OUTLOOK 2016: Key Issues for 340B Drug Discounts Program

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By Bronwyn Mixter

In 2016, one of the key concerns for hospitals and drug companies participating in the federal 340B drug discount program will be the final version of the “mega” guidance expected to be issued by the HHS.

Other concerns include potential legislation to fix problems in the program, including the use of contract pharmacies, the metric used to determine hospital eligibility and manufacturer oversight.

The 340B program, created in 1992, requires pharmaceutical manufacturers participating in the Medicaid program to have an agreement with the Department of Health and Human Services under which the manufacturer provides discounts on covered outpatient drugs purchased by safety-net providers. The 340B program is administered by the Health Resources and Services Administration (HRSA), part of the HHS.

In the new year, pharmaceutical companies are hoping for changes in the drug discount program, while the “covered entities” such as hospitals that receive discounts are concerned they'll see changes that could affect how they serve their patients. In late 2015, Bloomberg BNA interviewed attorneys and other stakeholders for their views on what to expect in 2016.

Increasing Pressures

Larri A. Short, a partner with Arent Fox LLP in Washington, told Bloomberg BNA that the 340B program “has come under increasing pressure because of the belief that the program has grown too rapidly, especially with the advent of large contract pharmacy networks used by a small proportion of 340B covered entities, and the enrollment of nearly a third of all hospitals in the program.”

Short said that from a Medicare reimbursement perspective, “it costs substantially more to provide chemotherapy services in a hospital outpatient department than it does in a physician office even though the actual chemotherapy services and drugs used are identical” and “there has been a rapid increase in the proportion of cancer care services provided in hospitals over the last decade even though care in physician offices is of equivalent quality.”

“Much of the shift in site of care to hospital outpatient departments from physician offices appears to be attributable to the 340B program and the fact that hospitals can buy drugs at 340B discounts but bill payers for those discounted drugs at the same rates they would get if they had not had the 340B discount,” Short said. “So, in the name of increased margins—possibly spurred also by the enhanced value placed on continuity and coordination of care by the [Affordable Care Act]—hospitals have been buying up physician practices, particularly oncology and cardiology practices.”

Short said there will be “continued push to extend site-neutral payments to existing hospital outpatient facilities over the next year.” Site-neutral payments refers to equalizing Medicare payments across different care settings.

Key questions for the program “are the extent to which 340B contributes to the site-neutral issue and whether the program is adding to the overall cost of drugs and health-care services more broadly rather than just making drugs more available to the financially needy,” Short said. “This pressure and the fight between 340B entities and the pharmaceutical/physician industries will continue during 2016 and will inevitably be part of the broader debate about drug costs.”

Alliance Supports Changes to 340B

Stephanie Silverman, a spokeswoman for the Alliance for Integrity and Reform of 340B (AIR 340B), told Bloomberg BNA that her group will be focusing on “doing everything that we can to help support real reform and action” in the 340B program in 2016.

She said there was a lot of activity on the 340B program in 2015 and that's positive because government and third-party groups “are paying attention to the challenges in 340B, but there hasn't really been any final action and AIR 340B's focus will be to promote real action in 2016.”

“This past year we saw the first House hearing in a decade on the issue; we saw, of course, the draft mega guidance, which we absolutely hope gets finalized with some refinements and improvements,” Silverman said. In March, the House Energy and Commerce Health Subcommittee held a hearing on the 340B program.

HRSA released the proposed 340B guidance document in August. The agency said at the time it was “proposing this omnibus guidance to provide increased clarity in the marketplace for all 340B Program stakeholders and strengthen HHS's ability to administer the 340B Program effectively.”

AIR 340B is a coalition of patient advocacy groups, clinical care providers and manufacturers. Members include the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization (BIO).

Legislative Activity

Last year, “we saw, at least, early efforts on a bipartisan basis to draft legislative language to address some of the programmatic problems in 340B” during the House drafting of the 21st Century Cures bill, Silverman said.

Although language that would make changes to 340B never appeared in the 21st Century Cures bill (H.R. 6), there was a possibility of incorporating such language.

There was an effort when the 21st Century Cures bill was being drafted “to identify policy changes that could satisfy a broad range of stakeholders and still attempt to reform 340B,” Silverman said. “The problem was that it occurred at the 11th hour and it was very hard to put something together that could generate broad agreement when it was done at the last minute.”

However, Silverman said the fact that staff came together on a bipartisan basis “to try to find ways to improve the transparency and integrity of the program” was “positive.”

Proposed Guidance's Shortcomings

She said there were “shortcomings” in the proposed guidance “that we hope get rectified.”

For instance, she said there was nothing in the guidance on the issue of contract pharmacies, “and we feel like that was a missed opportunity, so we hope that HRSA takes that issue on when it finalizes the guidance.”

Additionally, Silverman said there wasn't anything in the guidance “to address the problem with using the current [disproportionate share hospital] DSH metric as a proxy for eligibility” and “while certainly there were changes to eligibility standards, the metric itself remains, and I think that needs to be looked at.” The DSH metric is used to determine hospital eligibility for the 340B program and is calculated based on inpatient stays by Medicaid and low-income Medicare beneficiaries.

In testimony submitted for the House hearing in March, AIR 340B said that “while the 340B Program aims to help vulnerable, underserved patients gain access to outpatient prescription medicines, the DSH metric by which these hospitals became eligible is a measure of inpatient care to Medicare and Medicaid enrollees. AIR 340B believes that the 340B Program can only meet its intended purpose if it benefits true safety net hospitals serving high numbers of low-income, uninsured, indigent patients. To that end, Congress should ensure that a hospital demonstrates a measureable indicator of its safety-net function before it is allowed to participate in 340B.”

AIR 340B is “going to be focusing on trying to ensure there is a ripe legislative environment for specific pieces of legislation that address 340B program challenges,” Silverman said. “It's going to be very important for Congress to take action. We hope the Senate will follow the House and there will be more hearings” in 2016.

“We hope to see Congress take very focused action,” Silverman said.

PhRMA's Issues

Lori Reilly, executive vice president for policy and research at PhRMA, told Bloomberg BNA that reform of the 340B program is an important issue for PhRMA.

“We'd love to see the guidance finalized, but also the guidance didn't address every issue that needs to be addressed in that program, so there is a need for legislative activity there,” Reilly said.

Reilly said specific legislative activity that PhRMA would like to see involves the DSH metric. She said the metric is one area that should be re-examined.

“As a result of the way that metric is calculated, there will likely be a growing number of hospitals that qualify for that program as a result of the expansion in Medicaid, and at a time where more and more patients are becoming insured, it seems odd that this program would continue to grow,” Reilly said. “We think there needs to be a re-examination of that metric to ensure that those hospitals that truly need the program, have the program. But for those hospitals that may be providing, for example, low levels of charity care to patients, I think there's a question mark in terms of how they're using that program today.”

Use of Contract Pharmacies

Reilly said the use of contract pharmacies also should be re-examined.

“In our mind, the goal of a contract pharmacy is to ensure that patients that are filling their prescriptions somewhere other than the covered entity are doing that in a way that they're actually benefitting from doing that,” Reilly said. “And today again, there's no clarity that a patient who's using a contract pharmacy is seeing any direct benefit from the 340B program. In fact, they may not receive the discount or even a share of that discount.”

Reilly said contract pharmacies have grown significantly since 2010. “We've seen well over a 1,000 percent increase in the number of contract pharmacies, but again it's not entirely clear whether or not patients are seeing any direct benefit,” she said. PhRMA thinks stronger rules are needed with regard to how patients benefit from this program, Reilly said.

Safety-Net Hospitals Weigh In

Ted Slafsky, the president and chief executive officer of 340B Health, an association of over 1,000 hospitals that participate in the 340B program, told Bloomberg BNA that the biggest issue is the mega guidance.

Slafsky said HRSA received over 1,200 comment letters on the guidance and over 800 of them came from hospitals and at least a few hundred came from HRSA grantees.

“There's tremendous concern that the proposed guidance would be overly narrow and it would end up making it very difficult for hospitals and clinics to continue their mission to provide care to all patients regardless of their ability to pay,” Slafsky said.

One concern that 340B Health has with the guidance is that it no longer would allow 340B discounts for discharge prescriptions, Slafsky said.

“Since the beginning of this program, when patients are discharged from the hospital, they're able to receive medications basically at their bed as they're about to depart. And the hospitals have been able to get access to 340B pricing on those medications, and this enables them to pay for the clinicians who go in and educate the patients about how to utilize their medications after they leave the hospital and make sure that they don't get readmitted with costly illnesses and side effects,” Slafsky said. “This is a very common usage of the 340B program since 1992, and the proposal would no longer allow discounts for patients who are being discharged from the hospital.”

Civil Monetary Penalties, Dispute Resolution

Jeff Davis, 340B Health's counsel for legal and policy affairs, told Bloomberg BNA that HRSA has two other pending proposed rules, one on civil monetary penalties for manufacturers and another that would create a formal dispute resolution process, and “we support both of those moving forward.”

“In fact, we've been calling for those to be finalized for some time and we are expecting them to be finalized in 2016,” Davis said.

The proposed rule (RIN 0906-AA89) on civil monetary penalties was issued in June (13 PLIR 876, 6/19/15). The rule, required under the Affordable Care Act, would impose monetary sanctions (not to exceed $5,000 per instance) on manufacturers that intentionally charge providers a price above a ceiling established under the 340B program. A ceiling price is the maximum amount a manufacturer can charge for a drug. This final rule is set for publication in May 2016, according to the latest HHS regulatory agenda (13 PLIR 1700, 12/4/15).

The other proposed rule hasn't been issued yet. This rule (RIN 0906-AA90), also required under the ACA, would establish a binding administrative dispute resolution process to resolve claims raised by covered entities and drug manufacturers. According to the regulatory agenda, May 2016 is the goal for publishing a proposal for the administrative dispute resolution, and it follows an advance notice of proposed rulemaking on Sept. 20, 2010 (79 Fed. Reg. 57,233).

Davis said 340B Health has been calling for balanced oversight for the providers and manufacturers in the program, and the rule on civil monetary penalties “is one step in that direction to make sure manufacturers are fined in the event they overcharge.” He also said the dispute resolution process will help both manufacturers and covered entities when there is a disagreement about the program's rules.

Slafsky said there has been some talk at the Medicare Payment Advisory Commission (MedPAC) related to Medicare reimbursement for 340B hospitals and “we're certainly concerned about any proposals that would reduce reimbursement to the hospitals, particularly since we serve twice as many indigent patients as other hospitals and we provide about 40 percent more uncompensated care. So that would be a real problem for these hospitals because they depend on the savings from the 340B program in order to continue to provide services to our most vulnerable.”

Manufacturer Oversight

Additionally, Davis said “HRSA has suggested that they'll be taking some steps in the direction of manufacturer oversight in other areas outside of guidance as well.”

“One is the continued audits of manufacturers, and we expect that they'll do more of that, which we support,” Davis said. “And the other area is the publication of the 340B ceiling prices. They have stated their intention, as they are required to do under the statute, to make available to the providers in the program a list of the 340B ceiling prices so that providers know whether they have been charged the correct price or not. Right now they don't have any transparency on what those prices are supposed to be. So that's something we've been calling for and we're looking forward to seeing that next year as well.”

In April 2015, HRSA said it had submitted an information collection request to the White House Office of Management and Budget for review and approval on collecting drug pricing information from manufacturers participating in the 340B program (13 PLIR 625, 5/1/15). HRSA said that once any discrepancies between the manufacturer prices and the prices calculated by HRSA's Office of Pharmacy Affairs have been resolved, the validated prices will be made available to registered 340B entities via a secure, Internet-accessible platform.

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

To contact the editor responsible for this story: Nancy Simmons at nsimmons@bna.com