HHS Reopens Comments on Penalty Rule for Drugmakers

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By Bronwyn Mixter

April 18 — The HHS is reopening until May 19 the comment period on a proposed rule that would establish civil monetary penalties for drug manufacturers that charge safety-net providers too much for medications under a federal discount program.

The rule, required under the Affordable Care Act, would impose monetary sanctions (not to exceed $5,000 per instance) on manufacturers that have “knowingly and intentionally” charged providers a price above a ceiling established under the 340B program. The ceiling price is the maximum amount a manufacturer can charge for a drug. The 340B program, created in 1992, requires drug manufacturers participating in the Medicaid program to have an agreement with Department of Health and Human Services under which the manufacturer provides discounts on covered outpatient drugs purchased by safety-net providers.

The HHS said it specifically is seeking comments on the definition of “knowing and intentional” and on the methodology for calculating ceiling prices for drugs.

The HHS seeks comment on the definition of the knowing and intentional standard for purposes of civil monetary penalty authority.

The proposed rule (RIN 0906-AA89) on civil monetary penalties was issued in June 2015 (116 HCDR, 6/17/15). Comments on the proposed rule were due Aug. 17, 2015.

A notice announcing the reopening of the comment period will be published in the April 19 Federal Register.

`Knowing and Intentional' Definition

The “knowing and intentional” standard was included in the proposed rule, but it wasn't specifically defined, the HHS said.

The HHS said it received several comments urging the agency to further define this term and the agency is seeking more comments on whether and how the term should be further defined.

The agency said possible definitions for the term could be:

  •  actual knowledge by the manufacturer, its employees or its agents of the instance of overcharge;
  •  willful or purposeful acts by, or on behalf of, the manufacturer that lead to the instance of overcharge;
  •  acting consciously and with awareness of the acts leading to the instance of overcharge; and/or
  •  acting with a conscious desire or purpose to cause an overcharge or acting in a way practically certain to result in an overcharge.


Additionally, the HHS said it would like comments on the concept that manufacturers wouldn't be considered to have the requisite intent in the following circumstances:

  •  the manufacturer made an inadvertent, unintentional or unrecognized error in calculating the ceiling price;
  •  the manufacturer acted on a reasonable interpretation of agency guidance; or
  •  when a manufacturer has established alternative allocation procedures where there is an inadequate supply of product to meet market demand, as long as covered entities (such as certain types of clinics and hospitals) are able to purchase on the same terms as all other similarly situated providers.


Ceiling Prices

Under the proposed rule, when the calculation of the 340B ceiling price for a drug results in an amount less than $0.01, the ceiling price would be $0.01 per unit of measure (called penny pricing).

The HHS said it received a number of comments supporting and opposing the penny pricing proposal. The agency said it is seeking comments on whether it should adopt an alternative policy.

In addition, the HHS proposed that manufacturers estimate the ceiling price for a new covered outpatient drug as of the date the drug is first available for sale, and provide the agency with an estimated ceiling price for each of the first three quarters the drug is available for sale. The HHS also proposed that, beginning with the fourth quarter that the drug is available for sale, the manufacturer must calculate the ceiling price. Under the proposed rule, the actual ceiling price for the first three quarters must be calculated and the manufacturer must provide a refund or credit to the covered entity if the covered entity purchased the drug at a higher price than the calculated ceiling price.

The HHS said it is seeking comments on this methodology for estimating new covered outpatient drug pricing and “at which quarter a manufacturer should refund or credit a covered entity if there is an overcharge.”

Hospital, Manufacturer Comments

Randy Barrett, vice president of communications for 340B Health, a trade group for safety-net hospitals, told Bloomberg BNA April 18 in an e-mail that 340B Health is “carefully evaluating the notice to determine its potential impact on safety-net hospitals and their patients.”

“We will be submitting comments on the notice and will share with the agency any concerns we have about the new proposals,” Barrett said.

A spokeswoman for the Pharmaceutical Research and Manufacturers of America told Bloomberg BNA in an April 18 e-mail that “PhRMA appreciates reopening this comment period following strong concerns raised during the initial comment period.”

Attorney Weighs In

Travis Jackson, with Polsinelli LLP in Los Angeles, told Bloomberg BNA in an April 18 e-mail that “reopening the comment period strikes me as an attempt to reset the playing field between covered entities and manufacturers.”

“These rules demonstrate the burdens that manufacturers may face with more aggressive 340B program oversight, particularly the request for how to define a knowing and intentional violation for purposes of civil monetary penalty violations,” Jackson said. “Covered entities and manufacturers would be well advised to take the second chance HRSA is offering and use it to advocate for the standards that they believe best reflect the statutory purpose of the program.”

The Health Resources and Services Administration (HRSA), part of the HHS, administers the 340B program.

To contact the reporter on this story: Bronwyn Mixter in Washington at bmixter@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com

For More Information

The Federal Register notice is at http://src.bna.com/eby.