The 340B Drug Pricing Program: What Proposed Changes Would Mean for Your Organization

Transcription

1 The 340B Drug Pricing Program: What Proposed Changes Would Mean for Your Organization Wednesday, October 7, 2015 Click here to begin the On-Demand recording of this Webinar William Sarraille Partner, Health Care Practice Group Sidley Austin LLP Karolyn Woo-Miles Principal, Business Risk Health Sciences Deloitte & Touche LLP Atlantic Information Services, Inc th Street, NW, Suite 300 Washington, DC C5P26

2 About the Speakers WILLIAM SARRAILLE is a partner in the health care practice group at Sidley Austin LLP, where he concentrates on a variety of health care matters, including Medicare and Medicaid reimbursement, coverage and coding, pharmaceutical price reporting, issues related to the marketing and promotion of pharmaceuticals and medical devices, internal investigations, clinical research issues, Stark and Anti-Kickback Law analyses, Medicare and Medicaid audits, compliance program audits, administrative litigation, legislative matters, international compliance and health care contracting, and the defense of health care criminal and False Claims Act matters. Mr. Sarraille has defended clients in some of the largest health care fraud investigations brought by the U.S. government. His clients have included pharmaceutical companies, biotechnology companies, academic medical centers, hospitals, health systems, faculty practice plans, health care consulting firms, ambulatory surgical centers, physician practice management companies, managed care organizations, large physician group practices, imaging centers, financial institutions, contract research organizations and leading health care trade associations and professional societies. Mr. Sarraille was named an LMG Life Sciences star in 2013, and is recognized in the 2013 edition of Chambers USA as a leading lawyer in D.C. and nationwide. Washingtonian magazine includes Mr. Sarraille on its 2013 list of Washington s Best Lawyers as one of the region s best legal minds in the area of Healthcare Law. He was listed by Nightingale s Healthcare News as one of ten Outstanding Practice Lawyers for He is the co-author of several books on health care. Mr. Sarraille served on the Regulatory Relief Committee for the American Hospital Association and served on the Compliance Advisory Committee for the Healthcare Financial Management Association as its Chairman. He served as a law clerk to the Honorable Harry L. Hupp in the U.S. District Court for the Central District of California in Los Angeles following his graduation from Harvard Law School in Contact Sarraille at wsarraille@sidley.com. KAROLYN WOO-MILES is a principal with Deloitte & Touche s Business Risk Health Sciences practice. She has more than 15 years of experience working with large hospital systems in California, Washington, Arizona and New Mexico on a variety of compliance and operations related engagements. Her consulting career has specialized in compliance auditing and monitoring activities, gap assessments, internal control management, policy and procedure development, and process redesign and improvement. She focuses on specific regulatory compliance matters such as 340B compliance, Medicare and Medicaid/Medi-Cal billing compliance, physician arrangements, and compliance program requirements. She has worked with clients on 340B projects for health systems and acute care hospitals on engagements such as program compliance assessments, HRSA mock audits, program expansion into contract pharmacies and Medicaid billing compliance. Contact Woo-Miles at kwoo@deloitte.com. Moderator: Lauren Flynn Kelly, editor of AIS s Drug Benefit News. Three Ways to Submit Your Questions for the 30-Minute Q&A Session Presentations should run approximately 60 minutes, with 30 minutes of questions and answers. Questions may be submitted in three different ways: Prior to the Webinar (1) your question(s) to moderator Lauren Flynn Kelly at lkelly@aishealth.com or During the Webinar (2) To send a question from the Webinar page, go to the Chat Pod located in the lower left corner of your screen. Type your question into the dialog box at the bottom and then click on the blue send button or (3) Dial *1 on your phone keypad and an operator will connect you to the moderator so that you can ask your question(s) live with the Webinar participants listening

3 About the Sponsor Atlantic Information Services, Inc. Atlantic Information Services, Inc., (AIS) is a publishing and information company that has been serving the health care industry for more than 25 years. It develops highly targeted news, data and strategic information for managers of health plans, hospitals, medical group practices, pharmaceutical companies and other health care organizations. AIS products include print and electronic newsletters, looseleafs and Web services, books, strategic reports, databases, Webinars and management seminars. AIS publishes several highly practical publications that address changes to the 340B Drug Pricing Program, including: DRUG BENEFIT NEWS is a hard-hitting newsletter for health plans, PBMs, pharma companies and employers. Published biweekly, it delivers both timely news stories and in-depth accounts of cost management strategies that are being employed by drug purchasers. Coverage includes news of performance-based pricing, the emerging biosimilars market, pricey drug launches, soaring specialty costs, insurer and PBM consolidation, generic inflation, exclusionary formularies, narrow pharmacy networks and more. REPORT ON MEDICARE COMPLIANCE is the industry s #1 source of timely news and proven strategies on Medicare compliance, Stark and other big-dollar issues of concern to health care compliance officers. Written weekly since 1992 by Nina Youngstrom the field s most knowledgeable, well-connected journalist the award-winning newsletter identifies and provides valuable guidance on dozens of high-risk billing and documentation problems and foreshadows the next moves of federal enforcers and their armies of RAC, ZPIC and MAC auditors. The best information there is for hospital compliance officers, the 8-page newsletter includes weekly insights and strategies that are not available anywhere else. SPECIALTY PHARMACY NEWS is a monthly newsletter packed with 12 pages of business news and management strategies for containing costs and improving outcomes related to high-cost specialty products. Designed for health plans, PBMs, providers and employers, the hard-hitting newsletter contains valuable insights into benefit design tactics, specialty markets for certain conditions, formulary decisions, merger and acquisition activity, payer-provider partnerships, patient adherence strategies, and new products. Learn more about all of AIS s products and services at the Marketplace at This publication is designed to provide accurate, comprehensive and authoritative information on the subject matter covered. However, the opinions contained in this publication are those solely of the speakers and not the publisher. The publisher does not warrant that information contained herein is complete or accurate. The conference materials are published with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Copyright 2015 by Atlantic Information Services, Inc. All rights reserved. Organizations participating in the Oct. 7, 2015, Webinar are hereby permitted to make one photocopy of these materials for each of their employees or contractors who listen to the live broadcast of the Webinar.

4 Webinar Materials The 340B Drug Pricing Program: What Proposed Changes Would Mean for Your Organization...page 1 Presentation by Karolyn Woo-Miles and William Sarraille Selected Articles from AIS Publications...page 46 Webinar Outline Part 1: Karolyn Woo-Miles, Deloitte & Touche LLP, and William Sarraille, Sidley Austin LLP 340B Program Overview Omnibus Guidance Release and Operational/Legal Implications Considerations for 340B Covered Entities Considerations for Manufacturers and Other Stakeholders Part 2: Questions and Answers

5 The 340B Drug Pricing Program: What Proposed Changes Would Mean for Your Organization Karolyn Woo-Miles Principal Deloitte & Touche LLP AIS Webinar October 7,

6 Statement of Conflicts of Interest This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Karolyn Woo-Miles has no actual or potential conflict of interest in relation to this presentation. 2

7 340B Overview 3

8 340B Program Overview The 340B program required drug manufacturers to provide outpatient drugs to eligible healthcare organizations at significantly reduced prices. The 340B Program provides the deepest discount on pharmaceuticals in the country, trailing only the Department of Defense and Veterans Healthcare Administration contracts Up to 2,048 hospitals and health systems participated as covered entities in B Entities accounted for over $7 billion in drug spend in 2013, roughly 2% of total spend across the United States The Veterans Health Care Act of 1992 requires pharmaceutical manufacturers whose drugs are covered by Medicaid to provide discounts on outpatient covered drugs purchased by specific public health services that serve mostnation sthe vulnerable patient populations. The program has come under increasing levels of scrutiny since its expansion after the PPACA in The OIG previously filed reports indicating inconsistent operational practices across covered entitles and limited oversight by HRSA. HRSA has attempted to issue formal guidance in the past; Dash however, the guidance left many unanswered questions and. areas gray Bullet Subbullet HRSA released omnibus guidance in August 2015 in an attempt to clarify existing policy and provide a framework for program audit & enforcement. Copyright 2015 Deloitte Development LLC. All rights reserved. 4

9 Current 340B Program Prohibitions DUPLICATE DISCOUNT Covered entity is prohibited from accepting a discount for a drug that would also generate a Medicaid rebate to the State. DIVERSION Covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity. GPO EXCLUSION DSH hospitals, children s hospitals, and free-standing cancer hospitals may not obtain covered outpatient drugs through a GPO or other group purchasing arrangement. ORPHAN DRUGS Free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals may not purchase selected rare disease drugs at 340B prices. Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Section 340B of the Public Health Services Act Source: U.S. Department of Health and Human Services Health Resources and Services Administration (HRSA) Policy Release Copyright 2015 Deloitte Development LLC. All rights reserved. 5

10 Omnibus Guidance Release 6

11 Omnibus Guidance Release Areas Receiving Clarification in 340B Omnibus Guidance Part A: Program eligibility and registration Part E: Contract pharmacy arrangements Part B: Drugs eligible for purchase under 340B program Part C: Individuals eligible to receive 340B drugs Areas receiving clarification in 340B Omnibus Guidance Part F: Manufacturer responsibilities Part G: Rebate option for AIDS drug assistance programs Part D: Prevention of duplicate discounts and maintenance of auditable records Part H: Program integrity 7

12 Omnibus Guidance Release Part A Changes to Covered Entity Eligibility Part A Program Eligibility and Registration Hospitals are 340B program eligible if the state/local government is the sole operating authority of the hospital or if a contract exists between private non-profit hospitals and state/local government to provide care to low-income individuals creating enforceable expectations, including the provision of direct medical care. Other Requirements: 1. Offsite facilities or clinics must have associated outpatient Medicare costs and charges 2. Hospital clinics be listed on a reimbursable line of a filed Medicare cost report 3. Covered entities must self-disclose any 340B program violation as opposed to the material breach standard stated in the re-certification statement 8

13 Part A Changes to Covered Entity Eligibility Operational Implications Contract must include enforceable expectations for the hospital for the provision of health care services Unclear what types of enforceable actions U.S. Department of Health and Human Services (DHHS) expects State and local governments to take Unclear if DHHS would require entities with longstanding contracts in place to enter into new contracts if current contracts do not include language addressing enforcement 9

14 Omnibus Guidance Release Part B Changes to Drug Eligibility Part B Drugs Eligible for Purchase Under 340B Omnibus guidance proposes a definition of covered outpatient drugs that makes Medicaid drugs paid as part of a bundled rate ineligible for 340B pricing. This provision would require hospitals to track drugs bundled into payments for Medicaid services. For non-medicaid payers, drugs that are bundled for payment purposes are considered 340B covered drugs. Hospitals subject to the GPO exclusion would be permitted to use GPO pricing for those drugs if: 1. They are the only available source of a drug and the drug was needed to prevent disruptions in care 2. A patient s status is changed from inpatient to outpatient, GPO pricing is permitted during the inpatient period 10

15 Part B Changes to Drug Eligibility Operational Implications Covered entities (CEs) can no longer classify certain drugs as covered outpatient drugs because the status of such drugs may vary by payer (Medicaid vs. non-medicaid) CEs can no longer exclude bundled drugs for non-medicaid payers from the 340B program (IV solutions, anesthesia gases, etc.). Examples of exclusion criteria previously used: o o o o Drug is partof or incidentto aservice Drug is given in the same setting as the service Drug is paid as part of the service part consideredarecodesrevenue Drugs and IV solutions billed using abovepaidgettingofintentionthewithoutbilledandservicea toincident or of and beyond the service. CEs might be unable to determine the appropriate drug purchasing account to use for their drug accumulations until AFTER the payer is determined, which could be well after the drug is dispensed 11

16 Omnibus Guidance Release Part C Changes to Patient Eligibility Part C Individuals Eligible to Receive 340B Drugs 340B pricing will be prohibited in connection with services provided outside the covered entity, excluding drugs prescribed through referrals to outside providers, follow-up care, and care in clinics that are not listed as reimbursable on the hospital s Medicare cost report, including cancer infusion centers HRSA requires that a prescription be written by a hospital as a result of a documented outpatient service at a 340B registered location, barring eligibility for: 1. Drugs prescribed when a patient is discharged from an inpatient setting, although such drugs are billed as outpatient 2. Drugs prescribed through outpatient services, yet the patient is admitted and the patient s payer requires the hospital to bill for the outpatient service as part of inpatient stay 12

17 340B Patient Definition Current Definition The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual's health care; and The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or FQHC look-alike status has been provided to the entity. [Hospitals are exempt] An individual will not be considered a patient of the covered entity if the only health care service received by the individual from the covered entity is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting. 13

18 340B Patient Definition Proposed Definition 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 Program database; No longer support for referral arrangements for follow-up/specialty care outside the covered entity The individual receives a health care service from a health care provider employed by the covered entity or who is an independent contractor of the covered entity such that the covered entity may bill for services on behalf of the provider; Privileges/Credentials not enough New requirement that covered entity must be able to bill for professional services The individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2). The 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; Necessary relationship between 340B drug ordered and type of service received Exclusion of infusion drugs 14

19 340B Patient Definition Proposed Definition The individual receives a health care service that is consistent with the covered entity s scope of grant, project or contract Covered entity hospitals exempt Consistent with current definition The individual is classified as an outpatient when the drug is ordered or prescribed, as determined by status when billed to payer; Elimination of ability to purchase 340B drugs for discharged inpatients; reduction of contract pharmacy purchases Administratively burdensome/challenging The individual has a relationship with the covered entity such that the covered entity maintains access to auditable health care records which demonstrate that the covered entity has a providerto-patient relationship, that the responsibility for that care is with the covered entity, and that each element of this patient definition is met for each 340B drug Generally consistent with current definition 15

20 Part C Changes to Patient Eligibility Operational Implications Difficult to determine 340B patient eligibility at the time of dispensing For outpatient clinics that stock only 340B drugs, would need to implement new inventory systems to determine that all services provided at their location would be billed to all payers as outpatient services No longer can split billing systems rely on Admission, Discharge, Transfer (ADT data), must rely on outpatient claims status from billing systems 16

21 Omnibus Guidance Release Part D Changes to Entity Requirements Part D Prevention of Duplicate Discounts and Maintenance of Auditable Records Omnibus guidance suggests that covered entities have an obligation to prevent duplicate discounts for Medicaid managed care claims (MCOs) HRSA maintains current policy of permitting CEs to make different carvein/carve-out decisions for fee for service or MCO. HRSA is proposing that covered entities must retain 340B program records for a period of not less than 5 years. Failure to maintain auditable records is grounds for losing eligibility to participate in the program. 17

22 Duplicate Discounts Prohibition of Duplicate Discounts Contract Pharmacy HRSA reiterates contract pharmacies will not dispense 340B drugs to Medicaid FFS or MCO patients unless the covered entity obtains DHHS approval on a written agreement that describes a system to prevent duplicate discounts. Puts the onus on the CE for ensuring that procedures are in place to prevent duplicate discounts Medicaid Managed Care Guidance adds further complexity by allowing CEs to choose a different carve-in/carve-out election for MCO vs. FFS as well as different elections by covered entity site and by MCO. Doesn't explicitly require the carvein/carve-out elections to be made available publicly through the 340B Medicaid Exclusion File. 340B Medicaid Exclusion File Changes HRSA does not propose new mechanisms beyond the existing Medicaid Exclusion File to track and prevent Medicaid duplicate discounts. 18

23 Omnibus Guidance Release Part E Changes to Pharmacy Arrangements Part E Contract Pharmacy Arrangements New guidance proposed related to contract pharmacy registration: The covered entity is the only party that may submit contract pharmacy registration. A covered entity may request additional contract pharmacy locations under a public health emergency declared by the Secretary for the geographic areas and time period specified in the declaration. HRSA expects the covered entity to perform monitoring, at least quarterly, to reconcile 340B prescribing records with 340B dispensing records. 19

24 Part E Contract Pharmacy Arrangements Operational Implications New provision for quarterly reviews by CEs of 340B prescribing and dispensing records at each contract pharmacy location in addition to annual review HRSA continues to recommend covered entities use independent auditors to perform quarterly and annual audits of their contract pharmacies Administrative and financial burden to perform these quarterly reviews may result in CEs removing contract pharmacies with low dispensing volumes 20

25 Omnibus Guidance Release Part F Changes to Manufacturer Responsibilities Part F Manufacturer Responsibilities Although much of the omnibus guidance was seemingly directed at hospitals, it includes provisions for manufacturers related to pricing agreements, recertification, auditing, and repayments, including: The must offer provision from the Affordable Care Act Manufacturers maintain auditable records for at least five years Manufacturer must issue refunds or credits to covered entities within 90 days after a determination by the manufacturer or federal government that an overcharge has occurred A manufacturer recertification process by annually reviewing and updating their information 21

26 Omnibus Guidance Release Part G Changes to Rebate Options for ADAPs A State AIDS Drug Assistance Program eligible to participate in the 340B program may register for and participate in the 340B program through this option. The omnibus guidance provides information regarding: Procedures for the AIDS Drug Assistance Program rebate option Qualified payment Multiple 340B discounts and rebates Audits Part G Rebate for AIDS Drug Assistance Programs (ADAPs) Manufacturer rebates 22

27 Omnibus Guidance Release Part H Changes to Program Integrity Part H Program Integrity New guidance is generally consistent with information communicated in the past. Continues the current policy of allowing hospitals a single, 30-day opportunity to respond to allegations and challenge audit findings through written submissions Some key program integrity requirements in the new guidance are: New 90-day window from identification of 340B drug diversion for covered entities to work with manufacturers regarding repayment No definition of materiality for instances of non-compliance or any clarification of self-disclosure process for non-compliance identified by covered entities New requirement to maintain auditable records for at least 5 years 23

28 Part H HRSA & Manufacturer Audits Operational Implications Proposed guidance is to continue current policy of allowing hospital a single, 30-day opportunity to respond to each allegation of non-compliance and may challenge audit findings through written submission only CEs have only one opportunity to challenge any findings made pursuant to the audit in writing There is no opportunity for an oral hearing Proposed guidance appears to offer some flexibility on the timeframe for submitting corrective action plans (CAPs) Currently, CEs have 60 days to submit CAPs; proposed guidance states HRSA will work with CEs on timeframe for submitting CAPs depending on the scope of the findings 24

29 Key Takeaways 25

30 Key Takeaways Considerations for 340B Covered Entities Financial Impact: Infusion centers and contract pharmacy are typically large drivers of program savings and are areas most affected within the proposed guidance. Audit and Monitoring: Proposed guidelines included detailed expectations for audit and monitoring activities. Most entities perform routine auditing and monitoring, but many lack a formal, structured, and integrated plan. Technology: Certain configurations may already be possible within existing information technology infrastructure (i.e. accumulating/replenishing based on final billed status), while others may require additional investment of time and.( patientsmedicaidfordrugs bundled excluding. i.e )resources Resources: Will changes require an additional investment in 340B resources? 26

31 Key Takeaways Road Map for the Next 90 Days Work with counsel and industry associations to provide comments on proposed guidance by October 27, 2015 Perform a risk assessment to analyze the effects of proposed guidance in its current form Financial analyze how program savings/roi is affected Operational assess additional resource requirements and procedural changes Regulatory review at-risk areas based on current standards and findings from recent HRSA audits Develop additional internal controls and business process changes to address risk areas Assess the possibility of immediate remediation versus waiting until the guidance is released in final form Audit and monitoring practices Error reporting procedures Develop a repository for program documentation Software and data infrastructure modifications 27

32 340B Drug Discount Program: Proposed Omnibus Guidance William A. Sarraille Partner Sidley Austin LLP AIS Webinar October 7,

33 Disclaimer This presentation is not intended as legal advice. This presentation is for discussion purposes only. This presentation does not create an attorney-client relationship. This presentation summarizes, but should not be taken as an endorsement of, the positions taken by the Agency in the Proposed Guidance. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 29

34 Agenda Introductions Overview and Scope of the Proposed Guidance Select Topline Issues for Stakeholders Reliance on the 340B Database Covered Outpatient Drug Definition 340B Patient Definition GPO Prohibition and Proposed Exceptions Drug Replenishment Models Must Offer and Manufacturer Limited Distribution Systems Manufacturer Certification Audits Manufacturer Refunds and Credits to Covered Entities Other Issues Questions? SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 30

35 Overview and Scope of the Proposed Guidelines What is in, and what is out? Authority and applicability? Effective date? Stakeholder comments are due October 27, SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 31

36 Reliance on the 340B Database HRSA s Proposed Guidance states that a manufacturer shall rely on the information in the public 340B database to determine whether the manufacturer must offer the 340B price. HRSA also reiterates its prior guidance stating that a manufacturer may not base its offer [of 340B pricing] on a covered entity s assurance of compliance with the 340B Program. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 32

37 Covered Outpatient Drug Definition HRSA explicitly recognizes the applicability of the limiting definition to the term covered outpatient drug for 340B purposes but, HRSA also proposes to cabin this limitation to apply only to drugs bundled for payment under Medicaid, not bundled by other payers. A controversial issue Section 1927(k) of the Social Security Act (SSA) Text of (k)(2) and (k)(3) Reference to this title Prior Agency guidance Definition of Covered Outpatient Drug Section 1927(k)(2) of the [SSA] defines covered outpatient drug to include most drugs and biologicals which may be dispensed only by prescription and which require approval by the [FDA] or a license under section 351 of the PHS Act. Section 1927(k)(3) limits the definition of "covered outpatient drug to exclude certain settings (e.g., such services as emergency room, hospice, dental, physician, nursing facilities, xray, lab, and renal dialysis) in some instances. In these settings, if a covered drug is included in the per diem rate (i.e., bundled with other payments in an all-inclusive, per visit, or an encounter rate), it will not be included in the section 340B discount program. However, if a covered drug is billed and paid for instead as a separate line item as an outpatient drug in a cost basis billing system, this drug will be included in the program. 58 Fed. Reg. 68,922, 68,924 (Dec. 29, 1993) (emphases added); see also 58 Fed. Reg. at 27,289, 27,291 (May 7, 1993). Implications for stakeholders SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 33

38 340B Patient Definition HRSA proposes a six-pronged patient definition in efforts to clarify what constitutes a violation of the statutory prohibition on diversion. History of HRSA s efforts to revise the patient definition Elements of the proposed revised definition: an overview No proposed criterion to limit a 340B patient to uninsured or underinsured individuals Some key issues Provider/entity relationships Direct care/service provided Outpatient service based on payer billing rules SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 34

39 340B Patient Definition HRSA proposes that an individual would be a patient of a covered entity if all of the following conditions are met for each prescription/order: (1) The individual receives a health care service from a health care provider registered for the 340B Program and listed on the public 340B database. (2) The individual receives a health care service from a health care provider 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. Existing language, in contrast, refers more broadly to other arrangements between providers and entities. (3) An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in criterion (2). Notably, HRSA proposes that the dispensing of or infusion of a drug alone, without a covered entity provider-to-patient encounter, does not qualify an individual as a patient for purposes of the 340B Program. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 35

40 340B Patient Definition (4) The individual receives a health care service that is consistent with the covered entity s scope of grant, project, or contract. Similar to the current definition, HRSA proposes that hospital entities are not subject to this limitation. (5) The individual s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient. HRSA proposes that [t]he patient s classification status is determined by how the services for the patient are billed to the insurer (e.g., Medicare, Medicaid, private insurance). This criterion appears to adopt the position that drugs paid on a bundled basis, regardless of the payer, are ineligible for 340B. Interplay with the proposed covered outpatient drug definition is notable here. (6) The individual has a relationship with the covered entity such that the covered entity maintains access to auditable health 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. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 36

41 GPO Prohibition and Exceptions HRSA emphasizes that the GPO prohibition is an eligibility criterion for affected covered entities. Thus, a hospital subject to the group purchasing organization prohibition will lose 340B Program eligibility... if it fails to comply with the prohibition. Nevertheless, HRSA proposes a series of exceptions to the prohibition. HRSA s proposed exceptions to the GPO prohibition: (1) Use of a GPO by an off-site outpatient facility if the facility (a) is not at the same physical address as the hospital covered entity and (b) is not participating in the 340B Program or listed on the public 340B database. (2) Use of GPO-obtained drugs provided to an inpatient whose status is subsequently changed to outpatient by a third party (such as an insurer or Medicare auditor), provided there is sufficient documentation of the change. (3) Use of a GPO account when the hospital cannot access a drug at the 340B price or at wholesale acquisition cost (WAC) to prevent disruptions in patient care. HRSA proposes to consider a hospital in compliance with the statute if it resorts to using a GPO for covered outpatient drugs in this circumstance, so long as the hospital documents the facts surrounding the purchase and provides HHS with the name of the drug in question, the manufacturer, and a brief description of the attempts to purchase the drug at the 340B price and the WAC price prior to purchasing the drug through a GPO. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 37

42 Drug Replenishment Models Banking. The Proposed Guidance explicitly addresses so-called banking practices used by a number of covered entities, in which the entities have attempted to retroactively look back over long period of time at drug purchases not initially identified as 340B eligible, sometimes looking back at drug purchases over several years. HRSA notes that [c]overed entities then attempt to re-characterize these purchases as 340B eligible and then purchase 340B drugs on the basis of these previous transactions. Time-of-Purchase Requirement. The Proposed Guidance reiterates HRSA s longstanding position that [c]overed entities are responsible for requesting 340B pricing at the time of the original purchase, and that, [i]f a covered entity wishes to re-characterize a previous purchase as 340B, [it] should first notify the manufacturers and ensure all processes are fully transparent with a clear audit trail that reflects the actual timing and facts underlying the transaction. Accumulator Errors. HRSA also states that, if the covered entity improperly accumulates or tallies 340B drug inventory, even if it is prior to placing an order, the covered entity has effectively sold or transferred drugs to a person who is not a patient, in violation of [the Act]. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 38

43 Drug Replenishment Models Short-Term vs. Long-Term Corrections. HRSA acknowledges that, in many cases, manufacturers and covered entities currently work together to identify and correct errors in purchasing within 30 days of the initial purchase through a credit and rebill process. HRSA notes that [t]his collaboration requires a covered entity s frequent monitoring of compliance to identify purchasing errors within 30 days of the erroneous purchase and communicating with the manufacturer. HRSA does not elaborate on the concepts of collaboration within 30 days vs. lookbacks over long periods of time. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 39

44 Must Offer and Manufacturer Limited Distribution Systems The Proposed Guidance restates much of the Agency's prior guidance regarding specialty distribution requirements, including the longstanding nondiscrimination principle. Limited distribution is expressly permitted, such as in cases of potential or actual shortages or because a drug must be handled in a special manner So long as any distribution restrictions apply equally [to] both 340B covered entities and non-340b purchasers. While the Proposed Guidance specifically permits limited distribution arrangements, including those involving specialty pharmacies, HRSA s proposed language cautions that 340B Program pricing requirements apply to such sales. HRSA proposes that a manufacturer notify [the Agency] in writing of any limited distribution plan prior to implementation. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 40

45 Manufacturer Certification The Proposed Guidance states that HRSA understands that manufacturers may transfer ownership and control of labeler codes or NDCs after signing a PPA. According to HRSA, [a]nnual recertification for manufacturers with a PPA will ensure that all stakeholders have the most up-to-date information regarding the covered outpatient drugs subject to the 340B price. HRSA proposes to list manufacturers as participating in the 340B program if they annually review and update 340B database information. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 41

46 Audits Manufacturer Audits of Covered Entities: Proposals are consistent with prior guidance. HRSA does not propose to relax the reasonable cause requirement. HRSA Audit of a Manufacturer and Its Contractors: HRSA seeks to propose standards for audits of a manufacturer or wholesaler that manufactures, processes, or distributes covered outpatient drugs in the 340B Program. HRSA states that the 340B statue authorizes the Agency to audit a manufacturer or wholesaler to ensure 340B Program compliance, and proposes that such audits may include either an on-site review, an off-site review of documentation requested by HHS, or both. Manufacturer Audit Findings: HRSA proposes to provide an opportunity for notice and hearing if, after the conclusion of an audit, the Agency determines that a manufacturer has violated the 340B Program. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 42

47 Manufacturer Refunds and Credits to Covered Entities HRSA seeks to provide clarity around the procedures for issuing refunds and credits [to covered entities] in the event that there is an overcharge. HRSA states that refunds or credits may also be necessary in the case of a drug restatement by manufacturers. HRSA s proposed clarifications include: Proposal that credits/refunds be issued within 90 days Proposal to require refund calculations by NDC and not in any other manner, including (but not limited to) aggregating purchases, de minimis amounts, and netting purchases Proposal to permit a covered entity to choose to have the manufacturer apply a credit to its account rather than receive a refund of any incorrect payment HRSA proposes that manufacturers must submit price recalculation information to HRSA, along with an explanation of why the overcharge occurred, how the refund will be calculated, and to whom the refunds or credits will be issued. SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 43

48 Other Issues Other Covered Entity Compliance Issues MCO Rebates & Duplicate Discounts Medicaid Exclusion File Contract Pharmacies Covered Entity Termination Notice and Hearing: Covered Entity Noncompliance Maintenance of Auditable Records Interplay with Other 340B Developments Ceiling Price and CMP Proposed Rule Orphan Litigation Forthcoming ADR Rule Pending CMS Final Rule on Medicaid Covered Outpatient Drugs CMP = civil monetary penalties ADR = administrative dispute resolution SIDLEY AUSTIN LLP For Discussion Purposes Only Not Intended as Legal Advice 44

49 Additional Questions? Karolyn Woo-Miles Principal Deloitte & Touche LLP Phone: William A. Sarraille Partner Sidley Austin LLP Phone:

50 Atlantic Information Services, Inc. Proposed Omnibus Guidance Hits on Some, Not All, Vulnerable Parts of 340B Program Reprinted from the Sept. 11, 2015, issue of AIS s biweekly newsletter Drug Benefit News. Visit the Marketplace at for more information. HHS s Health Resources and Services Administration (HRSA) on Aug. 28 issued a longawaited Omnibus Guidance clarifying key aspects of the 340B Drug Pricing Program. While the 90-page document (80 Fed. Reg , Aug. 28, 2015) includes proposals that may appease both covered entities and manufacturers that participate in the program, it also raises a few new questions and leaves some issues unresolved, sources tell DBN. The proposed guidance, for instance, did not establish limits on the number of contract pharmacies with which covered entities can engage, but did set an expectation of greater oversight by covered entities on those arrangements. The 340B program, which is managed by HRSA, was established in 1992 to allow qualifying nonprofit entities such as disproportionate share hospitals to purchase covered outpatient drugs at deeply discounted rates and thus stretch limited resources to expand care to vulnerable patients. But manufacturers and members of Congress have questioned whether the program is functioning as it was intended to, and suggested that the growing use of contract pharmacies may lead to duplicate discounts being paid by manufacturers to 340B entities as well as other payers. I think it addresses a lot of the questions that have been out there and unanswered or in some cases differently answered, depending upon the stakeholder community that was answering it, suggests William Sarraille, a partner in the healthcare practice group at Sidley Austin LLP. But not withstanding that there are 90 pages, there are a lot of questions that are sort of well-known as areas of uncertainty that either are not addressed or at least fully addressed. And that s a little disappointing I think to those stakeholders that were searching for additional clarity. Perhaps the most significant part of the proposed guidance is a more detailed definition of a 340B patient than one that had been established in a 1996 guidance. According to HRSA s proposed clarified definition, an individual who is eligible to receive 340B drugs must meet all of the following criteria: (1) The patient receives a health care service at a facility or clinic that is registered for the 340B program and is listed on the public 340B database. HRSA clarified that the use of telemedicine for the purposes of issuing a prescription by a covered entity provider is allowed, as long as it is permitted by state or federal law and the drug purchase otherwise complies with the 340B program. (2) The individual is treated by a provider who is either employed by or an independent contractor of the 340B covered entity, which can bill for the services rendered by that provider. If a patient is referred from the covered entity to an outside provider, drugs prescribed by the outside provider would not be eligible for a 340B discount. (3) An individual receives a drug that is ordered or prescribed by the covered entity as a result of the service described above. Again, telemedicine or telepharmacy would be acceptable as long as it s OK under state law. The dispensing of a drug or infusion of a drug Copyright 2015 by Atlantic Information Services, Inc. All rights reserved. Reproduction by any means including photocopy, FAX or electronic delivery is a violation of federal copyright law punishable by fines of up to $150,000 per violation. 46

51 Atlantic Information Services, Inc. alone, however, without an encounter between the covered entity provider and patient, would not qualify a patient as 340B eligible. (4) The services received by the patient fall under the scope of a federal grant, project, designation or contract. (5) The drug stems from a health care service that is classified as outpatient, not inpatient, and thus is billed as outpatient to the patient s insurance or third-party payer. The covered entity should maintain auditable records documenting any changes in patient status due to insurer determinations, stated the guidance. (6) The covered entity can access the patient s health care records and auditable records can document that the covered entity has an established relationship with the individual. HRSA said it developed this proposed definition in order to address the diverse set of 340B covered entities. The sale or transfer of 340B drugs to anyone not meeting this criteria is considered diversion, added the guidance. With New Patient Definition, Questions Remain It s a more robust definition of what is or isn t a patient of a 340B entity and, of course, there was no more central question. So manufacturers and other stakeholders who were concerned about the lack of any real meat to the definition of a patient are very happy with at least the major structure they ve announced here with this multifactor test, says Sarraille. Nevertheless, the proposed conditions leave some longstanding questions unanswered, such as whether refills of a prescription assigned by the covered entity are eligible for the 340B discount, he suggests. The impact of a prescription over time is a very substantial factor, maybe even by itself the single most important factor in determining how broad or narrow the 340B program ultimately is, says Sarraille. While the new guidance serves to narrow the definition of patient in a number of areas that were gray, if finalized, it would also impose new burdens on covered entities in order to establish 340B patient eligibility, weighs in Anil Shankar, an associate in the Los Angeles office of Foley & Lardner LLP. The one area that I think is the most surprising is that HRSA in its definition of patient has tried to incorporate some reimbursement concepts, he observes. Having to review and confirm how the physician services that led to the prescription were billed requires a significant level of coordination with the covered entity s billing department. On top of the coordination with the medical records and clinical staff already taking place, that s creating a significant new obligation for the covered entity, he explains. But Sarraille says that proposal is very good news for pharmaceutical manufacturers, which maintain that hospitals have manipulated the 340B program by attempting to keep a patient who is ultimately bound for inpatient treatment officially as an outpatient by sending them to a treatment center within the hospital, like a cardiac catheterization lab, so that they can claim the 340B discounts. Moreover, the proposed guidance clarifies that a covered outpatient drug is no longer a covered outpatient drug if it s part of a bundled payment by Medicaid. This provision had originally existed in the Medicaid statute, but an ongoing source of debate in the 340B program was whether the only time a covered outpatient drug could be excluded was when Medicaid bundled the payment vs. when another payer bundled the payment, says Sarraille. Copyright 2015 by Atlantic Information Services, Inc. All rights reserved. Reproduction by any means including photocopy, FAX or electronic delivery is a violation of federal copyright law punishable by fines of up to $150,000 per violation. 47

52 Atlantic Information Services, Inc. Having to confirm that a prescription is not part of a bundled payment by Medicaid could create another added burden for covered entities, says Shankar. But the clarification is pretty disappointing to manufacturers, who were hoping it would be a way to limit the scope of the program, argues Sarraille. Also disappointing to manufacturers was that the proposed guidance did not set limits on the number of contract pharmacies covered entities can use, which was one of several provisions related to 340B reform that were considered in a House version of the 21st Century Cures Act (DBN 7/24/15, p. 1). Contract pharmacy arrangements have grown exponentially since HRSA in 2010 issued guidance allowing contracts with multiple outside pharmacies to enhance patient access. But reports from the U.S. Government Accountability Office and the HHS Office of Inspector General have suggested they may lead to duplicate discounts being paid by manufacturers to 340B entities as well as other payers. Sarraille points out that in its language, the proposed standards for annual audits and quarterly reviews of contract pharmacies are presented as a should, not a must. Nonetheless, there is this sort of heightened set of expectations for covered entities to perform their own policing, their own oversight on a much more regularized basis of those contract pharmacies, he says. And there s language that expresses concern about the potential for diversion to occur in contract pharmacy relationships and an expression of concern about the inadequate level of oversight that 340B covered entities have given to contract pharmacies to date. HRSA also clarified in the guidance that it expects covered entities to work with pharmaceutical manufacturers on repayment within 90 days of identifying drug diversion. And manufacturers are expected to issue a refund or credit to a covered entity within 90 days of the manufacturer or HHS determining that an overcharge has occurred. Comments on the proposed guidance are due by Oct. 27. Contact Sarraille at wsarraille@ sidley.com or Shankar at ashankar@foley.com. Download the guidance at com/pkmnbyb. G Pending 340B Mega-Guidance Could Limit Contract Pharmacies, Duplicate Discounts Reprinted from the July 24, 2015, issue of AIS s biweekly newsletter Drug Benefit News. Visit the Marketplace at for more information. Pharmaceutical manufacturers, covered entities and other stakeholders in the 340B Drug Pricing Program are once again sweating it out as an expected mega-guidance spends its third month at the Office of Management and Budget (OMB). Industry insiders say the pending guidance could, among other things, finally place some limits on the wildly expanding contract pharmacy arrangements that may lead to duplicate discounts being paid by manufacturers to 340B entities and commercial and/or Medicaid plans. HHS s Health Resources and Services Administration (HRSA) last summer was supposed to issue a mega-reg that would address contract pharmacy arrangements and other aspects of the program that have been repeatedly called into question by the Government Accountability Office (GAO), the HHS Office of Inspector General (OIG) and interest groups (DBN 7/25/14, p. 1). But due to ongoing litigation around HRSA s interpretive version of a Copyright 2015 by Atlantic Information Services, Inc. All rights reserved. Reproduction by any means including photocopy, FAX or electronic delivery is a violation of federal copyright law punishable by fines of up to $150,000 per violation. 48