July
2005
Table
of Contents
Introduction
Part I: Major Elements of the PHS
Drug Pricing Program
- Brief
history of the development of 340B
- Main
Provisions of the 340B Legislation
- The
Office of Pharmacy Affairs (OPA)
- The
Pharmaceutical Pricing Agreement
-
The Covered Entity Database
- Program
Guidelines
- How
340B Discounts Help Covered Entities Improve
Services
- Technical
Assistance
- Prime
Vendor Program
- Grant
Statement
- Alternative
Method Demonstrations
Part
II: Guidance for Hemophilia Treatment Centers
- Deciding
Whether to Register as a Covered Entity
- Submitting
the Necessary Information to be a Covered Entity
- Confidential
Drug Pricing Information
- Avoiding
Duplicate Discounts/Rebates
- Avoiding
Drug Diversion
- Audit
Requirements
- Dispute
Resolution
- What
to Do If Factor Replacement Products Are Not
Available at 340B Prices
-
Freedom of Choice Regarding FRP
and Avoidance of Conflict of Interest
-
Contract Pharmacy Services
- Billing
Private Insurance Carriers
- Using
340B Income
- Role
of the OPA
- Role
of the GSB
- Role
of Regional Grantees
Part
III: Appendices
Appendix A: Section 340B of the
Public Health Service Act
Appendix B: Pharmaceutical Pricing
Agreement (PPA)
Appendix C: Compilation of Published
HRSA Guidelines
- General
Guidance
- Duplicate
Discounts and Rebates on Drug Purchases
- Entity
Guidelines
-
DSH Outpatient Facility Guidelines
- New
Drug Pricing
- Definition
of a Patient
- Contract
Pharmacy Services
- Manufacturer
Audit Guidelines
- Dispute
Resolution Process
- The
State ADAP Section 340B Rebate Option
- Program
Guidance Clarification re Mechanism to Prevent
Duplicate Discounts
Appendix D: Grants Management
Documents re Program Income
- Sections
of the HHS Grants Management Regulation
- Sections
of the PHS Grants Policy Statement
- Letter
to Grantees dated May 23, 2003
Introduction
This
manual has been prepared by the U.S. Department
of Health and Human Services (HHS), Health Resources
and Services Administration (HRSA), Maternal and
Child Bureau (MCHB), Division of Services for
Children with Special Health Needs (DSCSHN), Genetic
Services Branch (GSB) to provide guidance and
reference material for Hemophilia Treatment Centers
(HTCs) eligible to participate in the Drug Pricing
Program authorized by section 340B of the Public
Health Service Act (PHS Act). It provides information
on the authorizing legislation, the program’s
method of operation, and specifics on how HTCs
can become approved covered entities and make
effective use of 340B discounts while complying
with its statutory requirements. The manual does
not establish policy for either the HTC Grant
Program or the 340B Drug Pricing Program. Its
purpose is to provide background information and
practical advice on how HTCs can operate in compliance
with 340B policy and related HTC program policy.
Although GSB will update this manual to incorporate
new policy developments, HTCs should make use
of the information resources listed below to keep
up to date with new developments as they occur,
especially on the Web site for the Health Resources
and Services Administration, Healthcare Systems
Bureau (HSB), Office of Pharmacy Affairs (OPA)
.
The
manual is divided into three main sections:
-
The first section provides a general description
of the 340B program, its history and how it
is administered by the OPA.
-
The second section provides specifics on how
the 340B program can be used by HTCs, emphasizing
the aspects of the program which are most likely
to concern them.
-
The third section is made up of four appendices:
- The
complete text of section 340B of the PHS
Act
- The
current version of the Pharmaceutical Pricing
Agreement (PPA) which manufacturers must
sign to continue to participate in the Medicaid
program
- A
compilation of all of HRSA’s 340B
program guidelines published to date
- Grants
management guidance concerning program income.
General
Information Resources
References
are made throughout the manual to accessing information
and advice from two key HRSA organizations, OPA
in HSB and GSB in MCHB. In addition, through
a contract managed by OPA, the HRSA Pharmacy Services
Support Center (PSSC) is now handling routine
inquiries about the 340B program. The following
addresses should be used to acquire information
from these organizations:
OPA:
Web site: http://www.hrsa.gov/opa
General phone number: (301) 593-4353
HRSA PSSC:
2215 Constitution Avenue, NW
Washington, DC 20037
Web site: http://pssc.aphanet.org
E-mail address: pssc@aphanet.org
Use
the web site to register with the PSSC to receive
information on new events and developments in
the 340B program and gain access to other online
resources.
General
phone number: 1-800-628-6297
MCHB
GSB:
General phone number: (301) 443-1080
MCHB Web site: http://mchb.hrsa.gov
Part
I: The Major Elements of the Public Health Service
Drug Pricing Program
A.
Brief history of the development of 340B
The
340B Drug Pricing Program was established by Section
340B of the PHS Act which requires drug manufacturers
to provide discounts or rebates to a specified
set of U.S. Department of Health and Human Services
(HHS) assisted programs and hospitals that meet
the criteria in the Social Security Act (SSA)
for serving a disproportionate share of low income
patients. It was enacted on November 4, 1992
as part of the Veterans Health Care Act of 1992
(VHCA92). This legislation was a follow-up to
the Medicaid Drug Rebate Program (MDR Program)
enacted as part of the Omnibus Budget Reconciliation
Act of 1990 (OBRA90).
The
MDR Program requires manufacturers to give Medicaid
a rebate of 15.1 percent of the average manufacturer’s
price (AMP) or the AMP less the best manufacturer’s
price (BMP), whichever is lower. As originally
enacted, the calculation of BMP included sales
to directly operated Federal health care programs
such as the medical systems operated by the Department
of Veterans Affairs (VA) and the U.S. Department
of Defense (DoD). As a result, drug manufacturers
were reluctant to continue to sell drugs to direct
Federal health care programs at the very advantageous
prices they had in the past because it could increase
the rebates they had to pay to Medicaid. Overall,
prices paid for drugs by directly operated Federal
health care programs rose after the enactment
of OBRA 90.
Sections
601 and 603 of VHCA92 corrected the problem for
direct Federal health care programs by removing
their drug sales from the calculation of BMP and
mandating minimum price reductions for purchases
made by the VA for its own and other Federal health
care operations. Section 602 of VHCA92 created
section 340B of the PHS Act which provides ceilings
on outpatient drug prices for certain HHS programs
and disproportionate share hospitals. These sales
were also excluded from the calculation of BMP.
See Appendix A for the text of 340B.
B.
Main Provisions of the 340B Legislation
Agreements
with manufacturers
As
a condition for continued participation in Medicaid,
drug manufacturers must sign an agreement with
the Secretary of HHS requiring their sales to
the covered entities to be at or below the ceiling
prices mandated by section 340B. Failure to sell
covered drugs at these prices could result in
a manufacturer being prohibited from receiving
payments for its products from the Medicaid program.
Ceiling
prices
For
single source and innovator, multiple source drugs,
the 340B ceiling price is the average manufacturer
price (AMP) reduced by the Medicaid rebate percentage.
For over-the-counter and generic drugs, the 340B
ceiling price is the AMP reduced by 11 percent.
The AMP is a term developed for the Medicaid Rebate
Program (MR Program) and is defined in section
1927 of the Social Security Act (SSA). In general,
the AMP is based on the weighted average of prices
paid by wholesalers for drugs distributed to the
retail pharmacy class of trade. It excludes sales
to Federal health care systems and the covered
entities.
The
covered entities
The
law designates the following selected grantees
as eligible to be covered entities if they receive
funds from the programs specified in 340B:
-
Community Health Centers
-
Migrant Health Centers
-
Homeless Health Centers
-
Public Housing Health Centers
-
Black Lung Clinics
-
Native Hawaiian Centers
-
School-based Health Centers
-
HIV Early Intervention Projects
-
AIDS Drug Assistance Programs
-
Other Ryan White AIDS Projects
-
Hemophilia Treatment Centers (HTCs)
-
Tribal Health Centers
-
Urban Indian Health Centers
-
Sexually Transmitted Disease Clinics
-
Tuberculosis Clinics
-
Title X Family Planning Clinics
The
law also defines two types of non-grantees as
eligible to be covered entities:
- Federally
Qualified Health Center Look-Alikes recognized
by HRSA
-
Disproportionate Share Hospitals if they
- Carry
out certain specified State or local government
health care programs
- Have
a disproportionate share adjustment percentage
greater than 11.75 percent
- Do
not participate in any group purchasing
arrangements for covered outpatient drugs
Requirements
for covered entities
A
covered entity must comply with the following
statutory requirements to access 340B discounts:
-
Not request a discount for a drug subject to
a Medicaid rebate; the Secretary established
a mechanism to ensure compliance before the
statutory deadline of one year after enactment
(See page 23 for the details of how the mechanism
works.)
-
Not resell or otherwise transfer a discounted
drug to a person who is not a patient of the
entity
-
Permit the Secretary and manufacturers to audit
entity records pertaining to the drug in question,
in accordance with procedures established by
the Secretary, to ensure compliance with the
first two requirements
-
Repay the manufacturer the amount of 340B discounts
received for any violations of the first two
requirements, if the manufacturer seeks restitution
Other
provisions
-
The Secretary is required to
- Develop
and implement a process for the certification
of certain eligible tuberculosis and sexually
transmitted disease clinics and non-governmental
entities participating in the programs established
by Titles I and II of the Ryan White CARE
Act, excluding AIDS Drug Assistance Programs
(ADAPs)
- Develop
a prime vendor program to serve the covered
entities
-
Notify manufacturers and State Medicaid
agencies of the identity of the covered
entities
-
Manufacturers are not prohibited from charging
a price for a drug that is lower than the maximum
price that may be charged under 340B.
C.
The Office of Pharmacy Affairs
(OPA)
Shortly
after the enactment of section 340B in 1992, the
responsibility for administering the law was assigned
to HRSA. To carry out this task, HRSA established
the Bureau of Primary Health Care (BPHC), Office
of Drug Pricing (ODP). In June, 2000, the mission
of the office was broadened to include more general
assistance for pharmacy programs and its name
was changed to the Office of Pharmacy Affairs
(OPA). In February 2003, OPA was moved to a new
Division of Health Care Development (DHCD) and
became the Pharmacy Affairs Branch (PAB). In
September 2004, PAB was moved to the Healthcare
Systems Bureau (HSB) as the Office of Pharmacy
Affairs (OPA).
The
mission and functions for OPA are as follows:
As
the primary pharmacy resource for HHS health care
programs, OPA promotes universal access to clinically
and cost effective pharmacy services by:
- maximizing
the value of the 340B Program for eligible entities
by
-
managing the Pharmaceutical Pricing Agreement
with pharmaceutical manufacturers who participate
in the Medicaid program,
-
maintaining a database of covered entities
and organizations eligible to become covered
entities, including status of certifications,
where required,
-
publishing guidelines and/or regulations
to assist covered entities, drug manufacturers,
and wholesalers to use the Drug Pricing
Program (DPP) and comply with the requirements
of section 340B,
-
implementing and overseeing the 340B Prime
Vendor Program (PVP) that provides drug
distribution and price negotiation services
for the covered entities,
-
coordinating the 340B implementation activities
of programs in HRSA, the Centers for Disease
Control and Prevention (CDC), the Indian
Health Service (IHS), and the Office of
the Assistant Secretary for Health’s
(OASH) Office of Public Health and Science
(OPHS) that provide support to entities
eligible to access the DPP,
-
providing a full range of technical assistance
to eligible and participating entities,
-
working with the Centers for Medicare and
Medicaid Services (CMS) and the Department
of Veterans Affairs (VA), which operate
related drug rebate and discount programs,
to coordinate policies and operations, and
-
maintaining liaison with grantee associations,
professional organizations, the pharmaceutical
industry, and trade associations concerning
drug pricing and pharmacy issues,
- supporting
HRSA health centers, States, and other delivery
systems as they develop quality programs for
affordable drug benefits through
-
managing clinical pharmacy demonstration
projects,
-
assisting health centers and other grantees
to make optimum use of resources available
for pharmacy services,
- demonstrating
innovative methods of delivering pharmacy
services, and
- providing
technical assistance to grantees, States,
local governments, and other health care
delivery systems to plan and implement pharmacy
services,
- serving
as a Federal Government resource for pharmacy
practice through
-
developing and maintaining cooperative relationships
with national pharmacy and governmental
organizations to share information and build
infrastructure for safety-net providers,
- compiling
and marketing pharmacy “models that
work” for States and communities,
- developing
a technical assistance center for pharmacy
practice, and
- providing
model pharmacy products (such as sample
contracts and business plans) for safety-net
health care providers, and
- carrying
out special projects as assigned by the Administrator.
Information
about the 340B Program and other pharmacy program
developments can be obtained from the OPA Web
site at .
Pharmacy
Services Support Center (PSSC)
OPA’s
ability to carry out its mission was enhanced
through the award of a 5-year contract at the
end of FY 2002 to the American Pharmacists Association
(APhA) to operate the HRSA PSSC. APhA is the
largest professional association of pharmacists
in the United States with 50,000 members including
practicing pharmacists, pharmaceutical scientists,
students, pharmacy technicians, and others. The
association provides professional information
and education for pharmacists and is an advocate
for improved health through the provision of comprehensive
pharmaceutical care. Additionally, the American
Association of Colleges of Pharmacy (AACP) and
other national pharmacy associations will participate
in the contract to ensure that the new center
is equipped to provide timely information on pharmacy
practice.
Services
to be provided by the PSSC include:
- Helping
OPA conduct policy and pharmacoeconomic analyses
on effective pharmacy practice and program needs
of HRSA grantees;
-
Providing information, evaluation, and recommendations
to community health networks and community service
organizations concerning innovative approaches
in all practice settings for affordable, quality
pharmaceutical services, including the effective
use of the 340B drug pricing program; and
-
Recruiting and managing a pharmacy consultant
pool that will be available to provide on-site
technical assistance to health centers and other
providers supported by HRSA.
As
the PSSC develops over the life of the contract,
it is expected that its role in providing supporting
professional services for providers eligible to
participate in the 340B drug pricing program will
grow. Check the PSSC web site ( for the latest
developments. Eligible entities can obtain a
PSSC ID to receive information on new events and
developments in the 340B program and have access
to other online resources.
D.
The Pharmaceutical Pricing Agreement
Section
340B requires drug manufacturers, as a condition
of continued participation in the Medicaid program,
to sign an agreement with the Secretary of HHS
to sell covered outpatient drugs to the covered
entities at prices that do not exceed the limitations
specified by the law. As of March 2005, there
were 692 drug manufacturers participating in the
340B Program.
The
full text of the current agreement is in Appendix
B.
Manufacturers’
responsibilities
- Adhere
to the pricing limitations in section 340B
- Provide
HRSA access to information needed to administer
the 340B Program and retain supporting documentation
for at least 3 years after its creation
- Permit
HRSA to use Medicaid rebate data submitted by
manufacturers to CMS that is needed for administering
the 340B Program
-
Participate in the PVP unless otherwise agreed
to by the Secretary of HHS
- Use
HRSA published procedures for resolving disputes
with covered entities and conducting audits
to determine if there has been any drug diversion
- Maintain
the confidentiality of audit information obtained
from the covered entities
Secretary’s
responsibilities
-
Maintain accessible data on the identity of
covered entities, updated quarterly
-
Develop and implement a mechanism for preventing
duplicate price reductions (see page 23 for
how this works)
-
Require covered entities to retain purchasing
records and claims for Medicaid reimbursement
for at least 3 years
-
Maintain the confidentiality of information
disclosed by the manufacturers, except as necessary
to carry out Section 340B
E.
The Covered Entity Database
As
required by the Pharmaceutical Pricing Agreement
(PPA) and Section 340B of the PHS Act, OPA maintains
a database of covered entities authorized to purchase
outpatient drugs at 340B prices. The data are
updated quarterly and can be downloaded from the
OPA Web site ( which is easily accessible by manufacturers,
covered entities, State agencies, and any other
parties interested in the administration of the
PHS DPP. The data include multiple entries for
covered entities that operate at more than one
site.
The
following Table I shows the trends in the number
of covered entity sites registering as covered
entities in the PHS DPP, broken down by type of
program, since the end of its first full year
of operation at the beginning of 1994. Over this
period the number of sites has more than doubled.
The program continues to grow at the rate of about
10 percent per year.
Table
I
Number
of Covered Entity Sites, 1994-2005
Type
of Entity |
Jan
94 |
Jan
96 |
Jan
98 |
Jan
01 |
Jan
03 |
Jan
04 |
Jan
05 |
Community
Hlth. Ctrs. |
342 |
451 |
670 |
1,064 |
1,412 |
1,805 |
2,301 |
Migrant
Hlth. Ctrs. |
69 |
99 |
122 |
165 |
182 |
178 |
113 |
Homeless
Hlth. Ctrs. |
39 |
105 |
84 |
118 |
155 |
171 |
128 |
Pub.
Housing Hlth. Ctrs. |
9 |
53 |
19 |
18 |
17 |
21 |
18 |
Fed.
Qualified Hlth. Ctr. Lookalikes |
56 |
34 |
92 |
96 |
130 |
146 |
163 |
Black
Lung Clinics |
1 |
1 |
1 |
4 |
5 |
5 |
10 |
Native
Hawaiian Hlth. Ctrs. |
0 |
0 |
0 |
0 |
0 |
0 |
5 |
School-based
Hlth. Ctrs. |
0 |
9 |
11 |
13 |
13 |
12 |
merged
w/CHC |
AIDS
Drug Assistance Programs |
1 |
26 |
25 |
49 |
52 |
54 |
54 |
Other
Ryan White AIDS grantees |
76 |
204 |
170 |
189 |
211 |
247 |
347 |
Hemo.
Treatment Ctrs. |
20 |
53 |
57 |
59 |
66 |
69 |
72 |
Subtotal,
HRSA covered entity sites |
613 |
1,035 |
1,251 |
1,775 |
2,243 |
2,708 |
3,211 |
Tribal
Hlth. Ctrs. |
0 |
34 |
45 |
64 |
86 |
92 |
100 |
Urban
Indian Ctrs. |
9 |
11 |
12 |
13 |
16 |
16 |
17 |
Subtotal,
IHS covered entity sites |
9 |
45 |
57 |
77 |
102 |
108 |
117 |
STD
Clinics |
162 |
236 |
459 |
688 |
916 |
1,154 |
1,342 |
TB
Clinics |
166 |
171 |
404 |
714 |
1,003 |
1,069 |
1,024 |
Subtotal,
CDC covered entity sites |
328 |
407 |
863 |
1,402 |
1,919 |
2,223 |
2,366 |
Title
X Family Planning Clinics (OPHS) |
4,068 |
4,607 |
4,773 |
4,768 |
4,928 |
5,269 |
5,190 |
Disproportionate
Share Hospitals |
122 |
160 |
238 |
332 |
446 |
578 |
1,026 |
Total,
all covered entity sites |
5,140 |
6,254 |
7,182 |
8,354 |
9,638 |
10,886 |
11,910 |
F.
Program Guidelines
Since
its inception, HRSA has used guidelines published
in the Federal Register (FR) to administer
the 340B Program.
Appendix
C includes all of the guidelines published as
final notices through mid 2005. The text includes
only the final statement of the guidelines, not
the responses to comments received on the proposed
guidelines. The OPA Web site contains the complete
text of the notices published in the FR
including all of the responses to comments received.
The
guidelines in Appendix C cover the following topics:
-
General program guidance including eligibility
criteria for covered entities, definition of
a covered outpatient drug, calculation of the
ceiling price, general information for manufacturers
and covered entities, and confidentiality provisions
-
The mechanism to prevent a Medicaid rebate on
a 340B discounted drug
-
Entity guidelines including procedures for avoiding
drug diversion, requirements to maintain records
of purchases of covered outpatient drugs and
of any claims for Medicaid reimbursement for
audit purposes, use of purchasing agents and
wholesalers, and a clarification that manufacturers
may not impose prior conditions, such as requiring
their own assurance of action to prevent drug
diversion, before selling drugs at the ceiling
prices
-
Eligibility of outpatient facilities of disproportionate
share hospitals to be covered entities
-
Guidelines for pricing new drugs introduced
by manufacturers
-
Definition of a patient of a covered entity
-
Guidelines for contract pharmacy services, including
a model agreement format and suggested contract
provisions
-
Guidelines for manufacturer audits of covered
entities
-
Recommended dispute resolution process
-
Recognition of the State AIDS Drug Assistance
Program rebate option
-
Recognition of the option for covered entities
to purchase outpatient drugs at regular market
prices for their Medicaid patients
G.
How 340B Discounts Help Covered
Entities Improve Services
The
purpose of the 340B Program is to lower the cost
of acquiring covered outpatient drugs for selected
health care providers so that they can stretch
their resources in order to serve more patients
or improve services. Additional program resources
are generated if drug acquisition costs are lowered
but revenue from grants or health insurance reimbursements
are maintained or not reduced as much as the 340B
discounts or rebates. This permits HHS programs
to provide additional financial capacity to assisted
health care providers without increasing the Federal
budget for the grant or other assistance programs
that confer eligibility for the discounts. This
method of augmenting their resources carries out
the Congressional intent expressed in the House
Commerce Committee’s (HCC) report on the
legislation (H.R. Report 102-384, 102nd
Congress, 2nd Session, Part 2, page
12) which states, “In giving these ‘covered
entities’ access to price reductions theCommittee
intends to enable these entities to stretch scarce
Federal resources as far as possible, reaching
more eligible patients and providing more comprehensive
services.” If the covered entities were
not able to access resources freed up by the drug
discounts when they apply for grants and bill
private health insurance, their programs would
receive no assistance from the enactment of section
340B and there would be no incentive for them
to become covered entities.
As
required by the law and the PPA, drug manufacturers
must charge covered entities a price for an outpatient
drug that does not exceed the average manufacturer
price (AMP) reduced by the Medicaid rebate percentage
of 15.1 percent. Covered entities are free to
negotiate lower prices if they have sufficient
purchasing power. The chart below provides a
general picture of how 340B prices compare to
other Federal price reduction or discount programs
in reference to average wholesale prices (AWP).
It is based on a slide in a presentation entitled
“State Opportunities under the 340B DDP”
prepared by the Public Hospital Pharmacy Coalition
(PHPC), a leading member of the 340B Coalition,
a group of advocacy organizations representing
the programs eligible to participate in 340B.
It shows that the 340B prices are among the best
available, coming in lower than the prices on
the Federal Supply Schedule (FSS). However, they
fall short of the discounts achieved by the VA’s
contract prices negotiated under the authority
of section 603 of the Veterans Health Care Act
for selected direct Federal health care programs.
The complete presentation is available on the
PHPC’s web site, www.phpcrx.org.
[D]
Covered
entities use 340B income for a variety of purposes
within their overall missions and the general
purposes of the grants they receive. For example,
community health centers use 340B income primarily
to improve services for medically uninsured patients
whose declared income is below 200 percent of
the poverty line and pay for services on a sliding
scale. Centers have increased the number of patients
receiving discounted services and increased the
discounts in the sliding scale fee schedule.
Both community health centers and disproportionate
share hospitals often use 340B income to offset
unreimbursed costs of providing prescription drug
services to under-insured or uninsured patients.
Most
covered entities have used 340B income to provide
services to more patients with little or noresources
than they could otherwise afford to serve. Others
have added services for their current service
populations. Consistent with this overall pattern,
hemophilia treatment centers (HTCs) use the extra
income from the 340B discount to maintain or expand
supporting services and as well as provide factor
replacement products to uninsured patients.
H.
Technical Assistance
Since
the implementation of the 340B program in 1992,
OPA, then the ODP, has placed a major emphasis
on providing technical assistance to both eligible
and participating entities. This assistance was
provided primarily by phone consultations with
in-house staff. However, during FY 1998, the Office
expanded technical assistance resources by augmenting
its in-house capacity with expert consultants.
Since then the level of technical assistance has
continued to grow.
With
the broadening of OPA’s mission, technical
assistance now includes advice on delivering effective
clinical pharmacy services as well as making appropriate
use of the 340B program. This broadened
technical assistance has been a critical component
of OPA’s support for clinical pharmacy demonstrations
and comprehensive pharmacy assistance grants awarded
to individual and networks of health centers.
All eligible entities can request technical assistance
from OPA on 340B operational issues or to obtain
advice on efficient and effective pharmacy management.
The
most efficient way to request technical assistance
is to use the OPA Web site. Click on “Pharmacy
Technical Assistance (PharmTA)” on the home
page. This leads to the PharmTA page which contains
a menu providing information about the services
available. To request assistance on a specific
topic, click on “Apply for Pharmacy TA.”
This leads to a form which can be used to request
technical assistance online. E-mail responses
are provided within 2 business days. You can
also request assistance by phone, toll-free, at
1-866-PharmTA (1-866-742-7682).
I.
Prime Vendor Program (PVP)
The
340B PVP has been developed to carry out section
340B(a)(8):
The
Secretary shall establish a prime vendor program
under which covered entities may enter into
contracts with prime vendors for the distribution
of covered outpatient drugs. If a covered entity
obtains drugs directly from a manufacturer,
the manufacturer shall be responsible for the
costs of distribution.
In
the private sector, a prime vendor is an organization
that provides total drug purchasing and distribution
services for a single health care facility or
network of facilities. PVs provide consolidated
drug purchasing and frequent deliveries so that
hospitals and clinics do not need to maintain
large drug inventories. Health care facilities
use prime vendors to lower distribution costs,
reduce response times for making critical drugs
available, and reduce inventory costs.
In
designing the 340B PVP, HRSA included price negotiation
services as an essential component to try to take
advantage of the purchasing volume of the covered
entities. As section 340B(a)(10) explicitly states,
manufacturers are not prohibited from charging
a price for a drug that is lowerthan the maximum
price permitted by the 340B program. Including
price negotiation in the PVP thus creates an opportunity
to bring substantial additional value to the covered
entities.
The
current PV agreement, approved by the HRSA Administrator
on September 10, 2004, designates Health Purchasing
Partners International (HPPI) as the 340B PV.
HPPI is a group purchasing organization serving
more than 8,000 health care organizations by assisting
them to lower and control their supply costs.
Through its relationship with Novation, a supply
chain management company which is responsible
for negotiating a portfolio drug and medical supply
pricing agreements, HPPI manages over $20 billion
in combined annual purchasing power in its non-PV
business. The expectation is that HPPI can draw
on this experience and its relationships with
drug manufacturers to benefit the covered entities
that join the PV program.
The
previous PV agreement, approved by the Administrator
on September 10, 1999, was with AmerisourceBergen,
a national drug and medical supply wholesaler.
The foundation of the agreement was drug distribution
services with price negotiation as an additional
service. This arrangement had limited success
because covered entities using different wholesalers
were reluctant to switch in order to join the
PV program. Although AmerisourceBergen was able
to negotiate additional discounts for a wide variety
of generic drugs, it was unable to obtain additional
discounts from brand name manufacturers.
The
foundation of the current PV agreement is price
negotiation and is structured so that a wide variety
of drug wholesalers can participate. All three
national wholesalers, AmerisourceBergen, Cardinal
Health, and McKesson Pharmaceutical, participate
in the PV program as well as several regional
distributors. HPPI’s PV operations are
easily able to accommodate other distributors
if requested to do so by prospective covered entity
members.
HPPI
has created a special Web site for the 340B PV
program. It can be accessed at http://www.340bpvp.com.
The phone number for the PV program is 1-888-340-2787.
On the Web site, HPPI states its PV mission as
serving covered entity members in 3 primary roles:
-
Negotiating sub-ceiling 340B pricing on branded
and generic pharmaceuticals
-
Establishing distribution solutions and networks
that improve access to affordable medications
-
Providing other value-added products and services
The
Web site includes a link to instructions for completing
the downloadable 3-page 340B Prime Vendor Participating
Agreement. Prospective members need to print and
complete two copies of the 340B Prime Vendor Participation
Agreement and then submit two originals to HPPI
by mail. The address is: 340B Prime Vendor Member
Services/HPPI, Attn: 340B Prime Vendor, 125 East
John Carpenter Freeway, Irving, TX 75062-2324.
Once accepted as a member, the entity will receive
one of the original agreements countersigned by
HPPI. When the agreement is officially executed
by both parties, the entity’s distributor
and contracted suppliers will be notified and
instructed to use the prime vendor program contract
pricing in all future covered outpatient drug
transactions.
In
its first 6 months of operation as the 340B PV,
HPPI has made substantial progress in delivering
services to covered entities. Participation has
increased from 465 entities to 937. Annual sales
volume increased to $1.7 billion. Negotiations
began with at least five brand name drug manufacturers.
HPPI also offers discounts on a variety of other
management and operational “value added”
services such as patient assistance program software,
contract pharmacy implementation and support services,
and contract pricing on non-covered drugs and
supplies.
J.
Grant Statement
Although
section 340B makes participation by the covered
entities voluntary, other mandates for Federal
fund managers and grantees require them to conduct
operations at the lowest reasonable cost.
HRSA
decided to include a statement in the Notice of
Grant Award (NGA) requiring grantees to make an
assessment of whether their drug purchasing practices
meet Federal requirements regarding reasonable
and cost effective purchasing. This policy was
implemented during the FY 2000 grant award cycle
by adding the following statement to the “Remarks”
section of the HRSA NGA and the approval statements
for Federally Qualified Health Center Look-Alikes:
If
your organization purchases or reimburses for
outpatient drugs, an assessment must be made
to determine whether the organizations drug
acquisition practices meet Federal requirements
regarding cost-effectiveness and reasonableness
(See 42 CFR Part 50, Subpart E, and OMB Circulars
A-122 and A-87 regarding cost principles). If
your organization is eligible to be a covered
entity under section 340B of the PHS Act and
the assessment shows that participating in the
340B DPP and its PVP is the most economical
and reasonable manner of purchasing or reimbursing
for covered outpatient drugs (as defined in
section 340B), failure to participate may result
in a negative audit finding, cost disallowance,
or grant funding offset.
This
requirement to make an assessment of drug acquisition
practices is not based on anything in the 340B
law or HRSA’s guidelines. It is based on
Federal cost principles for grants and specific
standards for the acquisition of drugs.
The
general policy in the drug acquisition regulation
in 42 CFR Part 50, Subpart E (Section 50.503)
states:
It
is the policy of the Secretary that program
funds which are utilized for the acquisition
of drugs be expended in the most economical
manner feasible.
“Program
funds” includes program income as well as Federal
grant funds.
OMB
Circular A-122, Cost Principles for Non-Profit
Organizations, states the following regarding
reasonable costs in Attachment A, section A-3:
A
cost is reasonable if, in its nature or amount,
it does not exceed that which would be incurred
by a prudent person under the circumstances
prevailing at the time the decision was made
to incur the costs. In determining the reasonableness
of a given cost, consideration shall be given
to:
- Whether
the cost is of a type generally recognized
as ordinary and necessary for the operation
of the organization or the performance of
the award.
-
The restraints or requirements imposed by
such factors as generally accepted sound business
practices, arms length bargaining, Federal
and State laws and regulations, and terms
and conditions of the award.
-
Whether the individuals concerned acted with
prudence in the circumstances, considering
their responsibilities to the organization,
its members, employees, and clients, the public
at large, and the Federal Government.
-
Significant deviations from the established
practices of the organization which may unjustifiably
increase the award costs.
OMB
Circular A-87, Cost Principles for State, Local,
and Indian Tribal Governments, which applies to
HTCs that are state agencies, contains a similar
provision in section C.2 of Attachment A:
A
cost is reasonable if, in its nature and amount,
it does not exceed that which would be incurred
by a prudent person under the circumstances
prevailing at the time the decision was made
to incur the cost. The question of reasonableness
is particularly important when governmental
units or components are predominately federally-funded.
In determining reasonableness of a given cost,
consideration shall be given to:
- Whether
the cost is of a type generally recognized
as ordinary and necessary for the
operation of the governmental unit or the
performance of the Federal award.
- The
restraints or requirements imposed by such
factors as: sound business practices; arms
length bargaining; Federal, State and other
laws and regulations; and, terms and conditions
of the Federal award.
-
Market prices for comparable goods or services.
-
Whether the individuals concerned acted with
prudence in the circumstances considering
their responsibilities to the governmental
unit, its employees, the public at large,
and the Federal Government.
-
Significant deviations from the established
practices of the governmental unit which may
unjustifiably increase the Federal award's
cost.
Grantees
that purchase or reimburse for drugs and fail
to meet the standards in these policy documents
could be subject to negative audit findings, cost
disallowances, and future grant funding offsets.
Annual audits conducted by public accounting firms
are supposed to take account of the requirements
of the grant statement as well as those conducted
by HHS Office of Inspector General (OIG).
No
additional instructions were issued to provide
guidance on the scope and depth of the analysis
that would constitute an assessment that would
be satisfactory to HRSA.
K.
Alternative Method Demonstrations
On
June 18, 2001, then HHS Secretary Thompson announced
a new initiative to help community health centers
and other covered entities to develop methods
of using the 340B Program to improve patient access
to outpatient prescription drugs. Through demonstration
projects, the initiative allows covered entities
to reduce administrative costs and make acquiring
drugs easier for patients. Entities approved for
the demonstrations are able to do one or more
of the following activities:
-
Participate in single purchasing and dispensing
systems that serve covered entity networks
-
Contract with multiple pharmacy services providers;
and
-
Use contracted pharmacy services to supplement
in-house pharmacy services.
Approved
demonstration projects are time limited and must
be evaluated on the basis of benefits provided
as well as on compliance with requirements of
the 340B law. They are focused exclusively on
methods of using the 340B program and do not involve
any increase in grant funds. If the demonstrations
are successful, the new methods of accessing discounted
drugs could be incorporated into HRSA’s
340B guidelines.
Complete
information about the Alternative Method Demonstration
Projects is on the OPA Web site ( ).
Part
II: Guidance for Hemophilia Treatment Centers
A.
Deciding Whether to Submit the
Necessary Information to Become a Covered Entity
A
key element in the decision to register to become
a covered entity is to make an estimate of the
potential financial benefit of participating in
the 340B program. This section presents guidance
for making the assessment of drug purchasing practices
required by the statement in the NGAs for organizations
eligible to participate in 340B.
It
is important to note at the outset that the grant
statement does not require a hemophilia
treatment center (HTC) or grantee to start purchasing
or dispensing outpatient drugs if it does not
already do so. It does not require an HTC to
start acquiring and dispensing factor replacement
products (FRP). However, if an HTC does operate
an FRP program or makes a decision to start an
FRP program, it must determine whether its acquisition
practices meet the Federal requirements referenced
in the grant statement.
OPA
and GSB presume that HTCs participating in the
340B program and its PV are purchasing FRP in
an economical and reasonable manner and do not
need to make a new assessment of their purchasing
practices. This includes HTCs that maintain separate
purchasing records for FRP purchased outside of
340B for their Medicaid patients. However, an
HTC that is participating in 340B but not its
PV does need to make an assessment to determine
whether joining the PV program would bring additional
financial or program benefits.
OPA
and GSB recognize that different HTCs may reach
different conclusions regarding the most economical
and reasonable manner to acquire FRP (e.g., to
participate in both the 340B DPP and its PV, to
participate in the 340B DPP but not its PV, or
to participate in neither.
If
the assessment shows that participating in the
340B program or using its PV would be financially
beneficial, but the organization would prefer
to adopt or retain a more costly alternative,
it needs to document the reasons for reaching
this conclusion.
The
primary use of the assessments of drug purchasing
practices is as input for HTC management during
the process of determining whether to participate
in the 340B program and its PV. Unless requested,
they do not have to be submitted to GSB, OPA,
or HRSA’s grants management office. The
assessments should be retained for examination
during audits conducted by public accounting firms,
the parent organizations oversight staff, or HHS
OIG and for any site visits and reviews made by
GSB or other HRSA field or headquarters staff.
With
regard to becoming a customer of the PV, it does
not appear to offer any significant value to HTCs,
as of mid 2005. Although, to date, the PV has
not been successful in lowering prices on FRP,
it will continue to strive to negotiate advantageous
pricing for 340B participating HTCs. To comply
with the PV part of the assessment, check with
OPA to determine whether this situation
has
changed. If it has not, no further action needs
to be taken. However, if the situation has changed,
an analysis of the potential impact on the HTC’s
FRP acquisition operation should be undertaken.
If the PV can guarantee timely delivery of FRP
in the quantities required, a comparison needs
to be made with the HTC’s current suppliers
and a judgement made concerning the value of becoming
a PV customer.
B.
Submitting the Necessary Information
to Be a Covered Entity
OPA
has standardized the registration process to ensure
that eligible organizations submit the necessary
information when they request to be recognized
as covered entities. It includes the documentation
that the entity meets the statutory requirements
in subsections (5) (A) and (B) of section 340(b).
To get the standard application form (340B Program
Registration Form for Covered Entities), go to
the OPA Web site and click on “Introduction
to the 340B Program” on the home page.
Click on “this form” which will open
an Adobe Acrobat form which can be downloaded
and printed.
Because
GSB must verify an HTC’s status before OPA
adds the HTC to the covered entity database, HTCs
should submit the completed form to GSB through
the appropriate regional grantee. You may also
fax an advance copy to OPA. GSB will provide
the verification and forward the form to OPA.
Following this process will speed up the verification
and keep all involved parties informed of your
request to become a covered entity.
This
form can also be used to update entity information.
C.
Confidential Drug Pricing Information
The
need to protect confidential drug pricing information
is a requirement of the Medicaid rebate program.
For CMS to compute the rebates that manufacturers
owe state Medicaid agencies, manufacturers must
submit quarterly reports regarding their average
manufacturer prices (AMP) and their best prices
(BP). Section 1927 of the Social Security Act
imposes strict confidentiality rules on HHS’s
use of this information.
Manufacturers
determine the 340B discount or rebate by applying
the statutory percentage to AMP or BP, whichever
is lower. OPA gains access to these calculations
through HRSA’s interagency agreement with
CMS and must also observe the confidentiality
protections. The Entity Guidelines, published
on May 14, 1994 (see guideline #3 in Appendix
C), pass these protections on to the covered entities
in section (1) but make it clear that 340B selling
prices provided by wholesalers or manufacturers
are not confidential:
“Confidential
drug pricing information” includes both “BP”
and “AMP.” The quoted price and the actual
price given by the manufacturer to the covered
entity are not confidential.
In
the normal course of operations, HTCs should have
little difficulty maintaining the confidentially
requirements because they do not have access to
AMP or BP data. OPA does not provide any restricted
data to HTCs or any other covered entity. When
inquiries are made concerning the accuracy of
a 340B selling price, OPA never divulges AMP or
BP data.
D.
Avoiding Duplicate Discounts/Rebates
Subsection
(5)(A)(ii) required the Secretary to establish
a mechanism to ensure that covered entities do
not request Medicaid reimbursement for a 340B
drug for which a State agency requests a rebate
under the Medicaid rebate program. The Secretary’s
final mechanism was published on June 16, 1993
and the full text is included in guideline #2
in Appendix C. The application of the mechanism
was further clarified in a notice published on
March 15, 2000 regarding the permissibility of
the Medicaid carve-out. This is also included
in guideline #11 in Appendix C.
The
objective of the mechanism is to ensure that manufacturers
are subject to only one price reduction for any
outpatient drug sale: either a Medicaid rebate
or a 340B discount, but not both. It also seeks
to ensure that Medicaid State agencies do not
miss out on rebates that they are entitled to.
If
an HTC purchases all of its FRP at 340B prices,
it is required to submit its Medicaid provider
number to OPA when it registers as a covered entity.
OPA then passes this number to the appropriate
State agency for its exclusion file so that the
HTC’s FRP purchases are left out of the
agency’s rebate requests to manufacturers.
If
an HTC purchases FRP for its Medicaid patients
at regular market prices and maintains a dual
inventory, it should not submit its Medicaid provider
number when registering as a covered entity.
In this way, the state agency can collect rebates
on the HTC transactions. In either case, manufacturers
are not exposed to more than one price reduction
on each FRP purchase and reimbursement.
E.
Avoiding Drug Diversion
Subsection
(5)(B) of section 340B requires that a covered
entity shall not resell or otherwise transfer
a 340B drug to a person who is not a patient of
the entity. Ensuring that 340B drugs are dispensed
only to the patients of the covered entity is
one of the most important requirements for participating
in the 340B program. Some flexibility in carrying
out this assurance is possible through participation
in an alternative method demonstration project
in which a network is permitted to be treated
as a single covered entity.
Observance
of the prohibition against drug diversion depends
heavily on following the definition of a patient.
This definition was published on October 24, 1996
(see guideline #6 in Appendix C) and reads as
follows:
An
individual is a “patient” of a covered
entity (with the exception of State operated or
funded AIDS drug purchasing assistance programs)
only if:
-
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 thatresponsibility
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 Federally-qualified
health center look-alike status has been provided
to the entity. Disproportionate share hospitals
are exempt from this requirement.
An
individual will not be considered a “patient”'
of the entity for purposes of 340B 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.
An
individual registered in a State operated or funded
AIDS drug purchasing assistance program receiving
financial assistance under title XXVI of the PHS
Act will be considered a “patient”
of the covered entity for purposes of this definition
if so registered as eligible by the State program.
F.
Audit Requirements
Section
340(b)(5)(C) gives manufacturers, at their own
expense, the authority to audit covered entities
that they suspect of non-compliance with the prohibitions
on duplicate discounts/rebates or drug diversion.
The authority must be carried out according to
procedures established by the Secretary. [This
section also refers to similar audits conducted
by the Secretary. This does not supersede the
much broader authority to conduct audits and investigations
which other law provides to HHS OIG or Congress’s
Government Accountability Office (GAO). Based
on this law, the OIG and GAO have the authority
to audit or investigate any aspect of a grantee’s
operation.]
The
procedures adopted by the Secretary to manage
manufacturer audits have been published as a separate
HRSA guideline. (See guideline #8 in Appendix
C.) The procedures require the manufacturer to
present “documentation which indicates that
there is reasonable cause” to suspect non-compliance
as well as a detailed audit workplan to HRSA before
conducting an audit. As of mid 2005, no manufacturer
has made a formal request to conduct an audit
or presented any documentation to support a charge
of drug diversion or actions leading to duplicate
discounts/rebates.
Section
(e) in guideline 1 in Appendix C requires covered
entities to retain records of 340B drug purchases
and any claims for reimbursement for these drugs
submitted to Medicaid State agencies. These records
must be retained and made available in case of
an audit by a manufacturer or the OIG. The normal
standard for how long the records need to be retained
is 3 years from the end of the fiscal year during
which the transactions occurred.
G.
Dispute Resolution
HRSA
has adopted formal procedures for resolving disputes
that may arise among participants in the 340B
program. (See guideline #9 in Appendix C.) Although
these procedures have a broader scope than the
audit guideline, to some extent, they are meant
to provide an alternative to a manufacturer audit.
One of the early steps in the audit process encourages
the manufacturer and the covered entity to move
to the dispute resolution process rather than
proceeding with the development and implementation
of a detailed audit work plan.
Most
important, before the formal dispute resolution
process begins, the parties must attempt, in good
faith, to resolve the dispute informally. At
this stage the disputing parties need to document
the issues and the good faith attempt to resolve
the problems. If this effort fails, this documentation
becomes the starting of the formal resolution
process, possibly leading to the convening of
a committee appointed by the Associate Administrator
for HSB to examine the issues and propose a determination.
Some
of the disputes that could be resolved are:
-
A concern that a manufacturer is charging a
price that exceeds the 340B ceiling price
-
An allegation that a manufacturer is conditioning
the sale of 340B drugs on a covered entity
meeting a requirement not based on the law
-
A manufacturer concern that a covered entity
is dispensing a covered outpatient drug in an
unauthorized service such as inpatient care
-
A covered entity concern that the auditors of
the manufacturer have not abided by the approved
workplan or audit guidelines
-
A wholesaler or distributor will not sell drugs
to a covered entity at 340B prices
As
of mid 2005, no dispute has resulted in use of
the formal resolution process or the establishment
of a committee.
H.
What to Do If Factor Replacement Products Are
Not Available at 340B Prices
Since
the 340B law was enacted in 1992, HTCs have sometimes
experienced problems in acquiring factor at the
340B discount. Some of these problems are the
result of production
difficulties
such as the lead time needed to increase the supply
of new products and others from a poorly worded
provision in the first version of the PPA that
manufacturers signed shortly after 340B was enacted.
The
following is from a letter that the Office of
Pharmacy Affairs (OPA) Director sent to an HTC
in 2001 in response to a question about a problem
acquiring factor at the 340B price from a distributor.
It states HRSA’s policy on delivering 340B
priced products through the drug supply chain:
The
concern that you raise may be the result of
a provision in the PPA that manufacturers signed
when the 340B program was first implemented
in December, 1992. Section II (a)(3) of that
PPA states:
A
manufacturer may, at its option, make the
price computed under this paragraph available
either directly to the covered entity or
to the wholesaler designated by such covered
entity for covered outpatient drugs purchased
by the covered entity.
The
1992 PPA was revised in 1995, and this provision
was not retained. The wording of the 1992 provision
led to some confusion about the manufacturer/wholesaler
relationship. After the 1992 PPA was signed
by most manufacturers, it came to our attention
that manufacturers might be using the option
of direct sale to single out covered entities
from other customers for restrictive conditions
that would undermine the statutory objectives
of Section 340B. To clarify the manufacturer/wholesaler
relationship, HRSA included the following section
in the Entity Guidelines published in a final
FR notice on May 13, 1994 (59 FR
25110, 25113):
Section (c)(10): Dealing Direct or through
a Wholesaler
If
a manufacturer has customarily dealt directly
with a particular covered entity, then requiring
the manufacturer to continue this form of
purchasing with the covered entity is reasonable.
When
dealing directly with a covered entity,
manufacturers must offer covered outpatient
drugs at or below the section 340B discount
prices. If a manufacturer customarily uses
a wholesaler as a means of distribution,
then requiring the manufacturer to continue
this form of purchasing with covered entities
is also reasonable. If the manufacturer’s
drugs are available to covered entities
through wholesalers, the discount must be
made available through that avenue. Manufacturers
may not single out covered entities from
their other customers for restrictive conditions
that would undermine the statutory objective.
Manufacturers must not place limitations
on the transactions (e.g., minimum purchase
amounts) which would have the effect of
discouraging entities from participating
in the discount program.
Thus,
the covered entity may choose to utilize any
purchasing system that a manufacturer may
make available to its customers. It is program
policy that a manufacturer should not single
out covered entities through the use of restrictive
conditions that may limit the entity’s
purchasing options, such as requiring direct
from manufacturer purchasing when that manufacturer
also utilizes wholesalers and distributors
to deliver its products to other customers.
The foregoing statement of 340B program policy
has not changed since it was published in
the May, 1994 FR.
In
brief, HRSA’s policy is that manufacturers
must offer 340B prices to covered entities for
their products no matter what route the payments
take through the drug supply system from the covered
entities to manufacturers. Distributors are subject
to this policy as well as wholesalers.
If
there are problems with a wholesaler or distributor
refusing to provide FRP at 340B prices, the HTC
should always deal with them in a way that does
not jeopardize the health of the people that it
serves. A patient’s health or the quality
of health care should never be compromised because
of a pricing dispute with a drug manufacturer,
wholesaler, or distributor. HRSA also recognizes
that HTCs are not responsible for enforcing the
340B law and the associated pricing policy. However,
an HTC that experiences a situation where a manufacturer,
wholesaler, or distributor appears to be charging
improper prices is responsible for bringing the
facts of the situation to the attention of GSB
and OPA.
An
HTC observing potentially illegal pricing actions
should record the facts of the situation in a
written report to their grantee organization and
to HRSA, MCHB, GSB along with any supporting documentation
that might be available. GSB will review the
report and, if the allegations appear credible,
forward the report and documentation to OPA for
appropriate action. OPA will attempt to resolve
the problem. If that is not possible, OPA will
consult with the Office of General Council (OGC)
and/or the OIG to determine the appropriate course
of action.
I.
Freedom of Choice Regarding FRP
and Avoidance of Conflict of Interest
It
is a requirement of the MCHB National Hemophilia
Program (NHP) that all MCHB funded hemophilia
treatment centers have a “Freedom of Choice”
policy where patients are informed of choices
they have regarding factor replacement products
and where these products might be purchased.
It is important that this policy be exercised
with all patients and it is especially important
that this policy be exercised by MCHB funded hemophilia
treatment centers that sell factor replacement
products since income generated from this activity
is used to further the provision of services by
the hemophilia treatment center. To avoid any
appearance of conflict of interest, patients must
be informed about their choices and be encouraged
to make whatever decision they desire.
J.
Contract Pharmacy Services
In
1996, HRSA published detailed procedures for covered
entities to use contracted pharmacy services to
dispense their 340B drugs. (See Appendix C, guideline
7.) The guideline includes all of the steps needed
to develop a contractual relationship, including
a model contract agreement. A “ship to,
bill to” procedure enables the covered entity
to purchase the drug but have it shipped directly
to the contract pharmacy.
For
manufacturers to recognize the contract pharmacy
as an authorized dispenser of drugs at 340B prices,
it must be included in a OPA database separate
from the covered entity database.
To
get its contracted pharmacy in that database,
a covered entity must submit a notarized self
certification that it has a contractual agreement
in effect. A self-certification form is available
on the OPA Web site to print or download. From
the home page, click on “Contracted pharmacy”
and then “Self-Certification Form.”
It
is not necessary that the contract be with a commercial
pharmacy. It is possible for the in-house pharmacy
in one covered entity to be the contracted pharmacy
for another covered entity. HTCs in networks
or cooperative systems may find such an arrangement
a useful tool in carrying out their programs.
In
structuring the relationship between the HTC and
the contract pharmacy, it is important to pay
close attention to section 3 of the notice regarding
compliance with the Federal Anti-Kickback statute.
Careful adherence to these requirements will avoid
many potential conflict of interest problems.
In addition it is important to make sure that
the management of the contract pharmacy be kept
separate from the management of the hemophilia
treatment center. No employee of the contract
pharmacy should occupy any role or position of
a policy making nature regarding policies of the
hemophilia treatment center.
K.
Billing Private Insurance Carriers
There
is no HRSA guideline regarding billing private
insurance carriers for the provision of 340B drugs
including FRP. HTCs are free to use their own
judgment as they work within the reimbursement
policies of the public and private health insurance
plans they work with. Some critics of HTCs have
recommended that they bill insurance carriers
at 340B prices. However, to do so would require
HTCs to forgo the income that 340B was enacted
to create. But there is another factor that also
needs to be considered, the life-time limits that
many private insurance plans place on reimbursements
for FRP. In using their billing flexibility,
the GSB recommends that HTCs carefully balance
the opportunity for needed income against the
value of extending the duration of the insurance
benefit.
L.
Using 340B Income
Guidance
on the programmatic use of this income is the
responsibility of the office administering the
program and the office awarding the grant within
the rules of the HHS Grants Management Regulation
(GMR) (Part 74 of Title 45 of the Code of Federal
Regulations) and HRSA’s grants policy which
is based on the PHS Grants Policy Statement (GPS).
(This may be superceded in the future by the publication
of a separate HRSA GPS.) These general rules
may be supplemented by specific guidance in the
NGA or by letter from the Grants Management Officer
(GMO) and/or the Associate Administrator for the
Maternal and Child Health Bureau (MCHB).
The
grants awarded to HTCs do not provide funds for
purchasing and dispensing FRP. This is an activity
that many HTCs undertake in addition to the activities
directly supported by their grant funding. Income
received beyond FRP operating costs is then used
to support activities of the same general type
as those supported by the grant awards. In a
letter to grantees dated May 23, 2003, the HRSA
GMO and the Associate Administrator for MCHB clarified
how the grants policy rules on program income
affect the HTCs. In brief, FRP revenue, whether
or not the HTC is a 340B covered entity, is program
income and subject to the rules for that kind
of income in the grant regulation and the policy
statement. The rules apply to both HTC regional
grantees and their affiliates. Program income
needs to be reported on the Financial Status Report
beginning with grant awards for FY 2003. Program
income may be used to reimburse costs provided
by HTC parent institutions. The program income
sections of the regulation and policy statement
are in sections 1 and 2 of Appendix D. The full
text of the letter to grantees is in section 3
of Appendix D.
M.
Role of the OPA
OPA
has the broad responsibility for administering
section 340B of the PHS Act and overseeing the
use of the authority by the programs eligible
for it and the grantees and other entitled organizations
that become covered entities. OPA is responsible
for developing and interpreting, in consultation
with OGC, all official guidance that is published
in the FR. As part of its policy development
function, OPA coordinates with the CMS and the
National Acquisition Center (NAC) of the VA regarding
issues affecting the Medicaid rebate program and
the statutory discount program for direct Federal
health care programs, respectively.
Operationally,
OPA maintains Pharmaceutical Pricing Agreements
with drug manufacturers and databases of eligible
entities, covered entities, and pharmacies having
contracts with covered entities. Primarily through
the PSSC, OPA provides technical assistance to
PHS programs and their grantees to help them make
the most effective use of the 340B authority and
provides advice on effective pharmacy operations.
OPA is also responsible for overseeing the integrity
of the 340B program and carries out this function
in concert with the programs eligible to use the
authority.
In
carrying out its responsibilities, OPA is cognizant
of the responsibility of the program and grants
management offices to be the primary source of
program guidance to their grantees. The resolution
of 340B issues must be carried out within this
context.
N.
Role of the GSB
As
the project office, the GSB is responsible for
developing and overseeing the program policies
governing HTC grants. With respect to 340B, GSB
is responsible for managing the interface between
that authority and HTC program policy and operations.
GSB makes sure that the regional grantees and
the affiliates are aware of the basic features
and requirements of 340B and keep abreast of 340B
program developments and is also a resource for
technical assistance. It coordinates the presentation
of issues that need to be resolved by OPA, HRSA
grants management, or other oversight offices.
As described on page 18 of this document, the
general policy in the drug acquisition regulation
in 42 CFR Part 50, Subpart E (Section 50.503)
states: It is the policy of the Secretary that
program funds which are utilized for the acquisition
of drugs be expended in the most economical manner
feasible. GSB expects HTCs to not only pay attention
to the economical initial cost of FRP, but also
to the economical operation of the FRP program
whether operated through an in-house pharmacy
or through a contract pharmacy. In addition,
GSB has program responsibility to ensure that
grantee/HTC performance including performance
of a FRP program is effective in meeting the needs
of HTC patients. HTCs that do not operate their
FRP programs in an appropriate effective and economical
manner are subject to program requirements being
placed on them by means of conditions being placed
on the Regional Grant.
O.
Role of Regional Grantees
As
the initial recipients of grants for hemophilia
services, Regional Grantees have a general oversight
responsibility for the program policies developed
by MCHB and GSB as clarified by the May 23, 2003
letter to grantees (see Appendix D, section 3).
They have a similar oversight responsibility for
the use of the 340B authority. The Regional Grantees
coordinate the provision of reports on 340B FRP
operations by the HTCs using this authority.
Regional Grantees have a responsibility to be
informed regarding HTC FRP programs in terms of
their general characteristics and have the same
responsibility as GSB to foster the economical
and effective operation of these programs. HTCs
that are interested in looking into starting an
FRP program should contact their Regional Grantee
Program Director or Coordinator to discuss various
possibilities regarding how such a program might
operate. Regional Grantees in turn should contact
their MCHB Grant Project Officer to discuss any
plans for an HTC RFP Program.
Appendix
A: Section 340B of the Public Health Service Act
Title
III, Part D, Subpart VII – Drug Pricing
Agreements
Limitation
on Prices of Drugs Purchased by Covered Entities
340B
(a) Requirements for agreement with Secretary
(1)
In general -- The Secretary shall enter
into an agreement with each manufacturer of
covered drugs under which the amount required
to be paid (taking into account any rebate or
discount, as provided by the Secretary) to the
manufacturer for covered drugs [other than drugs
described in paragraph (3)] purchased by a covered
entity on or after the first day of the first
month that begins after November 4, 1992, does
not exceed an amount equal to the average manufacturer
price for the drug under title XIX of the Social
Security Act in the preceding calendar quarter,
reduced by the rebate percentage described in
paragraph (2).
(2)
Rebate percentage defined
(A) In general -- For a covered outpatient
drug purchased in a calendar quarter, the
"rebate percentage" is the amount
(expressed as a percentage) equal to-- (i)
the average total rebate required under section
1927(c) of the Social Security Act with respect
to the drug (for a unit of the dosage form
and strength involved) during the preceding
calendar quarter; divided by (ii) the average
manufacturer price for such a unit of the
drug during such quarter.
(B) Over the counter drugs
(i)
In general -- For purposes of subparagraph
(A), in the case of over the counter drugs,
the "rebate percentage" shall be determined
as if the rebate required under section
1927(c) of the Social Security Act is based
on the applicable percentage provided under
section 1927(c)(4) of such Act.
(ii)
Definition -- The term "over the counter
drug" means a drug that may be sold without
a prescription and which is prescribed by
a physician (or other persons authorized
to prescribe such drug under State law).
(3)
Drugs provided under State Medicaid plans
-- Drugs described in this paragraph are drugs
purchased by the entity for which payment is
made by the State under the State plan for medical
assistance under title XIX of the Social Security
Act.
(4)
Covered entity defined -- In this section,
the term "covered entity" means an
entity that meets the requirements described
in paragraph (5) and is one of the following:
(A)
A Federally-qualified health center (as
defined in section 1905(l)(2)(B) of the
Social Security Act).
(B)
An entity receiving a grant under section
256(a) of this title.
(C)
A family planning project receiving a grant
or contract under section 1000 of this title.
(D)
An entity receiving a grant under subpart
II of part C of subchapter XXIV of this
chapter (relating to categorical grants
for outpatient early intervention services
for HIV disease).
(E)
A State-operated AIDS drug purchasing assistance
program receiving financial assistance under
subchapter XXIV of this chapter.
(F)
A black lung clinic receiving funds under
section 937(a) of this title.
(G)
A comprehensive hemophilia diagnostic treatment
center receiving a grant under section 501(a)(2)
of the Social Security Act.
(H)
A Native Hawaiian Health Center receiving
funds under the Native Hawaiian Health Care
Act of 1988.
(I)
An urban Indian organization receiving funds
under title V of the Indian Health Care
Improvement Act.
(J)
Any entity receiving assistance under subchapter
XXVI of this chapter [other than a State
or unit of local government or an entity
described in subparagraph (D)], but only
if the entity is certified by the Secretary
pursuant to paragraph (7).
(K)
An entity receiving funds under section
247(c) of this title (relating to treatment
of sexually transmitted diseases) or section
247b(j)(2) of this title (relating to treatment
of tuberculosis) through a State or unit
of local government, but only if the entity
is certified by the Secretary pursuant to
paragraph (7).
(L)
A subsection (d) hospital [as defined in
section 1886(d)(1)(B) of the Social Security
Act] that–
(i) is owned or operated by a unit of
State or local government, is a public
or private non-profit corporation which
is formally granted governmental powers
by a unit of State or local government,
or is a private non-profit hospital which
has a contract with a State or local government
to provide health care services to low
income individuals who are not entitled
to benefits under title XVIII of the Social
Security Act or eligible for assistance
under the State plan under this subchapter;
(ii) for the most recent cost reporting
period that ended before the calendar
quarter involved, had a disproportionate
share adjustment percentage [as determined
under section 1886(d)(5)(F) of the Social
Security Act] greater than 11.75 percent
or was described in section 1886(d)(5)(F)(i)(II)
of such Act; and
(iii) does not obtain covered outpatient
drugs through a group purchasing organization
or other group purchasing arrangement.
(5)
Requirements for covered entities
(A) Prohibiting duplicate discounts or rebates
(i)
In general – A covered entity shall
not request payment under title XIX of the
Social Security Act for medical assistance
described in section 1905(a)(12) of such
Act with respect to a drug that is subject
to an agreement under this section if the
drug is subject to the payment of a rebate
to the State under section 1927 of such
Act.
(ii)
Establishment of mechanism – The Secretary
shall establish a mechanism to ensure that
covered entities comply with clause (i).
If the Secretary does not establish a mechanism
within 12 months under the previous sentence,
the requirements of section 1927(a)(5)(C)
of the Social Security Act shall apply.
(B) Prohibiting resale of drugs – With
respect to any covered outpatient drug that
is subject to an agreement under this subsection,
a covered entity shall not resell or otherwise
transfer the drug to a person who is not a
patient of the entity.
(C) Auditing – A covered entity shall
permit the Secretary and the manufacturer
of a covered outpatient drug that is subject
to an agreement under this subsection with
the entity (acting in accordance with procedures
established by the Secretary relating to the
number, duration, and scope of audits) to
audit at the Secretary's or the manufacturer's
expense the records of the entity that directly
pertain to the entity's compliance with the
requirements described in subparagraphs (A)
or (B) with respect to drugs of the manufacturer.
(D) Additional sanction for noncompliance
– If the Secretary finds, after notice
and hearing, that a covered entity is in violation
of a requirement described in subparagraphs
(A) or (B), the covered entity shall be liable
to the manufacturer of the covered outpatient
drug that is the subject of the violation
in an amount equal to the reduction in the
price of the drug [as described in subparagraph
(A)] provided under the agreement between
the entity and the manufacturer under this
paragraph.
(6) Treatment of distinct units of hospitals
– In the case of a covered entity that is
a distinct part of a hospital, the hospital
shall not be considered a covered entity under
this paragraph unless the hospital is otherwise
a covered entity under this subsection.
(7)
Certification of certain covered entities
(A) Development of process – Not later
than 60 days after November 4, 1992, the Secretary
shall develop and implement a process for
the certification of entities described in
subparagraphs (J) and (K) of paragraph (4).
(B)
Inclusion of purchase information –
The process developed under subparagraph (A)
shall include a requirement that an entity
applying for certification under this paragraph
submit information to the Secretary concerning
the amount such entity expended for covered
outpatient drugs in the preceding year so
as to assist the Secretary in evaluating the
validity of the entity's subsequent purchases
of covered outpatient drugs at discounted
prices.
(C) Criteria – The Secretary shall make
available to all manufacturers of covered
outpatient drugs a description of the criteria
for certification under this paragraph.
(D) List of purchasers and dispensers –
The certification process developed by the
Secretary under subparagraph (A) shall include
procedures under which each State shall, not
later than 30 days after the submission of
the descriptions under subparagraph (C), prepare
and submit a report to the Secretary that
contains a list of entities described in subparagraphs
(J) and (K) of paragraph (4) that are located
in the State.
(E) Recertification – The Secretary
shall require the recertification of entities
certified pursuant to this paragraph on a
not more frequent than annual basis, and shall
require that such entities submit information
to the Secretary to permit the Secretary to
evaluate the validity of subsequent purchases
by such entities in the same manner as that
required under subparagraph (B).
(8)
Development of Prime Vendor program –
The Secretary shall establish a Prime Vendor
program under which covered entities may enter
into contracts with Prime Vendors for the
distribution of covered outpatient drugs.
If a covered entity obtains drugs directly
from a manufacturer, the manufacturer shall
be responsible for the costs of distribution.
(9)
Notice to manufacturers – The Secretary
shall notify manufacturers of covered outpatient
drugs and single State agencies under section
1902(a)(5) of the Social Security Act of the
identities of covered entities under this
paragraph, and of entities that no longer
meet the requirements of paragraph (5) or
that are no longer certified pursuant to paragraph
(7).
(10)
No prohibition on larger discount – Nothing
in this subsection shall prohibit a manufacturer
from charging a price for a drug that is lower
than the maximum price that may be charged
under paragraph (1).
(b)
Other definitions – In this section, the
terms "average manufacturer price",
"covered outpatient drug", and "manufacturer"
have the meaning given such terms in section
1927(k) of the Social Security Act.
(c)
References to Social Security Act – Any
reference in this section to a provision of
the Social Security Act shall be deemed to be
a reference to the provision as in effect November
4, 1992.
(d)
Compliance with requirements – A manufacturer
is deemed to meet the requirements of subsection
(a) of this section if the manufacturer establishes
to the satisfaction of the Secretary that the
manufacturer would comply (and has offered to
comply) with the provisions of this section
(as in effect immediately after November 4,
1992), as applied by the Secretary, and would
have entered into an agreement under this section
(as such section was in effect at such time),
but for a legislative change in this section
(or the application of this section) after November
4, 1992.
Appendix
B: Current Standard Pharmaceutical
Pricing Agreement between the Department of Health
and Human Services and Drug Manufacturers
PHARMACEUTICAL
PRICING AGREEMENT (hereinafter referred to as
the "Agreement") Between THE SECRETARY
OF HEALTH AND HUMAN SERVICES (hereinafter referred
to as the "Secretary") and THE MANUFACTURER
Identified
in Section IX of this Agreement (hereinafter
referred to as the "Manufacturer")
The
Secretary, on behalf of the Department of Health
and Human Services, and the Manufacturer for purposes
of section 602 of the Veterans Health Care Act
of 1992, Public Law No. 102-585, which enacted
section 340B of the Public Health Service Act
(hereinafter referred to as "the Act"),
42 U.S.C. 256b, hereby agree to the following:
I.
Definitions
The
terms defined in this section will, for the purposes
of this agreement, have the meanings specified
in the Act and section 1927(k) of the Social Security
Act, as interpreted and applied herein:
(a)
"Average Manufacturer Price (hereinafter
referred to as the "AMP")"
means the average unit price paid to the Manufacturer
for the drug in all States by wholesalers for
drugs distributed to the retail pharmacy class
of trade, after deducting customary prompt pay
discounts (excluding direct sales to hospitals,
health maintenance organizations and to wholesalers
where the drug is relabeled under the distributor's
national drug code number). Federal Supply Schedule
prices are not included in the calculation of
AMP. AMP includes cash discounts allowed and
all other price reductions (other than rebates
under section 1927 of the Social Security Act),
which reduce the actual price paid. It is calculated
as a weighted average of each drug of prices
for all the Manufacturer's package sizes for
each calendar quarter. Specifically, it is calculated
as net sales divided by the numbers of units
sold, excluding free goods (i.e., drugs or any
other items given away, but not contingent on
any purchase requirements). For bundled sales,
the allocation of the discount is made proportionately
to the dollar value of the units of each drug
sold under the bundled arrangements. The AMP
for a calendar quarter must be adjusted by the
Manufacturer, if cumulative discounts or other
arrangements subsequently adjust the prices
actually realized.
(b)
"Best Price" has the meaning given
it in section 1927(c)(1)(C) of the Social Security
Act, and section I(d) of the Medicaid Rebate
Agreement.
(c)
"Bundled Sale" refers to the packaging
of drugs of different types where the total
price for the package is less than the purchase
price of the drugs, if purchased separately.
(d)
"Covered Drug" means an outpatient
drug as set forth in section 1927(k) of the
Social Security Act. For purposes of coverage
under the Agreement, all covered outpatient
drugs are identified by the NDC number.
(e)
"Covered Entity" means:
(1)
certain Public Health Service grantees, "look
alike" Federally Qualified Health Centers
and disproportionate share hospitals as described
in section 340B(a)(4) of the Act; and
(2)
in the case of a covered entity that is a
distinct part of a hospital, the hospital
itself shall not be considered a covered entity
unless it meets the requirements of section
340B(a)(4)(L) of the Act, as determined by
the Secretary.
(f)
"Manufacturer" has the meaning
as set forth in section 1927(k)(5) of the Social
Security Act except that, for purposes of the
Agreement, it shall also mean the entity holding
legal title to or possession of the NDC number
for the covered outpatient drug. The term includes:
(1)
any Manufacturer who sells covered outpatient
drugs to covered entities, whether or not
the Manufacturer participates in the Medicaid
rebate program; and
(2)
any contractors which fulfill the responsibilities
pursuant to the Agreement, unless excluded
by the Secretary.
(g)
"Centers for Medicare and Medicaid Services
(CMS) (formerly the Health Care Financing Administration)"
means the agency of the Department of Health
and Human Services having the delegated authority
to administer the Medicaid and Medicare Programs.
(h)
"Medicaid Rebate Program and Medicaid Rebate
Agreement" mean, respectively, the
program, and a signed agreement between the
Secretary and the Manufacturer, to implement
the provisions of section l927 of the Social
Security Act.
(i)
"National Drug Code (NDC)" means
the identifying drug number maintained by the
Food and Drug Administration (FDA). For purposes
of the Agreement, the NDC number will be used
including labeler code (which is assigned by
the FDA and identifies the establishment), product
code (which identifies the specified product
or formulation), and package size code when
reporting requested information.
(j)
"Over the Counter Drug" means
a drug that may be sold without a prescription
and which is prescribed by a physician (or other
persons authorized to prescribe such drugs under
State law).
(k)
"Quarter" means a calendar quarter
unless otherwise specified.
(l)
"Rebate Percentage" means an amount
(expressed in a percentage) equal to the average
total rebate required under section 1927(c)
of the Social Security Act with respect to each
dosage, form, and strength of a single source
or innovator multiple source drug during the
preceding calendar quarter; divided by the AMP
for such a unit of the drug during such quarter.
(m)
"the Secretary" means the Secretary
of Health and Human Services, or any successor
or thereto, or any officer or employee of the
Department of Health and Human Services or successor
agency to whom the authority to implement this
agreement has been delegated.
(n)
"Unit of the Drug" means a
drug unit in the lowest identifiable amount
(e.g., tablet or capsule for solid dosage forms,
milliliter for liquid forms, gram for ointments
or creams). The Manufacturer will specify the
unit associated with each covered outpatient
drug, as part of the submission of data, in
accordance with the Secretary's instructions
provided pursuant to Section II of the Agreement.
(o)
"Wholesaler" means any entity,
having a wholesale distributor's license, to
which a Manufacturer sells the covered outpatient
drug, but which does not relabel or repackage
the covered outpatient drug.
II.
Manufacturer's Responsibilities
Pursuant
to requirements under section 340B of the Act,
the Manufacturer agrees to the following:
(a)
for single source and innovator multiple source
drugs, to charge covered entities a price for
each unit of the drug that does not exceed an
amount equal to the AMP for the covered outpatient
drug reported (or which would have been reported
had the Manufacturer participated in the Medicaid
rebate program) to the Secretary in accordance
with the Manufacturer's responsibilities under
section 1927(b)(3) of the Social Security Act,
reduced by the rebate percentage;
(b)
for multiple source, noninnovator multiple source,
and over the counter drugs, the AMP is reduced
by 11 percent, as described in 1927(c)(3)(B)(ii)
of the Social Security Act;
(c)
for those Manufacturers that do not have a reporting
requirement under section 1927(b)(3) of the Social
Security Act for covered outpatient drugs, to
submit to the Secretary upon request, a list of
such covered outpatient drugs, and the AMP, baseline
AMP, and the Best Price of such covered outpatient
drugs;
(d)
to retain all records that may be necessary to
provide the information described in paragraph
(c) of this section for not less than 3
years from the date of their creation;
(e)
to afford the Secretary or his designee reasonable
access to records of the Manufacturer relevant
to the Manufacturer's compliance with the terms
of the Agreement;
(f)
to permit CMS to share AMP and unit rebate amount
submitted under the Medicaid Rebate Agreement
on covered outpatient drugs with the Secretary
or his designee for purposes of carrying out the
Agreement; and
(g)
to participate in the Public Health Service
Prime Vendor Program as provided by section 340B(a)(8)
of the Act unless otherwise agreed to by the Secretary.
III.
SECRETARY'S RESPONSIBILITIES
Pursuant to the requirements under section 340B
of the Act, the Secretary agrees to the following:
(a)
to make available a list of covered entities
on the HRSA, Office of Pharmacy Affairs web
site, or otherwise, for access by participating
Manufacturers, covered entities, State Medicaid
agencies, and the general public. This information
will be updated, to the extent practicable,
on a quarterly basis;
(b)
with respect to a covered entity that bills
Medicaid using a cost basis for drug purchases,
to require the entity to submit its pharmacy
Medicaid provider number. The Secretary shall
provide respective State Medicaid agencies with
the list of such entities and their Medicaid
provider numbers. Based on these provider numbers,
the State agencies will create an exclusion
file which will exclude data from these entities
when generating Medicaid rebate requests.
(c)
to require each covered entity to retain
purchasing and dispensing records of covered
outpatient drugs under the Agreement and of
any claims for reimbursement submitted for such
drugs under Title XIX of the Social Security
Act for not less than 3 years.
IV.
DISPUTE RESOLUTION
(a)
If the Manufacturer believes that a covered
entity has violated the prohibition against
resale or transfer of covered outpatient drugs,
section 340B(a)(5)(B), or the prohibition against
duplicate discounts or rebates, section 340B(a)(5)(A),
the Manufacturer can access elective dispute
resolution process in the following manner:
(1)
The Manufacturer shall attempt in good faith
to resolve the matter with the covered entity.
(2)
If unable to resolve the dispute, the Manufacturer
may provide written notice of the discrepancy
to the Secretary.
(3)
The Secretary, at his discretion, will initiate
an informal dispute resolution process.
(4)
If the Secretary finds, after conclusion of
the dispute resolution process that the entity
is in violation of such prohibitions, the entity
shall be liable to the Manufacturer of the covered
outpatient drug that is the subject of the violation
in an amount equal to the reduction in the price
of the drug as described in section II
(a)
of the Agreement. Pursuant to section 340(B)(a)(4)
which states that "the term "covered entity"
means an entity that meets the requirements
described in paragraph 5...,". The covered entity
could also be removed from the list of eligible
entities.
(b)
The Manufacturer may challenge the presence
of an entity on the list of eligible entities
issued by the Secretary. Upon presentation of
appropriate information documenting the entity's
ineligibility, the Secretary shall take such
steps as necessary to carry out his responsibilities
under paragraph III(a) of the Agreement.
(c)
If the Secretary believes that the Manufacturer
has not complied with the provisions of the
Agreement, or has refused to submit reports,
or has submitted false information pursuant
to the Agreement, the Secretary, at his discretion,
may initiate the informal dispute resolution
process. If so found, the Secretary may require
the Manufacturer to reimburse the entity for
discounts withheld and can also terminate the
Agreement. A Manufacturer who does not have
an agreement with the Secretary pursuant to
the Act, will no longer be deemed to meet the
requirements of section 1927(a)(5)(A) of the
Social Security Act.
(d)
A covered entity's failure to comply with the
audit requirement pursuant to section 340B(a)(5)(C)
of the Act shall be cause for the Manufacturer
to notify the Secretary or his designee and
for the Secretary to initiate the informal dispute
resolution process. Such action will not relieve
the Manufacturer from its obligation to conform
to the pricing requirements as provided in section
340B(a) of the Act and the Agreement.
(e)
Nothing in this paragraph shall preclude the
Manufacturer or the Secretary from exercising
such other remedies as may be available by law.
V.
CONFIDENTIALITY PROVISIONS
(a)
Information disclosed by the Manufacturer
in connection with the Agreement, except as otherwise
required by law, will not be disclosed by the
Secretary or his designee in a form which reveals
the Manufacturer, except as necessary to carry
out the provisions of section 340B of the Act,
and to permit review by the Comptroller General.
(b)
The Manufacturer will hold audit information obtained
from the covered entities confidential. If the
Manufacturer receives further information on such
data, that information shall also be held confidential.
Nothing in this paragraph shall preclude the Manufacturer
from making such information available to the
Secretary to enable the Secretary to carry out
the provisions of section 340B of the Act.
VI.
NONRENEWAL AND TERMINATION
(a)
Unless otherwise terminated by either party pursuant
to the terms of the Agreement, the Agreement shall
be effective for an initial period of 1 year,
beginning on the date specified in section IX
of the Agreement. It shall be automatically renewed
for additional successive terms of 1 year unless
the Manufacturer gives written notice of intent
not to renew the Agreement at least 90 days before
the end of the applicable period.
(b)
The Manufacturer may terminate the Agreement for
any reason. Such termination shall become effective
the latter of the first day of the first calendar
quarter beginning 60 days after the Manufacturer
gives written notice requesting termination, and
the ending date of the term of the Agreement,
if notice has been given 90 days before the end
of the term.
(c)
The Secretary may terminate the Agreement for
a violation of the Agreement or other good cause
upon 60 days prior written notice to the Manufacturer
of the existence of such violation or other good
cause. The Secretary shall provide the Manufacturer,
upon request, the opportunity to participate in
an informal dispute resolution process concerning
the termination, but such a process shall not
delay the effective date of the termination. Disputes
arising under a contract between a Manufacturer
and a covered entity should be resolved according
to the terms of that contract. Actions taken by
the parties in such disputes are not grounds for
termination of the Agreement with the Secretary,
except to the extent that there is a violation
of the provisions of the Agreement.
(d)
If the Agreement is not renewed or is terminated,
the Manufacturer is prohibited from entering into
another Agreement as provided in section 340B
of the Act until a period of one complete calendar
quarter has elapsed from the effective date of
the termination, unless the Secretary finds good
cause for earlier reinstatement.
(e)
Any nonrenewal or termination will not affect
the ceiling price under paragraph II(a) for any
covered outpatient drug purchased before the effective
date of termination.
VII.
GENERAL PROVISIONS
(a)
Any notice required to be given pursuant to the
terms and provisions of the Agreement will be
sent in writing.
(1)
Notice to the Secretary will be sent to:
Health
Resources and Services Administration
Attn:
Office of Pharmacy Affairs
5600
Fishers Lane, Room 10C-03
Rockville,
Maryland 20857
(2)
Notice concerning data transfer and information
systems issues is to be sent to the same address
listed above (section VII(a)(1) of this Agreement).
(3)
Notice to the Manufacturer will be sent to the
address as provided with the Agreement and updated
upon Manufacturer notification to the Secretary
at the address in the Agreement.
(b)
The Manufacturer will be permitted to audit the
records of each covered entity -
(1)
that directly pertain to the entity's compliance
with the prohibition on -
(A)
the resale or other transfer of covered outpatient
drugs to persons not patients of the entity,
section 340B(a)(5)(B), and
(B)
duplicate discounts pertaining to the rebate
under section l927 of the Social Security
Act, section 340B(a)(5)(A);
(2)
in accordance with procedures established by
the Secretary relating to the number, duration,
and scope of audits; and
(3)
at the Manufacturer's expense.
(c)
No provision in the Agreement shall prohibit the
Manufacturer from charging a price for a drug
that is lower than the ceiling price as described
in section II(a) of the Agreement.
(d)
In the event of a transfer in ownership of
the Manufacturer, the Agreement is automatically
assigned to the new owner.
(e)
Nothing in the Agreement will be construed to
require or authorize the commission of any act
contrary to law. If any provision of the Agreement
is found to be invalid by a court of law, the
Agreement will be construed in all respects as
if any invalid or unenforceable provisions were
eliminated, and without any effect on any other
provision.
(f)
Nothing in the Agreement shall be construed as
a waiver or relinquishment of any legal rights
of the Manufacturer or the Secretary under the
Constitution, the Act, or Federal laws, or State
laws.
(g)
The Agreement shall be construed in accordance
with Federal common law, and ambiguities shall
be interpreted in the manner which best effectuates
the statutory scheme.
Except
for changes of address, the Agreement will not
be altered except by an amendment in writing signed
by both parties. No person is authorized to alter
or vary the terms unless the alteration appears
by way of a written amendment, signed by duly
appointed representatives of the Secretary and
the Manufacturer.
(i)
In the event that a due date falls on a weekend
or Federal holiday, items will be due on the
first business day following that weekend or
Federal holiday.
VIII.
EFFECTIVE DATE
The Agreement will be effective upon signing but
will in no way alter the effective date upon which
drug discounts were to be given to covered entities
under any previously signed Pharmaceutical Pricing
Agreement between The Secretary of Health and
Human Services and The Manufacturer.
IX.
SIGNATURES
FOR
THE SECRETARY OF HEALTH AND HUMAN SERVICES
By:
Title:
Administrator
Health
Resources and Services Administration
Date:
ACCEPTED
FOR THE MANUFACTURER
I
certify that I have made no alterations, amendments,
or other changes to this pricing agreement.
By:
(Type
or print name)
Title:
Name
of Manufacturer:
Manufacturer
Address:
Phone
Number:
Manufacturer
Labeler Code(s):
Contact
Person:
Title:
Phone
No:
Date:
Appendix
C: Compilation of Published Guidelines for the
Drug Pricing Program
(Dates
indicate when final notices were published in
the Federal Register)
(Excludes
responses to comments on proposed notices)
1.
General Guidance (February 11, 1993)
Section
340B provides that a manufacturer who sells covered
outpatient drugs to eligible entities must sign
a pharmaceutical pricing agreement (the "Agreement")
with the Secretary of Health and Human Services
(the "Secretary") in which the manufacturer
agrees to charge a price for covered outpatient
drugs that will not exceed the average manufacturer
price ("AMP") decreased by a rebate
percentage. This notice advises manufacturers
and covered entities of the terms of the Agreement,
describes the criteria for the certification process
required of certain entities, and alerts manufacturers
who have not received an Agreement by mail of
the manner in which to request one.
Section
340B was effective with respect to drug purchases
on or after December 1, l992. Agreements signed
after that date are effective for purchases of
covered outpatient drugs retroactive to December
1, 1992, for those entities included on the initial
list of covered entities mailed to each manufacturer.
For manufacturers that have not received an Agreement
by mail, a written request for an Agreement should
be submitted to the Drug Pricing Program within
30 days from the date of publication of this notice.
I.
Introduction
The
Act was designed to establish price controls to
limit the cost of drugs to Federal purchasers
and to certain grantees of Federal agencies.
In 1990, Congress identified a problem with increasing
drug prices and enacted the Omnibus Budget Reconciliation
Act of 1990. This attempt at drug price control
focused only on the Medicaid program and established
a best-price policy. Under the Medicaid drug
rebate program, pharmaceutical manufacturers initially
gave State Medicaid agencies the greater of a
minimum 12.5 percent flat rebate of the average
manufacturer price (AMP) or the difference between
the AMP and the best price paid by the customer
for single source or innovator multiple source
drugs. To provide a phase-in period, the rebate
amount was capped at a specific percentage of
the AMP which increased from 1991 through 1993.
Generic manufacturers gave States a 10 percent
of AMP flat rebate which will increase to 11 percent
in 1994. The Veterans Health Care Act is an
attempt to provide Federal purchasers with a process
whereby they will receive drug discounts or rebates.
Section 601 of Pub. L. 102-585 amends the Medicaid
rebate program, section 602 provides drug discounts
primarily to certain grantees of the Public Health
Service, and section 603 enacts a drug discounting
process administered by the Department of Veterans
Affairs for the benefit of several Federal agencies.
This guidance addresses the program enacted by
section 602.
II.
Covered Entities
(a)
Current Covered Entities
Section
602 of Public Law 102-585 enacted a new section
340B of the Public Health Service Act. Pursuant
to this new section, eligible entities are as
follows (except as otherwise indicated, references
are to sections of the Public Health Service Act):
1. Federally-qualified health centers
(migrant, community and homeless health centers)
as defined in section 1905(l)(2)(B) of the Social
Security Act, 42 U.S.C. 1396(d).
(f)
Health chichenters
for residents of public housing funded under
section 340A, 42 U.S.C. 256(a).
(g)
Family planning projects receiving grants
or contracts under section 1001, 42 U.S.C.
300.
(h)
An entity receiving a grant for outpatient
early intervention services for HIV disease
under subpart II of part C of title XXVI,
42 U.S.C. 300ff-51 et seq.
(i)
A State-operated AIDS drug purchasing assistance
program receiving financial assistance under
section 2616 of the Act, 42 U.S.C. 300ff-26.
(j)
A black lung clinic receiving funds under
section 427(a) of the Black Lung Benefits
Act, 30 U.S.C. 937(a).
(k)
A comprehensive hemophilia diagnostic treatment
center receiving a grant under section 501(a)(2)
of the Social Security Act, 42 U.S.C. 701(a)(2).
(l)
A Native Hawaiian Health Center receiving
funds under the Native Hawaiian Health Care
Act of 1988, 42 U.S.C. 11701 et seq.
(m)
An urban Indian organization receiving funds
under title V of the Indian Health Care Improvement
Act, 25 U.S.C. 1651 et seq.
(n)
Any entity, certified by the Secretary, receiving
assistance under title XXVI of the Act, 42
U.S.C. 300ff et seq., (other than a State
or unit of local government or an entity described
in #4).
(o)
Any entity, certified by the Secretary, receiving
funds relating to the treatment of sexually
transmitted diseases under section 318, 42
U.S.C. 247(c), or relating to the treatment
of tuberculosis under section 317(j)(2), 42
U.S.C. 247(b), through a State or unit of
the local government.
(p)
A "disproportionate share" hospital
as defined in section 1886(d)(1)(B) of the
Social Security Act, which (for the most recent
cost reporting period that ended before the
calendar quarter involved) had a disproportionate
share adjustment greater than 11.75 percent,
and which is
(1) owned or operated by a State or local
government, (2) a public or private nonprofit
corporation formally granted governmental
powers by a State or local government, or
(3) a private nonprofit hospital with a State
or local government contract to provide health
services to low income individuals who are
not entitled to benefits under Medicare or
eligible for assistance under the State plan.
The discount need not be provided for drugs
which the hospital obtains through a group
purchasing arrangement.
In
the case of a covered entity that is a distinct
part of a hospital, the hospital shall not be
considered a covered entity unless the hospital
is otherwise a covered entity, i.e., it meets
the requirements of a disproportionate share hospital
as determined by the Secretary under section 340B(a)(4)(L).
(b)
Certification
Certain
covered entities must be certified by the Secretary
before they become eligible for the discount drug
prices, section 340B(a)(7) of the Public Health
Service Act. The entities requiring certification
are those that -
(a)
receive grant funds related to the treatment
of sexually transmitted diseases through a state
or local government under section 318 of the
Public Health Service Act, 42 U.S.C. 247(c),
(b)
receive grant funds related to the treatment
of tuberculosis through a state or local government
under section 317(j)(2) of the Public Health
Service Act, 42 U.S.C. 247(b), and
(c)
are receiving assistance under title XXVI of
the Public Health Service Act, 42 U.S.C. 300ff
et seq., other than a State or unit of local
government or grantee for HIV outpatient early
intervention services (subpart II of part C
of title XXVI of the Public Health Service Act).
The
criteria for eligibility include State certification
that the entity does receive Federal grant funds
and is an entity described in (a), (b), or (c)
above. Information concerning the amount each
entity expended for outpatient drugs in the preceding
fiscal year (October 1, 1991, to September 30,
l992) is also required. These amounts are necessary
to assist the Secretary in evaluating the validity
of subsequent purchases of outpatient drugs at
the discounted prices.
The
respective Public Health Service program directors
for these entities have been asked to compile
a list of the covered entities in their programs
and include for each entity the estimated amount
of outpatient drug purchases in the preceding
year. They are asked to send this list and a form
certification letter to the respective State program
directors so that the State may certify the accuracy
of the list.
The
States are asked to return the certification letters
to the respective Public Health Service program
directors. These letters, along with the drug
purchasing information, will be kept on file so
that they can be used for audit purposes.
In
addition, section 340B(a)(7)(E) of the Public
Health Service Act requires a certification process
of these same entities. The respective Public
Health Service program directors will compile,
on an annual basis, a list of eligible entities
for the above categories (a), (b), and (c), will
estimate the amount of outpatient drug purchases
for each listed entity during the preceding fiscal
year, and will include a recertification letter
and the newly compiled list of entities in the
grant renewal package for each State program director
to complete and return.
(c)
Possible Future Covered Entities
Section
340B also requires the Secretary to conduct a
study concerning entities that receive funds from
a State for mental health and substance abuse
treatment services under subparts I or II of part
B of title XIX of the Public Health Service Act
or under title V of such Act; or receive funds
from a State under title V of the Social Security
Act for outpatient maternal and child health services.
The Secretary is directed to determine the feasibility
of awarding these entities eligibility status
and to submit this report to Congress by November
4, 1993.
III.
Covered Drugs
Covered
drugs are outpatient drugs as defined in section
1927(k) of the Social Security Act. Section 1927(k)(2)
generally includes within this term (a) a drug
which can only be dispensed upon prescription,
and (1) which has been approved for safety and
effectiveness under section 505 or 507 of the
Federal Food, Drug, and Cosmetic Act, or (2) which
was used or sold commercially in the United States
before the enactment of the Drug Amendments of
1962 (or identical, related, or similar to such
a drug) and which has not been the subject of
a final determination by the Secretary that it
is a "new drug," or (3) which is described
in section 107(c)(3) of the Drug Amendments of
1962 and for which the Secretary has determined
that there is a compelling justification of its
medical need and for which the Secretary has not
issued a notice of opportunity for hearing on
a proposed order to withdraw approval of an application
for such a drug because the drug is less than
effective for some or all of its labeled indications;
(b) a prescribed biological product other than
a vaccine, licensed under section 351 of the Public
Health Service Act, and produced at an establishment
licensed under such section to produce such a
product; (c)insulin, certified under section 506
of the Federal Food, Drug, and Cosmetic Act; and
(d) an over-the-counter drug, if it is prescribed
by a person authorized to prescribe such a drug
under State law.
Pursuant
to the limiting definition of section 1927(k)(3)
of the Social Security Act, a covered outpatient
drug does not include any drug, biological product,
or insulin provided as part of, or incident to
and in the same setting as, any of the following
(and for which payment is made as part of payment
for the following and not as direct reimbursement
for the drug): (a) inpatient hospital services;
(b) hospice services; (c) dental services, except
drugs for which the State Medicaid plan authorizes
direct reimbursement to the dispensing dentist;
(d) physicians' services; (e) outpatient hospital
service emergency room visits; (f) nursing facility
services; (g) other laboratory and x-ray services;
and (h) renal dialysis. A covered outpatient drug
does not include any such drug or product which
is used when there is no medically accepted indication.
IV.
Calculation of the Drug Price
To
determine the price for a covered outpatient drug,
the manufacturer shall calculate the average manufacturer
price (AMP) for the drug and reduce it by the
rebate percentage. Average manufacturer price
is the average price paid to the manufacturer
for the drug in the United States by wholesalers
for the drug distributed to the retail pharmacy
class of trade in the calendar quarter. The rebate
percentage is the total per unit Medicaid rebate
amount, section 1927(c)(1) and (2) of the Social
Security Act , for the particular drug divided
by the AMP. The Medicaid rebate calculation utilizes
Best Price information which considers the lowest
price available at which the manufacturer sells
the covered outpatient drug to any wholesaler,
retailer, nonprofit entity, or governmental entity
within the United States in any pricing structure
(as defined in section I(b) of the Pharmaceutical
Pricing Agreement).
To
calculate the price for an over-the-counter or
generic drug, the rebate percentage will be determined
as if the rebate required under 1927(c) of the
Social Security Act is based upon the percentages
provided in section 1927(c)(4) of the same Act
(i.e. , calendar quarters between January 1, 1991
and December 31, 1993 = 10 percent and calendar
quarters beginning on or after January 1, 1994
= 11 percent).
V.
Manufacturers' Information
(a) Effective Date of Implementation
Because
the effective date of section 340B of the Public
Health Service Act with respect to drug purchases
is December 1, l992, and all Agreements signed
with entities included on the initial list of
covered entities are effective retroactive to
that date, manufacturers should incorporate
these pricing limitations in dealings with covered
entities as of that date. If the manufacturer
finds that a price adjustment is required, the
manufacturer shall calculate any rebate (or
credit) necessary to account for sales between
December 1, l992, and the date of the Agreement
and shall either remit the rebate to the entity
(or provide for the credit). Additional eligible
entities, later included in the updated lists,
will be eligible for drug discounts only for
purchases on and after the date of their inclusion
on the list.
(b)
Definition of Manufacturer
The
term "Manufacturer" has the meaning
as set forth in section 1927(k)(5) of the Social
Security Act and includes all entities engaged
in -
(1)
the production, preparation, propagation,
compounding, conversion, or processing of
prescription drug products, either directly
or indirectly by extraction from substances
of natural origin, or independently by means
of chemical synthesis, or by a combination
of extraction and chemical synthesis, or
(2)
the packaging, repackaging, labeling, relabeling,
or distribution of prescription drug products.
A manufacturer must hold legal title to or
possession of the NDC number for the covered
outpatient drug. Such term does not include
a wholesale distributor of drugs or a retail
pharmacy licensed under State law.
"Manufacturer"
also includes an entity, described in (1)
or (2) above, that sells outpatient drugs
to covered entities, whether or not the manufacturer
participates in the Medicaid rebate program.
Furthermore, the Pharmaceutical Pricing Agreement
provides that the term also includes any contractor
who fulfills the responsibilities pursuant
to the Public Health Service drug pricing
agreement.
The
Department is aware that many covered entities
purchase drugs from wholesalers, rather than
directly from manufacturers. Manufacturers
shall take the steps necessary to ensure that
the discounts required by this legislation
are passed through the wholesalers to the
covered entities.
(c) Pharmaceutical Pricing Agreement
A
manufacturer must sign an Agreement with the Department
agreeing not to charge a covered entity a price
for a covered outpatient drug exceeding the AMP
of the drug decreased by the rebate percentage.
Signing the Agreement does not prohibit a manufacturer
from charging a price for a covered outpatient
drug that is lower than the maximum price that
can be charged.
The
Department mailed the Agreements December 15,
1992, priority mail, and requested, for participation
in the discount program, a return of the signed
agreement by January 6, 1993. If a manufacturer
did not receive a copy of the Agreement, it must
contact OPA at the address specified in the "Further
Information" section of this notice within
30 days from the date of publication of this notice.
(d) List of Eligible Covered Entities
A
list of eligible covered entities has been mailed
to each manufacturer along with the Agreement,
and this list will be updated at least annually.
Timely notification of additions to and deletions
from the list of eligible covered entities will
also be provided. A list of eligible subgrantees
will be made available at a later date. The requirement
for retroactive adjustments to December 1, l992,
will not apply to covered entities not included
on the initial list.
(e) Drug Pricing Information Access
Those
manufacturers that do not have a reporting requirement
under section 1927(b)(3) of the Social Security
Act for covered outpatient drugs must agree to
submit, upon request, to the Department a list
of all covered outpatient drugs purchased by covered
entities, the average manufacturer prices (AMP),
baseline AMP, Best Price calculations (if relevant),
and information concerning the prices of the covered
outpatient drugs distributed through a wholesaler.
The manufacturer must further maintain all records
relevant to the generation of these reports for
a period of 3 years from the date of their creation.
The Department will have reasonable access to
the records of all participating manufacturers
relevant to the manufacturer's compliance with
the terms of the Agreement. Upon request, the
Centers for Medicare and Medicaid Services (CMS)
will share AMP and (if relevant) Best price information
submitted under the Medicaid Rebate Agreement
on covered drugs with the Secretary or her designee
for the purpose s of carrying out the agreement.
(The reporting and record-keeping requirements
of this section are subject to the Office of Management
and Budget (OMB) clearance under the Paperwork
Reduction Act of 1980, 44 U.S.C. 3501-3520, and
will not be implemented until such clearance has
been obtained.)
(f)
Drug Utilization Information Access
A
manufacturer will be permitted to audit the records
of covered entities that directly pertain to a
prohibition on the resale of drugs to persons
not patients of the entity and a prohibition on
possible duplicate discounts (i.e., Medicaid rebates,
coupled with discounts allowable under the Act).
This audit must be in accordance with procedures
established by the Department relating to number,
duration, and scope of audits and will be at the
manufacturer's expense.
(g) Penalty Provisions
Pursuant
to section 1927(a)(5)(A) of the Social Security
Act, a manufacturer who does not sign, and keep
in effect, an Agreement will not have met the
requirements of section 1927(a)(5)(A).
If
the Department finds, after notice and a hearing,
that a manufacturer has failed to comply with
the pricing requirement of section II(a) of this
Agreement, has refused to submit drug pricing
information requested by the Department, or has
submitted false information, the Agreement will
be terminated. As applicable, other penalties
will be imposed.
VI.
Covered Entities' Information
(a)
Effective Date of Implementation
Covered
outpatient drugs purchased on or after December
1, 1992, by a covered entity included on the initial
list must be discounted pursuant to the formula
in section 340B(a)(1) and (2) of the Public Health
Service Act. Agreements with manufacturers signed
after December 1, l992, will be effective retroactive
to that date for covered entities included on
the initial list; therefore, the manufacturer
must calculate any price adjustments necessary
and remit a rebate directly to the covered entity
(or provide for a credit).
(b)
Eligibility
The
Department has provided a list of eligible entities
to each manufacturer along with a copy of the
Agreement and is notifying each covered entity
of its eligibility to purchase drugs at the discounted
prices. Each covered entity is encouraged to begin
discussing the pricing provisions of section 340B
of the Public Health Service Act with manufacturers
so that potential problems can be identified early
and resolved.
(c)
Drug Price Negotiation
Although
the Department signs the Agreement with each manufacturer,
the entity itself may continue to negotiate individual
drug pricing agreements with each manufacturer.
Nothing in the statute precludes group purchasing
agreements or other arrangements not inconsistent
with the Agreement, except for disproportionate
share hospitals.
(d)
Penalty Provisions
A
covered entity is prohibited from reselling or
otherwise transferring a covered drug to a person
who is not the patient of the entity [section
340B(a)(5)(B) of the Public Health Service Act].
The statute provides further the drug purchases
will not be subject to both the discount under
section 340B and the Medicaid rebate under section
1927 of the Social Security Act [section 340B(a)(5)(A)
of the Public Health Service Act]. The Secretary
has decided to establish a mechanism within 120
days after the effective date of the Agreement
to ensure that covered entities comply with the
prohibition on duplicate discounts and rebates.
If the Secretary does not establish a mechanism
within 120 days, the Secretary will apply the
provisions of section 1927(a)(5)(C) of the Social
Security Act.
If
the Secretary finds, after notice and hearing,
that a covered entity has violated either of these
prohibitions, the covered entity shall be liable
to the manufacturer of the covered drug that is
the subject of the violation in an amount equal
to the reduction in the price of the drug as described
in section 340B of the Public Health Service Act.
(e)
Audit Provision
Each
covered entity will be required to retain records
of purchases of covered outpatient drugs under
the Agreement and of any claims for reimbursement
submitted for such drugs under title XIX of the
Social Security Act. When a covered entity is
making purchases through a wholesaler, it will
be required to provide the manufacturer with information
necessary to arrange for such purchases consistent
with the terms of the Agreement.
A
covered entity shall permit the Secretary and
the manufacturer of a covered outpatient drug
that is the subject of an Agreement to audit,
at the Secretary's or manufacturer's expense,
the records of the entity that directly pertain
to the entity's compliance with the resale or
duplicate discount prohibition.
VII.
Confidentiality Provisions
Information
disclosed by the manufacturer in connection with
a request by the Department is confidential and,
except as otherwise required, will not be disclosed
by the Department in a form that reveals the manufacturer,
or the prices charged by the manufacturer, except
as necessary by the Department to carry out the
provisions of the Act or to permit review by the
Comptroller General.
The
manufacturer shall hold audit information obtained
from the covered entities confidential.
The
Department shall require, under a reasonable schedule
of implementation, that covered entities not reveal
confidential drug pricing information.
VIII.
Nonrenewal and Termination Provisions
Unless
otherwise terminated by either party, the Agreement
will be effective for a period of one year and
will be renewed automatically for additional successive
terms of one year, unless the manufacturer gives
written notice of intent not to renew. The manufacturer
may terminate the Agreement for any reason, and
the Secretary, after notice and hearing, may terminate
the Agreement for good cause or a violation of
the Agreement.
2.
Duplicate Discounts and Rebates on Drug Purchases
(June 16, 1993)
Section
1927 of the Social Security Act provides that
in order to receive payment under the Medicaid
program for covered outpatient drugs, drug manufacturers
must enter into and comply with rebate agreements
with the Secretary on behalf of States or with
States directly. Section 1927 was enacted by the
Omnibus Budget Reconciliation Act of 1990 and
was amended by section 601 of the Act. Section
602 of the Act creates a program under which drug
manufacturers must provide discounts to "covered
entities," which consist primarily of certain
grantees of the Public Health Service and "disproportionate
share" hospitals.
Section
340B(a)(5)(A) of the Public Health Service Act
reflects Congress' recognition that there is a
potential for drugs purchased by a covered entity
with a discount to be subject to a Medicaid rebate,
if the drug is reimbursed by the Medicaid program.
Accordingly, this section directs the Department
to establish a mechanism to avoid the combination
of the discount and the Medicaid rebate for the
same drug purchases.
The
Public Health Service has consulted with the Health
Care Financing Administration (HCFA), which is
responsible for the Federal administration of
the Medicaid program, and proposes the following
as the mechanism to comply with section 340B(a)(5)(A):
I.
All-Inclusive Rates Per Encounter or Visit
Under
"all-inclusive rates" (either per encounter
or visit), drug purchases are not billed as separate
cost items, and, therefore, there is no opportunity
for a Medicaid rebate to be sought for the drugs,
even if purchased with a section 340B discount.
[See, for example, the reimbursement methodology
for Federally Qualified Health Centers, sections
1861(aa) and 1905 (l)(2) of the Social Security
Act.] Accordingly, to the extent that covered
entities develop all inclusive rates, there is
no possibility that the duplicate discount and
rebate can occur.
II.
Drug Purchases Not Reimbursed Under All-Inclusive
Rate
For
those drug purchases which are not reimbursed
by Medicaid under all-inclusive rates, the Department
proposes the following mechanism to avoid the
duplicate discount and rebate. The Public Health
Service has provided manufacturers a list of covered
entities eligible for the discounts. (This list
will be updated periodically.) The Public Health
Service will provide the list to State Medicaid
agencies with the Medicaid provider numbers for
each covered entity in the respective State. The
covered entities will provide these numbers to
the Public Health Service.
When
a covered entity submits a bill to the State Medicaid
agency for a drug purchase by or on behalf of
a Medicaid beneficiary, the amount billed shall
not exceed the entity's actual acquisition cost
for the drug, as charged by the manufacturer at
a price consistent with the Veterans Health Care
Act of 1992, plus a dispensing fee established
by the State Medicaid agency. This will ensure
that the discount to the covered entity will be
passed on to the State Medicaid agency.
Based
on the Medicaid provider number information furnished
by the Public Health Service, the State Medicaid
agency will create a separate provider file for
claims from covered entities which are billing
on a cost basis for drug purchases. The State
Medicaid agency will exclude data from these provider
files when generating the rebate bills to the
manufacturers under the section 1927 program.
Thus, the payment of duplicate discount and rebates
by the drug manufacturer will be prevented.
This
mechanism is consistent with the Veterans Health
Care Act and the limitations established in the
Medicaid regulations, 42 CFR sections 447.331-
447.334, which limit the amount the Medicaid States
agency may reimburse providers. These regulations
are designed to give States a certain amount of
flexibility in administering their drug payment
programs, while encouraging prudent purchasing.
A mechanism whereby the amount billed by covered
entities for prescription drugs cannot exceed
the actual acquisition cost plus a reasonable
dispensing fee allows States to retain flexibility
in their drug payment programs and to obtain the
benefit of the cost savings established under
the Act.
3.
Entity Guidelines (May 13, 1994)
(1)
Confidential Drug Pricing Information
“Confidential
drug pricing information” includes both “best
price” and “average manufacturer price.” The
quoted price and the actual price given by the
manufacturer to the covered entity are not confidential.
(2)
Duplicate Discount/Rebate Potential
First,
a covered entity billing on a cost basis for drug
purchases must provide the Office of Drug Pricing
(ODP) with a pharmacy Medicaid number (the number
which the entity uses to bill Medicaid for medications).
[Note: The OPD is now the Office of Pharmacy
Affairs in HRSA’s HSB.] Second, a covered
entity using an all-inclusive rate (either per
encounter or visit) must submit its all-inclusive
Medicaid number (e.g., "FQ" number). Third, if
a covered entity does not bill Medicaid for outpatient
drugs, then the entity must notify the Office
of Pharmacy Affairs of this decision. Fourth,
a large facility which houses many different clinics,
only several of which are eligible, must obtain
a separate Medicaid provider number for the eligible
clinics. For those States which cannot generate
additional Medicaid provider numbers for entities,
covered entities must discuss an alternative arrangement
with the States to accomplish this objective.
This information will be posted on the Web site
maintained by the Office of Pharmacy Affairs
at www.hrsa.gov/opa, to indicate which covered
entities have elected to participate in the program.
If a drug is purchased by or on behalf of a
Medicaid beneficiary, the amount billed may not
exceed the entity's actual acquisition cost for
the drug, as charged by the manufacturer at a
price consistent with the Veterans Health Care
Act of 1992, plus a reasonable dispensing fee
established by the State Medicaid agency.
(3)
Eligibility for Retroactive Discounts
Until
30 days after publication of this notice, eligible
covered entities included on the initial eligibility
list may request retroactive discounts (discounts,
rebates, or account credit) for covered outpatient
drugs purchased retroactive to December 1, 1992.
Entities added to the eligibility list at a later
date may only request discounts retroactive to
the date of their inclusion on the list. Of the
entities listed on the eligibility list, only
the following may request these discounts: The
covered entity that--(1) has billed for covered
outpatient drugs using an all-inclusive rate (either
per visit or per encounter), or (2) has not billed
Medicaid for covered outpatient drugs since December
1, 1992, (or since its inclusion on the eligibility
list), or (3) has submitted its Medicaid provider
number and is requesting refunds for subsequent
periods, or (4) has adequate documentation proving
that drugs for which a retroactive discount is
being requested have not generated Medicaid rebates.
A Disproportionate Share Hospital (DSH) is not
eligible for retroactive discounts for covered
outpatient drugs purchased through a group purchasing
organization (GPO) or any group purchasing arrangement.
Any DSH outpatient clinic which is or will be
eligible for retroactive discounts may preserve
its rights by sending manufacturers a letter requesting
such refunds and providing adequate documentation
of purchases.
(4)
Entity Guidelines Regarding Drug Diversion
Covered
entities are required not to resell or otherwise
transfer outpatient drugs purchased at the statutory
discount to an individual who is not a patient
of the entity. There are several common situations
in which this might occur. First, if individuals
other than patients of the covered entity obtain
covered outpatient drugs from its pharmaceutical
dispensing facility, the entity must develop and
institute adequate safeguards to prevent the transfer
of discounted outpatient drugs to individuals
who are not eligible for the discount (e.g., separate
purchasing accounts and dispensing records). Second,
a larger institution which contains an eligible
entity within its structure is required to establish
separate purchasing accounts and maintain separate
dispensing records for the eligible entity. Third,
the covered entity itself may not use the covered
outpatient drug in excluded services (e.g., inpatient
services). If an entity offers services excluded
from the drug discount program, the entity must
develop a separate method for purchasing and dispensing
drugs for excluded services. The covered entity
may, at its option, develop an alternative system,
short of tracking each discounted drug through
the purchasing and dispensing process, by which
it can prove compliance. If an alternate system
of tracking is proposed to be used, this system
must be approved by the Drug Pricing Program.
The Office of Pharmacy Affairs (OPA) will develop
criteria for alternative systems at a later date
and welcomes all suggestions.
(5)
Audit Requirement
All
entities receiving statutory prices are required
to maintain records of purchases of covered outpatient
drugs and of any claims for reimbursement submitted
for such drugs under title XIX of the Social Security
Act. The entity must permit HHS and the manufacturer
to audit any record of a covered drug purchase
that was subject to the discount, as provided
by section 340B(a)(5)(C) of the Public Health
Service Act. Manufacturer audits will be conducted
in accordance with procedures developed by the
Secretary of HHS. The Office of Drug Pricing is
developing proposed audit guidelines which will
be published in the Federal Register with
public comment invited. The notice will address
only audits related to purchases as a covered
entity; it does not address other audit requirements
related to participation in State Medicaid programs
or receipt of Federal funding.
(6)
Entity Participation
Covered
entity participation in the section 340B drug
discount program is voluntary. Once an entity
has elected to participate in the program, it
must wait to enter or withdraw from the program
until the next official updating of the eligible
entity list. The Office of Drug Pricing will update
this list two weeks before each calendar quarter.
The entity must comply with all program guidelines
until the date it is removed from the eligibility
list.
(7)
Group Purchasing
A
DSH may participate in a group purchasing arrangement
for inpatient drug use without affecting its eligibility
to purchase section 340B discounted drugs. If
a DSH participates in a GPO or other group purchasing
arrangement for covered outpatient drugs, the
DSH will no longer be an eligible covered entity
and cannot purchase covered outpatient drugs at
the section 340B discount prices. States, or
other groups, which purchase drugs for covered
entities (other than disproportionate share hospitals)
are not included on the list of covered entities;
however, they are eligible to purchase at the
section 340B discount if the following requirements
are met: (1) the group purchasing arrangement
must be comprised of only covered entities, (2)
if group purchasing arrangements contain entities
which are not eligible for the discount, separate
purchasing accounts and dispensing/distribution
must be maintained, and (3) the purchasing group
has written authority from the covered entity
to purchase covered outpatient drugs on its behalf.
(8)
Purchasing Agents
A
covered entity is permitted to use a purchasing
agent without forfeiting its right to the section
340B drug discounts. If a purchasing agent is
used, the arrangement must be in writing and the
terms of the agent's relationship with the entity
must be clearly defined. The entity and the agent
should decide whether the agent simply negotiates
the drug purchasing contracts on behalf of the
entity or actually receives drug shipments for
distribution to the entity. If the latter, the
transfer of purchased pharmaceuticals from an
agent to the entity would not be viewed as drug
diversion. For purposes of the DSH/GPO prohibition
only, a purchasing agent may be distinguished
from and would not be considered operating as
a GPO or other group purchasing arrangement if
the following conditions are met: (1) the purchasing
agent is not associated with a GPO or other
purchasing
arrangement; (2) no collective bargaining by a
group of hospitals occurs; (3) the negotiations
for Public Health Service pricing are separate
activities for each individual DSH; (4) a separate
agreement with each DSH is executed; (5) as part
of the agreement, there will be no sharing of
pricing information; and (6) all final decisions
concerning product and price acceptance will be
made by each individual DSH.
(9)
Definition of Covered Outpatient Drug
Section
1927(k)(2) of the Social Security Act defines
"covered outpatient drug" to include most drugs
and biologicals which may be dispensed only by
prescription and which require approval by the
Food and Drug Administration or a license under
section 351 of the Public Health Service 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, x-ray, 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.
(10)
Dealing Direct or Through a Wholesaler
If
a manufacturer has customarily dealt directly
with a particular covered entity, then requiring
the manufacturer to continue this form of purchasing
with the covered entity is reasonable. When dealing
directly with a covered entity, manufacturers
must offer covered outpatient drugs at or below
the section 340B discount prices. If a manufacturer
customarily uses a wholesaler as a means of distribution,
then requiring the manufacturer to continue this
form of purchasing with covered entities is also
reasonable. If the manufacturer's drugs are available
to covered entities through wholesalers, the discount
must be made available through that avenue. Manufacturers
may not single out covered entities from their
other customers for restrictive conditions that
would undermine the statutory objective. Manufacturers
must not place limitations on the transactions
(e.g., minimum purchase amounts) which would have
the effect of discouraging entities from participating
in the discount program.
(11)
Manufacturer's Contracts Requiring Entity Compliance
A
manufacturer may not condition the offer of statutory
discounts upon an entity's assurance of compliance
with section 340B provisions. Covered entity assurances
regarding the following activities may not be
required: (1) eligibility to participate in the
program; (2) utilization of covered outpatient
drugs only in authorized services; (3) maintaining
the confidentiality of the drug pricing information;
(4) permitting the manufacturers to audit purchase,
inventory, and related records prior to the publication
of approved Public Health Service guidelines;
and (5) submitting information related to drug
acquisition, purchase, and inventory systems.
Entities are not required to sign agreements ensuring
manufacturers of their compliance with section
340B provisions. (If a manufacturer asks a covered
entity whether the entity is in fact participating
in the section 340B discount program, the entity
must supply the manufacturer with this information).
This prohibition does not include provisions that
address customary business practice, request standard
information, or include other appropriate contract
provisions.
4.
DSH Outpatient Facility Guidelines (September
19, 1994)
The
outpatient facility is considered an integral
part of the “hospital” and therefore
eligible for section 340B drug discounts if it
is a reimbursable facility included on the hospital's
Medicare cost report. For example, if a hospital
with one Medicare provider number meets the disproportionate
share criteria and this hospital has associated
outpatient clinics whose costs are included in
the Medicare cost report, these clinics would
also be eligible for section 340B drug discounts.
However, free-standing clinics of the hospital
that submit their own cost reports using different
Medicare numbers (not under the single hospital
Medicare provider number) would not be eligible
for this benefit. A DSH, eligible for Public
Health Service pricing, must first request that
the Office of Drug Pricing include in the Public
Health Service drug discount program the outpatient
facilities that are included in its Medicare cost
report. A list of these outpatient facilities
along with Medicaid billing status information
must be included with the request. Second, an
appropriate official of the DSH must sign a statement
that he/she is familiar with HCFA guidelines concerning
Medicare certification of hospital components
as one cost center, has examined the list of outpatient
facilities, and certifies that the facilities
are correctly included on the DSH's Medicare cost
report. When these facilities are added to the
master list of eligible and participating covered
entities, the off-site facilities will be able
to access Public Health Service discount pricing.
On-site clinics that are not included on the Medicare
cost report will not be eligible for Public Health
Service discount pricing. This information will
be posted on the Electronic Data Retrieval System
(EDRS), maintained by the Office of Drug Pricing,
on a quarterly basis.
5.
New Drug Pricing (October 2, 1995)
Calculation
of the current quarter Public Health Service ceiling
price for each covered outpatient drug, as provided
in section 340B(a)(1) of the Public Health Service
Act, is based upon data supplied to the Medicaid
Drug Rebate Program (i.e., AMP, baseline AMP and
BP). The manufacturer calculates pricing information
for all of its covered outpatient drugs and sends
this pricing data to HCFA within 30 days after
the end of the quarter. HCFA will provide the
CMS with the data necessary for the Public Health
Service to determine the ceiling price which will
be used for resolving disputes, studies involving
pricing data, auditing manufacturers, or other
program purposes.
For
calendar year 1995, the Medicaid rebate for single
source and innovator multiple source drugs is
the greater of 15.2 percent of the AMP or the
AMP minus BP. In calendar year 1996, and thereafter,
the rebate percentage decreases to 15.1 percent.
An additional rebate must also be paid for single
source and innovator multiple source drugs in
the amount by which the increase in the baseline
AMP exceeds the increase in the Consumer Price
Index--Urban (CPI-U). The Public Health Service
ceiling price is computed based on the combined
basic and additional rebate amounts calculated
for the Medicaid program. For noninnovator multiple
source drugs, the rebate percentage is 11 percent
of the AMP.
For
Public Health Service pricing purposes, the timeframe
for reporting the pricing data is a problem with
respect to new drugs because there is a time lag
for new drug pricing information. For new drugs,
manufacturers are permitted to calculate the AMP
using the pricing instituted in the first quarter;
however, the baseline AMP is not available until
the end of the first full quarter after the day
on which the drug was first sold. For example,
if a new drug was first sold on January 15, the
quarterly AMP for the period 1/1 through 3/31
would be calculated using sales from 1/15 through
3/31 while the quarterly baseline AMP for the
first full quarter would not be available. The
baseline AMP must be determined for a full quarter;
therefore, pricing data for the period 4/1 through
6/30 would be utilized. Thus, for the first and
second quarter, the discount for the new drug
would be a manufacturer's estimate and later adjusted
using only the basic rebate amount.
This
time lag is not a problem for the State Medicaid
agencies because they bill manufacturers for a
rebate after the covered outpatient drugs are
dispensed to Medicaid beneficiaries. However,
to comply with the requirements of section 340B
of the Public Health Service Act, the Public Health
Service ceiling price must be determined before
the covered outpatient drug is sold to the covered
entity.
Because
there are no sales data for a new drug from which
to determine the Public Health Service ceiling
price, the Office of Drug Pricing is proposing
to utilize a ceiling price estimated by the manufacturer
until sufficient data is available to calculate
the AMP and BP of the new drug. Any adjustments
necessary to reconcile differences between the
first and second quarter estimated ceiling price
and the third quarter ceiling price will be in
the form of a retroactive charge back or rebate.
Because
the manufacturer calculates the Public Health
Service ceiling price using a data lag, the manufacturer
would estimate the new drug ceiling price for
three quarters. For example, a new single source
drug that enters the market in February (first
quarter) will have an estimated Public Health
Service ceiling price for that quarter. The manufacturer
must submit AMP and BP pricing data for sales
within that quarter to HCFA within 30 days from
the end of the quarter (4/30). HCFA will use this
pricing data to calculate the basic rebate amount.
The
manufacturer must estimate the ceiling price for
the second quarter (April 1-June 30). Sales during
the quarter will constitute the baseline AMP and
BP. The manufacturer must submit baseline AMP
and BP for the second quarter to HCFA within 30
days from the end of the second quarter (7/30).
The additional rebate amount does not apply to
this quarter since there must be two full quarters
of pricing data to generate an additional rebate
amount when a price increase exceeds the increase
of the CPI-U.
Because
manufacturers must transmit pricing to wholesalers
two weeks before the beginning of the quarter,
the total rebate amount (basic plus additional
rebate) for the third quarter (July 1-September
30) will not be available at that time.
Manufacturers
must submit pricing data to HCFA by 10/30. Thus,
the manufacturer must offer the third quarter
discount using only the basic rebate amount.
Beginning
with the fourth quarter (October 1-December 31),
the manufacturer will have the necessary pricing
data to calculate a total rebate amount. All
retroactive charge backs or rebate adjustments
necessary to reconcile the first, second, and
third quarters estimated ceiling price must be
completed by the end of the fourth quarter, i.e.,
December 31.
Example:
Drug Enters Market February 15.
Calender
quarter |
Baseline
AMP |
Add’l
rebate (if applicable) |
Pricing
due to HCFA |
Actual
basic amounts available from HCFA |
Actual
add’l amounts available from HCFA |
1
(Jan-Mar) |
|
|
35914 |
35929 |
N/A |
2
(April-June) |
X |
|
36005 |
36021 |
N/A |
3
(July-Sept) |
|
X |
36097 |
36113 |
36113 |
4
(Oct-Dec) |
|
X |
35824 |
35840 |
35840 |
6.
Definition of a Patient (October 24,
1996)
An
individual is a "patient" of a covered entity
(with the exception of State-operated or funded
AIDS drug purchasing assistance programs) only
if:
-
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 Federally-qualified
health center look-alike status has been provided
to the entity. Disproportionate share hospitals
are exempt from this requirement.
An
individual will not be considered a "patient"
of the entity for purposes of 340B 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.
An
individual registered in a State operated or funded
AIDS drug purchasing assistance program receiving
financial assistance under title XXVI of the Public
Health Service Act will be considered a "patient"
of the covered entity for purposes of this definition
if so registered as eligible by the State program.
7.
Contract Pharmacy Services (August 23, 1996)
Covered
entities that wish to utilize contract pharmacy
services to dispense section 340B outpatient drugs
are encouraged to sign and have in effect a contract
pharmacy service agreement between the covered
entity and the pharmacy. This mechanism is designed
to facilitate program participation for those
eligible covered entities that do not have access
to appropriate "in-house" pharmacy services. See
Appendix for suggested contract provisions.
- The
following is a suggested model agreement format:
(a)
The covered entity will purchase the drug
and assume responsibility for establishing
its price, pursuant to the terms of a Public
Health Service grant (if applicable) and any
applicable consumer protection laws.
A
“ship to, bill to” procedure may be
used in which the covered entity purchases the
drug, the manufacturer bills the entity for the
drug that it purchased, but ships the drug directly
to the contract pharmacy. See section 1 of Appendix.
(b)
The contractor will provide all pharmacy services
(e.g., dispensing, record keeping, drug utilization
review, formulary maintenance, patient profile,
counseling). Each covered entity which purchases
its covered outpatient drugs has the option
of individually contracting for pharmacy services
with the pharmacy of its choice. The limitation
of one pharmacy contractor per entity does not
preclude the selection of a pharmacy contractor
with multiple pharmacy sites, as long as only
one site is used for the contracted services.
[The Office of Drug Pricing will be evaluating
the feasibility of permitting these covered
entities to contract with more than one site
and contractor.]
(c) The
covered entity health care provider will inform
the patient of his or her freedom to choose
a pharmacy provider. If the patient does not
elect to use the contracted service, the patient
may obtain the prescription from the covered
entity and then obtain the drug(s) from the
pharmacy provider of his or her choice.
When
a patient obtains a drug from a retail pharmacy
other than the entity contract pharmacy, the manufacturer
is not required to offer this drug at 340B pricing.
(d)
The contractor may provide the covered entity
services, other than pharmacy, at the option
of the covered entity (e.g., home care, reimbursement
services). Regardless of the services provided
by the contractor, access to 340B pricing will
always be restricted to only patients of the
covered entity.
(e)
The contractor and the covered entity will adhere
to all Federal, State, and local laws and requirements.
Additionally, all Public Health Service grantees
will adhere to all rules and regulations established
by the grant funding office.
Both
the covered entity and the contract pharmacy are
aware of the potential for civil or criminal penalties
if the covered entity and/or the contract pharmacy
violate Federal or State law. [The Department
reserves the right to take such action as may
be appropriate if it determines that such a violation
has occurred.]
(f)
The contractor will provide the covered entity
with reports consistent with customary business
practices (e.g., quarterly billing statements,
status reports of collections and receiving
and dispensing records). See Section 2 of Appendix.
(g)
The contractor, with the assistance of the covered
entity, will establish and maintain a tracking
system suitable to prevent diversion of section
340B discounted drugs to individuals who are
not patients of the covered entity. Customary
business records may be used for this purpose.
The covered entity will establish a process
for a periodic random (sample) comparison of
its prescribing records with the contractor's
dispensing records to detect potential irregularities.
See Section 3 of Appendix.
(h) The
covered entity and the contract pharmacy will
develop a system to verify patient eligibility.
[The Department's draft guidance defining covered
entity "patient" is set forth in an August 3,
1995, Federal Register notice. See 60
FR 39762.]
Both
parties agree that they will not resell or transfer
a drug purchased at section 340B pricing to an
individual who is not a patient of the covered
entity. See section 340B(a)(5)(B). The covered
entity understands that it can be removed from
the list of covered entities because of its participation
in drug diversion, a 340B(a)(5) prohibition, and
no longer be eligible for 340B pricing. See Section
4 of Appendix.
(i) Both
parties will not use drugs purchased under section
340B to dispense Medicaid prescriptions, unless
the contract pharmacy and the State Medicaid
agency have established an arrangement to prevent
duplicate discounting.
(j) Both
parties understand that they are subject to
audits (by the Department and participating
manufacturers) of records that directly pertain
to the entity's compliance with the drug resale
or transfer prohibition and the prohibition
against duplicate Medicaid rebates and 340B
discounts. See section 340B(a)(5).
The
contractor will ensure that all pertinent reimbursement
accounts and dispensing records, maintained by
the contractor, will be separate from the contractor's
own operations and will be accessible to the covered
entity, the Department, and the manufacturer in
the case of a manufacturer audit.
(k)
Upon request, a copy of this contract pharmacy
service agreement will be provided to a participating
manufacturer which sells covered outpatient
drugs to the covered entity. All confidential
propriety information may be deleted from the
document.
(2)
Certification
Under
section 340B, we believe that if a covered entity
using contract pharmacy services requests to purchase
a covered drug from a participating manufacturer,
the statute directs the manufacturer to sell the
drug at the discounted price. If the entity directs
the drug shipment to its contract pharmacy, we
see no basis on which to conclude that section
340B precludes this type of transaction or otherwise
exempts the manufacturer from statutory compliance.
However, the entity must comply, under any distribution
mechanism, with the statutory prohibition on drug
diversion and duplicating discounting.
To
provide Office of Drug Pricing and manufacturers
with assurance that the covered entity has acted
in a manner which limits the potential for drug
diversion, the covered entity is encouraged to
submit to Office of Drug Pricing a certification
that it has signed and has in effect an agreement
with the contract pharmacy containing the aforementioned
provisions. However, Office of Drug Pricing will
review any alternative mechanism which is designed
to reduce the potential for drug diversion. The
names of those covered entities which submit a
certification, or an alternate mechanism approved
by Office of Drug Pricing, will be placed on the
EDRS for the convenience of participating drug
manufacturers.
(3)
Anti-kickback Statute
Contractors
and covered entities must be aware of the potential
for civil or criminal penalties if the contractor
violates Federal or State law. In negotiating
and executing a contracted pharmacy service agreement
pursuant to these guidelines, contractors and
covered entities should be aware of and take into
consideration the provisions of the Medicare and
Medicaid anti-kickback statute, 42 U.S.C. 1320a-7b(b).
This statute makes it a felony for a person or
entity to knowingly and willfully offer, pay,
solicit, or receive remuneration with the intent
to induce, or in return for the referral of, Medicare
or a State health care program business. State
health care programs are Medicaid, the Maternal
and Child Health Block Grant program, and the
Social Services Block Grant program. Apart from
the criminal penalties, a person or entity is
also subject to exclusion from participation in
the Medicare and State health care programs for
a knowing and willful violation of the statute
pursuant to 42 U.S.C. 1320a-7(b)(7).
The
anti-kickback statute is very broad. Prohibited
conduct covers not only remuneration intended
to induce referrals of patients, but also includes
remuneration intended to induce the purchasing,
leasing, ordering, or arranging for any good,
facility, service, or item paid for by Medicare
or a State health care program. The statute specifically
identifies kickbacks, bribes, and rebates as illegal
remuneration, but also covers the transferring
of anything of value in any form or manner whatsoever.
This illegal remuneration may be furnished directly
or indirectly, overtly or covertly, in cash or
in kind and covers situations where there is no
direct payment at all, but merely a discount or
other reduction in price or the offering of a
free good(s).
Arrangements
between contractors and covered entities that
could violate the anti-kickback statute would
include any situation where the covered entity
agrees to refer patients to the contractor in
return for the contractor agreeing to undertake
or furnish certain activities or services to the
covered entity at no charge or at a reduced or
below cost charge. These activities or services
would include the provision of contracted pharmacy
services, home care services, money or grants
for staff or service support, or medical equipment
or supplies, and the remodeling of the covered
entity's premises. For example, if a contractor
agreed to furnish covered outpatient drugs in
return for the covered entity referring its Medicaid
patients to the contractor to have their prescriptions
filled, the arrangement would violate the anti-kickback
statute. Similarly, if the contractor agreed to
provide billing services for the covered entity
at no charge in return for the covered entity
referring its patients to the contractor for home
or durable medical equipment, the statute would
be violated.
Pursuant
to the authority in 42 U.S.C. 1320a-7b(b)(3),
the Secretary of Health and Human Services has
published regulations setting forth certain exceptions
to the anti-kickback statute, commonly referred
to as "safe harbors." These regulations are codified
at 42 CFR 1001.952. Each of the safe harbors sets
forth various requirements which may be met in
order for a person or entity to be immune from
prosecution or exclusion.
Appendix--Suggested
Contract Provisions
- “The
covered entity will order covered drugs directly
from the manufacturer, from a designated sales
representative, or a drug wholesaler and arrange
to be billed directly for such drugs. The covered
entity will arrange for shipment of such drugs
directly to the pharmacy. The pharmacy will
compare all shipments received to the orders
and inform the covered entity of any discrepancy
within five (5) business days of receipt. The
covered entity will make timely payments for
such drugs delivered to the (pharmacy) pursuant
to the entity's order.”
- “The
covered entity will verify, using the contractor's
(readily retrievable) customary business records
that a tracking system exists which will ensure
that drugs purchased under
the Act are not diverted to individuals who
are not patients of the covered entity. Such
records can include: prescription files, velocity
reports, and records of ordering and receipt.
These records will be maintained for the period
of time required by State law and regulations.”
-
“Prior to the pharmacy providing pharmacy services
pursuant to this agreement, the covered entity
will have the opportunity, upon reasonable notice
and during business hours, to examine the tracking
system. For example, such a tracking system
may include quarterly sample comparisons of
eligible patient prescriptions to the dispensing
records and a six (6) month comparison of 340B
drug purchasing and dispensing records as is
routinely done in other reconciliation procedures.
The pharmacy will permit the covered entity
or its duly authorized representatives to have
reasonable access to pharmacy's facilities and
records during the term of this agreement in
order to make periodic checks regarding the
efficacy of such tracking systems. The pharmacy
agrees to make any and all adjustments to the
tracking system which covered entity advises
are reasonably necessary to prevent diversion
of covered drugs to individuals who are not
patients of the covered entity.”
-
“The pharmacy will dispense covered drugs only
in the following circumstances: (a) Upon presentation
of a prescription bearing the covered entity's
name, the eligible patient's name, a designation
that the patient is an eligible patient, and
the signature of a legally qualified health
care provider affiliated with the covered entity;
or (b) receipt of a prescription ordered by
telephone on behalf of an eligible patient by
a legally qualified health care provider affiliated
with the covered entity who states that the
prescription is for an eligible patient. The
covered entity will furnish a list to the pharmacy
of all such qualified health care providers
and will update the list of providers to reflect
any changes. If a contract pharmacy is found
to have violated the drug diversion prohibition,
the pharmacy will pay the entity the amount
of the discount in question so that the entity
can reimburse the manufacturer.”
8.
Manufacturer Audit Guidelines (December 12, 1996)
Covered
entities which choose to participate in the section
340B drug discount program shall comply with the
requirements of section 340B(a)(5) of the Public
Health Service Act. Section 340B(a)(5)(A) prohibits
a covered entity from accepting a discount for
a drug that would also generate a Medicaid rebate.
Further, section 340B(a)(5)(B) prohibits a covered
entity from reselling or otherwise transferring
a discounted drug to a person who is not a patient
of the entity. The participating entity shall
permit the manufacturer of a covered outpatient
drug to audit its records that directly pertain
to the entity's compliance with section 340B(a)(5)
(A) and (B) requirements with respect to drugs
of the manufacturer. Manufacturer audits shall
be conducted in accordance with guidelines developed
by the Secretary, as required by section 340B(a)(5)(C).
Not only will the records of any organization
working with a covered entity to purchase or dispense
covered drugs, or to prepare Medicaid reimbursement
claims for the covered entity be subject to the
same audit requirement, but also any primary record
that could be part of a reasonable audit trail.
This
notice does not include the complete audit guidelines
to be used by Government auditors in cases where
the Government performs its own audit. Federal
auditors shall perform audits in accordance with
the Government Auditing Standards. The Government
auditors' authority to audit the covered entity's
compliance with the requirements of section 340B(a)(5)
(A) and (B) shall not be limited by the manufacturer's
audit guidelines.
The
following is the “Compliance Audit Guide”
concerning manufacturer audit guidelines as developed
by the Secretary pursuant to section 340B(a)(5)(C):
(These guidelines do not preclude the entity and
the manufacturer from voluntarily developing mutually
beneficial audit procedures.)
I.
General Guidelines
The
manufacturer shall submit a work plan for an audit
which it plans to conduct of a covered entity
to the Department. (See section III for suggested
audit steps.) The manufacturer's auditor shall
be an independent public accountant employed by
the manufacturer to perform the audit. The auditor
has an ethical and legal responsibility to perform
a quality audit in accordance with Government
Auditing Standards, Current Revision, developed
by the Comptroller General of the United States.
Patient confidentiality requirements also must
be observed. At the completion of the audit, the
auditors must prepare an audit report in accordance
with the reporting standards for performance audits
in Government Auditing Standards, Current Revision.
The cost of a manufacturer audit shall be borne
by the manufacturer, as provided by section 340B(a)(5)(C)
of the Public Health Service Act.
(a).
Number of Audits
A
manufacturer shall conduct an audit only when
it has documentation which indicates that there
is reasonable cause. “Reasonable cause”
means that a reasonable person could believe that
a covered entity may have violated a requirement
of section 340B(a)(5) (A) or (B) of the Public
Health Service Act (i.e., accepting a 340B discount
on a covered outpatient drug at a time when the
covered entity has not submitted its Medicaid
billing status to the Department or transferring
or otherwise reselling section 340B discounted
covered drugs to ineligible recipients).
Consistent
with Government auditing standards, the organization
performing the audit shall coordinate with other
auditors, when appropriate, to avoid duplicating
work already completed or that may be planned.
Only one audit of a covered entity will be permitted
at any one time. When specific allegations involving
the drugs of more than one manufacturer have been
made concerning an entity's compliance with section
340B(a)(5) (A) and (B), the Department will determine
whether an audit should be performed by the (1)
Government or (2) the manufacturer.
(b).
Scope of Audits
The
manufacturer shall submit an audit work plan describing
the audit to the Department for review. The Department
will review the work plan for reasonable purpose
and scope. Only those records of the covered entity
(or the records of any organization that works
with the covered entity to purchase, dispense,
or obtain Title XIX reimbursement for the covered
drug) that directly pertain to the potential 340B
violation(s) may be accessed, including those
systems and processes (e.g., purchasing, distribution,
dispensing, and billing) that would assist in
determining whether a 340B violation has occurred.
(c).
Duration of Audits
Normally,
audits shall be limited to an audit period of
one year and shall be performed in the minimum
time necessary with the minimum intrusion on the
covered entity's operations.
II.
Procedures To Be Followed
(a). The
manufacturer shall notify the covered entity
in writing when it believes the covered entity
has violated provisions of section 340B. The
manufacturer and the covered entity shall have
at least 30 days from the date of notification
to attempt in good faith to resolve the matter.
(b). The
manufacturer has the option to proceed to the
dispute resolution process described later in
the notice without an audit, if it believes
it has sufficient evidence of a violation absent
an audit. If the matter is not resolved and
the manufacturer desires to perform an audit,
the manufacturer must file an audit work plan
with the Department. (See section For Further
Information for address.) The manufacturer must
set forth a clear description of why it has
reasonable cause to believe that a violation
of section 340B(a)(5) (A) or (B) has occurred,
along with sufficient facts and evidence in
support of the belief. In addition, the manufacturer
shall provide copies of any documents supporting
its claims.
(c).
The Department will review the documentation
submitted to determine if reasonable cause exists.
If the Department finds that there is reasonable
cause to believe that a violation of section
340B(a)(5) (A) or (B) has occurred, the Department
will not intervene. In cases where the Department
determines that the audit shall be performed
by the Government, the Department will so advise
the manufacturer and the covered entity within
15 days of receipt of the audit work plan.
(d). The
filing of a audit work plan does not affect
the statutory obligations of the parties as
defined in section 340B of the Public Health
Service Act. During the audit process, the manufacturer
must continue to sell covered outpatient drugs
at the section 340B ceiling price to the covered
entity being audited, and the covered entity
must continue to comply with the requirements
of section 340B(a)(5).
(e). Upon
receipt of the manufacturer's audit work plan,
the Department, in consultation with an appropriate
audit component, will review the manufacturer's
proposed work plan. As requested by GAS, the
audit work plan shall describe in detail the
following:
(1). audit
objectives (what the audit is to accomplish),
scope (type of data to be reviewed, systems
and procedures to be examined, officials of
the covered entity to be interviewed, and
expected time frame for the audit), and methodology
(processes used to gather and analyze data
and to provide evidence to reach conclusions
and recommendations);
(2). skill
and knowledge of the audit organization's
personnel to staff the assignment, their supervision,
and the intended use of consultants, experts,
and specialists;
(3). tests
and procedures to be used to assess the covered
entity's system of internal controls;
(4). procedures
to be used to determine the amounts to be
questioned should violations of section 340B(a)(5)
(A) and (B) be discovered; and
(5). procedures
to be used to protect patient confidentiality
and proprietary information.
(f). Within
15 days of receipt of the proposed audit work
plan, the Department shall review the work plan.
If after this review the Department has concerns
about the work plan, it will work with the manufacturer
to incorporate mutually agreed-upon revisions
to the plan. The covered entity will have at
least 15 days to prepare for the audit.
(g). At
the completion of the audit, the auditors must
prepare an audit report in accordance with reporting
standards for performance audits of the GAS.
The manufacturer shall submit the audit report
to the covered entity. The covered entity shall
provide its response to the manufacturer on
the audit report's findings and recommendations
within 30 days from the date of receipt of the
audit report. When the covered entity agrees
with the audit report's findings and recommendations
either in full or in part, the covered entity
shall include in its response to the manufacturer
a description of the actions planned or taken
to address the audit findings and recommendations.
When the covered entity does not agree with
the audit report's findings and recommendations,
the covered entity shall provide its rationale
for the disagreement to the manufacturer.
(h).
The manufacturer shall also submit copies of
the audit report to the Department (see section
For Further Information Contact for the address)
and the Office of Inspector General, Office
of Audit Services, Public Health Service Audits
Division at Room 1-30, Park Building, 12420
Parklawn Drive, Rockville, MD 20857.
(i). If
a dispute concerning the audit findings and
recommendations arises, the parties may file
a request for dispute resolution with the Department.
All dispute resolution procedures developed
by the Department shall be followed.
III.
Suggested Audit Steps
Suggested
audit steps include the following:
(a). Review
the covered entity's policies and procedures
regarding the procurement, inventory, distribution,
dispensing, and billing for covered outpatient
drugs.
(b). Obtain
an understanding of internal controls applicable
to the policies and procedures identified above
(step a) when necessary to satisfy the audit
objectives.
(c). Review
the covered entity's policies and procedures
to prevent the resale or transfer of drugs to
a person or persons who are not patients of
the covered entity.
(d).
Test compliance with the policies and procedures
identified above (step c) when necessary to
satisfy the audit objectives.
(e). Review
the covered entity's records of drug procurement
and distribution and test whether the covered
entity obtained a discount only for those programs
authorized to receive discounts by section 340B
of the Public Health Service Act.
(f). If
a covered entity does not use an all inclusive
billing system (per encounter or visit), but
instead bills outpatient drugs using a cost-based
billing system, determine whether the covered
entity has provided its pharmacy Medicaid provider
number to the Department and test whether the
covered entity billed Medicaid at the actual
acquisition cost. The auditor is permitted to
contact the Office of Drug Pricing (at the number
in the For Further Information Contact section)
to determine if the entity--(1) has provided
its pharmacy Medicaid provider number, (2) does
not bill Medicaid for covered outpatient drugs,
(3) uses an all-inclusive rate billing system,
or (4) is an entity clinic eligible for the
discount pricing but located within a larger
medical facility not eligible for the drug discounts
and has provided the Office of Drug Pricing
a separate pharmacy Medicaid provider number
or an agreement with the State Medicaid Agency
regarding an operating mechanism to prevent
duplicate discounting.
(g).
Where the manufacturer's auditors conclude that
there has been a violation of the requirements
of section 340B(a)(5) (A) or (B), identify (1)
the procedures or lack of adherence to existing
procedures which caused the violation, (2) the
dollar amounts involved, and (3) the time period
in which the violation occurred.
(h). Following
completion of the audit field work, provide
an oral briefing of the audit findings to the
covered entity to ensure a full understanding
of the facts.
9.
Dispute Resolution Process (December 12, 1996)
The
Department, acting through the Office of Drug
Pricing (ODP), is proposing a voluntary process
for the resolution of certain disputes between
manufacturers and covered entities concerning
compliance with the provisions of section 340B
of the Public Health Service Act. Covered entities
or manufacturers are not required to enter this
informal process for resolution of disputes regarding
section 340B. However, the Department expects
parties to utilize the process before resorting
to other remedies which may be available under
applicable principles of law.
I.
Types of Disputes Covered
Disputes
resolved by these procedures include:
(a)
A manufacturer believes a covered entity is
in violation of the prohibition against resale
or transfer of a covered outpatient drug (section
340B(a)(5)(B) of the Public Health Service Act),
or the prohibition against duplicate discounts
or rebates (section 340B(a)(5)(A) of the Public
Health Service Act).
(b)
A covered entity believes that a manufacturer
is charging a price for a covered outpatient
drug that exceeds the ceiling price as determined
by section 340B(a)(1) of the Public Health Service
Act.
(c) A
manufacturer is conditioning the sale of covered
outpatient drugs to a covered entity on the
entity's provision of assurances or other compliance
with the manufacturer's requirements that are
based upon section 340B provisions.
(d)
A covered entity believes that a manufacturer
has refused to sell a covered outpatient drug
at or below the ceiling price, as determined
by section 340B(a)(1) of the Public Health Service
Act.
(e) A
manufacturer believes that a covered entity
is dispensing a covered outpatient drug in an
unauthorized service (e.g., inpatient services
or ineligible clinics within the same health
system).
(f) A
manufacturer believes that a covered entity
has not complied with the audit requirements
under section 340B(a)(5)(c) of the Public Health
Service Act or the audit guidelines as set forth
in this notice.
(g)
A covered entity believes that the auditors
of the manufacturer have not abided by the approved
work plan or audit guidelines.
(h)
A covered entity is unable to obtain covered
outpatient drugs through a wholesaler because
the manufacturer will only sell section 340B
discounted drugs directly from the manufacturer
to the entity.
(i)
A manufacturer or covered entity wants to verify
the accuracy of the master list of covered entities.
II.
Dispute Resolution Process
Prior
to the filing of a request for dispute review
with the Department, the parties must attempt,
in good faith, to resolve the dispute. All parties
involved in the dispute must maintain written
documentation as evidence of the good faith attempt
to resolve the dispute. Such evidence includes
documentation of meetings, letters, or telephone
calls between the disputing parties that concern
the dispute.
If
the dispute has not been resolved after a good
faith attempt, a party may submit a written request
for a review of the dispute to the Director of
the Office of Drug Pricing within 30 days.
The
party requesting the review may not rely only
upon allegations but is required to set forth
specific facts showing that there is a genuine
and substantial issue of material fact in dispute
that requires a review.
The
request for review shall include a clear description
of the dispute, shall identify all the issues
in the dispute, and shall contain a full statement
of the party's position with respect to such issue(s)
and the pertinent facts and reasons in support
of the party's position. In addition to the required
statement, the party shall provide copies of any
documents supporting its claim and evidence that
a good faith effort was made to resolve the dispute.
These materials must be tabbed and organized chronologically
and accompanied by an indexed list identifying
each document.
The
filing of the dispute does not affect any statutory
obligations of the parties, as defined in section
340B of the Public Health Service Act. During
the review process, for example, a manufacturer
must continue to sell covered outpatient drugs
at or below the section 340B ceiling price to
all covered entities, including the covered entity
involved in the dispute. Only when the entity
is found guilty of prohibited activity and a decision
is made to remove the entity from the list of
covered entities, is the manufacturer no longer
required to extend the discount.
The
Director, Bureau of Primary Health Care, shall
appoint a committee to review the documentation
submitted by the disputing parties and to make
a proposed determination. A minimum of three individuals
shall be appointed (one of whom shall be designated
as a chairperson) either on an ad hoc, case-by-case
basis, or as regular members of the review committee.
The chairperson shall be from the Office of Drug
Pricing and the committee members shall be from
other sections of Public Health Service (e.g.
chief pharmacist, auditor).
Upon
receipt of a request for a review, the chairperson
of the review committee, within 30 days, will
send a letter to the party alleged to have committed
a violation. The letter will include (1) the name
of the party making the allegation(s), (2) the
allegation(s), (3) documentation supporting the
party's position, and (4) a request for a response
to or rebuttal of the allegations within 37 calendar
days of the receipt of the letter (7 days from
the date of the postmark of the letter being allowed
for mailing and processing through the organization).
Upon
receipt of the response or rebuttal, the review
committee will review all documentation. The request
and rebuttal information will be reviewed for
(1) evidence that a good faith effort was made
to resolve the dispute, (2) completeness, (3)
adequacy of the documentation supporting the issues,
and (4) the reasonableness of the allegations.
If the documentation meets these requirements,
the review committee will consider the matter.
The
reviewing committee may, at its discretion, invite
parties to discuss the pertinent issues with the
committee and to submit such additional information
as the committee deems appropriate.
The
reviewing committee will propose to dismiss the
dispute, if it conclusively appears from the data,
information, and factual analyses contained in
the request for a review and rebuttal documents
that there is no genuine and substantial issue
of fact in dispute. Within 30 days, a written
decision of dismissal will be sent to each party
and will contain the committee's findings and
conclusions in detail, and, if the committee decided
to dismiss, reasons why the request for a review
did not raise a genuine and substantial issue
of fact.
With
all other proposed findings, within 30 days, the
review committee will prepare a written document
containing the findings and detailed reasons supporting
the proposed decision. The document is to be signed
by the chairperson and each of the other committee
members. The committee's written decision will
be sent with a transmittal letter to both parties.
If the committee finds the covered entity guilty
of prohibited activity and a decision is made
to remove the entity from the covered entity list,
then the manufacturers will no longer be required
to extend the discount. If the covered entity
or the manufacturer does not agree with the committee's
determination, the covered entity or the manufacturer
may appeal within 30 days after receiving such
a determination to the Administrator of the Health
Resources and Services Administration, who will
appoint a review official or committee. The review
official or committee will respond to appeal requests
within 30 days from the receipt of the request.
III.
Penalties
If
the final determination is that a manufacturer
has violated the provisions of section 340B of
the Public Health Service Act or the Public Health
Service Pharmaceutical Pricing Agreement, the
manufacturer's agreement with HHS could be terminated
or other actions taken, as deemed appropriate.
If the final determination is that an entity has
violated section 340B prohibitions against the
resale or transfer of covered outpatient drugs
or the prohibition against duplicate discounts
and rebates (or billing Medicaid more than the
actual acquisition cost of the drug), the entity
shall be liable to the manufacturer of the covered
outpatient drug that is the subject of the violation
in an amount equal to the reduction in the price
of the drug for the period of the violation, as
provided by section 340B(a)(5)(D) of the Public
Health Service Act. After the dispute is resolved,
any disputed amounts must be paid or credited
to an account balance no later than 30 days following
a final determination. The entity may also be
excluded from the drug discount program, if the
conduct warrants such a sanction. Such penalties
do not preclude the imposition by the Government
of other penalties or remedies under other statutes
such as the Federal False Claims Act. A copy of
the findings may be sent to the Office of the
Inspector General for further action. If it is
documented that several manufacturers have been
wronged by the same prohibited entity behavior,
corrective action will be afforded such manufacturers.
(The reporting and record keeping requirements
of this document are subject to the Paperwork
Reduction Act of 1995, 44 U.S.C. 3501-3520, and
have OMB clearance through 9/30/97 (OMB Control
No. 0915-0176). The Paperwork Reduction Act of
1995 added disclosure requirements to the list
of items needing OMB approval. The disclosure
requirements in the audit guidelines include:
section II(a)--the manufacturer shall notify the
covered entity in writing when it believes the
covered entity has violated provisions of section
340B; section II(g)--the manufacturer shall submit
the audit report to the covered entity, and the
covered entity shall provide its response to the
manufacturer on the audit report's findings; and
section III(h) the manufacturer shall provide
an oral briefing of the audit findings to the
covered entity. The disclosure requirements in
these sections will not be in force until OMB
approval has been obtained.
10.
The State ADAP Section 340B Rebate Option (June
29, 1998)
HRSA
recognizes rebates obtained by the State ADAPs
or their components that equal or exceed the 340B
discount provided by the statutory ceiling price
as a method of participating in the 340B program,
subject to compliance with other requirements
for participation. Standard business practices,
such as those reflected in the Medicaid Rebate
Program and current voluntary manufacturer rebate
programs (consistent with the requirements of
section 340B and all program guidance published
in the Federal Register) are appropriate for the
development of rebate contracts and agreements
between State ADAPs and manufacturers.
State
ADAPs or their components and manufacturers wishing
technical assistance in developing a rebate program
and rebate agreements should contact HRSA's Office
of Drug Pricing at (301) 594-4353 or (800) 628-6297.
State ADAPs or their components determined to
be eligible for participation in the State ADAP
340B rebate program will be listed on the Office
of Drug Pricing (ODP) Electronic Data Retrieval
System (EDRS) on the first quarterly update of
the EDRS which occurs 30 days following the effective
date of this Federal Register notice. State ADAPs
or
their components listed on this update may submit
rebate claims to participating manufacturers for
covered drugs that are purchased starting 30 days
after the date of this final notice publication.
State ADAPs or their components listed on a later
EDRS update may claim rebates only on purchases
made after their effective date of listing on
the EDRS.
Section
340B(a)(5)(A) reflects Congressional recognition
that there is a potential for a covered drug purchased
by a covered entity at the 340B discount price
to be subject to a Medicaid rebate, if the drug
is reimbursed by the Medicaid program. All program
guidance regarding the prevention of such duplicate
discounting must be followed by ADAPs participating
in the rebate program as well as those participating
in the discount program. Guidance regarding billing
State Medicaid Agencies at actual acquisition
cost plus a dispensing fee (established by the
State Medicaid agency) and the prevention of duplicate
discounting was published in the Federal Register
on May 7, 1993 (58 FR 27293) entitled “Duplicate
Discounts and Rebates on Drug Purchases.”
Further guidance was published in the Federal
Register on May 13, 1994 (59 FR 25112). State
ADAPs may find it necessary to work with State
Medicaid Agencies to adapt these guidelines to
meet the unique circumstances of each individual
State, such as provisions permitting retroactive
reimbursement of drug purchases while Medicaid
eligibility was pending.
The
HRSA is sensitive to concerns about diversion
of covered drugs to individuals who are not patients
of the covered entities. Guidelines have been
issued to minimize this potential, and manufacturers
have available to them specified remedies if they
believe diversion has occurred. These guidelines
and remedies will apply fully to drugs purchased
under a rebate option, and we believe that instituting
rebates will not increase the potential for diversion.
11.
Program Guidance Clarification re Mechanism
to Prevent Duplicate Discounts (March 15, 2000)
SUMMARY:
Section 602 of Public Law 102-585, the "Veterans
Health Care Act of 1992," enacted section
340B of the Public Health Service Act, "Limitation
on Prices of Drugs Purchased by Covered Entities."
Section 340B provides that a manufacturer who
sells covered outpatient drugs to eligible (covered)
entities must sign a pharmaceutical pricing agreement
with the Secretary of Health and Human Services
in which the manufacturer agrees to charge a price
for covered outpatient drugs that will not exceed
an amount determined under a statutory formula.
The
purpose of this notice is to clarify section 340B
program guidance related to the mechanism to prevent
duplicate discounts (i.e., the generation of a
Medicaid rebate on a section 340B discounted drug).
Any covered entity that purchases its non-Medicaid
drugs through the 340B program but its Medicaid
drugs through other avenues must provide the Office
of Drug Pricing (ODP) notice of this type of dual
purchasing activity. The Office of Drug Pricing
will place a notation "non-applicable"
(N/A) by the covered entity name on the eligibility
list so that any reimbursement requests for its
Medicaid drugs will continue to generate manufacturer
rebates. For appropriate Medicaid drug reimbursement
procedures, the Health Resources and Services
Administration (HRSA) refers the covered entity
to its respective State Medicaid agency for guidance.
SUPPLEMENTARY
INFORMATION: Section 340B(a)(5)(A) required HHS
to develop a mechanism to prevent a section 340B
drug discount and a Medicaid rebate on the same
drug (i.e., prevention of double discounting).
HRSA, together with the Medicaid Rebate Program,
Health Care Financing Administration, developed
a process to prevent this potential double price
reduction and published the final notice of this
mechanism on June 23, 1993, at 58 FR 34058. The
mechanism, which focuses only on 340B covered
outpatient drugs, requires a covered entity that
bills Medicaid on a cost basis (e.g., community
health centers using fee for service and not all
inclusive rates) to submit to the Office of Drug
Pricing its Pharmacy Medicaid Number (i.e., the
number used to bill Medicaid for the drugs).
This information is placed by the name of the
covered entity on the master electronic eligibility
list. Using this Medicaid number, the State Medicaid
agency creates a separate provider file for claims
from that covered entity. This computer file
then excludes data from this provider file when
generating the rebate bills to the manufacturers.
In this way, the mechanism prevents double discounting.
An entity which utilizes a Medicaid billing system
that includes pharmacy in an all-inclusive rate
or does not submit Medicaid claims for covered
outpatient drugs would not generate Medicaid rebates.
Consequently, these entities do not have to provide
their pharmacy numbers (58 FR 34059). However,
such entities were instructed to provide the Office
of Drug Pricing with notice of such purchasing
practices so that this information could be provided
to participating manufacturers and appropriate
State Medicaid agencies (59 FR 25112, May 13,
1994). It has come to our attention that there
may be some confusion concerning the appropriate
reporting procedures for an entity not participating
in the 340B Program for its Medicaid drugs (i.e.,
purchasing its non-Medicaid drugs through the
340B Program and its Medicaid drugs outside the
Program). Because drugs purchased outside of
the 340B Program are not considered covered 340B
outpatient drugs, an entity that only purchases
non-Medicaid drugs through the 340B Program would
not request Medicaid reimbursement for its covered
outpatient drugs (i.e., non-Medicaid drugs discounted
through the 340B program). Consequently, the
covered entity would not provide Office of Drug
Pricing its Medicaid Pharmacy number. However,
this entity still must notify Office of Drug Pricing
of this type of purchasing practice. Office of
Drug Pricing will place N/A by the name of the
covered entity, signaling no Medicaid reimbursement
requests on drugs purchased with discounts under
section 340B. In this way, Medicaid rebates will
continue to be generated on its Medicaid drugs
purchased outside the 340B program. Covered entities
that have submitted Medicaid Pharmacy provider
numbers now included in the covered entity database
but are purchasing drugs for their Medicaid patients
on the open market should contact Office of Drug
Pricing as soon as possible to request that their
Medicaid Pharmacy numbers be replaced by N/A in
the covered entity database. An entity that has
purchased Medicaid drugs outside of the 340B Program
but submitted its Medicaid provider number to
Office of Drug Pricing should attempt to preserve
any documentation of such purchasing activity.
The entity should contact its State Medicaid agency
about these past drug purchases so that the agency
can bill manufacturers for rebates that were excluded
from past rebate claims. On behalf of the Medicaid
Drug Rebate Program, HRSA provided notice to covered
entities regarding appropriate procedures for
requesting Medicaid reimbursement for covered
outpatient drugs (58 FR 27293 and 59 FR 25112
regarding “actual acquisition cost”).
Currently, HRSA is reviewing that portion of the
guidance and recommends that covered entities
refer to their respective Medicaid State agency
drug reimbursement guidelines for applicable billing
limits.
Appendix
D: Grants
Management Documents re Program Income
1.
Sections of the HHS Grants Management Regulation
(Part 74 of Title 45 of the Code of Federal
Regulations) providing general rules for managing
program income
Sec.
74.2 Definitions
Program
income means gross income earned by the
recipient that is directly generated by a supported
activity or earned as a result of the award
[see exclusions in Sec. 74.24 (e) and (h)].
Program income includes, but is not limited
to, income from fees for services performed,
the use or rental of real or personal property
acquired under federally-funded projects, the
sale of commodities or items fabricated under
an award, license fees and royalties on patents
and copyrights, and interest on loans made with
award funds. Interest earned on advances of
Federal funds is not program income. Except
as otherwise provided in the terms and conditions
of the award, program income does not include
the receipt of principal on loans, rebates,
credits, discounts, etc., or interest earned
on any of them. Furthermore, program income
does not include taxes, special assessments,
levies, and fines raised by governmental recipients.
Sec.
74.5 Subawards
(a) Unless inconsistent with statutory requirements,
this part (except for Sec. 74.12 and the forms
prescribed in Sec. 74.22) shall apply to--
(1)
Except for subawards under block grants
(45 CFR part 96), all subawards received
by institutions of higher education, hospitals,
other nonprofit organizations, and commercial
organizations from any recipient of an HHS
award, including any subawards received
from States, local governments, and Indian
tribal governments covered by 45 CFR part
92; and
(2)
All subawards received from States by any
entity, including a government entity, under
the entitlement programs identified at 45
CFR part 92, Sec. 92.4 (a), (a)(7), and
(a)(8), except that Secs. 74.12 and 74.25
of this part shall not apply.
(b)
Except as provided in paragraph (a)(2) of
this section, when State, local, and Indian
Tribal government recipients of HHS awards
make subawards to a government entity, they
shall apply the regulations at 45 CFR part
92, "Uniform Administrative Requirements for
Grants and Cooperative Agreements to State
and Local Governments," or State rules, whichever
apply, to such awards.
Sec.
74.24 Program income
(a)
The standards set forth in this section shall
be used to account for program income related
to projects financed in whole or in part with
Federal funds.
(b)
Except as provided below in paragraph (h)
of this section, program income earned during
the project period shall be retained by the
recipient and, in accordance with the terms
and conditions of the award, shall be used
in one or more of the following ways:
(1)
Added to funds committed to the project
or program, and used to further eligible
project or program objectives;
(2)
Used to finance the non-Federal share of
the project or program; or
(3)
Deducted from the total project or program
allowable cost in determining the net allowable
costs on which the Federal share of costs
is based.
(c)
When the HHS awarding agency authorizes the
disposition of program income as described
in paragraph (b)(1) or (b)(2) of this section,
program income in excess of any limits stipulated
shall be used in accordance with paragraph
(b)(3) of this section.
(d)
In the event that the HHS awarding agency
does not specify in the terms and conditions
of the award how program income is to be used,
paragraph (b)(3) of this section shall apply
automatically to all projects or programs
except research. For awards that support performance
of research work, paragraph (b)(1) of this
section shall apply automatically unless Social
Security Act:
(1)
The HHS awarding agency indicates in the
terms and conditions of the award another
alternative; or
(2)
The recipient is subject to special award
conditions under Sec. 74.14; or
(3)
The recipient is a commercial organization
(see Sec. 74.82).
(e)
Unless the terms and conditions of the award
provide otherwise, recipients shall have no
obligation to the Federal Government regarding
program income earned after the end of the project
period.
(f)
Costs incident to the generation of program
income may be deducted from gross Social Security
Act income to determine program income, provided
these costs have not been charged to the award.
(g)
Proceeds from the sale of property shall be
handled in accordance with the requirements
of the Property Standards. (See Secs. 74.30
through 74.37, below).
(h)
The Patent and Trademark Laws Amendments, 35
U.S.C. section 200-212, apply to inventions
made under an award for performance of experimental,
developmental, or research work. Unless the
terms and conditions for the award provide otherwise,
recipients shall have no obligation to HHS with
respect to program income earned from license
fees and royalties for copyrighted material,
patents, patent applications, trademarks, and
inventions made under an award. However, no
scholarship, fellowship, training grant, or
other funding agreement made primarily to a
recipient for educational purposes will contain
any provision giving the Federal agency rights
to inventions made by the recipient.
2.
Public Health Service Grants Policy Statement,
Section 8: Postaward Administration, policy regarding
program income
PROGRAM
INCOME
Recipients
are accountable to Public Health Service for certain
kinds of program income in accordance with 45
CFR Part 74, Subpart F, and 45 CFR Part 92.25.
Contracts under a grant are subject to the terms
of the contract with regard to the income generated
by the activities. Program income includes general
program income (see 45 CFR Part 74.42); proceeds
from the sale of assets acquired with project
funds; royalties from copyrights on publications
developed under, or patents and inventions conceived
or first actually reduced to practice under, a
grant-supported project; and interest and investment
income. These requirements are set forth in 45
CFR Part 74, Subpart F, and in 45 CFR Part 92.25
and are summarized below.
Each
NGA will provide information as to the treatment
of program income for each funded project.
General
Program Income
All
general program income, as defined in 45 CFR Part
74.42 and program income as defined in 45 CFR
Part 92.25, earned during the period of Public
Health Service grant support shall be retained
by the recipient and shall be treated in accordance
with one or a combination of the following options:
- Deduction
Alternative--Deducted from total allowable
costs and third-party in-kind contributions
for the purpose of determining the net costs
on which the Federal share will be based. When
this alternative applies, the deduction must
be made from current costs unless the terms
of the NGA authorize deferral to a later period.
General program income subject to this alternative
shall be reported on lines 10c and 10q of the
FSR (Long Form).
- Matching
Alternative--Used to satisfy all or part
of a matching requirement. General program income
subject to this alternative shall be reported
on lines 10g and 10q of the FSR (Long Form).
- Additional
Costs Alternative--Used for costs that are
in addition to the allowable costs of the project
for any purposes that further the objectives
of the legislation under which the grant was
made. General program income subject to this
alternative shall be reported on lines 10r and
10s, as appropriate, of the FSR (Long Form).
Option
1 above may always be selected by recipients and
must be used if neither of the other alternatives
is specified by the Public Health Service awarding
office in regulations or on the NGA. A subgrantee
may not be permitted to use an option not permitted
by the terms of the award to the grantee.
For
information on treatment of program income by--
-
State and local governments and federally recognized
Indian tribes, see 45 CFR Part 92.25.
-
Recipients of research grants,
-
All other nonprofit grantees, see 45 CFR Part
74, Subpart F.
-
For-profit organizations, see appendix 6
Interest
earned by recipients as a result of a permissible
use of general program income, e.g., where a statute
or other grant term provides for the use of income
to be deferred to a later period, shall be retained
by the recipient and treated as general program
income.
Treatment
of General Program Income Under Research Grants
Recipients
of certain Public Health Service research grants
have been extended the authority to use the Additional
Costs Alternative (see "Special Provisions
for Research Grants"). Each NGA will provide
information as to the treatment of program income
for each funded project.
For
research grants not included in the special grant
provisions (expanded authorities), general program
income shall be used as follows unless specified
otherwise by the awarding office:
- The
first $25,000 of program income is to be used
in accordance with the Additional Costs Alternative
and shall be reported on lines 10r and 10s of
the FSR (Long Form). However, this option may
not be authorized for-profit grantees (however,
see also appendix 6), grantees designated as
exceptional organizations, or where the principal
investigator has a history of frequent, large
annual unobligated balances on previous grants
or has requested multiple extensions of the
budget/project period.
-
Amounts in excess of $25,000 are to be used
in accordance with the Deduction Alternative,
unless another alternative is specified on the
NGA, and shall be reported on lines 10c and
10q of the FSR (Long Form).
Sale
of Real Property, Equipment, and Supplies
Sale
of Property
45
CFR Part 74.134 states that the disposition instructions
of the granting agency shall be followed when
real property is no longer to be used by the grantee
or transferred to an eligible third party.
Sale
of Equipment
Grantees
subject to the requirements in 45 CFR Part 74.139,
Disposition of Equipment, shall report income
earned from the sale of equipment on the FSR if
the grantee's project or program for which equipment
was acquired is still receiving grant support.
If authorized by the awarding unit, grantees may
use the income for allowable costs of the project.
This income would be reported on lines 10c, 10r,
or 10s of the FSR (Long Form) in accordance with
the Public Health Service awarding office's authorized
disposition. There are no reporting requirements
for nonprofit institutions of higher education
or nonprofit organizations whose primary purpose
is the conduct of scientific research, since they
are not subject to the requirements in 45 CFR
Part 74.139.
Unused
Supplies
Grantees
subject to the requirements in 45 CFR Part 74.141,
Unused Supplies, shall reflect any credit to the
grant on line 10c of the FSR (Long Form). There
are no reporting requirements for nonprofit institutions
of higher education or nonprofit organizations
whose primary purpose is the conduct of scientific
research, since they are not subject to the requirements
in 45 CFR Part 74.141.
Other
Income
Royalties
From a Copyrighted Work
Where
the terms of the NGA do not specify disposition,
no reporting of income is required on the FSR.
Where the terms of the NGA govern disposition,
this kind of income shall be reported on lines
10c, 10r, or 10s of the FSR (Long Form), in accordance
with the Public Health Service awarding office's
authorized disposition.
Royalties
From Patents or Inventions
Where
the terms of the NGA govern disposition, this
kind of income would be reported on lines 10c,
10r, or 10s of the FSR in accordance with the
Public Health Service awarding office's authorized
disposition. Where the terms of the NGA do not
specify disposition, Public Health Service awarding
office instructions for reporting this kind of
income shall be followed.
Interest
and Investment Income
Except
as provided immediately below, grantees shall
remit to the Federal Government any interest or
other investment income earned on advances of
Public Health Service grant funds. This includes
any interest or investment income earned by subgrantees
and cost-type contractors on advances to them
that are attributable to advances of Public Health
Service grant funds to the grantee. However, States
shall not be accountable to the Federal Government
for interest or investment income earned by the
State itself, or by its subgrantees, where this
income is attributable to Federal grants.
Income
After the Grant or Subgrant Support Not Otherwise
Treated
Unless
specified in the terms of the NGA, there are no
reporting requirements for income accrued after
the period of grant support ends.
3.
Guidance re Program Income from a Letter to HTC
Grantees dated May 23, 2003
The
Maternal and Child Health Bureau (MCHB), Health
Resources and Services Administration (HRSA),
is continuing its grant monitoring procedures
concerning program income. We would like to take
this opportunity to inform you and your affiliates
of the reporting requirements and governing policies
in reference to program income. As specified
in 45 C.F.R. 74.2, program income is that “gross
income earned by the [grant or subaward] recipient
that is directly generated by a supported activity
or earned as a result of the award.” Costs
incident to the generation of program income may
be deducted from the gross income to determine
the net program income, provided those costs have
not been charged to the grant. 45 C.F.R. 74.24(f).
All
Federal grants are subject to regulation under
the “Uniform Administrative Requirements
for Awards and Subawards to Institutions of Higher
Education, Hospitals, and Other Nonprofit Organizations.”
45 C.F.R. Part 74. These same requirements are
passed down from the grant recipient to the subawardee.
45 C.F.R. § 74.5. A “subaward” means
the “award of financial assistance…made
under an award by a recipient to an eligible subrecipient
or by a subrecipient to a lower tier subrecipient…even
if the agreement is called a contract.”
45 C.F.R. § 74.2. Grant recipients are “responsible
for managing and monitoring each project, program,
subaward, function or activity supported by the
award.” 45 C.F.R. § 74.51. Consequently,
it is incumbent upon you to share this information
with appropriate individuals/entities within your
institution and affiliates.
Part
74 requires program income to be used in one or
more of three ways: (1) added to funds committed
to the project or program and used to further
eligible project or program objectives; (2) used
to finance the non–federal share of the
program; or (3) deducted from the total program
allowable costs. 45 C.F.R § 74.24(b). As provided
on the Notice of Grant Award (Item #15), the MCHB
requires the HTC grantees and their affiliate
institutions to use the program income to “further
eligible project and program objectives.”
Therefore, the program income is to be used for
patient care and supportive services necessary
to provide comprehensive care to patients. This
is consistent with the purpose of section 340B
which is to “stretch scarce Federal resources
as far as possible, reaching more eligible patients
and providing more comprehensive services.”
H.R. Rep. No. 102-384, at 12 (1992). Note that
the grants awarding office may, on a case-by-case
basis, allow a grantee to use the income for eligible
costs of the project that might not be expressly
allowable costs under the terms and conditions
of the award. Such cases require prior written
approval from the grants awarding office.
Many
HTCs are Title V grantees, and are eligible to
access section 340B drug ceiling prices as a result
of receiving these grant awards. Section 340B(a)(4)(G)
of the Public Health Service Act designates a
“comprehensive hemophilia diagnostic treatment
center receiving a grant under [Title V] section
501(a)(2) of the Social Security Act” as
eligible for drug ceiling prices. Certain HTC
grantees are participating in the 340B drug program
and accessing such pricing. It is our understanding
that these centers are purchasing certain drugs
at the ceiling prices and selling these drugs
at a mark-up to their patients. Net income realized
from the sale of 340B drugs purchased under the
340B program is considered to be program income.
In addition, those grantees and affiliates that
have factor programs that are non-participants
in the 340B Program and those who have factor
programs as a result of participation in the 340B
Program must consider all sales of drugs, including
Medicaid sales, as program income.
Program
income from hemophilia treatment center (HTC)
grant projects must be managed in accordance with
the requirements of Part 74 and must be reported
on the Financial Status Report (FSR) SF 269 (long
form) within 90 days after the end of each budget
period (form enclosed). It is the responsibility
of the grantees to monitor the program income
generated by the subawardees. To remind grantees
of this reporting requirement, the Notice of Grant
Award for the FY 2003 budget year (June 1, 2003
– May 31, 2004) will have a term award pertaining
to the accurate reporting of the net program income
on the FSR form. Focusing on a prospective application,
starting with FY 2003 funding cycle, the reporting
of net program income on the FSR form is due in
the HRSA Division of Grants Management Operation
(DGMO) on August 31, 2005, 90 calendar days after
the close of the budget period end date. [Note:
The Notice of Grant Award for the FY 2004 budget
year (June 1, 2004 - May 31, 2005) had a term
award regarding the reporting of net program income
on the FSR due on August 31, 2005.] |