340B Program Overview CEs receive significant discounts on covered outpatient drugs Estimated average savings of 20-50% Estimated $16 billion in 340B drug purchases in 2016 (5% of U.S. Drug Market), per Drug Channels CEs are defined in statute and include HRSA-supported health centers, Ryan White clinics and State AIDS Drug Assistance programs, Medicare/Medicaid Disproportionate Share Hospitals, children s hospitals, and other safety net providers. 9

10 340B Program Overview: Contract Pharmacies HRSA permits CEs to contract with pharmacies to provide pharmacy services on the CE s behalf to CE patients. Initially, CEs were limited to one contract pharmacy relationship In 2010, HRSA allowed CEs to enter into multiple contract pharmacy relationships Contract pharmacies ( CPs ) are a growth area, but also one under OIG, GAO, and manufacturer scrutiny 10

11 Contract Pharmacy Arrangement: Example Process Flow Wholesaler Drugs shipped to CP CE purchases 340B Drugs Payer CP adjudicates script Payer reimburses CP CP dispenses; collects Patient cost-share Contract Pharmacy Patient CP remits reimbursement less fee Covered Entity 340B eligible patient relationship 11

12 Need For Contract Pharmacy Services HRSA: [T]he delivery of pharmacy services is central to the mission of covered entities, which rely on outside pharmacies to fill the need. It would defeat the purpose of the 340B program if these covered entities could not use their affiliated pharmacies in order to participate in the 340B program [emphasis supplied]. 61 Fed. Reg , (Aug. 23, 1996). BUT, there is growing backlash among some 340B stakeholders to CP arrangements There is also growing government scrutiny of the 340B program in general 12

13 Congressional Scrutiny Extensive number of Congressional hearings Potential draft legislation discussed in May 2017: At a trade association event, Rep. Collins (R-NY) promised to introduce 340B reform legislation Reports indicate that the proposed bill would narrow the eligible patient definition, limit new CE enrollment, limit CPs, and expand HRSA oversight of the program Has not been introduced in Congress Even if the Rep. Collins legislation does not materialize, we do expect some legislative package, which may contain one or more of the following: Definition of patient Limits on contract pharmacies (e.g., by number and/or location) Limits on charges for 340B drugs Required reporting of amount and use of 340B savings 13

14 Congressional Scrutiny July 2017 Testimony of GAO Before Congress Update on Agency Efforts to Improve 340B Program Oversight Highlights of Testimony: HRSA Audits Clarifying Program Guidance on - Definition of Patient - Eligibility Criteria for non-publicly owned hospitals Due in Oversight of 340B Contract Pharmacies 14

15 Reimbursement 340B Trend to Watch Government Program Capture of 340B Savings 2018: Final Medicare OPPS Rule Cuts the applicable payment rate for separately payable drugs and biologicals (other than drugs on pass-through payment status and vaccines) acquired under the 340B program from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. Exemptions for certain rural sole community hospitals, CAHs, PPS-exempt cancer hospitals, and HOPDs subject to site neutrality rules 15

16 Reimbursement 340B Trend to Watch Government Program Capture of 340B Savings 2018: Final Medicare OPPS Rule The AHA and other advocacy groups filed suit against HHS on11/13/17. The complaint alleges that HHS s rulemaking was: - arbitrary and capricious; and/or - contrary to law; and - is in excess of the agency s statutory authority. 16

17 Reimbursement 340B Trend to Watch Government Program Capture of 340B Savings 2018: Final Medicare OPPS Rule Rep. David McKinley (R-WV) introduced H.R to block the 340B OPPS cuts on 11/14/17 Bill has been referred to the House Committee on Energy and Commerce and the House Ways and Means Committee 17

18 Reimbursement 340B Trend to Watch Government Program Capture of 340B Savings 2016: Medicaid Covered Outpatient Drug Rule [T]his final rule is designed to ensure that pharmacy reimbursement is aligned with the acquisition cost of drugs and that the states pay an appropriate professional dispensing fee. Requires States to transition to AAC-based methodology for pharmacy reimbursement 18

19 Reimbursement What Effect on Contract Pharmacies? OPPS cut due to take effect January 1, 2018 If cuts survive, the 340B program will likely become less attractive to covered entity hospitals Therefore, despite the recent boom in contract pharmacies, will they dry up in the future? 19

20 340B Program Overview: Contract Pharmacies Contract pharmacy growth has perhaps leveled off: Per Apexus: Date # of Unique 340B CPs % Growth 1/1/12 4,238 1/1/13 9, % 1/1/14 13,707 39% 1/1/15 16,269 19% 1/1/16 17,463 7% 20 1/1/17 18,705 7%

21 21 Due Diligence

22 Contract Pharmacy Due Diligence Three Areas of Inquiry 1. The Pharmacy 2. The Vendor 3. The Covered Entity 22

23 The Pharmacy What is the business justification for the contract pharmacy relationship? What is the pharmacy s compliance record? Is the pharmacy a good fit for the covered entity s culture? What processes does the pharmacy have in place to ensure 340B outpatient drugs are dispensed only to qualifying patients? How does the pharmacy store prescription records? Is the pharmacy equipped to connect to the covered entity through its EHR? What restrictions might exist on the pharmacy through managed care or vendor agreements? 23

24 The Vendor What is the vendor s experience and reputation? Is the vendor a good cultural fit for the covered entity? Does the vendor offer a system that supports compliance? Identifying eligible patients Preventing duplicate discounts How does the vendor support inventory management? What are the vendor s reporting capabilities? How is the fee structured? Does the covered entity control the revenue? 24

25 The Covered Entity Is the contract pharmacy network exclusive? What is the pharmacy s role and responsibilities in audits? Will the engagement affect any wholesaler arrangements? Will the engagement impact any rebates? What miscellaneous costs might exist, e.g. EHR and additional oversight? What is the covered entity s compliance record? Is the covered entity a good cultural fit? 25

26 26 Fee Structures

27 Fee structures HRSA permits CEs and CPs wide flexibility to develop mutually acceptable fee structures Compensation must comply with state and federal fraud and abuse requirements 27

28 Fee structures In a typical contract pharmacy arrangement, the contract pharmacy receives a fixed dispensing fee for each 340B prescription dispensed. Many contract pharmacy arrangements also use what is known as a replenishment model CP uses its own inventory initially Accumulator software is used after the fact to tally the eligible 340B patients from records of prior prescriptions CE then replenishes the inventory, in an amount equaling the actual prior usage by such eligible patients, with covered drugs purchased at the discounted 340B price from manufacturers. 28

29 Typical Financial Arrangement Pass-Through Model Transaction Payments CP buys initial inventory $100 CP bills payer $120 CP collects co-pay $20 CP collects reimbursement $100 CP transfers total reimbursement to CE $120 CE pays CP fixed dispensing fee for the 340B prescription (if not already netted out of reimbursement transferred to CE) $20 CE pays for replenishment inventory $60 29 Gross Margin to CP (dispensing fee) $20 Gross Margin to CE (reimbursement COGs dispensing fee) $40

30 Other Fee structures Tiered Dispensing Fees What drives the tier? Payer Reimbursement Amount Cost of Drug Variations of Per Rx Dispense Fees Per Processed Claim Per Eligible Claim 30

31 Other Fee structures Flat Monthly Fees Percentage of Collections Fees Reference Pricing Model Combinations and Add-On Fees 31

32 Operational and Contractual Considerations 32

33 Operational Considerations The Compliance Challenge Applying the covered entity s policies and procedures to the contract pharmacy Patient definition GPO prohibition Ensuring adequate oversight of the day-to-day contract pharmacy operations Contract pharmacy registration Conducting internal and external audits Understanding financial expectations Third party payors Financial assistance Dispensing fees 33

34 Operational Considerations The IT Challenge Incorporating all necessary data components to identify eligible patients Minimizing/eliminating manual processes Understanding inventory management protocols Replenishment True Ups Formulary Making appropriate payments 34

35 Operational Considerations The People Challenge Developing policies and procedures that allow covered entity and pharmacy employees to work as a team Identifying key contacts Understanding when and how audits will be conducted Discussing implementation or operational issues Developing a mechanism to resolve disputes 35

36 Contractual Considerations Vendor Agreement Fee Structure Application of other federal and state laws Non-Exclusivity Replenishment Reports 36

37 Contractual Considerations Contract Pharmacy Agreement HRSA Essential Covered Entity Compliance Elements Operational Needs The Compliance Challenge The IT Challenge The People Challenge Term and Termination Compliance with Laws Exclusivity v. Non-Exclusive 37

38 Contracting Compliance Challenges 38

39 Contracting Compliance Challenges: HRSA s 12 Essential Compliance Elements Ship to, Bill to Comprehensive Pharmacy Services Patient Choice 340B Pricing Restriction Compliance with law Contract Pharmacy Reporting Tracking System Patient Eligibility Verification Duplicate Discounts Prohibited Subject to Audits Maintain Auditable Records Provision of Agreement to OPA 39

40 Typical Roles Allocation of Functions Among Different Parties Underscores Need for Compliance Coordination Role Covered Entity Contract Pharmacy Admin Determine Patient Eligibility Dispense Drug and Provide Patient Care Track Replenishment and Prepare Order for Drug Order Replenishment Drug from Wholesaler Bill Payer Receive Reimbursement and Collect Copay Written Materials such as Policies and Procedures??? CE Training/Internal Audits??? Coordination with Account Managers, Operations, and IT for Items on COPs??? 40

41 Contracting Compliance Challenges Focus Areas Implementation of 2018 OPPS changes Modifier JG Includes PVP/Apexus drugs acquired at subceiling prices Modifier TB rural sole community hospitals, children s hospitals, and PPS-exempt cancer hospitals Required reporting of amount and use of savings Expected part of any legislative package 41

42 Contracting Compliance Challenges Focus Areas Prevention of Diversion and Potential Legislative Narrowing of Definition of Patient Duplicate Discounts, including Managed Medicaid No formal guidance from HRSA 2016 Medicaid managed care rule obligates plans to exclude 340B drugs from rebate claims BUT, still no standard reporting practices 42

43 Contracting Compliance Challenges Focus Areas Standard advice regarding carve out of Medicaid Claims at Contract Pharmacies vs. State Legislative Initiatives Overpayments from Payers 43

44 Contractor Liability? Compliance with 340B program rules is the sole responsibility of the CE A CP generally does not have direct exposure for program violations Therefore, CEs seek recourse against CPs and TPAs via contract provisions: Indemnification/consequential damages Insurance? 44

45 45 Certifications

46 Certifications 46

47 Certifications All information listed on the 340B Program database for the covered entity is complete, accurate and correct. The covered entity meets 340B Program eligibility requirements. The covered entity will comply with all requirements of the 340B Program, e.g.: Diversion Duplicate discounts GPO prohibition, if applicable The covered entity maintains auditable records pertaining to compliance with 340B Program requirements. Contract pharmacy arrangements will be performed in accordance with OPA requirements and guidelines. 47

48 Certifications Covered entity will contact OPA as soon as possible if a breach occurs or change in 340B Program eligibility. Covered entity may be liable to manufacturers for repayment and could be terminated from participating in the 340B Program. 48

49 Contract Pharmacy Registration Enrolling in the 340B Program is a multi-step process that varies based on entity type Must meet all eligibility criteria prior to registering with OPA Must register the calendar quarter prior to participating in the 340B Program Poor planning regarding eligibility and prospective registration requirements often result in improper or denied applications and the loss of significant savings / revenue 49

50 Contract Pharmacy Registration Covered entities must register contract pharmacies prior to use. A new contract pharmacy can only be registered during quarterly periods: Registration Periods Start Date January 1 15 April 1 April 1 15 July 1 July 1 15 October 1 October 1 15 January 1 50

51 Covered Entity Requirements 51

52 Covered Entity Requirements Eligibility Diversion GPO Prohibition* Duplicate Discount Prohibition Orphan Drug Exclusion** Contract Pharmacy Arrangements OPA Database Registration *DSHs, children s and cancer hospital only **SCHs, RRCs, CAHs and cancer hospitals only 52

53 Eligibility Hospitals Certain Disproportionate Share Hospitals Critical Access Hospitals Rural Referral Centers Sole Community Hospitals Children s Hospitals Free Standing Cancer Hospitals Federal Grantees 53 Comprehensive Hemophilia Treatment Centers Federally Qualified Health Centers Urban/638 Health Center Ryan White Programs Sexually Transmitted Disease/Tuberculosis Title X Family Planning

54 Hospital Eligibility Covered Entity Non- profit / govt contract DSH% GPO Exclusion Orphan Drug Exclusion Critical Access Hospital Yes No No Yes Rural Referral Center Yes > 8% No Yes Sole Community Hospital Free-Standing Cancer Hospitals Children s Hospitals Yes > 8% No Yes Yes >11.75% Yes Yes Yes >11.75% Yes No DSH Hospital Yes >11.75% Yes No 54

55 Diversion Diversion is strictly prohibited! 340B drugs can only be provided to eligible outpatients Cannot re-sell, give, or otherwise transfer 340B drugs to any other entity or individual Cannot loan or borrow 340B drugs to/from another entity Must maintain an audit trail for every dispensation 55

56 GPO Prohibition DSHs, children s hospitals and freestanding cancer hospitals may not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement February 7, 2013 HRSA Policy Release Sanctions for violating GPO prohibition can include, but are not limited to the following: Removal from the program Corrective action plans Repayments to wholesalers/manufacturers Examples of when the GPO prohibition applies: 340B outpatients Drugs that are not available at 340B pricing (must notify OPA) Carved-out Medicaid patients 56

57 GPO Prohibition GPOs come in many shapes and sizes GPO accounts may include: Traditional GPO accounts (Cardinal, McKesson, AmerisourceBergen, etc.) Generic source accounts Other collectively negotiated drug purchasing accounts (e.g. multi-covered entity health system) 57

58 Duplicate Discounts Manufacturers only required to provide 340B discount OR Medicaid (MCD) Drug Rebate Program rebate, not both Statute places onus on covered entity and state to ensure no duplicate discounts are obtained Must properly register with OPA/MCD Exclusion File Carve-in = 340B drugs to MCD patients; state will not seek rebates; on exclusion file Carve-out = non-340b drugs to MCD patients; state should seek rebates; not on exclusion file Contract pharmacies must carve-out unless a limited exception is met 58

59 Orphan Drug Exclusion An orphan drug is a drug designated by the FDA to treat a specific rare disease or condition Orphan drugs cannot be purchased at 340B rates if the covered entity is a rural referral center, sole community hospital, critical access hospital or freestanding cancer hospital. Manufacturers are not required to provide these covered entities orphan drugs under the 340B Program. A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals 59

60 Contract Pharmacy Arrangements Examples of published OPA findings include: Covered entity was using a pharmacy with which it had a written contract in place, but the pharmacy was not listed on the 340B database Covered entity registered contract pharmacies on the 340B database without having written contracts in place Patients were ineligible for 340B 60

61 61 Enforcement and Sanctions

62 Enforcement and Sanctions - HRSA CEs are subject to audit by HRSA for compliance with 340B Program requirements, including CP requirements. HRSA regularly sanctions CEs for failing to comply with CP registration and oversight requirements. Sanctions include: manufacturer repayment; CE or CP termination from the 340B program; corrective action plan 62

63 HRSA Audit Expectations Annual Re-certifications Self-Disclosures/Material Breach Internal Investigations HRSA/OPA/Bizzell Audits 63

64 Enforcement and Sanctions - Manufacturers CEs are also subject to audit by manufacturers for violation of diversion or duplicate discount prohibitions. At least 45 days prior to conducting an audit, manufacturers must submit audit work plans to HRSA for review. Manufacturer audits must be performed by an independent auditor at the manufacturer s expense. CEs must respond to audit findings within 30 days. Unlike HRSA audits, results of manufacturer audits are not publically available. 64

65 Enforcement and Sanctions - Manufacturers Manufacturer Audit Guidelines: Number of Audits may only conduct audits when reasonable cause to believe a CE has violated 340B program requirements Scope of Audits audit work plan must be approved by HRSA. Limited to the manufacturer's drugs (not CE s entire 340B operations) Duration of Audits audit duration of no more than 1 year; performed with the minimum time and intrusion necessary 65

66 Enforcement and Sanctions - Manufacturers Post-Audit Procedures Manufacturer submits copy of final audit to CE, and CE has 30 days to respond with a corrective action proposal or grounds for disagreement. Manufacturer submits copies of final audit report & CE response to HRSA Potential sanctions (HRSA determines penalty): manufacturer repayment; termination of participation in 340B Program; corrective action plan 66

67 Enforcement and Sanctions HRSA has published the results of 103 audits of CEs for FY Of these, HRSA identified non-compliance with 340B Program requirements in about 45% of audits. 67

68 Examples of HRSA Sanctions Baptist Health Medical Center Arkadelphia (FY 2017) Audit Findings: - Diversion; 340B drugs dispensed at contract pharmacy for prescriptions written at ineligible sites Sanction Imposed: - Corrective Action Plan - Manufacturer Repayments 68

69 Examples of HRSA Sanctions Escambia Community Clinics, Inc. (FY 2017) Audit Findings: - Incorrect 340B database record; Registered contract pharmacies without written contracts in place. - Duplicate Discounts Sanction Imposed: - Termination of 2 CPs from 340B Program - Manufacturer Repayment - Corrective Action Plan 69

70 Examples of HRSA Sanctions San Joaquin Community Hospital (FY 2017) Audit Findings: - Entity s written contract pharmacy agreement listed information inconsistent with the 340B database record. - Diversion; 340B drugs were not properly accumulated. Sanction Imposed: - Manufacturer Repayments - Corrective Action Plan 70

71 Examples of HRSA Sanctions Southwest Memorial Hospital (FY 2017) Audit Findings: - Entity did not provide contract pharmacy oversight. - Diversion; 340B drugs dispensed at entity and at contract pharmacies for prescriptions written at ineligible sites. Sanction Imposed: - Termination of CPs from 340B Program - Manufacturer Repayments - Corrective Action Plan 71

72 72 Future of 340B Guidance

73 Where do we go from here? June 2017: Media reports cite a leaked draft executive order targeting the 340B Program. Resources provided by the 340B Program directed so they primarily benefit lower income or otherwise vulnerable Rescind or revise regulations or guidance that allow 340B Program benefits to accrue to entities or populations other than the safety net healthcare providers that the program was intended to strengthen 73

74 Where do we go from here? October 2017 Reportedly leaked policy document from the administration prescribes serious 340B reform. November 2017: 74 Joseph Grogan, associate director of health programs for the Office of Management and Budget, criticized the 340B program. President Trump nominates Alex Azar to be the next Secretary of the U.S. Department of Health & Human Services.

75 Questions? Contact Information: Travis F. Jackson, Claire F. Miley, 75