DSH Litigation and 340B Program Update: What Participating Hospitals Need to Know and What They Should Be Doing

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1 DSH Litigation and 340B Program Update: What Participating Hospitals Need to Know and What They Should Be Doing Presented by: Joe Metro, Partner Sal Rotella, Partner

2 Agenda Disproportionate Share Hospital (DSH) Payments DSH Basics Allina (Part C/Part A Issue) Catholic Health Initiatives (Medi-Medi Issue) Revised Notices of Program Reimbursement (SSI Issue) 340B Drug Pricing Program Key issues in 340B program rulemaking (if any) Evaluating contract pharmacy arrangements Managing internal and external 340B compliance audits 2

Reimbursement (SSI Issue) 340B Drug Pricing Program Key issues in 340B program rulemaking

3 DSH Litigation 3

4 DSH Basics What is DSH? Supplemental Medicare payments to compensate hospitals for higher operating costs incurred treating large share of low-income patients DSH funds preserve access to care for Medicare and low-income populations by financially assisting hospitals they use DSH Patient Percent (DPP) determines DSH eligibility and amount of DSH payment 4

incurred treating large share of low-income patients DSH funds preserve access to care

5 DSH Basics: How is DSH calculated? DPP = Medicare/SSI Fraction + Medicaid Fraction Numerator Medicare/SSI Fraction Patient days for patients entitled to benefits under Part A and entitled to SSI benefits Medicaid Fraction Patient days for patients eligible for [Medicaid] but not entitled to benefits under Part A Denominator Patient days for patients entitled to benefits under Part A Total number of patient days DSH appeals challenge treatment of various types of patient days in calculating DPP Methodology for calculating DSH payments changing pursuant to 2014 IPPS Final Rule 5

entitled to SSI benefits Medicaid Fraction Patient days for patients eligible for [Medicaid] but not entitled to benefits under Part A

6 Allina Health Services v. Sebelius Part C/Part A Issue Pursuant to 2004 Final Rule, HHS treats inpatient days of Part C beneficiaries as days for which those patients were entitled to Part A benefits for purposes of calculating DPP Rationale is that being entitled to Part A is prerequisite to being eligible to enroll in Part C plan HHS approach generally lowers DPP 6

C beneficiaries as days for which those patients were entitled to Part A benefits for

7 Allina Health Services v. Sebelius (cont.) Allina (D.C. Court of Appeals decision April 1, 2014) Involved Part C/Part A Issue challenge to 2007 cost year DPP Affirmed district court s pro-hospital ruling that 2004 Final Rule dictating treatment of Part C days was invalid BUT, reversed trial court s pro-hospital ruling that HHS must re-calculate 2007 cost year at issue and this time treat Part C patients as not entitled to Part A benefits Upshot HHS can reach same decision based on administrative adjudication rather than regulation Unlike regulation, administrative decision generally does have retroactive effect 7

2004 Final Rule dictating treatment of Part C days was invalid BUT, reversed trial court s pro-hospital ruling that HHS must re-calculate 2007 cost year

8 Catholic Health Initiatives v. Sebelius Medi-Medi Issue Pursuant to 2004 Final Rule, HHS treats inpatient days for which dual eligible beneficiaries have exhausted their Medicare Part A benefits as days for which those patients are nonetheless entitled to Part A benefits for purposes of calculating the DPP Rationale is that dual eligibles are still entitled to Part A after exhausting benefits, even though Part A isn t paying for stay HHS approach generally lowers DPP 8

have exhausted their Medicare Part A benefits as days for which those patients are nonetheless entitled to Part A

9 Catholic Health Initiatives v. Sebelius (cont.) Catholic Health (D.C. Court of Appeals decision June 11, 2013; plaintiff chose not to seek further review by Supreme Court) Involved challenge to 1997 cost year DPP Reversed district court s ruling in favor of hospital on Medi-Medi Issue Found that entitled to Medicare Part A is ambiguous and could encompass dual eligible inpatients who have exhausted their Part A benefits Legal test was therefore only if government s construction of statute was permissible; D.C. Circuit found that it was Retroactivity Hospital had successfully argued to district court that government could not retroactively apply Medi-Medi Issue approach from 2004 Final Rule to 1997 cost year D.C. Circuit found that government could apply Medi-Medi Issue approach to earlier (1997) cost year, because approach was first reached in adjudication in 2000, not Final Rule in

exhausted their Part A benefits Legal test was therefore only if government s construction of statute was permissible; D.C.

10 Revised NPRs SSI Issue Hospitals argued that in calculating DPP, CMS was using improper data matching process and undercounting patients receiving SSI benefits In 2008, federal district court found in hospitals favor in Baystate Medical Center v. Leavitt Ruling 1498-R Instead of appealing Baystate, CMS issued Ruling 1498-R in April 2010 Ruling provided that CMS would remand all properly appending SSI Issue appeals (i.e., appeals challenging data matching process) Remand meant that appeal was concluded and CMS would issue revised NPR using improved data match process 10

Leavitt Ruling 1498-R Instead of appealing Baystate, CMS issued Ruling 1498-R in April 2010 Ruling provided that CMS would remand all properly

11 Revised NPRs (cont.) Status of Revised NPRs and Payments CMS has issued recalculated SSI percentages using updated data matching process for Unclear why MACs have not yet issued revised NPRs and payments for all of these years CMS obligated to likewise recalculate SSI percentages, and issue revised NPRs and payments for 2005 and prior CMS said as recently as early 2014 that it was only waiting on resolution of Catholic Health case, which is now resolved Speculation that CMS was also waiting on decision in Allina, but that has now issued as well Media expressing interest in continuing delay 11

have not yet issued revised NPRs and payments for all of these years CMS obligated to likewise recalculate SSI percentages, and issue revised NPRs and

12 340B Program Update 12

13 340B Program Proposed Rule Current status: Proposed rule submitted to OMB for Regulatory Review on 4/9/ day review window plus 30-day extension authorized Summer vacation reading? PhRMA v. HHS (D.D.C. May 23, 2014) The best laid plans Holds HHS final rule implementing orphan drug rule invalid HRSA 340B rulemaking authority only extends to price calculation, dispute resolution, and CMPs Potential for delay of mega-rule, continued informal guidance, and resolution through adjudication Note also CMS Medicaid rebate rulemaking is pending AMP/BP methodologies can affect 340B discounted price calculation Medicaid managed care duplicate discount mechanisms? 13

May 23, 2014) The best laid plans Holds HHS final rule implementing orphan drug rule invalid HRSA 340B rulemaking authority only extends to price calculation, dispute

14 Proposed Rule/Future Guidance: Key Issues to Watch Entity qualification and registration GPO exclusion Imposition of duties as part of registration process Covered outpatient drugs ER settings Orphan drug exclusion Patient definition and identification Replenishment models Duplicate discounts and Medicaid managed care Corrective action Mechanisms Duty to report Audit and dispute procedures 14

settings Orphan drug exclusion Patient definition and identification Replenishment models

15 Contract Pharmacy Arrangements February 2014 OIG Report finds contract pharmacy arrangements create complications in preventing diversion and duplicate discounts, and covered entities oversight and auditing of contract pharmacies was inconsistent Key Issues in contract pharmacy relationships Mechanism for 340B-eligible patient dispensing Billing Uninsured patients Third-party payors Medicaid carve-in vs. carve-out Compensation Ordering and inventory maintenance Reporting and auditing 15

inconsistent Key Issues in contract pharmacy relationships Mechanism for 340B-eligible patient dispensing Billing

16 HRSA FY B Program Audit Summary 51 CEs / 412 subgrantees / 860 contract pharmacy locations Common areas of noncompliance for hospital covered entities Violation of GPO prohibition (42 percent of hospitals) Diversion (36 percent) Billing contrary to exclusion file (24 percent) Database errors (21 percent) Best practices SOPs Routine self-auditing and corrective action Strong state relationships and coordination Verification of database 16

(36 percent) Billing contrary to exclusion file (24 percent) Database errors (21 percent) Best practices SOPs

17 Managing 340B Audits HRSA, manufacturer, and entity audit activity likely to continue in light of policy oversight and rulemaking Policies and procedures Understand method and data by which you will prove compliance, including under replenishment models GPO prohibition/orphan drug exclusion Initial purchases Ordering and dispensing data reconciliation Patient identification Prescriber Location Corrective Action True-up of inventory vs. refund Notice to manufacturer/hrsa Medicaid 17

replenishment models GPO prohibition/orphan drug exclusion Initial purchases Ordering and dispensing data reconciliation

18 Questions? 18

19 Contact Information Joseph W. Metro Partner, Washington, D.C Salvatore G. Rotella, Jr. Partner, Philadelphia

340B Drug Pricing Program. A Survey of the Program s Past, Present, and Future

340B Drug Pricing Program. A Survey of the Program s Past, Present, and Future 340B Drug Pricing Program A Survey of the Program s Past, Present, and Future Presented by: Daniel Soldato Wyatt, Tarrant & Combs LLP dsoldato@wyattfirm.com (859) 288-7631 Disclaimer The views expressed