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Health Resources and Service Administration (HRSA) Issues Proposed “Omnibus Guidance”

The Health Resources and Services Administration (“HRSA”) issued a notice proposing guidance under the 340B Drug Pricing Program.  The proposed Omnibus Guidance was issued in pre-publication format and is available here. The notice is scheduled to be published in the Federal Register on August 28, 2015 and can be found online

HRSA intends to finalize the proposed guidance after consideration of public comments.  The notice is open for a 60-day public comment period, with comments due on or before October 27, 2015.

The proposed Omnibus Guidance notice attempts to clarify current 340B Program requirements for covered entities enrolled in the 340B Program and for drug manufacturers that make their drugs available to covered entities under the 340B Program.  Highlighted below are some of the most notable aspects of the proposed guidance.

A.  340B Program Eligibility and Registration[i]

  • Among other clarifications and areas discussed, HHS is seeking comments on alternatives to demonstrating the eligibility of an offsite outpatient facility or clinic.

B.  Drugs eligible for purchase under the 340B Program[ii]

  • HRSA clarifies that the definition of “covered outpatient drug” excludes only those drugs in the designated sites of service described in the statute that are reimbursed under Medicaid as part of a bundled reimbursement rate for a service (not a drug billed to any other party or reimbursed separately by Medicaid).

C.  Individuals Eligible to Receive 340B Drugs

The proposed guidance clarifies the definition of eligible 340B patients by focusing on the prescriber’s relationship to the covered entity, the patient’s relationship to the covered entity, and the setting of the covered entity.  In HRSA’s interpretation, the criteria that determine if an individual is “a patient of the entity” eligible for the use of 340B drugs must be met on a “prescription-by-prescription or order-by-order basis.”[iii]  An individual is an eligible patient of a covered entity under the proposed guidance if all of the following conditions are met:

  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.

  2. The individual receives a health care service from a health care provider employed by the covered entity or who is an independent contractor for the covered entity, such that the covered entity may bill for services on behalf of the provider.

  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 the drug.

  4. The individual receives a health care service that is consistent with the covered entity’s scope of the grant, project, or contract.

  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 self-pay, 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.

  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 care is with the covered entity, and that each element of this patient definition in this section is met for each 340B drug.[iv]

In the summary of the proposed guidance, HRSA discusses the applicability to the patient definition to the following scenarios.[v]

  • An individual that sees a physician in private practice for follow-up care from a covered entity is not an eligible patient since the private practice is not listed in the 340B database.

  • An individual is not an eligible patient when the health care is provided by an organization that has an affiliation arrangement with the covered entity (even if the covered entity has access to the affiliate’s records).

  • Privileges or credentials at a covered entity are not sufficient to demonstrate that a patient treated by the privileged provider is an eligible patient of the covered entity.

  • The proposed guidance explains that a covered entity’s employees must independently meet the eligible patient definition and are not automatically eligible patients by status of their employment. Even covered entities with self-funded plans, which are financially responsible for employees’ health care, and contract with loosely affiliated health care professionals, must have its employees independently meet the eligible patient definition.

D.  Covered Entity Responsibilities

Diversion

  • In discussing drug inventory/replenishment models in the summary to the proposed guidance, HRSA definitively states that an improper accumulation, even prior to the placement of an order, equals diversion and constitutes a violation.[vi]

Prohibition of Duplicate Discounts[vii]

  • Covered Entities can select whether to use 340B drugs for its Medicaid Managed Care Organization (“MCO”) patients and can vary the selection at different covered entity sites and MCOs as long as such distinction is made available to HHS. In addition, a covered entity should have mechanisms in place to identify MCO patients.

  • The proposed guidance reserves the right to make the covered entity MCO carve-in or carve-out information publicly available through an Exclusion File or other mechanism.

  • With respect to contract pharmacy arrangements, the default position in the proposed guidance is that contract pharmacies will not dispense 340B drugs for Medicaid Fee-for-Service (“FFS”) or MCO patients. The summary to the proposed guidance states that if a covered entity wishes for its contract pharmacy to dispense 340B drugs to Medicaid FFS or MCO patients, the covered entity will provide HHS a written agreement with its contract pharmacy and State Medicaid agency or MCO that describes a system to prevent duplicate discounts.[viii]

Maintenance of Auditable Records[ix]

  • HRSA is proposing a record retention standard of 5 years for manufacturers and covered entities.

  • For covered entities, a systemic failure to maintain records adequate to permit auditing is considered a failure to meet the statutory audit requirements, and constitutes grounds for a loss of eligibility and termination from the program.

E.  Contract Pharmacy Arrangements[x]

  • The proposed guidance does not include any limitation on the number of contract pharmacies permitted (“one or more licensed pharmacies”) to dispense 340B drugs to the covered entity’s patients.

  • HRSA reiterates its long-standing position that a covered entity “retain complete responsibility” for contract pharmacy compliance with program requirements. The proposed guidance contemplates that Covered Entities will conduct quarterly reviews (i.e., a comparison of the covered entity’s prescribing records to the contract pharmacy’s dispensing records) in addition to independent annual audits.

F.  Manufacturer Responsibilities[xi]

  • HRSA includes guidance regarding limited distribution plans, such as specialty pharmacy or restricted distribution networks, and requires advance written notification of such plans to HRSA in advance of their implementation.

  • HRSA proposes to require manufacturer credits or refunds both in routine instances of retroactive adjustment to relevant pricing data as well as exceptional circumstances such as erroneous or intentional overcharging for covered outpatient drugs. Manufacturers would not be allowed to calculate refunds in any manner other than by individual NDC including (but not limited to) aggregating purchases, de minimis amounts, and netting purchases.  This refund or credit is expected to occur within 90 days of the determination by the manufacturer or HHS that an overcharge occurred.

  • HRSA proposes to extend the requirement for an annual recertification to manufacturers, in which case they would be required to review and update their 340B database information, including the NDCs subject to 340B pricing.

G.  Rebate Option for AIDS Drug Assistance Program [xii]

  • HRSA proposes that AIDS Drug Assistance Programs seeking access to 340B prices  either purchase directly (i.e., at the 340B ceiling price) or, in order to receive a rebate after the purchase, make an election at the time of registration and inform HRSA that the it intends to pursue a rebate mechanism.

  • In addition, AIDS Drug Assistance programs choosing the rebate or hybrid option are expected to make a “qualified payment” and submit claims-level data to the manufacturer to support that payment. A “qualified payment” for a covered outpatient drug includes (i) a direct purchase at a price greater than the 340B ceiling price or (ii) a payment of the health insurance premiums that cover the covered outpatient drug purchases at issue and payment of a copayment, coinsurance, or deductible for the covered outpatient drug.

H.  Program Integrity [xiii]

  • Expanded program integrity provisions clarify HRSA audits of covered entities (including their child sites and contract pharmacies) and manufacturers and their contractors (such as wholesalers). All HRSA audits require the auditee’s provision of auditable records, HRSA’s initiation of notice and hearing procedures prior to making a final determination regarding compliance, and the opportunity to submit a corrective action plan to HRSA to address noncompliance.

In addition to the areas highlighted above, the proposed guidance contains additional clarifications regarding fundamental 340B Program issues, such as covered entity eligibility and registration, annual recertification, the GPO prohibition, and duplicate discounts.

[i] Omnibus Guidance, Section II.A, p.8.

[ii] Id. at Section III.B, p.72.

[iii] Id. at Section III.C(a). p. 72.

[iv] Id. at Section III.C(a)(1)-(6), p. 72-3.

[v] Id. at Section II.C.(a)(1)-(6), p. 24-8.

[vi] Id.at Section II.C Drug inventory/replenishment models, p. 29.

[vii] Id. at Section III.D Prohibition of duplicate discounts (a)(2) and (c), p.74-5; Section III.E at (b)(2), p.78-9.

[viii] Id. at Section II.D Contract pharmacy, p. 35,

[ix] Id. at Section III.D Maintenance of auditable records, p. 76-7.

[x] Id. at Section III.E(b)(3), p. 79.

[xi] Id. at Section III.F Obligation to offer 340B prices to covered entities at (c), p. 81; Procedures for issuance of refunds and credits, p.82; and Manufacturer recertification, p. 82.

[xii] Id. at Section III.G(a)-(c), p. 83.

[xiii] Id. at Section III.H HHS audit of a manufacturer and its contractors (a)-(b), p. 88-9.

©2020 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume V, Number 240

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About this Author

Alan J. Arville, Epstein Becker Green, Health Care Lawyer, Life Science Attorney
Member

ALAN J. ARVILLE is a Member of the Firm in the Health Care and Life Sciences practice, in the Washington, DC, office.

Mr. Arville provides strategic, transactional, and regulatory guidance to the health care industry. Mr. Arville’s legal practice primarily focuses on matters relating to the distribution, dispensing, and reimbursement of pharmaceuticals, including the Medicare Part D program, the Medicare Advantage program, the 340B Drug Discount Program, federal anti-kickback and anti-inducement laws, HIPAA privacy and security...

202-861-1805
Constance A. Wilkinson, Epstein Becker, Life Sciences Litigation Lawyer, Health Audits Attorney, Due Diligence
Member

CONSTANCE A. WILKINSON is a Member of the Firm in the Litigation and Health Care and Life Sciences Practices in the firm's Washington, DC office, with a primary focus on federal health care contracting.

Ms. Wilkinson:

  • Conducts due diligence and internal investigations and audits and responding to criminal fraud and abuse investigations

  • Analyzes cost allowability and pricing issues for proposals or audits

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202-861-1378
Lesley R. Yeung, Epstein Becker Young, Healthcare Lawyer,
Senior Counsel

LESLEY R. YEUNG is an Associate in the Health Care and Life Sciences practice in the firm's Washington, DC, office. In 2014 and 2015, Ms. Yeung was selected to the Washington DC Rising Stars list in the area of Health Care. Ms. Yeung recently served as a law clerk at a large nonprofit membership organization, where she supported litigation efforts related to the provision of long-term care services under the Americans with Disabilities Act. Prior to attending law school, Ms. Yeung was a health insurance specialist at the Centers for Medicare...

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