340B Drug Pricing Program: Recent Developments and Compliance Update

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1 340B Drug Pricing Program: Recent Developments and Compliance Update Elizabeth S. Elson, Esq. Anil Shankar, Esq. November 19, 2015 Attorney Advertising Prior results do not guarantee a similar outcome Models used are not clients but may be representative of clients 321 N. Clark Street, Suite 2800, Chicago, IL

2 340B Drug Pricing Program: Recent Developments & Compliance Update Today s Speakers: Elizabeth Elson Foley & Lardner LLP (213) eelson@foley.com Anil Shankar Foley & Lardner LLP (213) ashankar@foley.com 2015 Foley & Lardner 2015 LLP Foley & Lardner LLP 2

3 Agenda 340B Drug Pricing Program Overview Audits Proposed Omnibus Guidance Impact of Recent Legislation Questions? 2015 Foley & Lardner 2015 LLP Foley & Lardner LLP 3

4 340B Drug Pricing Program: Overview Federal drug pricing program Operated by the Office of Pharmacy Affairs ( OPA ) in the Health Resources and Services Administration ( HRSA ) Drug manufacturers are required to provide significant discounts to participating covered entities on covered outpatient drugs Covered entities include health care providers such as FQHCs, specialized clinics, and DSH hospitals (with DSH > 11.75%) Intended to provide financial relief to facilities that provide care to the medically underserved 2015 Foley & Lardner 2015 LLP Foley & Lardner LLP 4

5 ACA s Impact on the 340B Drug Pricing Program Affordable Care Act expanded participation to new covered entities: Children's hospitals with Medicare DSH > 11.75% Freestanding cancer hospitals with Medicare DSH > 11.75% Critical access hospitals (CAHs) Rural referral centers with a Medicare DSH > 8% Sole community hospitals with a Medicare DSH > 8% It also created increased program integrity efforts (e.g., annual recertification, increased auditing) and new sanction authority for compliance violations 5

6 Entity Eligibility Hospital outpatient departments Only those locations listed as a reimbursable center on the hospital s most recently filed Medicare cost report are considered part of a covered entity hospital Delays waiting for cost reports to be filed Outpatient locations must meet Medicare provider-based standards Participation is limited to the covered entity, even if it is part of a larger health system or entity Physician groups are not covered entities 6

7 Diversion of 340B Drugs Covered entities may not resell or otherwise transfer medications purchased under the 340B Program to a person who is not a patient of the covered entity Definition of a 340B patient not defined in statute, but set forth in HRSA guidance 7

8 Patient Definition An individual is a patient of a 340B covered entity only if: The covered entity has established a relationship with the individual, such that it maintains records of the individual's health care; and The individual receives health care services from a health care professional who is employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding/fqhc look-alike status has been provided. (*Does not apply to disproportionate share hospitals.) An individual is not a patient of the covered entity if the only health care service he or she receives from it is the dispensing of a drug or drugs for subsequent selfadministration or administration in the home setting.

9 340B & Medicaid Covered entities may not receive a 340B discount for drugs subject to a Medicaid rebate (no duplicate discount ) Providers must inform HRSA (by providing their Medicaid billing number) at the time they enroll if they plan to purchase and dispense 340B drugs to Medicaid patients and bill Medicaid Covered entities must accurately report how they bill Medicaid drugs on the Medicaid Exclusion File Follow procedures established by State Medicaid agencies California s Medicaid Program: Allows covered entities to use 340B drugs for Medicaid patients, and pays at the 340B acquisition price plus dispensing fee Requires claims to identify drugs purchased through 340B 9

10 Maintain Auditable Records Covered entities are required to maintain auditable records that demonstrate their compliance with 340B Program requirements Covered entities are required to annually certify their compliance with this requirement Maintenance of auditable records is critical for HRSA and manufacturer audits

11 GPO Prohibition DSH hospitals, free-standing cancer hospitals and children s hospitals are prohibited from purchasing covered outpatient drugs through a group purchasing organization (GPO) Failure to comply with this requirement may result in termination from the program (compliance is considered a condition of enrollment in 340B Program)

12 HRSA Audits Areas of focus: Verification of eligibility Review of compliance policies and procedures and how they are operationalized Review of internal controls to prevent diversion, duplicate discounts, and GPO prohibition violations (if applicable) Review of contract pharmacy compliance (if applicable) Test of 340B drug transaction records on sample basis 12

13 HRSA Audit Process Typical sample selections: 340B policies and procedures For both hospital drug orders and contracted pharmacies (total of patient records for each) Sample sizes vary based on size and complexity of the covered entity Original list of samples of patient records with 340B drug use and replenishment Spare list of samples Additional samples from the top five high use drugs may be requested Testing: Trace a sample of individual medication orders/scripts from dispensing or administration through to drug replenishment 13

14 Audits by Manufacturers Prior to audit: Detect Duplicate Discount and/or Diversion Use of sales/chargeback data Covered entity enrollment (OPA 340B Database) Medicaid rebate requests Contact covered entity to try to resolve issue informally 14

15 Manufacturer Audit Process and Steps Audit Approval Manufacturer seeks OPA permission to conduct the audit Must demonstrate reasonable cause (related to diversion and/or duplicate discounts) Must submit proposed audit work plan OPA response to request (within 15 days) Approval Denial Request for revision/additional information Manufacturer must provide covered entity with notice of audit 15

16 Manufacturer Audit Process Audit Steps (cont d) Audit Steps and Scope On-Site Audit Third party auditors Minimal time necessary to complete work Pre-work can shorten on-site requirement Conclusion of Audit Resolve any outstanding issues Draft Audit report Covered entity may comment on findings Final Audit report provided to OPA and HHS OIG 16

17 Proposed Omnibus Guidance Changes to Patient Definition Medicaid and 340B Key Program Integrity Requirements Status of Guidance and Comments 17

18 Changes to Current Patient Definition Current Patient Definition: Based on covered entity s relationship with the individual (as evidenced by maintaining medical records), and its responsibility for care (through employment, contractual, or other arrangements with health care providers) Gray areas/flexibility to meet these standards Proposed Changes Proposes more detailed/specific requirements Would exclude some individuals currently treated as 340B patients Would introduce new complexity and administrative burden Consistent with the 340B statute? 18

19 Proposed 340B Patient Definition Patient eligibility determined on a per prescription or per order basis and must meet all of these criteria: (1) The individual receives a health care service at a covered entity site which is registered for the 340B Program and listed on the public 340B Program database; Removes support for referral arrangements for follow up/specialty care outside the covered entity 19

20 Proposed 340B Patient Definition (cont d) (2) The individual receives a health care service from a health care provider employed by the covered entity or who is an independent contractor of the covered entity such that the covered entity may bill for services on behalf of the provider; Privileges/Credentials not enough New requirement that covered entity must be able to bill for professional services 20

21 Proposed 340B Patient Definition (cont d) (3) The individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2). The individual will not be considered a patient of the covered entity if the only health care received by the individual from the covered entity is the infusion of a drug or the dispensing of a drug; Necessary relationship between 340B drug ordered and type of service received Exclusion of infusion drugs 21

22 Proposed 340B Patient Definition (cont d) (4) The individual receives a health care service that is consistent with the covered entity s scope of grant, project or contract Hospitals generally exempt Consistent with current definition 22

23 Proposed 340B Patient Definition (cont d) (5) The individual is classified as an outpatient when the drug is ordered or prescribed, as determined by status when billed to payor; Elimination of ability to purchase 340B drugs for discharged inpatients; reduction of contract pharmacy purchases Patient s payor billing status critical; administratively burdensome/challenging 23

24 Proposed 340B Patient Definition (cont d) (6) The individual has a relationship with the covered entity such that the covered entity maintains access to auditable health care records which demonstrate that the covered entity has a provider-to-patient relationship, that the responsibility for that care is with the covered entity, and that each element of this patient definition is met for each 340B drug. Generally consistent with current definition 24

25 Proposed Guidance on Medicaid and 340B 340B Program drugs do not include drugs that: Are provided as part of, or incident to and in the same setting as: inpatient hospital, hospice, dental, physicians, outpatient hospital, nursing facility, other laboratory and x-ray services, or renal dialysis; and Are reimbursed through bundled reimbursement by Medicaid. For hospitals subject to GPO prohibition: If reimbursed by Medicaid through a bundled payment, can be purchased through GPO. If reimbursed through bundled payment from other payors, can be purchased through 340B and not GPO. 25

26 Proposed Guidance on Medicaid and 340B (cont d) Coordination with the state and HRSA required if 340B is used for Medicaid FFS patients New guidance on use of 340B for Medicaid managed care Current 340B guidance on preventing Medicaid duplicate discounts applies only to FFS Medicaid; does not address Medicaid managed care Affordable Care Act expanded Medicaid drug rebate program to Medicaid managed care, creating possibility for duplicate discounts for those patients 26

27 Proposed Guidance on Medicaid and 340B (cont d) Systems need to be developed to identify Medicaid managed care patients and report use of 340B Proposal to require covered entities to have mechanisms to identify Medicaid managed care patients Mechanism for reporting use of 340B for Medicaid managed care and the state are not developed Contract pharmacy arrangements should exclude Medicaid FFS and managed care patients, unless a written agreement is in place for HRSA approval describing a system that prevent duplicate discounts 27

28 Key Program Integrity Provisions New 90 day repayment window from identification of 340B drug diversion for covered entities to work with manufacturers to repay them No discussion or definition of materiality for instances of noncompliance or any clarification of selfdisclosure process for non-compliance identified by covered entities 28

29 Key Program Integrity Provisions (cont d) New requirement to maintain auditable records for at least 5 years Contract pharmacy quarterly monitoring and annual audits; requirement to report corrective action to HRSA 29

30 HRSA & Manufacturer Audits of Covered Entities Process generally consistent with current HRSA and manufacturer audit guidelines and processes Proposed guidance establishes notice and hearing process for responding to HRSA audit findings but no actual hearing HRSA states that a covered entity s refusal to respond to manufacturer questions may be reasonable cause for manufacturer audit 30

31 Status of Proposed Guidance Issued as interpretive guidance on August 28, comments received Enforceability may depend on consistency with 340B statute and amount of deference given to HHS/HRSA Impact of orphan drug litigation Potential to be applied by HRSA prior to finalization 31

32 Recent Legislation Recently enacted budget bill includes language excluding certain hospital outpatient departments from the Medicare OPPS Applies to new facilities (grandfathering of facilities that billed Medicare prior to the date of enactment) Applies to off-campus facilities Does not apply to dedicated emergency departments Goal is to promote site neutral payment level playing field with physician offices, ambulatory surgery centers, etc.

33 Recent Legislation (cont d) Legislation does not address 340B; arguably has no direct impact Off-campus facilities may still qualify as provider-based and be included on hospital s cost report May reduce scope of 340 Program if it leads to fewer HOPDs HRSA could amend cost report test HRSA waiting to see how CMS responds to the legislation

34 Recent Legislation (cont d) Congress continues to look into drug prices and the 340B Program Lobbying of Congress and HRSA regarding finalization of proposed Omnibus Guidance Stay tuned

35 Questions? 35