The 340B Drug Discount Program Overview, Compliance Issues and Interplay with Medicare and Medicaid

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1 The Drug Discount Program Overview, Compliance Issues and Interplay with Medicare and Medicaid Barbara Straub Williams Powers Pyles Sutter & Verville PC American Health Lawyers Association 2014 Institute on Medicare and Medicaid Payment Issues - Overview History/Purpose: Section of the Public Health Service Act (42 U.S.C. 256b) was implemented by Congress in 1992 through enactment of Public Law , Section 602. The statute requires pharmaceutical manufacturers to enter into an agreement with HHS to provide discounts on covered outpatient drugs purchased by certain providers called covered entities that serve the nation s vulnerable patient populations as a condition of receiving reimbursement from Medicaid and Medicare Part B. Participation in the program provides covered entities with access to significant pricing discounts (approx %) on covered outpatient drugs. 2 1

2 - Overview Administration of the Program: Federal Regulatory Agency o The Office of Pharmacy Affairs (OPA) within the Health Resources and Services Administration (HRSA) is responsible for administration and oversight of the Program. Prime Vendor Program (PVP) o Contractor to OPA that provides guidance on program. Current prime vendor is Apexus. 3 - Overview Program Guidance: Program guidance is generally issued through Federal Register Notices, Policy Releases, and FAQs. First regulations: 78 Fed. Reg (July 23, 2013). 42 CFR Part 10. All program guidance is on the HRSA website: (Federal Registers) or (OPA FAQs) 4 2

3 - Overview Hospital Eligibility Criteria: Six (6) categories of hospitals are eligible for : 1. Acute care hospitals with DSH payment % > 11.75% 2. Children s Hospitals with DSH payment % > 11.75% 3. Cancer Hospitals with DSH payment % > 11.75% 4. Sole Community Hospitals (SCHs) with DSH payment % 8% 5. Rural Referral Centers (RRCs) with DSH payment % 8% 6. Critical Access Hospitals (CAHs) (no DSH requirement) DSH payment percentage is different than the DSH patient percentage: o DSH patient % of.2733 results in DSH payment % > 11.75% o DSH patient % of.2277 results in DSH payment percentage 8% Hospitals submit Worksheet E, Part A, showing DSH%, to register. A hospital that qualifies under more than one category (e.g. RRC with DSH % above 11.75%) must choose category for registration and follow applicable restrictions. 5 - Overview Hospital Eligibility Criteria: No retroactive eligibility based on increase in DSH %. Univ. Medical Center of Southern Nevada v. Shalala, 173 F.3d 438 (D.C. Cir. 1999). OPA will accept an amended cost report to register a covered entity, but registration is prospective only. How will OPA respond if D.C. Circuit rules in favor of hospitals in appeal of Allina Health Services v. Sebelius, 904 F.Supp. 2d 75 (D.D.C. 2012)? If hospital s DSH falls below qualifying percentage, OPA expects hospital to notify it immediately after cost report is filed. If fall below 11.75% DSH, but also an RRC or SCH, work with OPA so no gap in participation. 6 3

4 - Overview Hospital Eligibility Criteria: Hospitals in each of the six categories must be: (1) owned or operated by a State or local government; (2) a public or private nonprofit corporation that is formally granted government powers by a State or local government; or (3) a private nonprofit corporation that has a contract with a State or local government to provide health services to low income individuals who are not Medicare or Medicaid beneficiaries. 7 - Overview Non-Hospital Eligible Entities: In addition to hospitals, other qualifying covered entity categories include*: o Federally Qualified Health Centers (FQHCs) and Look-Alikes o Ryan White HIV/AIDS Program Grantees (Parts A, B, and C grantees) o Hemophilia Treatment Centers o Native Hawaiian Health Centers o Tribal/Urban Health Centers o Black Lung Clinics o Title X Family Planning Clinics o Sexually Transmitted Disease Clinics o Tuberculosis Clinics Participating hospital with a provider-based dept. that separately qualifies under one of these categories may separately register the department under that category. *Specific eligibility criteria for each entity category can be found at 8 4

5 Overview Program Growth: There are currently over 20,000 covered entities and affiliated child sites (OPA covered entities database at Overview Registration: Facilities that meet the criteria of a covered entity apply to participate in the Program by completing the online registration process during the first 15 days of the calendar quarter (e.g., January 1-15) for an effective date on the 1 st of the next calendar quarter (e.g., April 1). Hospitals must register all off-site outpatient clinics that use. Only provider-based clinics may register for the Program. Submit cost report worksheets A and C to register. OPA focuses on costs appearing in outpatient or ancillary line. Potential problem in mixed inpatient/outpatient settings. * Registration forms and related instructions are available for each eligible covered entity type on the HRSA/OPA website tion/index.html 10 5

6 - Overview Off-site () v. Off-campus (Medicare) Off-site for outside four walls of hospital. Campus for Medicare area adjacent to main building, areas and structures located within 250 yards of the main building and other areas as determined on an individual basis by CMS. 42 CFR (a)(2) Overview Registration of Outpatient Clinics: Requirement that clinics appear on cost report means delay in use of. Costs cannot be included in cost report until first patient treated. Provider Reimbursement Manual OPA may register a clinic that relocates from on-site to off-site before new site is on cost report (case-by-case determination). Do on-site clinics also have to appear on cost report before using? (Apexus FAQ 2346). 12 6

7 - Overview Timeline to Register Clinic (Example) Jul 1, 2015: Register Clinic with (1 st 15 days of every calendar quarter) January 1, 2014: Clinic treats first patient Dec. 31, 2014: Fiscal Year End May 31, 2015: File Cost Report Oct. 1, 2015: Registration Effective -Begin use of Months 13 - Overview Alternate criterion to meet location requirement for provider-based status: Clinic must be owned and operated by hospital or CAH that: 1. has DSH payment > 11.75%; and 2. is owned or operated by a unit of state or local government; is a public or nonprofit corporation that is formally granted governmental powers by a unit of state or local government; or is a private hospital that has a contract with a state or local government that includes the operation of clinics located off the main campus to assure access in a well-defined service area to low-income individuals who are not entitled to Medicare or Medicaid. 42 CFR (e)(3). 14 7

8 Overview Contract Pharmacy Arrangements: Covered entities may contract with retail pharmacies to dispense drugs to the covered entity's patients. Covered entities purchases the drugs, and manufacturers/wholesalers bill the covered entities, but ship the drugs directly to the contract pharmacy. HHS OIG Report: Contract Pharmacy Arrangements in the Program OEI (Feb. 4, 2013). Four findings: o Different interpretations of who qualifies as an eligible patient. o Most contract pharmacies do not dispense drugs to Medicaid beneficiaries (thereby avoiding duplicate discounts). o Some contract pharmacies do not offer discounts on drugs to uninsured. o Almost all covered entities monitor contract pharmacies, most through internal audits. 15 Compliance Issues Principal Compliance Issues: 1. Anti-Diversion/Patient Eligibility 2. Duplicate Discounts 3. OPA Database Errors 4. Group Purchasing Organization (GPO) Restriction (applicable to 11.75% DSH, Children s and Cancer Hospitals) 5. Orphan Drug Restriction (applicable to RRCs, SCHs, CAHs, and Cancer Hospitals) 16 8

9 Compliance Issues OPA Sanction Authority: Repayment to manufacturers Interest on repayments for knowing and intentional violations Removal from for violations that are systematic, egregious, knowing and intentional 42 USC 256b (a)(5)(c),(d)(v)(i),(ii) 17 Compliance Issues Audits of Covered Entities: HRSA audits began in 2012 o 51 audits in 2012 o 94 audits in 2013 o 28 audits in 2014 (as of January 23) Manufacturers may also audit providers, but OPA must approve audit workplan based on reasonable cause of violation. 61 Fed. Reg. 65,406 (Dec. 12, 1996). Congress appropriated $6 million in January 2014 to implement a new program integrity effort within the Drug Pricing Program. House Joint Explanatory Statement, Pub. L

10 Compliance Issues Audit Findings: No adverse findings for 19 covered entities 18 Duplicate Discount Findings 17 Database Entry Errors 17 Diversion Findings Sanction for 17 covered entities Repayment to Manufacturers. In each of these audits, diversion was one of the findings. 19 Compliance Issues Anti-Diversion/Patient Eligibility: Program guidelines define the three categories of prohibited diversion as use of drugs: o for non-patients of the covered entity; o in ineligible facilities within the covered entity; and o for excluded services (e.g. inpatient services). 58 FR 68,922,68,923 (December 29, 1993)

11 Compliance Issues Anti-Diversion/Patient Eligibility: Non-patients Definition of patient for : o An individual is a patient of a covered entity if three criteria are met: 1. Record Maintenance Test -The covered entity maintains records of the individual s health care. 2. Professional Care -The individual must be under the care of a physician or other health care professional who is employed by, under contract with, or in a referral relationship to the covered entity such that responsibility for the individual s care remains with the covered entity. 3. Qualified health care service/range of services -The individual must receive a range of health care services that are consistent with the services for which grant funding or FQHC look-alike status has been provided to the covered entity. (This requirement is not applicable to hospitals.) o 61 Fed. Reg. 55,156, 55,157. (October 24, 1996). 21 Compliance Issues Anti-Diversion/Patient Eligibility: Eligible Facility Only provider-based outpatient departments may dispense drugs. HRSA guidance states that, [o]utpatient facilities which are an integral component of the DSH will be included on the DSH Medicare cost report, and only those facilities will be eligible for PHS [] discount pricing. 59 Fed. Reg. 47,884, at 47,885. (Sept.19, 1994)

12 Compliance Issues Anti-Diversion/Patient Eligibility: Eligible Service program is outpatient program; discounted drugs may not be dispensed to inpatients. Physically separate drug inventories not required, but covered entities must maintain separate (inpatient and outpatient) purchasing and dispensing tracking systems and track by National Drug Code (NDC) to provide a clear audit trail. 23 Compliance Issues Care Outside the Covered Entity : Expansion of Patient Definition? Referrals: o If we refer a patient to an outside clinic, can we fill their prescriptions from our clinic? A: A covered entity may send a patient to an outside clinic not registered with and consider that patient eligible only if the patient [meets the patient definition]. If the covered entity can document that it retained responsibility for the health care services provided to the patient, then that individual may be eligible to receive drugs from the covered entity. Apexus FAQ =1891 o Also see Apexus guidance on referral relationships, which includes sample referral agreement: Referral_Relationships.pdf 24 12

13 Compliance Issues Care Outside the Covered Entity : Expansion of Patient Definition? Proximate Care o Prescriptions written at clinics that are not provider-based may be filled with drugs if the care at the clinic is proximate in both time and type to care provided at the hospital. Letter from Thomas Morford, Deputy Administrator, HRSA (Jan. 26, 2001). 25 Compliance Issues Definition of Patient: v. Medicare Patient definition is different for and Medicare. Medicare definition of outpatient includes registered outpatients who receive services (rather than supplies). 42 CFR Some overlap, but: Some patients for purposes are not patients for Medicare billing purposes Individual who has a prescription written at a covered entity to be filled at an outside pharmacy. Some patients for Medicare billing purposes may not be patient Individual receiving infusion at hospital with Rx from physician not associated with the hospital. Proposed meg-reg, expected in June 2014, will address patient definition

14 Compliance Issues Duplicate Discount Prohibition: Drug manufacturers are required to give rebates to State Medicaid programs on drugs reimbursed under State Medicaid programs, either FFS or managed care, but are protected from giving a both a discount and a Medicaid rebate on the same drug. Covered entities may elect to use drugs for Medicaid patients ( carve-in ) or may elect not to use for Medicaid patients ( carve-out ). May make different election for each Medicaid billing number. Medicaid programs submit for rebates on carve-out drugs, but forgo rebates for entities that carve-in. Covered entities notify OPA of their election and OPA maintains an exclusion file for State Medicaid to determine if an entity has carved-in. State may also require billing modifier to identify drugs. HRSA issued a Program Notice on 02/07/13- Clarification on Use of Medicaid Exclusion File. 27 Compliance Issues Duplicate Discount and Medicaid Managed Care: The Affordable Care Act 2501(c) made duplicate discount prohibition applicable to Medicaid MCO drugs. Contract pharmacies generally do not dispense drugs to Medicaid beneficiaries, but contract pharmacies may not be able to distinguish Medicaid MCO enrollees from commercially insured. OPA Director has acknowledged this issue and stated on 02/27/14 that OPA is working with CMS for a resolution. Does exclusion file apply to Medicaid MCO drugs? 28 14

15 Compliance Issues State Medicaid Billing Requirements for Drugs: Some Medicaid programs require pass-through of discounts reimburse at actual acquisition cost (AAC) plus dispensing fee (ex: CA and IL) States may require claims to be flagged (e.g. UD modifier) No federal requirement to bill at AAC Other states have implemented shared savings approaches to benefit both State and covered entity benefit. 29 Compliance Issues Database Errors: Most OPA database errors are easily corrected but errors in carvein/carve-out election problematic: Incorrect carve-out election duplicate discounts Incorrect carve-in election State may lose rebates 30 15

16 Compliance Issues GPO Restriction: Certain hospitals (acute care with DSH > 11.75%, children s and cancer) may not purchase any covered outpatient drugs through a GPO. Exception: Prime Vendor Program (Apexus). HRSA issued a Program Notice on 02/07/13 - Statutory Prohibition on Group Purchasing Organization Participation. This guidance states: o Violations of the GPO restriction will result in termination from the program. o Provider-based departments of a hospital may elect not to participate in if they meet four requirements: Are located at a different physical address than the parent; Are not registered on the OPA database as participating in the Program; Purchase drugs through a separate pharmacy wholesaler account than the participating parent; and Hospital maintains records demonstrating that any covered outpatient drugs purchased through the GPO at these sites are not utilized or otherwise transferred to the parent hospital or any outpatient facilities registered on the OPA database. o No audit findings on GPO restriction yet. 31 Compliance Issues Orphan Drug Restriction: Certain hospitals (SCHs, RRCs, CAHs and cancer) are subject to the orphan drug exclusion. These hospitals are not subject to the GPO restriction. o HRSA issued final regulations effective October 1, 2013 to implement orphan drug exclusion. o Hospitals may choose to apply orphan drug restriction only "to uses for the rare disease or condition for which the orphan drug was designated or to any use of orphan drugs. o PhRMA filed lawsuit alleging that final rule is invalid and that orphan drug restriction applies to any use of orphan drugs. PhRMA v. HHS, Case No. 1:13-cv , D.C. District Court. No decision yet. o No audit findings on orphan drug exclusion yet

17 Looking Ahead Regulations Expected: o Mega-Reg (expected June 2014) o Patient definition o Contract pharmacy compliance o Hospital eligibility criteria o Eligibility of off-site facilities o Mandatory Dispute Resolution Process o Sanctions for manufacturers fines for knowing and intentional overcharges o Sanctions for covered entities fines and removal Additional Resources for Compliance o $6 million in additional funds will be used for: o Staff to analyze information from integrity efforts o Staff to conduct additional audits o IT to track compliance, including manufacturer pricing data and covered entity access to data. 33 Looking Ahead HHS OIG Study o HHS OIG Workplan (2014) study of potential savings to Part B if shared savings of discounts. Possible User Fee o User fee of 0.1% on total purchases has been suggested by HRSA and in Obama budget. Congressional Activity o The program has many vocal supporters and detractors on the Hill

18 Program Resources Health Resources and Services Administration (HRSA)- Office of Pharmacy Affairs (OPA) Prime Stakeholder Vendor Interviews Program (PVP) and Pharmacy St. Luke s Flash Hospital (monthly e- newsletter Document/Data Request Facilities Allentown Gap Analysis and Bethlehem Benchmarking (Industry Miners Memorial Safety Guidance Net Hospitals and Best for Pharmaceutical Access Quakertown (SNHPA) Practices) Riverside Assessment Report and Primary/Urgent Care? Drug Implementation Discount Monitor Plan (SNHPA news service) Home Care/Hospice? 35 Questions? CONTACT INFORMATION: Barbara Straub Williams Powers Pyles Sutter & Verville PC P: E: barbara.williams@ppsv.com 36 18