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HRSA 340B Mega-GuidanceREVISED

Disclaimer

The information contained in this presentation is forinformational purposes only. It should not be construed orrelied upon as legal advice.

HRSA publishesOrphan DrugRegulation,expanding use of340B Program fororphan drugs

Jul 2013

PhRMA files lawsuitagainst OrphanDrug Regulationciting HRSA's lackof authority

Sep 2013

HRSA announces itwill release formalstatutory rules -referred to as the"mega-reg"

Jan 2014

Federal judge voidsOrphan Drug regciting HRSA's lackof authority to issuelegislative rules

May 2014

HRSA changescourse announcing aforthcoming "mega-guidance" ratherthan legislative rules

Nov 2014

HRSA submitsmega-guidance toOMB for review

May 2015

The "mega-guidance" actually began as a "mega-reg." The difference? The "mega-reg" HRSAannounced in January 2014 was to be a series of legislative rules. HRSA later changed course and inNovember announced they would issue a series of non-legislative rules with legislative rules only in theareas where they have explicit authority through the ACA.

Mega-Guidance History

HRSA stands byOrphan Druginterpretation;PhRMA files briefasking judge toinvalidate rule

Jun 2014

Judge enters finaljudgement denyingPhRMA's request toinvalidate rule;HRSA continues toaudit based onthe regulation

Aug 2014

Draft mega-guidance ispublished in theFederal Register for60-day commentperiod

Aug 2015

Comment periodwill close

Oct 2015

Now that the mega-guidance is open forcomment, what happens next?

What's Next?

May 6, 2015HRSA submittedmega-guidance

to OMB

The OMB completed reviewof the guidance and published

on the Federal Register forcomment

August 28, 2015

60DAYS

60-day commentperiod will end for the

mega-guidance

HRSA will reviewcomments anddetermine what

revisions need tobe made

OPTION

01Make minor changes

OPTION

02Process Restarts Make major changes

Final Published

October 27, 2015

PR

OC

ES

S S

TAR

TED

NO

T S

TAR

TED

It should be noted that the guidance now posted for comment is preliminary and will morethan likely change, possibly significantly, before finalization.

The following are the areas within the proposed guidance that the PSG team identified asof particular interest. It is by no means an exhaustive list.

Guidance Overview

Hospital Eligibility

Individuals Eligible to Receive 340B Drugs

Offsite Outpatient Eligibility

GPO Exclusion Clarification

Covered vs. Non-Covered Outpatient Drugs

Eligibility for Covered Entity Employees

Contract Pharmacy

Self and Independent Audits

HRSA Audits

Manufacturer Obligation to Offer 340B Prices to Covered Entities

The following slides will provide an overview of each of the above bullets.

One category of hospital eligibility includes a private non-profit hospital which has acontract with a State or local government to provide health care services to low-incomeindividuals who are not eligible for Medicare or Medicaid.

The proposed guidance states that the covered entities qualifying based on this criteriaprovide a signed certification between the hospital's authorizing official and anappropriate government official (such as a governor, county executive, mayor, orindividual authorized to represent and bind the governmental entity).

HHS states that such contract should create enforceable expectations for the hospitalfor the provision of health care services, including the provision of direct medical care.

Hospital Eligibility

HHS is proposing a clarification to the patient definition as it pertains to the 340BProgram. Under this proposal, patients eligible to receive 340B drugs would need tomeet the following criteria:

Individuals Eligible to Receive 340B Drugs

1. The individual receives a health care service at the covered entity; visits within a private practice not listed on the 340B database, even as follow-up care to a registered site, would not be eligible

2. The individual receives a health care service from a health care provider employed or contracted with the covered entity, so that the covered entity may bill for the services

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 is not considered a patient of the covered entity if the only health care received is the infusion or dispensing of a drug

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

5. The individual is classified as an outpatient when the drug is ordered or prescribed; patient classification is determined by how the services are billed to the insurer

6. The covered entity maintains access to auditable health records for the patient that demonstrate provider-to-patient relationship

HHS is seeking comments on alternatives to demonstrating the eligibility of an off-siteoutpatient facility or clinic. Today, eligibility is based upon the Medicare Cost Report.However, an eligible off-site location may have to wait over a year until a new CostReport is submitted to register.

HHS has considered alternative methods such as provider-based standards or otherexisting Medicare forms to demonstrate eligibility. None of these methods have provensufficient thus far.

Offsite Outpatient Eligibility

The proposed guidance clarifies that a GPO account may be used at an off-siteoutpatient facility of a 340B covered entity that is not participating in the 340B Program.

GPO Exclusion Clarification

The proposed guidance clarifies that 340B eligibility can be maintained when GPOdrugs are provided to an inpatient whose status subsequently is changed to outpatientby a third party or hospital review.

HHS proposes to recognize an exception to the GPO prohibition when a drug cannot beaccessed at 340B or WAC to prevent patient care disruptions.

Newly enrolled covered entities subject to the GPO prohibition may expend remainingGPO-purchased drugs purchased prior to the start date.

HHS is proposing that the limiting definition which identifies non-covered outpatientdrugs only apply when the drug is bundled for payment under Medicaid as part of aservice in the setting described in the limiting definition.

In contrast, a drug provided as part of a hospital outpatient service which is billed toany other third party or directly billed to Medicaid would still qualify as a coveredoutpatient drug.

Covered vs. Non-Covered Outpatient Drugs

HHS further clarified the 340B Program does not serve as a general employeepharmacy benefit or self-insured pharmacy benefit.

HHS explicitly stated that only individuals who are patients of the covered entity areeligible for drugs purchased through the 340B Program. For 340B Program purposes,there is a fundamental difference between the individuals for whom the covered entityprovides direct health care services and employees for whom a covered entity onlyprovides insurance coverage.

Eligibility for Covered Entity Employees

HHS presumes a contract pharmacy listed on the 340B database will not dispense340B drugs to Medicaid FFS or MCO patients. A written agreement should be providedby the covered entity to HHS between the contract pharmacy and State Medicaidagency or MCO if the entity wishes to pursue this. The agreement should describe asystem to prevent duplicate discounts and must be approved by HHS.

To further strengthen 340B Program integrity, HHS has proposed registration of acontract pharmacy will only be accepted from a covered entity.

Contract Pharmacy

It should be noted that the proposedguidance by HHS did not include newlimitations on contract pharmacy such asgeographic proximity requirements ornumerical limits.

Covered entities are required to annually certify the accuracy of information within the340B database. By certifying, a covered entity attests that it employs effective businesspractices to ensure and monitor ongoing compliance, including self-audits whereappropriate.

HHS is proposing standards for audit and quarterly reviews to ensure contractpharmacy compliance. HHS believes conducting these audits using an independentauditor will ensure the pharmacy is following the 340B Program requirements.

Self and Independent Audits

HHS is proposing a notice and hearing process under which a covered entity has theopportunity to respond to adverse findings and other instances of noncompliance or torespond to the proposed loss of 340B Program eligibility.

HHS is proposing standards for audits of a manufacturer or wholesaler thatmanufactures, processes, or distributes covered outpatient drugs in the 340B Program.

HRSA Audits

Manufacturers may develop a limited distribution plan when a covered outpatient drugmust be handled in a special manner or when the available supply is not adequate tomeet market demands. The plan will be reviewed by HHS to ensure that themanufacturer is treating 340B covered entities the same as all non-340B providers.

Manufacturer Obligation to Offer 340B Prices toCovered Entities

We are still months, possibly years, from the finalization of the HRSA mega-guidance. The draft version will be open to public comment until October 27, 2015.Upon completion of the comment period it is at the discretion of HRSA what to do nextand when to move forward.

Participating hospitals should remain very committed to compliance to the existingrules. Enforcement through HRSA audits of the new rules will not apply to claimsoccurring prior to the finalization date. However, hospitals should begin evaluatingsystem capabilities and processes that would be impacted by the mega-guidance assoon as possible.

Conclusion

Appendix

101: Acronyms and Relationships

HRSAHealth Resources and Services Administration

Responsible for oversight of the 340B Program

OPAOffice of Pharmacy AffairsDepartment within HRSA

Responsible for administration of the 340B Program

OMBOffice of Management and BudgetAssists in the preparation of the federal budget and supervisesbudget administration in executive branch agencies

Responsible to review and approve HRSA mega-guidance draft

101: Legislative Rules

Non-Legislative Rules

Statutory laws enacted by Congress don't often include enough detailed guidance to carry out thelaw. Therefore government agencies issue "rules" to provide this clarity. HRSA's explicit authoritythrough the law to enact legislative rules as opposed to non-legislative rules has been an ongoingdebate.

What's the difference?

Interprets statute and indicatesenforcement directions

Not binding on courts but difficultto challenge

Legislative Rules

May create new rights and/orobligations

Binding and very difficult tooverturn via a court challenge

101: HRSA Explicit Authority

So what explicit authority does HRSA have to enact legislative rules withregard to the 340B Program? Until the enactment of the Affordable Care Act(ACA) in 2013 the answer was none. However, with the ACA HRSA wasprovided with the explicit authority to implement three new provisions.

Establish anadministrative disputeprocess for claims bymanufacturers andcovered entities

Issuance of preciselydefined standards ofmethodology forcalculating ceiling prices

Establish standards for theimposition of monetary civilsanctions applicable toparticipating manufacturers

HRSA still has considerable authority over the 340B Program through theissuance of non-legislative rules. They are enforcing these rules throughsteadily increasing auditing of hospital covered entities.