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www.regulations.gov. As a matter ofAgency practice, FDA generally doesnot post comments submitted byindividuals in their individual capacityon http://www.regulations.gov. This isdetermined by information indicatingthat the submission is written by anindividual, for example, the comment isidentified with the category ‘‘IndividualConsumer’’ under the field titled‘‘Category (Required),’’ on the ‘‘YourInformation’’ page on http:// www.regulations.gov. For this docket,however, FDA will not be following thisgeneral practice. Instead, FDA will poston http://www.regulations.gov comments to this docket that have beensubmitted by individuals in theirindividual capacity. If you wish tosubmit any information under a claim ofconfidentiality, please refer to 21 CFR10.20.

C. Information Identifying the PersonSubmitting the Comment

Please note that your name, contactinformation, and other informationidentifying you will be posted on http:// www.regulations.gov if you include thatinformation in the body of yourcomments. For electronic commentssubmitted to http:// www.regulations.gov, FDA will post the

body of your comment on http:// www.regulations.gov along with yourstate/province and country (ifprovided), the name of yourrepresentative (if any), and the categoryidentifying you ( e.g., individual,consumer, academic, industry). Forwritten submissions submitted to theDivision of Dockets Management, FDAwill post the body of your comments onhttp://www.regulations.gov, but you canput your name and/or contactinformation on a separate cover sheetand not in the body of your comments.

IV. Electronic Access

Persons with access to the Internetmay obtain an electronic version of theguidance at either http://

www.regulations.gov or http:// www.fda.gov/TobaccoProducts/ GuidanceComplianceRegulatory Information/default.htm.

Dated: August 24, 2015.Leslie Kux,Associate Commissioner for Policy.[FR Doc. 2015–21271 Filed 8–27–15; 8:45 am]BILLING CODE 4164–01–P

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Health Resources and ServicesAdministration

RIN 0906–AB08

340B Drug Pricing Program OmnibusGuidance

AGENCY : Health Resources and ServicesAdministration, HHS.ACTION : Notice.

SUMMARY : The Health Resources andServices Administration (HRSA)administers section 340B of the PublicHealth Service Act (PHSA), which isreferred to as the ‘‘340B Drug PricingProgram’’ or the ‘‘340B Program.’’ Thisnotice proposes guidance for coveredentities enrolled in the 340B Programand drug manufacturers that arerequired by section 340B of the PHSAto make their drugs available to coveredentities under the 340B Program. Whenfinalized after consideration of publiccomments solicited by this notice, theguidance is intended to assist 340Bcovered entities and drug manufacturersin complying with the statute.DATES : Submit comments on or beforeOctober 27, 2015.ADDRESSES : You may submit comments,identified by the Regulatory InformationNumber (RIN) 0906–AB08, by any of thefollowing methods. Please submit yourcomments in only one of these ways tominimize the receipt of duplicate

submissions. The first is the preferredmethod.• Federal eRulemaking Portal: http://

www.regulations.gov. Followinstructions for submitting comments.This is the preferred method for thesubmission of comments.

• Email: [email protected]. Include RIN 0906–AB08 in the subjectline of the message.

• Mail: Krista Pedley, Director, Officeof Pharmacy Affairs (OPA), HealthResources and Services Administration(HRSA), 5600 Fishers Lane, Mail Stop08W05A, Rockville, Maryland 20857.

All submitted comments will beavailable to the public in their entirety.FOR FURTHER INFORMATION CONTACT : CDRKrista Pedley, Director, OPA, HRSA,5600 Fishers Lane, Mail Stop 08W05A,Rockville, Maryland 20857, or bytelephone at (301) 594–4353.SUPPLEMENTARY INFORMATION :

I. BackgroundSection 602 of Public Law 102–585,

the ‘‘Veterans Health Care Act of 1992,’’enacted section 340B of the PublicHealth Service Act (PHSA) ‘‘Limitation

on Prices of Drugs Purchased byCovered Entities,’’ codified at 42 U.S.C.256b. The intent of the 340B Program isto permit covered entities ‘‘to stretchscarce Federal resources as far aspossible, reaching more eligible patientsand providing more comprehensiveservices.’’ H.R. REP. No. 102–384(II), at12 (1992). Eligible covered entity typesare defined in section 340B(a)(4) of thePHSA, and only include health careorganizations that have certain Federaldesignations or receive funding fromspecific Federal programs. Theseinclude Federally Qualified HealthCenters, Ryan White HIV/AIDS Programgrantees, and certain types of hospitalsand specialized clinics. Section 7101 ofthe Patient Protection and AffordableCare Act (Pub. L. 111–148) (‘‘AffordableCare Act’’) expanded the types ofcovered entities eligible to participate inthe 340B Program. As of January 1,2015, there were 11,530 registered

covered entities participating in the340B Program.Section 340B of the PHSA instructs

HHS to enter into a pharmaceuticalpricing agreement (PPA) with certaindrug manufacturers. If a drugmanufacturer signs a PPA, it agrees thatthe prices charged for coveredoutpatient drugs to covered entities willnot exceed 340B ceiling prices asdefined by statute. HRSA calculates theceiling prices quarterly using pricingdata reported to the Centers forMedicare & Medicaid Services (CMS).Pursuant to section 340B(a)(1) of thePHSA, the 340B ceiling price iscalculated by subtracting the UnitRebate Amount from the AverageManufacturer Price. As of January 1,2015, there were 644 drugmanufacturers participating in the 340BProgram.

When an eligible entity voluntarilydecides to enroll and participate in the340B Program, it accepts responsibilityfor ensuring compliance with allprovisions of the 340B Program,including all associated costs. Since1992, HHS has interpreted the statutoryrequirements of the 340B Programthrough guidances published in the

Federal Register , typically after noticeand opportunity for comment. HHS isproposing this omnibus guidance toprovide increased clarity in themarketplace for all 340B Programstakeholders and strengthen HHS’sability to administer the 340B Programeffectively. This notice clarifies manycurrent 340B Program guidances. HHSencourages all stakeholders to providecomments on this proposed guidance.

In September 2010, HHS publishedtwo advanced notices of proposedrulemaking in the Federal Register ,

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(section 340B(a)(4)(O) of the PHSA).Critical access hospitals are not eligiblefor Medicare disproportionate sharehospital payments and do not have adisproportionate share adjustmentpercentage threshold for 340B Programeligibility (section 340B(a)(4)(N) of thePHSA).

HHS will list any hospital qualifyingunder this provision whose latest filedMedicare cost report demonstrates thatits disproportionate share adjustmentpercentage meets the statutorilyrequired threshold to be eligible for the340B Program. HHS will list children’shospitals that do not submit a Medicarecost report if they provide a statementfrom a qualified independent auditorcertifying that that the hospital wouldmeet one or both of the criteria insection 340B(a)(4)(L)(ii) of the PHSAand including the basis for thatconclusion.Eligibility of Off-Site OutpatientFacilities and Clinics (Child Sites)

All off-site outpatient facilities andclinics (child sites) not located at thesame physical address as the parenthospital covered entity will be listed onthe public 340B database, and are ableto purchase and use 340B drugs foreligible patients, if the hospital coveredentity provides its most recently filedMedicare cost report demonstrating that:(1) Each of the facilities or clinics islisted on a line of the cost report that isreimbursable under Medicare; and (2)the services provided at each of thefacilities or clinics have associatedoutpatient Medicare costs and charges.These facilities and clinics will be listedindividually even if they share the samephysical address and/or common off-site location. HHS may also reviewother documentation as necessary toverify eligibility ( i.e., a trial balancereport—a basic summary used byhospitals for financial statements).

HHS does not list the outpatientclinics or departments within the same

building ( i.e., same physical address) ofa registered 340B parent hospitalcovered entity on its public 340Bdatabase, unless specifically requested

by the covered entity. However, thehospital covered entity remainsresponsible for ensuring that thoseoutpatient clinics or departments withinthe same building of the hospital meetall eligibility and 340B Programrequirements in statute.

HHS will list an outpatient facility ofa children’s hospital when theregistration submitted by the hospitaldemonstrates that the requestedoutpatient facility: (1) Is an integral partof the hospital, and (2) would becorrectly included on a reimbursable

line with associated Medicare costs andcharges on a Medicare cost report, iffiled.

HHS is actively seeking comments onalternatives to demonstrating theeligibility of an off-site outpatientfacility or clinic. In consideringalternatives, HHS has explored use ofprovider-based standards (42 CFR413.65); however, many hospitalschoose not to seek provider-baseddesignation for their departments orfacilities for unrelated reasons eventhough these facilities may qualify forthe designation. Comments onpreviously proposed guidance at 72 FR1543 (January 12, 2007), highlighted thedifficulty in verifying whetheroutpatient facilities and clinics meetprovider-based standards. HHS has alsopreviously considered use of form CMS855A, Medicare Enrollment Applicationfor Institutional Providers, which isused by hospitals to apply to enroll in

the Medicare program or make a changein the hospital’s enrollmentinformation. HHS has found this forminsufficient as an accurate indicator ofthe facility’s reimbursement underMedicare for purposes of 340B Programadministration. For those partiesproposing forms submitted to CMS,please include information regardingthe deadline for submission of theproposed form, the proposed form’srelationship to Medicarereimbursement, and other key factors.Non-Hospital Loss of Eligibility

In all scenarios, the covered entitymust immediately notify HHS regardingany changes in eligibility for itself or achild site. When a covered entity loses340B Program eligibility, HHS will listthat date on the public 340B database asthe termination date. HHS will updatethe public 340B database as soon as theentity notifies HHS or HHS becomesaware that it no longer meets a 340Beligibility requirement. If a parentcovered entity site is terminated, allchild sites and contract pharmacyarrangements will be removed from thepublic 340B database with the sametermination date. A covered entity is

liable to manufacturers for repaymentfor the 340B discounts on any drugspurchased for itself, any child site, orany contract pharmacy when thecovered entity was ineligible for the340B Program for any reason. A non-hospital covered entity would lose 340BProgram eligibility immediately uponloss of its qualifying Federal grant,contract, designation, or project or uponclosing of the entity. A child site’s 340BProgram eligibility is tied to theeligibility of the parent covered entity;if a non-hospital parent covered entity

loses eligibility to participate in the340B Program, all registered child siteswill simultaneously lose eligibility andmust cease purchasing and using 340Bdrugs. A child site of a non-hospitalcovered entity will always loseeligibility if the child site closes, or ifthe child site no longer qualifies underthe parent covered entity’s grant,project, designation, or contract. If aparent or child site is registered undermultiple covered entity types, loss ofeligibility for any one covered entitytype requires the parent and child sitesto stop purchasing and using 340Bdrugs under the covered entity type forwhich the sites are no longer eligible.For example, if a site is registered forthe 340B Program as a Federallyqualified health center (FQHC) andtuberculosis (TB) clinic, and the parentsite loses TB funding, both the parentand child sites must immediately stoppurchasing and using 340B drugs under

the TB grant and must have its TB 340Bidentification number terminated. Thesites may continue purchasing andusing 340B drugs under its registeredFQHC 340B ID for eligible patients.Hospital Loss of Eligibility

In all scenarios, the covered hospitalentity must immediately notify HHSregarding any changes in eligibility foritself or an off-site outpatient facility orclinic. When a covered entity loses 340BProgram eligibility, HHS will list thatdate on the public 340B database as thetermination date. HHS will update thepublic 340B database as soon as theentity notifies HHS or HHS becomesaware that it no longer meets a 340Beligibility requirement. If a parentcovered entity site is terminated, all off-site outpatient facilities or clinics orcontract pharmacies will be removedfrom the public 340B database with thesame termination date. If any non-eligible entity purchased 340B drugsafter the date of loss of eligibility, it will

be noted in the public 340B database.Pursuant to section 340B(a)(4)(L)(ii) ofthe PHSA, a hospital covered entityloses 340B Program eligibilityimmediately upon filing of a Medicare

cost report that demonstrates thehospital’s disproportionate shareadjustment percentage has fallen belowthe required threshold for the hospitaltype for which it is registered. Forexample, if a freestanding cancerhospital files its cost report on May 30,2016, with a disproportionate sharepercentage of 10 percent (which is

below the required threshold forfreestanding cancer hospitals, 11.75percent), that hospital and all of itschild sites and contract pharmacies will

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and the covered entity must stoppurchasing and using 340B drugs onMay 30, 2016, or be subject torepayment to manufacturers for 340Bdrugs purchased after May 30, 2016. Inthe case of a children’s hospital thatdoes not file a Medicare cost report, thehospital would lose eligibility upon itsrequired annual independent auditwhich results in a disproportionateshare adjustment percentage less than orequal to 11.75 being issued.

A hospital covered entity eligible onthe basis of having a contract with aState or local government will lose 340BProgram eligibility if its contract with aState or local government expires or isterminated. A critical access hospitalwould lose its eligibility for the 340BProgram upon losing its critical accesshospital designation from CMS. Inaddition, a hospital subject to the grouppurchasing organization prohibitionwill lose 340B Program eligibility as

described in this proposed guidance ifit fails to comply with the prohibition.An off-site outpatient facility’s

eligibility to participate in the 340BProgram is tied to the eligibility of theparent hospital. If a parent hospitalloses eligibility to participate in the340B Program, all registered child siteswill simultaneously lose eligibility andmust immediately cease purchasing andusing 340B drugs. A child site may loseeligibility separately from the parentcovered entity in certain circumstances.An off-site hospital outpatient facilityregistered as a child site will lose 340BProgram eligibility immediately uponclosing, sale or transfer of the outpatientfacility, or the parent covered entity’sfiling of a Medicare cost report whichdemonstrates the facility is no longerreimbursable or services provided at thefacility no longer have associatedoutpatient costs and charges underMedicare. Additionally, a child site maylose eligibility separately from theparent hospital covered entity if thechild site violates the group purchasingorganization prohibition.

A parent covered entity may be liablefor repayment to manufacturers for any340B drug purchase made after the child

site loses eligibility. A parent coveredentity must immediately notify HHS ofany change in eligibility.Compliance and Loss of 340B ProgramEligibility

Once enrolled in the 340B Program,the covered entity must comply with all340B Program statutory requirements asof the covered entity participation startdate listed on the public 340B database.The covered entity must continue tomeet all eligibility requirements for theentity type for which it is registered and

listed on the public 340B database. Aparent covered entity and itsauthorizing official will be responsiblefor the compliance of any related childsites. A covered entity is alsoresponsible for the compliance ofcontract pharmacy sites that dispensedrugs on behalf of the covered entity.

Registration and TerminationRegistration

Sections 340B(d)(2)(B)(i), (ii), and (iv)of the PHSA authorize HHS to maintaina single, universal, and standardizedidentification system listingparticipating covered entities. HHS listscovered entities, including anyregistered associated sites, on its public340B database. The registered coveredentity is listed as the ‘‘parent’’ site andthe registered off-site outpatient facility,clinic, eligible off-site location orassociated site is listed as the ‘‘child’’site. The list of covered entity sites onthe public 340B database assistsmanufacturers in verifying eligibility for340B drug purchases. The public 340Bdatabase includes the name, location,eligibility type, and eligibility date foreach covered entity, including parentand child sites and, when applicable,the date and reason for termination. Theparent covered entity is given a unique340B identification number and anychild site is designated by the same340B identification number followed bya letter or letters ( e.g., if the parententity is registered as a disproportionateshare hospital with the identification

number DSH000001, that hospital’seligible off-site outpatient facilities orclinics, once registered, will be listed asDSH000001A, DSH000001B). Registeredparent and child sites are able topurchase and use 340B drugs for theireligible patients.

HHS publishes the conditions andprocedures for registration andregistration deadlines in the FederalRegister and on the HHS 340B ProgramWeb site ( www.hrsa.gov/opa ). Thecurrent registration periods andeffective dates for the 340B Program are:October 1–October 15 for an effectivestart date of January 1; January 1–

January 15 for an effective start date ofApril 1; April 1–April 15 for an effectivestart date of July 1; and July 1–July 15for an effective start date of October 1.If the 15th falls on a Saturday, Sunday,or Federal holiday, the deadline forsubmitting registrations will be the next

business day (77 FR 43342 (July 24,2012)). Special registration proceduresapply in the case of a public healthemergency declared by the Secretary.Information will be posted on the 340BProgram Web site as to the geographic

scope and duration of such registrationopportunities.

HHS lists a covered entity on itspublic 340B database after receiving theentity’s registration from an appropriateauthorizing official, such as a chiefexecutive officer, chief operating officer,chief financial officer, or an employeewho can legally bind the covered entity.During registration, the authorizingofficial attests to the covered entitymeeting the eligibility criteria and itsability to comply with the 340B Programrequirements.

HHS will not list a covered entity onthe public 340B database when theinformation submitted pursuant to 340BProgram registration does notdemonstrate the entity is eligible for the340B Program according to the statutoryrequirements. HHS will not list a non-hospital covered entity if theappropriate HHS operating division thatadministers the statutory programs towhich eligibility is linked does notverify the entity’s eligibility. HHS willnot list covered entities that arehospitals if their latest filed Medicarecost reports (or such documentationdescribed for children’s hospitals thatdo not file a Medicare cost report) donot verify eligibility of the hospital andoff-site outpatient facilities or clinics atissue.

Eligibility for the 340B Program islimited to the categories of entitiesspecified in statute. Inclusion of acovered entity in a larger organizationsuch as a health system or anAccountable Care Organization does notmake the entire larger organizationeligible for the 340B Program orautomatically qualify all of theindividuals receiving services from thelarger organization as patients of thecovered entity for 340B Programpurposes. Likewise, if covered entityeligibility is limited to a distinct part ofa hospital, HHS will not list the hospitalas a covered entity unless the hospitalis otherwise eligible and registers for the340B Program. For example, if a coveredentity hemophilia treatment center(HTC) is part of a hospital, HHS will notlist the hospital as a covered entity for

the 340B Program unless otherwiseeligible and registered as such.A non-hospital covered entity is listed

by HHS under each of its eligible entitytypes, and is able to purchase and use340B drugs under each of its eligibleentity types, if the covered entityregisters accordingly. For example, acovered entity site with the sameaddress that is eligible as sexuallytransmitted disease (STD) and TBclinics will register and be listed witha 340B identification number for bothSTD and TB entity types.


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If a hospital is eligible for the 340BProgram as more than one hospitalentity type, HHS will only list the entityas one hospital type. HHS will changethe entity type under which a hospitalis listed if the hospital terminates theprevious registration, submits a newregistration during regular enrollmentperiods as set forth by HHS, and abides

by the statutory requirements of the newcovered entity type. HHS will listcontract pharmacies that have writtenagreements with the new entity type ifthe entity registers these pharmacies aspart of its new registration.

HHS lists covered entities on thepublic 340B database on the conditionthat the entity will immediately updatethe public 340B database information orsubmit updates to HHS for any changesto any portion of its covered entitydatabase record, including changes inits child site or contract pharmacy andauthorized shipping address

information.The PHSA does not includepharmacies as an entity type that iseligible to participate in the 340BProgram. HHS lists in-house pharmaciesowned and operated by the coveredentity as an authorized shipping address(i.e., the ‘‘ship-to’’ field in the public340B database) if 340B drugs will beshipped there directly for use by thecovered entity. HHS also lists contractpharmacies registered by a coveredentity to dispense 340B drugs to eligiblepatients of the covered entity. HHS listscentral fill pharmacies or repackagingfirms as an authorized shipping addressfor a covered entity.Termination

HHS lists covered entities on itspublic 340B database on the conditionthat the covered entity will regularlyreview and update its information onthe database. Upon loss of eligibility ofa parent site, child site, or terminationof any contract pharmacy arrangement,the covered entity must immediatelynotify HHS and stop purchasing andusing 340B drugs at the terminatedsite(s). HHS requests that the coveredentity provide the reason for the loss of

eligibility, the effective date for the lossof eligibility, and the date of the last340B drug purchase for a terminatedcovered entity, child site, or contractpharmacy. A covered entity is liable tomanufacturers for repayment for the340B discounts on any drugs purchasedfor itself, any child site, or any contractpharmacy when the covered entity wasineligible for the 340B Program for anyreason.

HHS is proposing to clarify when acovered entity can re-enroll in the 340BProgram once removed for violation of

an eligibility requirement, including therequirement not to use a grouppurchasing organization. A coveredentity removed from the 340B Programwould be able to re-enroll in the 340BProgram during the next regularenrollment period after it hassatisfactorily demonstrated to HHS thatit will comply with all statutoryrequirements moving forward and hascompleted, or is in the process ofoffering repayment to affectedmanufacturers as necessary. HHS isseeking comments on what type ofinformation a covered entity wouldsubmit to HHS to demonstratecompliance to re-enroll in the 340BProgram. For example, if removed forviolation of the group purchasingorganization prohibition, a hospitalcould demonstrate it has set upappropriate purchasing accounts and, ifapplicable, software programmed toallocate drug purchases to the correct

purchasing accounts; it could alsosubmit policies and proceduresdirecting proper purchase allocationsand a self-audit report confirmingcorrect purchasing. Or, hospitals thatlost eligibility based on DSH percentage,

but subsequently won an appeal to havethe DSH percentage changed, couldsubmit documentation of the appeal.Annual Recertification

Sections 340B(d)(2)(B)(i) and (ii) ofthe PHSA require the development ofprocedures for covered entities toupdate 340B Program databaseinformation annually, and for HHS toverify the accuracy of this information.HHS will list covered entities on itspublic 340B database that annuallycertify the accuracy of their databaseinformation and their compliance with340B Program statutory requirements.HHS reviews and verifies thisinformation through HHS OperatingDivisions, where appropriate, and willterminate a covered entity from the340B Program if it is ineligible byinforming the entity and noting this inthe public 340B database. By certifyingcompliance with all 340B Programrequirements, a covered entity attests

that it employs effective businesspractices to ensure and monitor ongoingcompliance, including self-audits whereappropriate; maintains accurate 340Bdatabase information; and notifies HHSin the event the entity is no longereligible for the 340B Program or hasviolated any 340B Program requirement,subject to HHS audit.

A covered entity may voluntarilyterminate its 340B Programparticipation (or the participation of achild site or contract pharmacyarrangement) during the annual

recertification process or at any othertime. When a covered entity removesitself, its child site, or contractpharmacy arrangement from the 340BProgram, the covered entity is expectedto provide an explanation anddocumentation of the termination, thetiming of the termination, and the datethe covered entity has ceased or plansto cease purchasing and using 340Bdrugs under the 340B Program. Failureto provide this information will beconsidered in any determinationregarding the covered entity’s liability tomanufacturers, and if the organizationseeks to re-enroll as a covered entity.

A covered entity removed for failureto recertify would be able to re-enroll forthe 340B Program during the nextregular enrollment period after thecovered entity has demonstrated to HHSits ability to comply with all 340BProgram requirements.

Group Purchasing Organization (GPO)Prohibition for Certain Covered Entities

To be eligible for the 340B Program,disproportionate share hospitals (DSH),children’s hospitals, and freestandingcancer hospitals in the 340B Programare subject to the GPO prohibition insection 340B(a)(4)(L)(iii) of the PHSA,which states that to be eligible, thesehospital covered entities do not ‘‘obtaincovered outpatient drugs through agroup purchasing organization or othergroup purchasing arrangement.’’ Section340B(b)(2)(A) defines ‘‘covered

outpatient drug’’ as the definition insection 1927(k) of the Social SecurityAct (42 U.S.C. 1396r–8(k)). Section 340Bof the PHSA does not limit GPOparticipation for inpatient drugpurchases. A GPO may only be used byone of the affected covered entities topurchase drugs dispensed to inpatientsor to purchase drugs which do not meetthe definition of covered outpatientdrug. This prohibition extends to anypharmacy owned or operated by thesecovered entities, and takes effect as ofthe start date of enrollment in the 340BProgram. The prime vendor program

established pursuant to section340B(a)(8) of the PHSA is notconsidered a GPO subject to thisprohibition.

During registration for the 340BProgram, the authorizing officialregistering a DSH, children’s hospital, orfreestanding cancer hospital attests itwill comply with the statutory GPOprohibition. These hospitals also attestto compliance with this prohibitionduring the annual recertificationprocess.


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ExceptionsThe proposed guidance clarifies

specific situations which would notviolate the GPO statutory prohibition.First, the proposed guidance clarifiesthat a GPO account may be used at anoff-site outpatient facility ( i.e., not at thesame physical address of the 340B

hospital covered entity) of a 340Bcovered entity which is notparticipating in the 340B Program orlisted on the public 340B database. HHSis proposing that an off-site outpatientfacility which is not participating orlisted on the public 340B database, isable to access outpatient drugs througha GPO as long as that facili ty has apurchasing account separate from thatof any 340B enrolled site, and thatfacility ensures GPO purchased drugsare never provided to outpatients of thehospital or other child sites enrolled inthe 340B Program. Second, the proposedguidance clarifies that 340B eligibilitycan be maintained when GPO drugs areprovided to an inpatient whose status issubsequently changed to outpatient by athird party, such as an insurer or aMedicare Recovery Audit Contractor, ora hospital review, provided there issufficient documentation of the patient’schange of status. Finally, HHS isproposing to recognize an exception tothe GPO prohibition for hospitals thatcannot access a drug at the 340B priceor at wholesale acquisition cost (WAC)to prevent disruptions in patient care.HHS will consider a hospital incompliance with the statute if a hospitalcovered entity that resorts to using aGPO for covered outpatient drugs in thiscircumstance documents the factssurrounding the purchase and providesHHS with the name of drug in question,the manufacturer, and a briefdescription of the attempts to purchasethe drug at the 340B price and the WACprice prior to purchasing the drugthrough a GPO.

Under no circumstances may thespecific situations noted in theseexceptions be used to circumvent theGPO prohibition to supply GPO-purchased covered outpatient drugs to

parts of the hospital subject to the GPOprohibition.

Drug Replenishment ModelsA large number of hospitals use

replenishment models to operationalizethe 340B Program. HHS clarified itsposition in a February 2013 PolicyRelease No. 2013–1, StatutoryProhibition on Group PurchasingOrganization Participation. Just as ahospital subject to the GPO prohibitionmay not purchase covered outpatientdrugs using a GPO for use with 340B-

ineligible outpatients, a hospital thatorders drugs based on actual prior usagecannot tally 340B-ineligible outpatientuse for drug orders on a GPO account.A covered entity may be found inviolation of the statutory GPOprohibition if a replenishment model orsplit billing software is used in amanner contrary to the statute. Pursuantto section 340B(a)(5)(C) of the PHSA,covered entities using replenishmentmodels should maintain recordsdemonstrating that the replenishmentmodel and associated software is usedin a manner that complies with thestatute. Part C of this proposed guidanceprovides further information on drugreplenishment models.Use of Previously-Purchased GPO Drugs

Newly enrolled covered entitiessubject to the GPO prohibition muststop purchasing covered outpatientdrugs through a GPO before the first daythe covered entity is listed on the public340B database as eligible to purchase340B drugs (‘‘start date’’). However, if acovered entity has GPO-purchasedcovered outpatient drugs remaining ininventory on or after the covered entitystart date for the 340B Program, thosedrugs may be used until expended.Violations of the Statutory GPOProhibition

HHS is aware that manufacturers andcovered entities may currently worktogether to identify and correct errors inGPO purchasing within 30 days of theinitial purchase through a credit andrebill process as a standard businesspractice. HHS encourages manufacturersand covered entities to continue thispractice. This collaboration necessitatesa covered entity’s frequent monitoringof compliance to identify GPOpurchasing errors within 30 days of theerroneous purchase.

Under this proposed guidance, HHSproposes to extend the notice andhearing process, as described in Part H,to covered entities found in violation ofthe GPO prohibition. As part of thenotice and hearing process, the coveredentity could demonstrate that the GPO

violation was an isolated error asopposed to a systematic violation. If thecovered entity were to demonstrate theGPO violation was an isolated incidentand the covered entity is currently incompliance, the covered entity will bepermitted to remain in the 340BProgram upon submission of acorrective action plan.

If, after notice and hearing, thecovered entity’s GPO violation wasdetermined not to be isolated, thecovered entity would be deemedineligible for the 340B Program as of the

date of the violation and immediatelyremoved. A covered entity removedfrom the 340B Program would berequired to offer repayment to affectedmanufacturers for any 340B drugpurchase made after the first date ofviolation of the GPO prohibition.

If a parent site were deemed ineligible by HHS due to GPO prohibitionviolation, the parent site, all child sites,and all contract pharmacy arrangementswould be removed from the 340BProgram. In the case of a violation thatHHS determines is isolated to a childsite, the child site would be removedfrom the 340B Program. The parent sitemay be able to remain in the 340BProgram if it can demonstrate that theGPO prohibition violation was isolatedto the child site and that the parent sitedid not violate the GPO prohibition.GPO participation cannot be limited toa child site if the parent site alsopurchases drugs on the same account as

the child site.Part B—Drugs Eligible for PurchaseUnder 340B

Pursuant to section 340B(a) of thePHSA, a manufacturer participating inthe 340B Program must offer eachcovered entity covered outpatient drugsfor purchase at or below the applicableceiling price if such drug is madeavailable to any other purchaser at anyprice. The term covered outpatient drugis defined in section 1927(k)(2) of theSocial Security Act and is limited byparagraph (3) which states:

‘‘The term ‘covered outpatient drug’ doesnot include any drug, biological product, orinsulin provided as part of, or as incident toand in the same setting as, any of thefollowing (and for which payment may bemade under this title as part of payment forthe following and not as directreimbursement for the drug): (A) Inpatienthospital services; (B) Hospice services; (C)Dental services, except that drugs for whichthe State plan authorizes directreimbursement to the dispensing dentist arecovered outpatient drugs; (D) Physicians’services; (E) Outpatient hospital services; (F)Nursing facility services and servicesprovided by an intermediate care facility forthe mentally retarded; (G) Other laboratoryand x-ray services; and (H) Renal dialysis.Such term also does not include any suchdrug for which a National Drug Code numberis not required by the Food and DrugAdministration or a drug or biological usedfor a medical indication which is not amedically accepted indication.’’ (Section1927(k)(3) of the Social Security Act).(emphasis added )

HHS published guidance on May 7,1993, which stated that a coveredoutpatient drug does not include anydrug, biological product, or insulin thatmeets this limiting definition (58 FR27289, 27291). HHS published


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additional guidance on May 13, 1994,which further clarified that, in thesettings identified in the limitingdefinition, ‘‘if a covered drug isincluded in the per diem rate ( i.e.,

bundled with other payments in an all-inclusive, a per visit, or an encounterrate), it will not be included in the[340B Program]. However, if a covereddrug is billed and paid for instead as aseparate line item as an outpatient drugin a cost basis billing system, this drugwill be included in the program.’’ (59FR 25110, 25113).

The limiting definition includes twoparts which, if both are met, exclude adrug, biological product, or insulinmentioned in section 1927(k)(2) of theSocial Security Act as a coveredoutpatient drug. First, the drug is‘‘provided as part of, or as incident toand in the same setting as’’ the serviceslisted in section 1927(k)(3) and second,the payment for such service may be

made under Title XIX of the SocialSecurity Act and not as directreimbursement for the drug. Thisguidance proposes that a drug thatsatisfies both conditions will not qualifyas a covered outpatient drug in the 340BProgram.

Further, the limiting definition insection 1927(k)(3) to exclude coveredoutpatient drugs for purposes of the340B Program only applies when thedrug is bundled for payment underMedicaid as part of a service in thesettings described in the limitingdefinition. In contrast, a drug providedas part of a hospital outpatient servicewhich is billed to any other third partyor directly billed to Medicaid wouldstill qualify as a covered outpatientdrug. Covered entities that purchasedrugs through the 340B Program whichdo not meet the definition of coveredoutpatient drug would be subject torepayment to affected manufacturers.

Hospital covered entities subject tothe GPO prohibition in section340B(a)(4)(L)(iii) of the PHSA mustensure that drugs that meet thedefinition of covered outpatient drugdescribed in section 1927(k) of theSocial Security Act are purchased using

the correct accounts to comply with theGPO prohibition. A covered entity mustmaintain auditable records pursuant tosection 340B(a)(5)(C) of the PHSAwhich pertain to compliance with thisprovision.

In accordance with section 340B(a)(1)of the PHSA, a manufacturer may notcondition the sale of a coveredoutpatient drug on covered entitycompliance with this provision.Remedies for violations would beimposed under the enforcementprovisions of the 340B Program, but

manufacturers may not unilaterallydeny sales based on such violations.

Part C—Individuals Eligible To Receive340B Drugs

Section 340B(a)(5)(B) of the PHSAprohibits covered entities from resellingor transferring drugs purchased underthe 340B Program to individuals whoare not patients of the covered entity.HHS is proposing a clarified definitionof patient for purposes of the 340BProgram. In its clarification of whatconstitutes a violation of section340B(a)(5)(B) of the PHSA, HHS also isproposing its interpretation of section340B(a)(5)(D) of the PHSA. Section340B(a)(5)(D) of the PHSA states acovered entity violating section340B(a)(5)(B) of the PHSA shall be liableto the manufacturer of the coveredoutpatient drug that is the subject of theviolation in an amount equal to thereduction in the price of the drug. Thesale or transfer of 340B drugs to anindividual not meeting the criteria inthis section of the proposed guidance isconsidered diversion.

HHS has proposed a number ofguidances that have addressed thedefinition of a patient. The currentguidance, issued in 1996, outlined athree-part test which state that an‘‘individual is a ‘patient’ of a coveredentity only if:1. The covered entity has established a

relationship with the individual, suchthat the covered entity maintains recordsof the individual’s health care;

2. The individual receives health careservices from a health care professionalwho is either employed by the coveredentity or provides health care undercontractual or other arrangements ( e.g.,referral for consultation) such thatresponsibility for the care providedremains with the covered entity; and

3. The individual receives a health careservice or range of services from thecovered entity which is consistent withthe service or range of services for whichgrant funding or Federally-qualifiedhealth center look-alike status has beenprovided to the entity. Disproportionateshare hospitals are exempt from thisrequirement.

An individual will not be considered a‘patient’ of the entity for purposes of 340B ifthe only health care received by theindividual from the covered entity is thedispensing of a drug or drugs for subsequentself-administration or administration in thehome setting.

An individual registered in a Stateoperated or funded AIDS drug purchasingassistance program receiving financialassistance under Title XXVI of the PHSA will

be considered a ‘patient’ of the covered entityfor purposes of this definition if so registeredas eligible by the State program.’’ (61 FR55157–8, October 24, 1996).

The development of this proposedguidance is meant to address the diverseset of 340B covered entities, and wasinformed by 340B Program audits,through which HHS has learned moreabout how the definition of patient isapplied in different health care settings.

Under this proposed guidance, anindividual will be considered a patientof a covered entity, on a prescription-by-prescription or order-by-order basis, ifall of the following conditions are met:

(1) The individual receives a healthcare service at a facility or clinic sitewhich is registered for the 340B Programand listed on the public 340B database.

HHS interprets the statute such that a340B eligible patient receives a healthcare service from the covered entity, andthe covered entity is medicallyresponsible for the care provided to theindividual. An individual who sees aphysician in his or her private practicewhich is not listed on the public 340Bdatabase or any other non-340B site ofa covered entity, even as follow-up tocare at a registered site, would not beeligible to receive 340B drugs for theservices provided at these non-340Bsites. The use of telemedicine involvingthe issuance of a prescription by acovered entity provider is permitted, aslong as the practice is authorized underState or Federal law and the drugpurchase otherwise complies with the340B Program.

An individual will not be considereda patient of the covered entity if theindividual’s health care is provided byanother health care organization thathas an affiliation arrangement with thecovered entity, even if the coveredentity has access to the affiliatedorganization’s records. Access to anindividual’s records by a covered entity,

by itself, does not make the individuala patient of that covered entity.

(2) The individual receives a healthcare service provided by a coveredentity provider who is either employedby the covered entity or who is anindependent contractor for the coveredentity, such that the covered entity maybill for services on behalf of the

provider.

Faculty practice arrangements andestablished residency, internship, locumtenens, and volunteer health careprovider programs are examples ofcovered entity-provider relationshipsthat would meet this standard. Simplyhaving privileges or credentials at acovered entity is not sufficient todemonstrate that an individual treated

by that privileged provider is a patientof the covered entity for 340B Programpurposes.

If a patient is referred from thecovered entity for care at an outside


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provider and receives a prescriptionfrom that provider, the drug in questionwould not be eligible for a 340Bdiscount at that covered entity.However, when the patient returns tothe covered entity for ongoing medicalcare, subsequent prescriptions written

by the covered entity’s providers may beeligible for 340B discounts.

(3) An individual receives a drug thatis ordered or prescribed by the coveredentity provider as a result of the servicedescribed in (2).

An individual will be considered apatient of a covered entity if the healthcare service received results in a drugorder or prescription. The use oftelemedicine, telepharmacy, remote,and other health care servicearrangements ( e.g., medication therapymanagement) involving the issuance ofa prescription by a covered entity ispermitted, as long as the practice isauthorized under State or Federal lawand otherwise complies with the 340BProgram.

An individual would not beconsidered a patient of a covered entitywhose only relationship to theindividual is the dispensing or infusionof a drug. The dispensing of or infusionof a drug alone, without a covered entityprovider-to-patient encounter, does notqualify an individual as a patient forpurposes of the 340B Program.However, if the covered entity infuses adrug and meets all other criteria asdefined in this section, an individualmay be classified as a patient for

purposes of 340B.(4) The individual’s health care isconsistent with scope of the Federalgrant, project, designation, or contract.

In the case of a covered entity with340B eligibility based on receipt of aFederal grant, Federal project, Federaldesignation, or Federal contract,individuals will be considered patientsonly if they are receiving health care ata covered entity site from a coveredentity provider which is consistent withthe health care service or range ofservices designated in the Federal grant,project, designation, or contract. These

criteria extend to each child site of acovered entity. If a child site’s scope ofgrant, project, or contract is morelimited than that of the parent site,individuals will be considered patientsif they are receiving health care at thechild site which is consistent with thehealth care service or range of servicesdelegated to the child site. For example,if a child site of an FQHC is limited inits scope of grant to treating pediatricindividuals, then only individualsreceiving pediatric care meeting thelimitations specified in the child site

scope of grant would be eligible toreceive 340B drugs.

A covered entity registered as one ofthe hospital covered entity categories isnot subject to this limitation. However,a hospital that is only enrolled in the340B Program on the basis of a Federalgrant, contract, or project is subject tothis limitation. For example, a hospitalthat is not enrolled as one of thehospital covered entity types mayinstead receive a grant for a familyplanning project. In this case, thehospital cannot access 340B drugs forpatients receiving care outside of thosefacilities and outside the scope of theFederal family planning project.

With respect to Indian Tribes orTribal Organizations whose 340BProgram eligibility arises solely from theIndian Self-Determination andEducation Assistance Act, Public Law93–638 (ISDEAA), use of 340B drugs islimited to those individuals that thetribe or tribal organization is authorizedto serve under its ISDEAA contract, inaccordance with the requirements inSection 813 of the Indian Health CareImprovement Act.

(5) The individual’s drug is ordered or prescribed pursuant to a health careservice that is classified as outpatient.

Section 340B(a)(1) of the PHSAestablishes the 340B Program as a drugdiscount program for covered entitiesfurnishing covered outpatient drugs.Therefore, an individual cannot beconsidered a patient of the entityfurnishing outpatient drugs if his or hercare is classified as inpatient. Anindividual is considered a patient if hisor her health care service is billed asoutpatient to the patient’s insurance orthird party payor. The covered entityshould maintain auditable recordsdocumenting any changes in patientstatus due to insurer determinations.

The outpatient status of individualswho are self-pay, uninsured, or whosecare is provided by the hospital coveredentity’s charity care program, would bedetermined by the covered entity’sdocumented, auditable policies andprocedures. We expect that most suchpolicies include categorizing a patient

as inpatient or outpatient based on howthe services would have been billed toMedicare or another third party payer,if such patient were eligible.

(6) The individual’s patient recordsare accessible to the covered entity anddemonstrate that the covered entity isresponsible for care.

An individual will be considered apatient if he or she has an establishedrelationship such that the covered entitymaintains auditable health care recordsthat demonstrate the covered entity hasa provider-to-patient relationship for the

health care service that results in theorder or prescription and that thecovered entity retains responsibility forcare that results in every 340B drugordered, dispensed, or prescribed to anindividual.Records

Pursuant to section 340B(a)(5)(C) ofthe PHSA, which requires coveredentities to permit audits of recordsdirectly pertaining to compliance,covered entities must maintain recordsthat demonstrate that all of the criteriaabove were met for every prescription ororder resulting in a 340B drug beingdispensed or accumulated through areplenishment model.Eligibility for Covered Entity Employees

The 340B Program does not serve asa general employee pharmacy benefit orself-insured pharmacy benefit. HHSguidance has always specified, and thisproposed guidance continues to makeexplicit, that only individuals who arepatients of the covered entity areeligible for drugs purchased through the340B Program. Employees of coveredentities do not become eligible toreceive 340B drugs solely by beingemployees, but by being a patient asdefined in this guidance. Coveredentities that solely have financialresponsibility for employees’ healthcare, and contract with prescribinghealth care professionals looselyaffiliated or unaffiliated with thecovered entity, would not meet the levelof responsibility for health care servicesas outlined in this guidance. A coveredentity would be acting primarily as theinsurance provider for these individualsand not as the health care provider ofthese individuals. For 340B Programpurposes, there is a fundamentaldifference between the individuals forwhom the covered entity provides directhealth care services and meets allcriteria in this section and employeesfor whom a covered entity only providesinsurance coverage.AIDS Drug Assistance Program (ADAP)

HHS proposes to reaffirm its long

standing position that an individualenrolled in a Ryan White HIV/AIDSProgram AIDS Drug Assistance Programfunded by Title XXVI of the PHSA will

be considered a patient of the coveredentity for purposes of this definition.Emergency Provisions

HHS proposes to recognize the uniquecircumstances that arise during a publichealth emergency declared by theSecretary and to allow certainflexibilities for demonstrating that anindividual is a patient of a covered


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entity in these situations ( e.g., limitedmedical documentation or a site notlisted in the 340B database). A coveredentity is expected to maintain auditablerecords pertaining to the effective datesand alternate methods to be used duringthe Secretarial-declared public healthemergency.

Drug Inventory/Replenishment ModelsCovered entities use replenishmentmodels to manage drug inventory,including 340B drugs, which ispermissible if the covered entityremains in compliance with all 340Brequirements. For example, a 340Bcovered entity that sees many differenttypes of patients ( e.g., inpatients, 340B-eligible outpatients, and otheroutpatients) would tally the drugsdispensed to each type of patient andthen replenish the drugs used byreordering from the appropriateaccounts. Some covered entities usesoftware, referred to as accumulators, totrack drug use for each patient type. Theaccumulator software would indicatewhich drugs are available to reorder onvarious accounts. In this example, thecovered entity counts the units oramounts received by each 340B eligiblepatient. Once the covered entity hasdispensed enough of a certain drug toequal an available package size, thecovered entity could reorder that drug atthe 340B price. Once drugs are receivedin inventory, the drugs lose theiridentity as 340B drugs, inpatient GPOdrugs, or outpatient non-340B/non-GPOdrugs. Each 340B drug order placedshould be supported by auditablerecords demonstrating prior receipt ofthat drug by a 340B-eligible patient.

If the covered entity improperlyaccumulates or tallies 340B druginventory, even if it is prior to placingan order, the covered entity haseffectively sold or transferred drugs to aperson who is not a patient, in violationof section 340B(a)(5)(B) of the PHSA. Asimilar violation would occur if therecorded number of 340B drugs does notmatch the actual number of 340B drugsin inventory, if the covered entitymaintains a virtual or separate physical

inventory.HHS is aware that manufacturers andcovered entities currently work togetherto identify and correct errors inpurchasing within 30 days of the initialpurchase through a credit and rebillprocess. HHS encourages manufacturersand covered entities to continue thispractice. This collaboration requires acovered entity’s frequent monitoring ofcompliance to identify purchasingerrors within 30 days of the erroneouspurchase and communicating with themanufacturer.

On occasion covered entities haveattempted to retroactively look backover long periods of time at drugpurchases not initially identified as340B eligible, sometimes looking back atdrug purchases over several years.Covered entities then attempt to re-characterize these purchases as 340Beligible and then purchase 340B drugson the basis of these previoustransactions. This practice is sometimesreferred to as ‘‘banking.’’ Coveredentities are responsible for requesting340B pricing at the time of the originalpurchase. If a covered entity wishes tore-characterize a previous purchase as340B, covered entities should firstnotify manufacturers and ensure allprocesses are fully transparent with aclear audit trail that reflects the actualtiming and facts underlying atransaction.

Regular reviews of 340B druginventory ensure that any inventory

discrepancy is accounted for andproperly documented to demonstratethat 340B drugs are not diverted. Acovered entity should follow standard

business procedures to return unused orexpired 340B drugs and appropriatelyaccount for waste of 340B drugs ( e.g.,discards after expiration dates). Policiesand procedures regarding 340B druginventory discrepancies, and how thecovered entity will reconcile anydiscrepancy in 340B drugs, can assist inmeeting this standard. Without thisinformation documented in auditablerecords, a covered entity would not beable to demonstrate that drug inventorydiscrepancies have not resulted indiversion.Repayment

Covered entities must comply withsection 340B(a)(5)(D) of the PHSA,which assigns liability to a coveredentity if it violates the diversionprohibition in section 340B(a)(5)(B) ofthe PHSA. Covered entities are expectedto work with manufacturers regardingrepayment within 90 days of identifyingthe violation. A manufacturer retainsdiscretion as to whether to requestrepayment based on its own business

considerations, provided that, whenexercising its discretion, themanufacturer complies with applicablelaw, including the Federal anti-kickbackstatute (42 U.S.C. 1320a-7b(B)). Forexample, a manufacturer may prefer notto accept payments below a de minimisamount or to process repayments owedthrough a credit/rebill mechanism.Manufacturers should bear in mind thepotential impact of such decisions onCMS price reporting requirements. Acovered entity must notify HHS andeach affected manufacturer of diversion

and is expected to documentnotification attempts in auditablerecords.

The covered entity is responsible forreporting a summary of its correctiveactions taken to HHS for transparency,compliance, and audit purposes (seePart H).

Part D—Covered Entity RequirementsProhibition of Duplicate Discounts

Under section 340B(a)(1) of the PHSA,manufacturers are required to provide adiscounted 340B price to a coveredentity for a covered outpatient drug.Under section 1927 of the SocialSecurity Act, manufacturers mustgenerally provide a rebate to a State fora covered outpatient drug provided to aMedicaid patient. However, section340B(a)(5)(A)(i) of the PHSA prohibitsduplicate discounts whereby a Stateobtains a rebate on a drug provided toa Medicaid patient when that same drugwas discounted under the 340BProgram. While Medicaid drug rebateswere previously limited to Medicaidfee-for-service (FFS) drugs, section2501(c) of the Affordable Care Actamended the Social Security Act,extending Medicaid drug rebateeligibility to certain Medicaid ManagedCare covered outpatient drugs. Section2501(c) further amended the SocialSecurity Act to specify that coveredoutpatient drugs dispensed by MedicaidManaged Care Organizations (MCOs) arenot subject to a rebate if also subject toa discount under section 340B of the

PHSA.Fee for Service

Pursuant to section 340B(a)(5)(A)(ii)of the PHSA, HHS established the 340BMedicaid Exclusion File as themechanism to prevent duplicatediscounts. The 340B MedicaidExclusion File is posted on the public340B database to enable 340B coveredentities, States, and manufacturers todetermine whether a covered entitypurchases 340B drugs for its MedicaidFFS patients.

Under this proposed guidance, a

covered entity will be listed on thepublic 340B database if it notifies HHSat the time of registration whether it willpurchase and dispense 340B drugs to itsMedicaid FFS patients (carve-in) and

bill the State, or whether it willpurchase drugs for these patientsthrough other mechanisms (carve-out).A covered entity electing carve-in willthen have their Medicaid billingnumber, National Provider Identifier(NPI), or both listed on HHS’ 340BMedicaid Exclusion File. Coveredentities must provide any Medicaid


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billing number/NPIs they use to billMedicaid for 340B drugs for listing onthe 340B Medicaid Exclusion File ifthey intend to bill Medicaid at anyassociated sites registered with the 340BProgram. Covered entities that wish to

bill Medicaid for their non-340B eligiblesites should work with their state toreceive a different NPI number for thatpurpose.Medicaid Managed Care

The covered entity may make adifferent determination regarding carve-in or carve-out status for MCO patientsthan it does for FFS patients. An entitycan make different decisions by coveredentity site and by MCO, but mustprovide to HRSA identifyinginformation of the covered entity site,the associated MCO, and the decision tocarve-in or carve-out. This informationmay be made available on a 340BMedicaid Exclusion file. HRSA seekscomments on the utility of this billinginformation for other stakeholders, aswell as the format through which it ismade public.

While the proposed use of a 340BMedicaid Exclusion File would identifythe covered entity billing practices usedfor MCO patients, HHS encouragescovered entities, States, and MedicaidMCOs to work together to establish aprocess to identify 340B claims. First,covered entities should havemechanisms in place to be able toidentify MCO patients. Second, coveredentities and States should continue towork together on various methods toprevent duplicate discounts onMedicaid MCO drugs. Currently,covered entities report using BankIdentification Numbers, ProcessorControl Numbers, and National Councilfor Prescription Drug Programs (NCPDP)codes, among other methods, to identifyMedicaid MCO patients and 340Bclaims. In some cases, States mayrequire covered entities to followadditional steps to prevent duplicatediscounts, including use of certainmodifiers and codes which identifyindividual claims as associated with340B drugs and therefore not eligible for

rebate. Such billing instructions are beyond the scope of the 340B Program.340B Medicaid Exclusion File Changes

After enrollment, a covered entity canchange its election to purchase anddispense 340B drugs for Medicaid FFSand/or MCO patients by notifying HHS.While changes to how a covered entityuses 340B drugs for its Medicaid FFSand MCO patients can be submitted atany time, the changes are only effectiveon a quarterly basis. A covered entityshould ensure the changes are correctly

reflected on the 340B MedicaidExclusion File prior to implementationto permit full transparency for the State,MCO, and manufacturers, thus ensuringthe avoidance of duplicate discounts.

HHS is seeking comments regardingalternative mechanisms to supplementthe 340B Medicaid Exclusion File toallow covered entities to take a morenuanced approach to purchasing, forexample, only using 340B drugs forMedicaid FFS and MCO patients whenappropriate for service delivery butmaintaining practices that prevent thestatutorily prohibited duplicatediscounts. HHS seeks information aboutcurrent state arrangements that could beadapted for use as Federal standards forthese supplements or alternatives.Contract Pharmacy

Risk of duplicate discounts canincrease with certain drug purchasingand distribution systems, includingcovered entity contract pharmacyarrangements. Therefore, in accordancewith the statutory requirement under340B(a)(5)(B)(ii) to establish amechanism to prevent duplicatediscounts, HHS will examine thosesystems and determine if adjustmentshave to be made to the system toprevent duplicate discounts. Due tothese heightened risks of duplicatediscounts, when a contract pharmacy islisted on the public 340B database itwill be presumed that the contractpharmacy will not dispense 340B drugsto Medicaid FFS or MCO patients. If acovered entity wishes to purchase 340Bdrugs for its Medicaid FFS or MCOpatients and dispense 340B drugs tothose patients utilizing a contractpharmacy, the covered entity willprovide HHS a written agreement withits contract pharmacy and StateMedicaid agency or MCO that describesa system to prevent duplicate discounts.Once approved, HHS will list on thepublic 340B database a contractpharmacy as dispensing 340B drugs forMedicaid FFS and/or MCO patients.Repayment

HHS and approved manufacturer

340B Program audits include the reviewof covered entity compliance with theduplicate discount prohibition. If theinformation provided to HHS does notreflect the covered entity’s actual billingpractices, the covered entity can befound in violation of the duplicatediscount prohibition and may berequired to repay manufacturers ifduplicate discounts have occurred dueto the inaccurate information.

In the event that a covered entity isunable to use a 340B drug for aMedicaid FFS or MCO patient in a

particular instance, it should have amechanism in place to notify the StateMedicaid agency and MCO. HHSencourages States, MCOs, and coveredentities to work together to ensurerecords are accurate and auditable.Maintenance of Auditable Records

Section 340B(a)(5)(C) of the PHSA

requires a covered entity to permit theSecretary and certain manufacturers toaudit covered entity records that pertainto the entity’s compliance with 340BProgram requirements. Documentationof compliance would include records ofcontract pharmacies used by coveredentities to dispense 340B drugs. Failureto maintain the records necessary topermit such auditing is failure to meetthe requirements of section 340B(a)(5) ofthe PHSA. A covered entity’s failure tomaintain auditable records is groundsfor losing eligibility to participate in the340B Program.

340B Program stakeholders haverequested a standard for recordsretention, and HHS agrees that it isimportant, especially in assistingcovered entities and manufacturers inpreparing for audits and understandingthe time and scope limitations of 340BProgram audits. Therefore, HHS isproposing a record retention standardfor all 340B Program records for aperiod of not less than 5 years, whichHHS believes appropriately balances theneed for a covered entity to documentits compliance with 340B Programrequirements and the covered entity’seffort and expense required to maintainrecords for an extended period of time.This standard would also apply torecords pertaining to all child sites andcontract pharmacies. In the case oftermination, a terminated covered entityor associated site is expected tomaintain records pertaining tocompliance with 340B statutoryrequirements for five years after the dateof termination. If during an audit, HHSfinds a pattern of failure to comply with340B Program statutory requirements,this provision does not preclude HHSfrom accessing existing records prior tothe 5-year period for its review.

In accordance with the statute, acovered entity’s failure to providerequired records is grounds fortermination from the 340B Program.This guidance further clarifiesassociated repayment to manufacturers,as well as restrictions on when an entitycan re-enroll in the 340B Program.However, HHS proposes to usediscretion for those entities whosefailure to retain records is non-systematic. A non-systematicrecordkeeping violation would occur ifthe covered entity generally has


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available records but cannot produce acertain specific record demonstratingcompliance with a 340B Programrequirement. For example, if a coveredentity can generally produce 340Brecords for patient eligibility, but cannotproduce a record for a particular patientwho received a 340B drug, the drugpurchase would be presumed to be inviolation of section 340B(a)(5)(B) of thePHSA (diversion) and the entity may beliable for repayment to themanufacturer; however, the coveredentity would not be removed from the340B Program.

Any failure to retain records thatprevents the auditing of compliancewould constitute a violation undersection 340B(a)(5)(C) of the PHSA. Thissystematic failure could result in adetermination of ineligibility and thecovered entity may be liable forrepayment to manufacturers for periodsof ineligibility. Prior to removal, a

covered entity would be entitled tonotice and hearing pursuant to thisguidance regarding removal from the340B Program for failure to meet astatutory 340B Program eligibilityrequirement. A covered entity removedfor systematic failure to maintainrecords would be able to re-enroll in the340B Program during the next regularregistration period after the coveredentity has demonstrated to HHS itsability to comply with all 340B Programrequirements, including the requirementto maintain auditable records.Part E—Contract Pharmacy

ArrangementsSection 340B(a)(4) of the PHSAspecifies the types of entities eligible toparticipate in the 340B Program, butdoes not specify how a covered entitymay provide or dispense such drugs toits patients. The diverse nature ofeligible entity types ( e.g., FQHCs, ruralreferral centers, disproportionate sharehospitals) has resulted in a variety ofdrug distribution systems. Under the340B Program, 340B drugs may not bediverted to non-patients, duplicatediscounts must be prevented, and acovered entity must have auditable

records pertaining to its compliancewith these requirements. Coveredentities must ensure that all drugdistribution arrangements with thirdparties to provide or dispense 340Bdrugs to patients meet 340B Programstatutory requirements.

In 1996, HHS issued guidancerecognizing covered entity use ofcontract pharmacy arrangements, whichare permitted under State law, todispense 340B drugs. The 340B statutedoes not prohibit the use of contractpharmacies. The guidance permitted

covered entities to use a single contractpharmacy arrangement in addition toany in-house covered entity pharmacyservice and outlined other requirements(61 FR 43549, August 23, 1996).Beginning in 2001, HHS permittedcertain covered entities to conductAlternative Methods DemonstrationProjects (AMDP) to use and developmultiple contract pharmacyarrangements to access 340B drugpricing. HHS issued revised guidance in2010 which permitted a covered entityto use multiple contract pharmacyarrangements, to include multiplecontract pharmacy locations (75 FR10772, March 5, 2010). Congressintended the benefits of the 340BProgram to accrue to participatingcovered entities. Each covered entityshould carefully evaluate itsrelationships with contract pharmacies(i.e., cost/benefit analysis) to makecertain that the relationship benefits the

covered entity and is in line with theintent of the Program.A covered entity may contract with

one or more licensed pharmacies todispense 340B drugs to the coveredentity’s patients, instead of or inaddition to an in-house pharmacy. Ifpermitted under applicable State andlocal law, a covered entity may contractwith one or more pharmacies on behalfof its child sites, or a child site maycontract directly with a pharmacy. Acovered entity may contract with apharmacy location (or pharmacycorporation to include multiplepharmacy locations) as an individualcovered entity and for its child sites.The contracts establishing thesearrangements are expected to meet thestandards identified in this proposedguidance and all applicable Federal,State, and local laws. A covered entitycontracting with a pharmacy to dispense340B drugs should be aware of theFederal anti-kickback statute and howsuch provisions could apply toarrangements with contract pharmacies.HHS will continue its policy of referringcases of suspected violations of the anti-kickback statute to the HHS Office ofInspector General (OIG). A covered

entity whose 340B eligibility is based onthe receipt of a Federal grant, Federalproject, Federal designation, or Federalcontract must also ensure that no grant,project, designation, or contractconditions are violated in its contractpharmacy arrangements.Registration

The 340B registration deadlines andeffective dates, announced in theFederal Register , apply to all changes inthe covered entity’s list of contractpharmacies, whether initially registering

a contract pharmacy agreement oradding contract pharmacy locations toan existing contract with a pharmacyorganization. A contract pharmacy isnot an eligible 340B covered entity andtherefore does not receive a 340Bidentification number.

HHS only lists contract pharmacylocations on a covered entity’s 340Bdatabase record once a written contractexists between the covered entity andcontract pharmacy and the coveredentity registers those arrangements. Thewritten contract should include alllocations of a single pharmacy companythe covered entity plans to use and allchild sites that plan to use the contractpharmacies. The written contract shouldalso set forth the requirementscontained in this proposed guidance.Pursuant to 340B statutory auditingrequirements, the contract should beavailable to HHS upon request.

To further strengthen 340B Programintegrity, registration of a contractpharmacy will only be accepted from acovered entity. Pursuant to section340B(a)(5)(B) of the PHSA, whichprohibits covered entities from resellingor otherwise transferring drugs topersons who are not patients of thecovered entity, a parent covered entitymay contract with a pharmacy only onits own behalf as an individual coveredentity and for its child sites. Groups ornetworks of covered entities may notregister or contract for pharmacyservices on behalf of their individualcovered entity members.

Under this proposed guidance,required documentation for registrationwould include a series of compliancerequirements and a covered entity’sattestation regarding its arrangementwith the contract pharmacy.Manufacturers and wholesalers arerequired to ship only to the authorizedshipping addresses listed for thecovered entity in the public 340Bdatabase. The contract pharmacy mayonly provide 340B drugs to patients ofthe covered entity after the contractpharmacy’s start date in the public 340Bdatabase. Likewise, the contractpharmacy location must cease

dispensing 340B drugs on behalf of thecovered entity on or before the date thatcontract pharmacy location isterminated. Any changes to existingcontract pharmacy arrangements should

be reflected on the covered entity recordin the public 340B database andrequested by submitting an onlinechange request form.

A covered entity can requestadditional contract pharmacy locationsunder a public health emergencydeclared by the Secretary. Specialregistration instructions and


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requirements would be published on theHRSA Office of Pharmacy Affairs Website ( www.hrsa.gov/opa ). Compliance With StatutoryRequirements

Through audits of covered entities’arrangements with contract pharmacies,HHS has observed that not all covered

entities have sufficient mechanisms inplace to ensure their contractpharmacies’ compliance with all 340BProgram requirements. To ensurecompliance with 340B statutoryrequirements, HHS is proposingcompliance mechanisms for coveredentities that contract with pharmacies todispense 340B drugs. The covered entitywould retain complete responsibility forcontract pharmacy compliance with340B Program requirements.

If noncompliance is occurring withincontract pharmacy arrangements, it isessential that any issues be promptlyidentified and corrected. HHS isproposing standards for audit andquarterly reviews to ensure thatcompliance efforts related to contractpharmacies result in the earlyidentification of problems,implementation of corrections, and theprevention of future compliance issues.The 2010 contract pharmacy guidancerecommended annual audits of contractpharmacies; this proposed guidancefurther clarifies the expectations of thisrecommendation.

HHS believes that covered entitiesthat do not regularly review and auditcontract pharmacy operations are at an

increased risk for compliance issues. Anannual audit of each contract pharmacylocation will provide covered entities aregular opportunity to review andreconcile pertinent 340B patienteligibility information at the contractpharmacy and help prevent diversion.Conducting these audits using anindependent auditor will ensure thepharmacy is following all 340B Programrequirements. Additionally, as aseparate compliance mechanism, thecovered entity should compare its 340Bprescribing records with the contractpharmacy’s 340B dispensing records at

least quarterly to ensure that neitherdiversion nor duplicate discounts haveoccurred. A covered entity shouldcorrect any instances of diversion orduplicate discounts found during eitherthe annual audit or quarterly review andreport corrective action to HHS.

A patient is not required to use thecovered entity’s in-house pharmacy,where such service exists, or a coveredentity’s contract pharmacy to receive aprescription drug. A drug manufacturerwould not be required to offer thecovered entity a 340B priced-drug when

a 340B-eligible patient chooses to havea prescription filled at a non-contractpharmacy or a contract pharmacylocation not listed on the coveredentity’s 340B database record.Diversion, Duplicate Discounts, andRemoval From the 340B Program

HHS may remove a contract pharmacy

location from the 340B Program if HHSfinds that the contract pharmacy is notcomplying with 340B Programrequirements. A covered entity is liablefor diversion or duplicate discountswhich occur at any of the coveredentity’s contract pharmacy locations,including potential repayments tomanufacturers.Part F—Manufacturer ResponsibilitiesPharmaceutical Pricing Agreement

A manufacturer that has entered intoa Medicaid Drug Rebate Agreementpursuant to section 1927(a) of the Social

Security Act (42 U.S.C. 1936r–8(a)) isrequired, pursuant to section 1927(a)(5),to enter into a Pharmaceutical PricingAgreement (PPA) with the Secretary asdescribed in section 340B(a) of thePHSA. Under the PPA, a manufacturermust offer all covered outpatient drugs,as defined in section 1927(k) of theSocial Security Act, from each of themanufacturer’s labeler codes to coveredentities participating in the 340BProgram at no more than the statutory340B ceiling price. A manufacturer thatis not subject to a Medicaid Drug RebateAgreement may voluntarily enter into aPPA for all of its covered outpatientdrugs, as defined in section 1927(k) ofthe Social Security Act.

The PPA incorporates 340B Programstatutory obligations and records amanufacturer’s agreement to abide bythem. By executing the PPA when itenrolls in the 340B Program, amanufacturer agrees to all 340B Programstatutory requirements, includingstatutory and regulatory changes thatoccur after execution of the PPA. In theevent of a transfer of ownership of themanufacturer, the PPA is automaticallyassigned to the new owner.

In addition, the following

expectations apply to participatingmanufacturers:(a) For a manufacturer whose 340B

Program participation is required byvirtue of its participation in theMedicaid Drug Rebate Program, sign aPPA within 30 days of enrolling in theMedicaid Drug Rebate Program;

(b) submit timely updates to its 340Bdatabase record and PPA to ensure thatany new covered outpatient drug isadded to the 340B Program;

(c) maintain auditable recordsdemonstrating 340B Program

compliance for no less than five yearsand provide such records whenrequested; and

(d) permit HHS to audit manufacturercompliance.Termination

If a manufacturer withdraws from theMedicaid Drug Rebate Program, the

manufacturer may continue toparticipate in the 340B Programvoluntarily. If a manufacturerwithdraws from the Medicaid DrugRebate Program, HHS will presumecontinued participation in the 340BProgram unless and until themanufacturer advises HHS otherwise. Amanufacturer that has voluntarilyentered into a PPA and does notparticipate in the Medicaid Drug RebateProgram may terminate its PPA bynotifying HHS during the annualrecertification process or at any othertime, in accordance with the terms ofthe PPA. When a manufacturervoluntarily participating in the 340BProgram requests termination, themanufacturer should provide anexplanation and documentation of thetermination, the timing of thetermination, and the date themanufacturer will cease offeringcovered outpatient drugs under the340B Program.

A manufacturer that terminates a PPAshould maintain auditable 340BProgram records for 5 years after thetermination pertaining to compliancewith all 340B Program statutoryrequirements during the time that themanufacturer had a PPA. Refunds andcredits specified under this proposedguidance may still be imposed on aterminated manufacturer for 340B drugssold above the ceiling price during thetime that the manufacturer had a PPA ineffect.Obligation To Offer 340B Prices toCovered Entities

Pursuant to section 340B(a)(1) of thePHSA, a manufacturer subject to a PPAmust offer all covered outpatient drugsat no more than the 340B ceiling priceto a covered entity listed on the public340B database. For manufacturerssigning their first PPA by virtue ofparticipating in the Medicaid DrugRebate Program, the effective date for340B pricing for covered outpatientdrugs to any covered entity is the samedate the drug is first included in theMedicaid Drug Rebate Program, or thedate of enactment of section 340B of thePHSA, if inclusion in the Medicaid DrugRebate Program preceded November 4,1992. For manufacturers voluntarilysigning a PPA, the effective date for340B pricing is the date the agreement


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is signed by both parties. Formanufacturers with an existing PPA thathave new drugs approved, the effectivedate for 340B pricing for the new drugis the date the drug is first available forsale.

Pursuant to section 340B(a)(1) of thePHSA, a manufacturer shall rely on theinformation in the public 340B databaseto determine whether the manufacturermust offer the 340B price and not baseits offer on a covered entity’s assuranceof compliance with the 340B Program.HHS will continue to providecommunications and Web site notices tomanufacturers to alert them to coveredentity additions or deletions in thepublic 340B database that occur duringa calendar quarter due to specialcircumstances ( e.g., additions to coveredentity sites because of a public healthemergency declared by the Secretary;termination of a covered entity site).Limited Distribution of CoveredOutpatient Drugs

Certain covered outpatient drugs may be required to be dispensed by specialtypharmacies ( e.g., drugs approved with arisk evaluation and mitigation strategy(REMS) pursuant to section 505–1 of theFederal Food, Drug, and Cosmetic Act).As a result, certain manufacturers mayuse a restricted network of certifiedspecialty pharmacies, which do not fallunder the terms of a contract pharmacyagreement or wholesaler contract for thedistribution of drugs to a covered entity.Other covered outpatient drugs may

become intermittently limited in supplydue to manufacturing issues, supplychain problems, or other issues.

The manufacturer may develop alimited distribution plan when acovered outpatient drug must behandled in a special manner ( e.g.,special refrigeration), or when theavailable supply of a covered outpatientdrug is not adequate to meet marketdemands. 340B Program pricingrequirements apply to such sales.Pursuant to section 340B(a)(1) of thePHSA, which requires manufacturers to‘‘offer each covered entity coveredoutpatient drugs for purchase at or

below the applicable ceiling price ifsuch drug is made available to any otherpurchaser at any price,’’ the plan will bereviewed by HHS to ensure that themanufacturer is treating 340B coveredentities the same as all non-340Bproviders. To reduce the potential fordisputes and ensure that limiteddistribution plans are transparent to allstakeholders, HHS is proposing that amanufacturer notify HHS in writing ofany limited distribution plan prior toimplementation. HHS proposes that theplan include the following information:

a description of product information(drug name, dosage, form, and NDC) anddetails of a non-discriminatory practicefor restricted distribution to allpurchasers, including 340B coveredentities, which includes each of thefollowing components: (1) Anexplanation of the product’s limitedsupply or special distributionrequirements and the rationale forrestricted distribution among allpurchasers; (2) an assurance thatmanufacturers will impose theserestrictions equally on both 340Bcovered entities and non-340Bpurchasers; (3) specific details of thedrug allocation plan, including amechanism that allocates sales to bothcovered entities and non-340Bpurchasers with no previous purchasehistory of the restricted drug; (4) thedates the restricted distribution beginsand concludes; and (5) a plan for thenotification of wholesalers and 340B

covered entities of the restricted plan.HHS may publish all submittedlimited distribution plans on the 340BWeb site. If HHS has concerns about theplan, it will work with the manufacturerto incorporate mutually agreed uponrevisions to the plan prior to posting theplan on the 340B Web site. Coveredentities that have concerns regarding themanner in which a particular plan isimplemented are first encouraged toresolve them in good faith withmanufacturers. Where such issues arenot resolved, covered entities shouldcontact HHS for appropriate action orinvolvement of other federal agencies(e.g., Office of Inspector General,Department of Justice) to bring the issueto resolution.Additional Discounts Permitted

Pursuant to section 340B(a)(10) of thePHSA, a manufacturer may choose tosell a covered outpatient drug below theceiling price to a covered entity. Suchpricing is voluntary and need not beoffered to all covered entities.Procedures for Issuance of Refunds andCredits

Pursuant to section 340B(d)

340b drug pricing program omnibus 2015-21246

Documents

Transcript of 340b drug pricing program omnibus 2015-21246