340B Drug Discount Program Overview and Emerging Issues

Transcription

1 340B Drug Discount Program Overview and Emerging Issues I. APPLICABLE STATUTE AND OTHER LEGAL AUTHORITIES Section 340B of the Public Health Service Act (42 U.S.C. 256b) requires pharmaceutical manufacturers, as a condition of receiving reimbursement from Medicaid and Medicare Part B, to enter into an agreement with the Department of Health and Human Services (HHS) to provide discounts on covered outpatient drugs purchased by certain providers, called "covered entities," that serve the nation's vulnerable patient populations. Other Guidance Through Federal Register Notices, FAQs and Policy Releases. II. RECENT DEVELOPMENTS Recent developments expanded program: o Patient Protection and Affordable Care Act (ACA) added new categories of eligible hospitals. o In March 2010, HRSA issued guidance allowing covered entities to enter into multiple contract pharmacy agreements. Other significant recent developments: o ACA increased 340B discounts through increase in Medicaid rebate amount; o ACA added integrity provisions for both manufacturers and covered entities; o GAO Report Drug Pricing Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement, Sept (Rpt. No. GAO ); o Three Program Notices issued by HRSA in February 2013; o OPA audited covered entities for first time in 2012; o Reports of manufacturers audits for first time in III. 340B PROGRAM ELIGIBILITY COVERED ENTITIES 1. Certain Hospitals The definition of "covered entities" includes six categories of hospitals: o acute care hospitals; o children s hospitals; o cancer hospitals exempt from IPPS; o sole community hospitals (SCHs);

2 o rural referral centers (RRCs); and o critical access hospitals (CAHs). 2. Hospital Criteria Hospitals in each of the categories must be: (1) non profit, (2) owned or operated by or under contract with state or local governments and, (3) with the exception of CAHs, have Medicare DSH payment percentages above 11.75% (acute care, children s and cancer) or at or above 8% (SCHs and RRCs). *Note DSH payment percentage is different than the DSH patient percentage. DSH patient percentage of.2733 results in DSH payment percentage > 11.75% DSH patient percentage of.2277 results in DSH payment percentage 8% 3. Non hospital Entities The definition of covered entities also includes non hospital entities that receive federal funding either through a grant or subgrant: o federally qualified health centers (FQHCs and look alikes ); o entities receiving patient navigation grants o state operated AIDS drug assistance programs; o Ryan White CARE Act Part A, Part B and Part C grantees (other than State and local governments; o tuberculosis clinics; o black lung clinics; o family planning and sexually transmitted disease clinics; o hemophilia treatment centers; o public housing primary care clinics; o homeless clinics; o urban Indian clinics; and o native Hawaiian health centers. IV. GOVERNMENT REGULATORY AGENCY The Office of Pharmacy Affairs (OPA), which is a department of the Health Resources and Services Administration (HRSA) within HHS, administers the program. OPA may be contacted through its government contractor, Apexus, at or [email protected]. The OPA office e mail address is [email protected]. 2

3 V. REGISTRATION IN THE 340B PROGRAM Facilities that meet the criteria of a covered entity apply to participate in the 340B program by completing the online registration process during the first two weeks 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 participate. HRSA defines offsite as outside the four walls of the hospital. o Off site clinic must appear on the hospital s as filed cost report to register, which means that only provider based clinics may register with the 340B program (not freestanding clinics that are owned by a hospital). o Cost report requirement leads to long delays in registration of off site clinics. VI. DISCOUNT AMOUNT The 340B discount is the average manufacturer price (AMP) reduced by a minimum rebate percentage of 23.1 percent for most brand name prescription drugs, 17.1 percent for brand name pediatric drugs and clotting factor, and 13 percent for generic and over the counter drugs. Manufacturers must offer even greater discounts on brand name drugs if the manufacturer s best price for a drug is lower than AMP minus 23.1 percent for that drug and/or the price of the drug has increased more quickly than the rate of inflation. (This is also true for innovator, multi source drugs, i.e., brand name drugs that have generic competition.) Covered entities are free to negotiate discounts that are lower than the maximum allowable statutory price. VII. HOW TO OBTAIN DISCOUNTS Upon registration, a covered entity contacts its wholesaler to set up its 340B account and to request a 340B price list. The entity also may request a 340B pricing file from a manufacturer. Manufacturers should check the OPA website each quarter to identify the providers that are participating in the program. The manufacturer may not charge more than the 340B ceiling price to those entities regardless of whether the covered entity purchases pharmaceuticals through a wholesaler or directly from the manufacturer. If a covered entity suspects that it is not receiving the 340B price for a given outpatient drug, it should immediately notify the wholesaler or manufacturer, then contact OPA if it cannot resolve the issue by working directly with the wholesaler and manufacturer. VIII. PRIME VENDOR PROGRAM The 340B statute mandated the creation of a Prime Vendor Program (PVP) to negotiate sub 340B pricing on drugs. The PVP acts as a group purchasing organization (GPO) and provides guidance to covered entities. The current PVP contract is with Apexus. A covered entity does not have to join PVP in order to participate in the 340B program and may 3

4 negotiate subceiling discounts on its own. To learn more about PVP, go to IX. INVENTORY ISSUES Because the 340B program is for outpatient drugs dispensed to the Covered Entity s patients only, Covered Entities must have inventory controls to ensure that 340B drugs are not dispensed to inpatients or outpatients who do not meet HRSA s patient definition guidelines (discussed below). Covered Entities may maintain a physically separate 340B inventory or, more commonly, use a replenishment system under which drugs dispensed to a 340B eligible patient are replaced with a 340B drug. OPA requires that there be an exact match between the drug used and the replenished drug using the National Drug Code (or NDC, which is issued by the FDA and specifies drug identity, package size and manufacturer). Covered Entities may request HRSA approval for Alternative Method Demonstration Projects (AMDP) to implement an alternative inventory management system. X. COMPLIANCE ISSUES UNDER THE 340B STATUTE There are four principal restrictions under the 340B statute: 1. No Drug Diversion Section 340B prohibits the resale or transfer of discounted outpatient drugs to anyone other than a patient of the covered entity or in facilities within a Covered Entity that are not eligible (i.e., Ryan White clinic housed in ineligible hospital). An individual is a patient of a covered entity if: a) The covered entity maintains records of the individual s health care ( maintenanceof record or record maintenance test). b) the individual is under the care of a physician or other health care professional who is employed by, or provides health care under a contract or other arrangements with, the covered entity such that responsibility for the individual s care remains with the covered entity ( professional care test ). c) 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.) 61 Fed. Reg. 55,156, 55,157 (Oct. 24, 1996). 4

5 Note definition of patient is different for 340B and Medicare. The 340B definition includes individuals who have a prescription written at a covered entity to be filled at a retail pharmacy. HRSA issued a proposed clarification to the definition of patient in 2007 but OMB announced that HRSA withdrew the proposed clarification and will publish a new proposed patient definition. 2. No Duplicate Discounts Drug manufacturers are required to give rebates on drugs reimbursed under State Medicaid programs, either FFS or managed care, but are protected from giving a both a 340B discount and a Medicaid rebate on the same drug. Covered entities may elect to use 340B drugs for Medicaid patients ( carve in ) or may elect not to use 340B for Medicaid patients ( carve out ). Medicaid programs submit for rebates on carve out 340B drugs, but forgo rebates for entities that carve in. Covered entities must notify OPA of their election and OPA maintains an exclusion file that State Medicaid agencies may use to determine if an entity has carved in. The covered entity is responsible for ensuring that information on its carve in or carve out election is accurate. Covered entity bears the liability if a duplicate discount is paid on a Medicaid FFS drug. HRSA issued a Program Notice on 02/07/13 Clarification on Use of Medicaid Exclusion File. 3. Group Purchasing Organization (GPO) Restriction Certain hospitals (acute care with DSH > 11.75%, children s and cancer) may not purchase any covered outpatient drugs through a GPO. Inpatient drugs may be purchased through a GPO and hospitals may purchase outpatient drugs through the GPO established under the 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 340B program. o Provider based departments of a hospital may elect not to participate in 340B if they meet four requirements: a) are located at a different physical address than the parent; b) are not registered on the OPA 340B database as participating in the 340B Program; 5

6 c) purchase drugs through a separate pharmacy wholesaler account than the 340B participating parent; and d) the 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 340B database. o Detailed instructions regarding inventory replenishment methods. Hospitals have until 04/07/2013 to comply. 4. Orphan Drug Restriction XI. RELATED COMPLIANCE ISSUES Certain hospitals (SCHs, RRCs, and cancer) may not use 340B pricing for orphan drugs. o HRSA issued proposed guidance in May 2011 to implement orphan drug exclusion. Proposed that orphan drug restriction applies only "to uses for the rare disease or condition for which the orphan drug was designated. o Final regulations currently at OMB for release. Medicaid Billing There are no federal statutes or regulations that dictate the amount that state Medicaid programs may reimburse for 340B drugs, although officials in some state Medicaid programs mistakenly believe that federal guidance requires 340B covered entities to bill for 340B drugs at actual acquisition cost (AAC), particularly with respect to retail pharmacy drugs. Some States have explicit requirements to bill at AAC for 340B drugs, usually for retail pharmacy drugs, so that the State can get the benefit of the 340B discount. Covered entities need to be aware of any special Medicaid billing requirements for 340B. Program Income Requirements For non hospital covered entities, all 340B savings are considered program income for purposes of the grant and for Grantees. XII. CONTRACT PHARMACY A covered entity may contract with retail pharmacies to dispense 340B drugs to the covered entity s patients. Under these agreements, covered entities purchase the drugs, and manufacturers and wholesalers bill the covered entities, but ship the drugs directly to the contract pharmacy. The contract pharmacy fills prescriptions with 340B discounted drugs for any individual who meets the definition of patient with respect to the covered entity. A contract pharmacy must provide the covered entity quarterly financial statements, a detailed status report of collections, and a summary of receiving and dispensing records. The contract pharmacy also must establish and maintain a tracking 6

7 system to prevent diversion of drugs to individuals who are not patients of the covered entity. Covered entities are expected to have an independent audit of the contract pharmacy performed at least annually, to monitor pharmacy compliance and to self report any instance of noncompliance to HRSA. XIII. HOW MUCH DO SECTION 340B PARTICIPANTS SAVE IN THE PROGRAM? Pharmaceutical prices available under Section 340B are significantly lower than both retail and wholesale prices. 340B prices for brand name drugs are, on average, 51 percent of average wholesale prices, according to a report released by the Congressional Budget Office. Another government study found 340B prices to be 27 percent lower than prices available to group purchasing organizations. Note that these estimates were determined before manufacturers were required to adjust their AMP and minimum rebate percentage calculations as a result of the ACA. XIV. RESOURCES FOR 340B PROGRAM INFORMATION OPA disseminates information through its website at and the PVP website located at to program participants. The OPA website includes the names of participating covered entities and manufacturers, Federal Register notices and current program guidelines, and other 340B program related information. Other helpful information is available at the Safety Net Hospitals for Pharmaceutical Access s (SNHPA) website located at In addition, SNHPA publishes a real time news service on the 340B program called the Drug Discount Monitor, which can be found online at XV. 340B GLOSSARY Alternative Method Demonstration Projects (AMDP): Demonstration projects that are limited to six years and are intended to test new methods of implementing a covered entity s 340B program to improve access to pharmacy services for vulnerable populations. These HRSA approved projects give 340B covered entities flexibility to operate programs or enter into agreements with other covered entities that would otherwise not be allowed under 304B guidelines. Apexus Inc.: The current 340B prime vendor program. Apexus is responsible for negotiating discounts below the 340B ceiling price for those covered entities that choose to participate. It also provides education and guidance services for 340B covered entities. Average Sales Price (ASP): A measure of a pharmaceutical s price that is equal to a manufacturer's sales to all purchasers divided by units sold. The ASP calculation excludes sales, such as 340B purchases, that are excluded from the Medicaid best price calculation. 7

8 Average Wholesale Price (AWP): A national average of list prices charged by wholesalers to pharmacies. AWP is similar to the "sticker price" because it is not the actual price that larger purchasers normally pay. Carve In: Carve in means that a covered entity s opted to use 340B discounted drugs for its Medicaid patients that meet the 340B program s patient definition test. Hospitals that carve in must submit to OPA their Medicaid billing numbers and/or National Provider Identifier (NPI) numbers for the Medicaid Exclusion File so that State Medicaid agencies can identify claims that should be excluded from the states rebate requests to manufacturers and thereby protect the manufacturer from providing a duplicate discount on a drug. Carve Out: Carve out means that a covered entity opted not to use 340B discounted drugs for any of its Medicaid patients. A covered entity that chooses the carve out option must purchase all the covered outpatient drugs subject to Medicaid rebates without 340B discounts, while continuing to purchase all other covered outpatient drugs through the 340B program. Covered entities that are subject to the GPO prohibition must buy these Medicaid drugs at the wholesale acquisition cost (WAC). State Medicaid agencies are free to request manufacturer rebates on Medicaid drug claims submitted by carve out covered entities. Ceiling Price: The maximum price under 340B that manufacturers can charge covered entities. The 340B discount is calculated using the Medicaid rebate formula and is deducted from the manufacturer's selling price. Compared to a drug's average manufacturer rice (AMP), covered entities receive a minimum discount of 23.1 percent for brand name drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP), and 13 percent for generic and over the counter drugs. Brand name drugs receive an additional discount if a manufacturer s best price for a drug is lower than AMP minus 23.1 percent for that drug or if the price of the drug has increased more quickly than the rate of inflation. Child Site: An outpatient clinic or other provider based location that is eligible to participate in the 340B program because it is reimbursable on the hospital s Medicare cost report. Child sites must be separately registered with OPA. OPA requires that a covered entity register all clinics that are outside the four walls of the entity s main facility. Contract Pharmacy: A pharmacy that contracts with a covered entity to dispense 340B drugs to eligible patients on the covered entity s behalf. Contract pharmacies must be registered in the OPA database. Covered Outpatient Drug: The 340B discounts are available only for covered outpatient drugs under the 340B statute. The 340B statute defines covered outpatient drug by referencing the definition found in the Medicaid rebate statute at section 1396r 8(k)(2) of the Social Security Act. As of November 2012, OPA explained on its website that the 340B program generally covers the following outpatient drugs: prescription drugs approved by 8

9 the Food and Drug Administration (FDA), over the counter drugs dispensed pursuant to a prescription, biological products that can be dispensed only by prescription (other than vaccines), or FDA approved insulin. Covered Entity: A provider or other organization eligible for the 340B program. Duplicate Discount: A situation in which a manufacturer gives both an upfront 340B discount to a covered entity at the time of purchase and a post purchase discount to a state Medicaid agency based on the agency s rebate request. The 340B statute prohibits duplicate discounts. Estimated Acquisition Cost (EAC): A Medicaid agency s best estimate of the price generally paid by pharmacies for a particular drug. Federal rules require that states pay for drugs based on the lower of either EAC or the usual or customary charge to the public. Traditionally, most states have calculated EAC based on a discount off of AWP. Pursuant to the DRA, however, FULs on state Medicaid drug payments for generics will be based on AMP rather than AWP (although states will still be permitted to use AWP in setting reimbursement rates within those federal upper limits). A February 2012 proposed regulation published by CMS would require states to reimburse pharmacies for retail drugs based on AAC instead of EAC. GPO Exclusion: A statutory restriction imposed on acute care hospitals (except RRCs, SCHs, and CAHs), children s hospitals, and cancer hospitals that participate in the 340B program. Under the GPO exclusion, these hospitals may not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement. 340B hospitals may use GPOs for purchasing inpatient drugs and non drug items like medical and surgical supplies. They may also use the PVP s GPO for eligible outpatient drugs. Group Purchasing Organization (GPO): An organization through which multiple hospitals, clinics, and other institutions purchase drugs at discounted prices. In the proposed rule implementing the orphan drug purchasing restriction applicable to RRCs, SCHs and cancer hospitals, HRSA defined a GPO as an entity that contracts with purchasers, such as hospitals, nursing homes, and home health agencies, to realize savings and efficiencies by aggregating purchasing volume and using that leverage to negotiate discounts with manufacturers, distributors, and other vendors. 76 Fed. Reg. 29,183, 29,189 (May 20, 2011). Health Resources and Services Administration (HRSA): The agency within HHS that, through the Office of Pharmacy Affairs, has oversight over the 340B program. 9

10 Medicaid Exclusion File: The Medicaid Exclusion File is an OPA database that lists covered entities that choose to carve in and their Medicaid billing numbers and/or NPIs. It is intended to protect manufacturers from paying a Medicaid rebate and a 340B discount on the same drug. National Drug Code (NDC): The NDC is the identifying drug number maintained by the FDA. The NDC number specifies drug identity, package size, and manufacturer. NDCs can be reported in nine digit format, which represents a weighted average of all package sizes for a particular drug, or 11 digit format, which is package size specific. Office of Pharmacy Affairs (OPA): The office within HRSA that administers the 340B drug discount program. OPA is located within HRSA s Healthcare Systems Bureau and is located at HRSA headquarters in Rockville, MD. Orphan Drugs: Drugs which the FDA determines (1) are designed to treat rare diseases and conditions that affect fewer than 200,000 patients in the U.S., or (2) if the disease or condition affects more than 200,000 patients in the U.S., will produce sales that fail to cover the costs of the drug s development and production. Orphan drug designation by the FDA is for a particular indication a condition or illness which the FDA determines the drug can be used to treat. Manufacturers of orphan drugs are granted seven years of market exclusivity. Orphan Drug Exclusion: A statutory restriction applicable to RRCs, SCHs, and cancer hospitals that prohibits them from purchasing orphan drugs with 340B pricing. Final guidance from HRSA on the orphan drug exclusion is expected in Parent Entity: The main facility of the covered entity that is eligible to use 340B drugs by virtue of the entity s enrollment in the 340B program. Prime Vendor Program: The 340B statute requires the Department of Health and Human Services (HHS) to have a "prime vendor" program for the entities participating in the 340B drug discount program. The prime vendor s negotiates prices below the 340B ceiling price and provide distribution services for covered entities that choose to join the program. HRSA currently has a contract with Apexus to serve as the prime vendor, which runs through July In September 2012, the prime vendor s duties were expanded to include providing technical assistance (i.e., guidance) to covered entities. Recertification: The process by which providers participating in 340B review and update their information in a database maintained by HRSA, usually on an annual basis. 10

11 Ship To Address or Shipping Address: A ship to or shipping address is an address authorized to receive 340B drugs on behalf of a covered entity parent or child site and is registered on the OPA website. Pharmacies are not permitted to be registered as covered entity sites; therefore, they must be listed as shipping addresses of the parent entity or a registered outpatient child site, depending on which location the pharmacy serves, in order to receive 340B drugs. Ship To/Bill To This phrase refers to the provision required by HRSA under a contract pharmacy agreement whereby the manufacturer or wholesaler ships drugs to the contract pharmacy, but the drugs are purchased by, and billed to, the covered entity. Wholesale Acquisition Cost (WAC): The price paid by a wholesaler for drugs purchased from the wholesaler s supplier, typically the manufacturer of the drug, sometimes referred to as the sticker price. 11