340B DRUG DISCOUNT PROGRAM OMNIBUS GUIDANCE. Presented by the American Bar Association Health Law Section and Center for Professional Development

340B DRUG DISCOUNT PROGRAM OMNIBUS GUIDANCE Presented by the American Bar Association Health Law Section and Center for Professional Development

American Bar Association Center for Professional Development 321 North Clark Street, Suite 1900 Chicago, IL 60654-7598 www.americanbar.org 800.285.2221 CDs, DVDs, ONLINE COURSES, DOWNLOADS, and COURSE MATERIALS ABA self-study products are offered in a variety of formats. Find our full range of options at www.shopaba.org Submit a Question Visit https://americanbar.qualtrics.com/se/?sid=sv_2ub91twxeymw6fl&pcode=ce1507ddp to submit a question on the content of this course to program faculty. We ll route your question to a faculty member or qualified commentator in 2 business days. The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association Health Law Section or Center for Professional Development unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only. 2015 American Bar Association. All rights reserved. This publication accompanies the audio program entitled 340B Drug Discount Program Omnibus Guidance broadcast on September 17, 2015 (event code: CE1507DDP).

340B Drug Discount Program Omnibus Guidance Thursday, September 17, 2015 12:00 PM Eastern Sponsored by the ABA Health Law Section and the ABA Center for Professional Development Faculty Panelists: Mary E. Blake, Senior Partner, Polsinelli Emily J. Cook, Partner, McDermott Will & Emery Andrew Ruskin, Partner, Morgan Lewis Moderator: David H. Ellenbogen, Vice President & Assistant General Counsel, Baylor Scott & White 1

PART A 340B PROGRAM ELIGIBILITY AND REGISTRATION Part A: Non-Hospital Covered Entities FQHC s FQHC Look-Alikes Native Hawaiian Health Centers Tribal/Urban Indian Health Ryan White HIV/AIDs Program Grantees Black Lung Clinics Comprehensive Hemophilia Diagnostic Treatment Centers Title X Family Planning Clinics Sexually Transmitted Disease Clinics Tuberculosis Clinics The Child Sites of Non-Hospital Covered Entities and Sub- Recipients of Federal Grants must be registered on the Database 2

Part A: Hospital Covered Entities 1. Government owned and operated hospitals. 2. Hospitals that have been formally granted governmental powers by a unit of state or local government. 3. Hospitals that have a contract with state or local government not covered by Medicare or Medicaid. 4. Hospitals that meet the Disproportionate Share (DSH) adjustment hospitals, Children s Hospitals and Cancer Hospitals. Part A: Hospital Covered Entities DSH Hospitals : Must have a contract with state or local government to provide health care to low income individuals not eligible for Medicare or Medicaid; and Submit a certification signed by hospital office and government official of such agreement; and The contract must include enforceable expectations that direct medical care will be provided to low income patients without health care coverage Private Non-Profit Hospitals Children s Hospitals Critical access hospitals Free standing cancer center hospitals Rural referral Center Sole Community hospitals 3

Part A: DSH Hospitals Hospitals that must meet or exceed a DSH threshold adjustment percentage or be a Pickle Hospital [located in Urban Area, 100+ beds; less than 30% net in patient revenue from state and local sources (not Medicare or Medicaid) to cover indigent care: DSH greater than 11.75% DSH Hospitals Children s Hospitals-Special Requirements for Calculating DSH Free Standing cancer hospitals Part A: DSH Hospitals DSH greater than 8.0% Rural Referral Centers Sole Community Providers No DSH Requirement Critical Access Hospitals 4

Part A: Children s Hospitals 1. Do not have Medicare cost reports 2. Required annual independent audit 3. Audit must show a DSH% greater than 11.75. Part A: DSH Requirements 1. HRSA will continue to use the hospital s most recently filed Medicare Cost Report to determine eligibility o Failure to meet or exceed the DSH percentage results in immediate termination of 340B status. 5

Part A: Off-site Outpatient Eligibility Off-Site outpatient facilities will be listed on the 340B Database Most recent cost report for 340B Facility must show costs and revenue for outpatient HHS is seeking comments and proposed forms to show how hospital off-site locations demonstrate eligibility for 340B and what data points HRSA should use to verify eligibility HHS previously considered relying on provider based designations (but some hospitals do not seek provider-based status) Also previously considered use of Form 855A, but found the form insufficient to measure Medicare Reimbursement Part A: Registration Procedures and deadlines for registration are on the HHS 340B Program website (www.hrsa.gov/opa) Registration periods and effective dates: October 1- October 15 Registration for start date of January 1 January 1 January 15 Registration for start date of April 1 April 1 April 15 Registration for start date of July 1 July 1 July 15 Registration for start date of October 1 Registration must be signed by CEO, CFO, COO or authorized official 6

Part A: Termination Proposal for Re-Enrollment Following removal, a Covered Entity can re-enroll in the reenrollment period immediately following accomplishment of the following: satisfactory demonstration that it will comply with statutory requirements Completion of or in the process of offering repayment to affected manufacturers HHS seeks suggestions on information needed to show compliance, such as: Set up of appropriate purchasing accounts Use of software to correctly allocate drug purchases Policies and procedures directing proper purchase allocations Plan for self audit Evidence of successful appeal of DSH percentage Part A: Annual Recertification of Compliance Attestation of the following: Effective business practices are in place to ensure and monitor compliance Self-Audits are conducted 340B Data-Base information is accurate Notification of ineligibility if necessary Disclosure of program violations Voluntarily terminate Covered Entity or Child Sites (must include explanation of these actions) 7

Part A: Group Participating Organizations ( GPO ) Prohibition Applies to DSH Hospitals, Children s Hospitals, Free Standing Cancer Hospitals. Exceptions to GPO Prohibition A GPO account may be used at a child off-site outpatient location if the location is not registered in the 340B database and it uses a GPO account that is separate from the main hospital to purchase drugs. New Proposal - no violation of the GPO prohibition if the 340B drugs are provided to an inpatient whose status is subsequently changed to outpatient by a third party such as payor or Medicare recovery audit contractor. New Proposal Where hospital can only access a covered outpatient drug thru a GPO account, it must document attempts to purchase drug at 340B and WAC and report all of this to HHS including drug name, manufacturer and describe attempts to acquire that drug. New Proposal - to allow newly qualified covered entities to use the remaining GPO inventory purchased prior to 340B start date for outpatients without violating the GPO prohibition. The commentary to the Guidance encourages covered entities and manufacturers to use a credit/rebill process for erroneous GPO purchases, if done within 30 days of discovery. Part A: Violations of Prohibition on Use of GPOs If Covered Entity is found to be in violation of the GPO prohibition after notice of violation and written hearing process, the Covered Entity: Will be considered ineligible Will be removed from the program If Covered Entity shows GPO violation was an isolated error: HHS may allow covered entity to stay in the program Covered Entity must have a Corrective Action Plan 8

Part A: Violations of Prohibition on Use of GPOS If GPO violation at Parent Site and Parent Site is terminated all Child Sites automatically terminate. If GPO violation is isolated at Child Site(s), only such Child Site(s) will be removed. Child Site must have auditable records showing that the violation is isolated Child Site is located in a building separate from parent and other Child Sites All drug purchases for Child Site were on purchase accounts that were separate from the Parent and other Child Sites Re-Enrollment allowed: Next re-enrollment period following demonstration to HHS that Covered Entity will comply with the GPO requirement Covered Entity has repaid or offered to repay affected manufacturers Part B: Drugs Eligible for Purchase Under 340B Only covered outpatient drugs (CODs) are eligible for 340B pricing Hospitals subject to GPO prohibition may not purchase CODs through a GPO Very important for all covered entities Diversion Duplicate discounts Even more important for hospitals subject to the GPO prohibition Eligibility requirement 9

Part B: Drugs Eligible for Purchase Under 340B Defined in 340B statute with reference to Social Security Act 1927(k)(2) 1927(k)(2): CODs include FDA-approved drugs dispensed on a prescription Prescription biologics (other than vaccines) FDA-approved insulin 1927(k)(2) references a limiting definition at 1927(k)(3) 1927(k)(3) excludes drugs bundled for Medicaid payment Part B: Drugs Eligible for Purchase Under 340B HRSA has long-struggled as to how to apply the statutory COD definition to the 340B Program, particularly as to the limiting definition Guidance published in Federal Register in May 1994 (cited in Proposed Guidance) appeared to apply limiting definition to all payors, but HRSA has not consistently applied the 1994 guidance HRSA has more recently deferred to covered entities to interpret the COD definition 10

Part B: Drugs Eligible for Purchase Under 340B Current Guidance If the covered entity interprets the definition of covered outpatient drug referenced in the 340B Statute (Social Security Act 1927 (k)) and decides that drugs do not meet this definition, a GPO may be used for drugs that are not covered outpatient drugs. The decision the covered entity makes should be defensible, consistently applied in all areas of the entity, documented in policy/procedures, and auditable. (Apexus FAQ 1355, last modified 2/25/2015, accessed 9/4/2015) Part B: Drugs Eligible for Purchase Under 340B In Practice Covered entities take a variety of approaches Use availability of 340B Pricing to determine eligibility Exclude commonly bundled drugs (e.g., IV solutions) Consider all drugs dispensed to outpatients as CODs, regardless of payor or payment HRSA expectation is that covered entity approach is documented, reasonable and applied consistently 11

Part B: Drugs Eligible for Purchase Under 340B Proposed Guidance A covered outpatient drug, as defined in section 1927(k)(2) and (3) of the Social Security Act, is eligible for purchase under the 340B Program. For purposes of the 340B Program, only drugs bundled for and receiving such bundled reimbursement under Title XIX of the Social Security Act described in section 1927(k)(3) will be considered excluded from the definition of covered outpatient drug. Part B: Drugs Eligible for Purchase Under 340B Proposed Guidance Excludes drugs billed to and paid by Medicaid as part of a bundled payment Does not exclude drugs bundled for other payors Does not exclude drugs separately billed and paid by Medicaid 12

Part B: Drugs Eligible for Purchase Under 340B If finalized as proposed Challenging to implement Requires tracking dispensing by payor and payment Unclear how to apply to drugs billed to Medicaid and later denied or refunded Difficult to comply with GPO prohibition No longer able to exclude classes of drugs Difficult to maintain physical inventory model Part B: Drugs Eligible for Purchase Under 340B Additional Guidance from HRSA Drugs purchased at 340B pricing that do not meet the definition of COD are subject to repayment to manufacturers Hospitals subject to GPO prohibition must not purchase covered outpatient drugs through a GPO Manufacturers cannot condition sale of COD on covered entity compliance 13

Part C: Individuals Eligible to Receive 340B Drugs 340B drugs may only be dispensed to eligible patients of a covered entity No current statutory definition of patient Dispensing a 340B drug to an ineligible individual or entity is diversion and requires repayment of 340B discounts to manufacturers With respect to any covered outpatient drug that is subject to an agreement under this subsection, a covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity. Part C: Individuals Eligible to Receive 340B Drugs Current Definition The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual's health care; and The individual receives health care services from a health care professional who is either 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 or Federally-qualified health center look-alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement. 14

Part C: Individuals Eligible to Receive 340B Drugs Individual will not be considered a patient of the covered entity if the only health care service received by the individual from the covered entity is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting. Exception: Individuals registered in a State-operated or funded AIDS Drug Assistance Program (ADAP) that receives Federal Ryan White funding are considered patients of the participant ADAP. Part C: Individuals Eligible to Receive 340B Drugs Current three-part test replaced with six-part test Shift from patient-focused review to prescription/orderfocused review Clear intent to tighten the nexus between a 340B-eligible prescription and: Care provided while the patient is physically located at the covered entity Relationship of the practitioner writing the prescription to the covered entity Outpatient care 15

Part C: Individuals Eligible to Receive 340B Drugs Part 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 database. Excludes follow-up care at non-covered entity sites and care at covered entity-affiliated locations Explicitly includes certain telemedicine visits Would exclude certain case management and employee/insured arrangements currently used by some covered entities Part C: Individuals Eligible to Receive 340B Drugs Part 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 or credentials alone not sufficient Excludes prescriptions written during referral Billing requirement is unclear 16

Part C: Individuals Eligible to Receive 340B Drugs Part 3 An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2). An 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. Specific focus on infusion Explicitly includes orders/prescriptions written during certain telemedicine visits Unclear when a order/prescription is the result of the service Part C: Individuals Eligible to Receive 340B Drugs Part 4 The individual receives a health care service that is consistent with the covered entity s scope of grant, project, or contract. Applies to non-hospital (grantee) entities Generally consistent with current HRSA policy Applies scope limit on a site-by-site basis Unclear how HRSA intends to address scope changes 17

Part C: Individuals Eligible to Receive 340B Drugs Part 5 The individual is classified as an outpatient when the drug is ordered or prescribed. The patient s classification status is determined by how the services for the patient are billed to the insurer (e.g., Medicare, Medicaid, private insurance). An individual who is selfpay, uninsured, or whose cost of care is covered by the covered entity will be considered a patient if the covered entity has clearly defined policies and procedures that it follows to classify such individuals consistently. Patient status determined by bill type, rather than patient status Many of the same problems as COD definition Delay in determination of eligibility for 340B/GPO Difficult/impossible to maintain physical inventory model Excludes discharge prescriptions and drugs subject to preadmission bundling rules Part C: Individuals Eligible to Receive 340B Drugs Part 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 providerto-patient relationship, that the responsibility for care is with the covered entity, and that each element of this patient definition in this section is met for each 340B drug. Replaces maintenance of record test with combined record of care and auditable record of compliance requirement Auditable standard is unclear 18

Part C: Individuals Eligible to Receive 340B Drugs Additional guidance Individuals enrolled in ADAPs are considered eligible patients and not subject to six-part test Employees and self-insured plan enrollees of covered entity must meet six-part test- employment or insurance status does not satisfy patient eligibility requirements HHS may provide alternate patient eligibility criteria during an HHS-declared public health emergency Part C: Individuals Eligible to Receive 340B Drugs Records/Replenishment Must maintain records to demonstrate compliance with all patient eligibility criteria for every drug dispensed or accumulated Establishes that drugs ordered for replenishment lose their identity once received in inventory States that drug diversion occurs if a covered entity accumulates a 340B drug without a prior eligible instance of dispensing, even if no 340B drugs are actually purchased as a result of the erroneous accumulation 19

Part C: Individuals Eligible to Receive 340B Drugs Records/Replenishment Encourages use of 30 day credit/rebill process to address purchasing errors Covered entities are responsible for requesting 340B pricing at time of purchase, but banking (retroactive reclassification of purchases as 340B) permitted with approval of manufacturer and clear audit trail Auditable records requirement includes records accounting for inventory discrepancies (e.g., returns and drug wastage) Part C: Individuals Eligible to Receive 340B Drugs Repayment Covered entity expected to work with manufacturer on repayment within 90 days of identifying diversion Cites statutory provision requiring repayment following audit by HRSA or manufacturer Defers to manufacturers regarding repayment calculation and process Requires notice to HHS and manufacturers of diversion Does not establish volume or dollar threshold for reporting to HHS or manufacturer 20

Part D: Covered Entity Requirements Prohibition of Duplicate Discounts Fee-for-Service (FFS). HRSA intends to maintain the Medicaid Exclusion File procedure whereby a Covered Entity will be listed on the 340B database if it notifies HRSA at the time of registration that it will purchase and dispense 340B drugs to its Medicaid FFS patients (carve-in) and bill the State, or that it will purchase drugs for these patients through other mechanisms (carve-out). Part D Covered Entity Requirements Medicaid Managed Care (MMC) Covered Entity may choose to Carve-In or Carve-Out for MMC Covered Entity may make differing selections for different sites BUT must let HHS know of choices Notice may be made thru an exclusion file or other mechanism (not described). Mechanisms should be in place to identify MCO patients. Changes may be made to use of 340B drugs for either Medicaid FFS or MCOs during HHS specified time frames [Time Frames are not specified but may correspond with Registration Dates]. HHS must be informed of change before it is implemented. Must have mechanism to document and notify State or MCO of failure to use 340B drug. 21

Part D: Auditable Records Proposed that Auditable 340B Program records be retained for not less than 5 years. Applies to Covered Entity, Child Sites and Contract Pharmacies In the case of termination, records must be retained for 5 years post termination. Failure to produce such records upon can result in a presumption of noncompliance for the period for which there are no records. Requirement to produce records extends to Manufacturer Requests Failure to produce required records will result in removal from program and liability for to repayment to manufacturers for period of ineligibility. Part E: Contract Pharmacies Statute does not limit covered entities to providing drugs merely onsite Since 1996, OPA has allowed use of contract pharmacies Generally, these are entities that are outside of the covered entity with which the covered entity contracts to furnish 340B covered drugs 22

Part E: Contract Pharmacies Definition in Notice: [P]harmacy not owned by the covered entity, but under contract with and listed on the covered entity s 340B database record. Only covered entities are subject to GPO prohibition, and so what qualifies as a contract pharmacy is critical to understanding whether GPO drug can be purchased Questions arise about when covered entity is an incorporated business line of a much larger parent Part E: Contract Pharmacies Registration matters HRSA confirms that one covered entity can have multiple contract pharmacy locations In prior guidance, HRSA has also stated that one contract pharmacy can serve multiple covered entities HRSA states here that there can be no group registration of a group of covered entities, all with the same contract pharmacy, though does not prohibit multiple covered entities enrolling same pharmacy 23

Part E: Contract Pharmacies Operational issue raised with respect to duplicate discounts Presumed unless present agreement to HHS that carving out Medicaid FFS & MCO But how does a contract pharmacy know whether a patient is Medicaid MCO or commercial? No clear list of BIN/PCN combinations Part E: Contract Pharmacies Self-Audits HRSA requires, and has historically required, annual audits by covered entities of their contract pharmacies, Additionally, HRSA now will require quarterly reviews on a more limited basis, such as the ability to match prescribing and dispensing records 24

Part E: Contract Pharmacies HRSA audits HRSA can include contract pharmacies in its routine audits Findings may be limited to the contract pharmacy, meaning that, even if a contract pharmacy is terminated, the covered entity can still retain its enrollment Payback responsibilities remain with covered entity Note that some portion of the 340B savings may already have been paid out as an admin fee to the contract pharmacy Part F: Manufacturer Recertification Manufacturer should review and update 340B Data Base information on an annual basis. 25

Part F: Manufacturer Responsibilities Expectations of Participating Manufacturers Must sign a Pharmaceutical Provider Agreement ( PPA ) within 30 days of enrollment in the Medicaid Program. Must submit timely updates to its 340B Data Base record and PPA. Maintain auditable records for no less than 5 years and provide records to HHS when requested Permit HHS to audit compliance Part F: Manufacturer Obligations to Offer 340B Prices Must offer drugs at 340B price to Covered Entities Cannot condition price on Covered Entity s assurance of compliance with 340B Program requirements Notify HHS in writing of any limited distribution plan that includes: Explanation of drugs limited supply or reason for restricted distribution Assurance that restrictions will be imposed equally on 340B and non-340b purchases Details of drug distribution plan Dates the distribution plan begins and ends A plan to notify wholesalers and Covered Entities of the plan 26

Part F: Procedures for Manufacturer Refunds Refunds required if 340B drug sold to Covered Entity for more than the 340B price Refund is equal to difference between actual sale price and 340B price times the number of units. Refund must be within 90 days of determination of overcharge. Information must be provided to HHS on: The ceiling price recalculation Explanation of why the overcharge occurred Explanation of how refunds will be calculated List of Covered Entities that will receive refunds Covered Entity waiver failure to accept repayment and execute repayment within 90 days of receipt results in waiver of right to repayment Part G: ADAPs ADAPs, or AIDS drug assistance programs, are covered entities under the statute ADAPs vary in form sometimes they provide drugs directly to patients, and sometimes they finance the purchase of insurance Can participate as either direct purchasers, as recipients of rebates, or both (a hybrid approach ) 27

Part G: ADAPs Rebate option still available for ADAPs under Notice Requires: proper registration, eligible payment, and submission of a proper invoice to the manufacturer Part G: ADAPs Eligible payment Either payment for 340B drugs at a price higher than the 340B price; or Payment of both the insurance premium and the coinsurance 12 month delay in implementation 28

Part G: ADAPs Rebate amount The amount is the difference between Average Manufacturer Price and Best Price Partial payments considered and rejected Part G: ADAPs No duplicate discounts If 340B stock is already used, then cannot seek a rebate as well May be an issue for hospitals covered entities and their contract pharmacies hospitals treating their own patients will want to benefit from both 340B purchasing, but will also want ADAP coinsurance Alternative is WAC account ADAPs not incentivized to include 340B covered entities and their contract pharmacies in their network 29

Part H: HRSA Auditing HRSA will continue its aggressive auditing schedule, reported to result in an audit of every hospital covered entity at least once every 5 years HRSA commits to only having one audit of a site at a time HRSA can come onsite to the Parent, Child, or Contract Pharmacy Results are made public Part H: HRSA Auditing Purportedly new notice and hearing process resembles current procedures for HRSA conduct of audits Although labeled a hearing, all that is furnished is a written submission by the covered entity Covered entity has 30 days to submit documentation Findings issued thereafter No appeals process Repayment due from beginning of violation, not from date of findings 30

Part H: HRSA Auditing Corrective action plan required upon issuance of findings. To include: The correction of each finding of noncompliance, The implementation of measures to prevent future occurrences of noncompliance, Plans to make offers of repayment to affected manufacturers for discounts improperly received or to work with State Medicaid offices regarding duplicate discounts, if applicable, and A timeline for corrective actions to be taken. Part H: HRSA Auditing Manufacturers may also audit covered entities Limited only to drug diversion and duplicate discounts Need reasonable cause 31

Part H: HRSA Auditing Manufacturers can also be subject to audits by HRSA Process is similar to covered entities with a notice and hearing regarding findings, as well as the need for a corrective action plan Part H: HRSA Auditing What to do if covered entity disagrees with an audit finding? Can try to challenge the finding in court, following the PhRMA model Pharmaceutical Research and Manufacturers of America v. U.S. Department of Health and Human Services et al., case number 1:13-cv-01501, (D.D.C., 5/23/14) 32

Part H: HRSA Auditing Would need to seek an injunction (just like PhRMA) so as not to be removed from program while challenging Notice Notice would only be entitled to Skidmore deference, and not Chevron deference Part H: HRSA Auditing Criteria to consider before launching challenge: The degree of HRSA s care in creating policy The consistency of the policy over time The formality with which the policy has been promulgated The relative expertness of HRSA on the matter addressed by the policy The persuasiveness of HRSA s position 33

Questions? All attendees can submit questions via the chat feature on the webinar interface 34