Proposal for 340B Drug Discount Disputes Premature, PhRMA Says

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By Bronwyn Mixter

Oct. 13 — The HHS jumped the gun by proposing a rule governing drug discount disputes in the federal 340B program, a leading drug industry group said in comments on the proposal.

The proposed rule (RIN: 0906-AA90) from the Department of Health and Human Services would establish a binding administrative dispute resolution (ADR) process for certain disputes arising under the 340B program. It was published in the Aug. 12 Federal Register (81 Fed. Reg. 53,381). Comments were due Oct. 11.

The 340B program requires drug manufacturers to provide outpatient drugs to eligible safety-net health-care organizations at significantly reduced prices.

The HHS said the purpose of the ADR process is to resolve claims by covered entities, such as hospitals, that say they have been overcharged for outpatient drugs by manufacturers. It also would resolve claims by drug manufacturers that a covered entity is using 340B drugs for ineligible patients or receiving duplicate discounts on drugs.

The rule establishes an ADR process prematurely “before key ground rules that must necessarily shape the ADR process have been established,” Sylvia Yu, assistant general counsel of the Pharmaceutical Research and Manufacturers of America (PhRMA), said in Oct. 11 comments. The agency first needs to issue or revise certain other rules and guidance documents, Yu said.

Meanwhile, health-care provider groups said when the proposed ADR panel makes a decision for a particular case, that decision shouldn't be considered a broad 340B policy decision.

Both the drug industry and safety-net providers would like to see changes to the 340B program. While pharmaceutical companies are concerned about unclear eligibility requirements and duplicate discounts on 340B drugs, hospitals and other providers are concerned that they aren't always receiving the appropriate discounts from drugmakers.

ADR a Last Resort

The Health Resources and Services Administration (HRSA), the part of the HHS that administers the 340B program, proposed the ADR “to be the last resort and expects 340B covered entities and manufacturers to continue to work informally to resolve disputes,” Stephanie Trunk, an attorney with Arent Fox LLP in Washington, told Bloomberg BNA Oct. 12.

“Much of the proposed process is not completely fleshed out, and HRSA is likely to use stakeholder comments to inform and mold the specific process further,” Trunk said. “In addition, HRSA was less than clear as to the composition of the panel which will be the arbitrator of formal disputes between 340B covered entities and manufacturers.”

Yu said HRSA hasn't made or even proposed reforms to its 340B audit guidelines, which were issued in 1996. The current guidelines “suffer from critical defects that make manufacturer audits [of covered entities] nearly infeasible” and “the result is a blocked gateway to the ADR process for manufacturers,” Yu said.

“And a one-sided ADR system in which covered entities can institute ADR claims but manufacturers face nearly insuperable barriers to instituting ADR claims would weaken confidence in the integrity of the 340B program,” Yu said.

Yu also said the 340B law requires HRSA to develop procedures for manufacturers to issue refunds to covered entities if they are overcharged for drugs, and it hasn't yet developed or even proposed those procedures. Additionally, HRSA needs to issue final regulations on 340B ceiling prices and civil monetary penalties, Yu said. The ceiling price is the maximum amount a manufacturer can charge for a drug. The proposed rule (RIN 0906-AA89) on civil monetary penalties was issued in June 2015 (116 HCDR, 6/17/15).

However, Trunk told Bloomberg BNA that “there is nothing statutory that requires HRSA to finalize the CMP [civil monetary penalty] rule prior to the administrative resolution process.”

Both the CMP rule and the ADR process rule were required under the Affordable Care Act, and both “were supposed to be enacted within 180 days of passage of the ACA back in 2010,” Trunk said.

HRSA also is working on the final version of its “mega-guidance,” which is “a necessary predicate to an ADR process for the resolution of manufacturer claims,” Yu said. The guidance would define who is considered a patient for purposes of the 340B program, among other things.

The White House Office of Management and Budget started its review Sept. 1 of the final guidance document (RIN:0906-AB08 ), according to the OMB's website. The HHS released the proposed version of what it calls the omnibus guidance document in August 2015 (167 HCDR, 8/28/15).

Concerns With ADR Process

Donna Lee Yesner, an attorney with Morgan, Lewis & Bockius LLP in Washington, told Bloomberg BNA Oct. 12 she is concerned that the proposed rule “unfairly restricts a manufacturer's right to access the dispute process by overly restricting its ability to audit.” Manufacturers are required by the 340B statute to conduct an audit before initiating a dispute, she said.

“The proposed rule incorporates HRSA policy that requires manufacturers to show cause before auditing and prohibits them from conducting an audit with their own internal resources, even though the statute does not authorize such limitations, and the high cost of auditing through external companies makes auditing prohibitively expensive in many cases,” Yesner said. “HRSA should relax these restrictions.”

Yesner said another major concern with the proposed rule is that most covered entities place orders with wholesalers and not directly with manufacturers, “which means manufacturers will have to rely on third parties for information they are required to produce in a proceeding, alleged overcharging could be due to wholesaler error or mark-up for distribution service, and covered entities may purchase from an unauthorized distributor not acting as an agent for the manufacturer.”

“The proposed rule should limit the consequences for manufacturers in these situations,” Yesner said.

Yesner also said “the confidentiality of information provided in these proceedings needs to be protected.”

However, Randy Barrett, vice president of communications at 340B Health, a group that represents health-care providers who receive drug discounts through the program, told Bloomberg BNA in an Oct. 12 e-mail that the ADR process “is important because it would give providers the opportunity to formally challenge manufacturers that they believe to be overcharging for 340B drugs.”

“Currently, the only process available to providers is voluntary, requiring both parties to agree to participate, and has consequently been rarely used,” Barrett said. “Once finalized, the proposed rule would provide some much-needed balance in this area.”

Conflicts of Interest

Bloomberg Intelligence analyst Brian Rye told Bloomberg BNA Oct. 12 that “some stakeholders may be concerned that the three-member panel for each claim will be comprised solely of federal employees selected by government officials.”

Under the proposal, the HHS would establish a decision-making panel to review and make binding decisions for claims filed by covered entities and drug manufacturers. The panel would include three voting members alternating from claim to claim, and one non-voting member. Eligible individuals will be chosen from a list of federal employees with demonstrated expertise with the 340B program.

PhRMA's Yu said the decision-makers on the panel should be independent and have expertise on the 340B program, “so that they are well-positioned to make high-quality, impartial decisions.”

In joint comments, 340B Health and other organizations representing health-care providers receiving discounts in the program said HRSA should revise the proposed rule “to create greater stability on the ADR panel and to strengthen the conflict of interest provisions.”

Specifically, the provider groups said panel members should be appointed for fixed terms and the roster of potential members should be limited to five individuals. They also said staff from HRSA's Office of Pharmacy Affairs (OPA) shouldn't serve on the panel “in order to preserve its objectivity” and the parties involved in a proceeding should be permitted to object to particular panel members.

No Policy Applications

340B Health and the other provider groups also said HRSA shouldn't use “its enforcement authority to transform an ADR panel decision into a broad 340B policy decision.” They said enforcement should be limited to the parties who are involved in the particular ADR proceeding and the panel's decisions shouldn't have general applicability.

Another concern for the provider is a lack of deadlines in the proposed rule. They said a number of steps in the proposal don't have deadlines and they “feel strongly that deadlines should be established for these steps.”

For example, the provider groups said HRSA should add a deadline for the ADR panel to make a decision. They suggested a deadline of six months after the panel's briefing.

Drug Ceiling Prices

Thomas P. Nickels, executive vice president of the American Hospital Association (AHA), said in comments that hospitals need more access to 340B drug ceiling price information.

The proposed rule would require hospitals to submit 340B drug ceiling price information when initiating a dispute. However, Nickels said the proposed rule “overlooks the fact that hospitals do not have access” to ceiling prices.

“Not having access to the ceiling price puts 340B hospitals at a significant disadvantage because the ceiling price is central to proving that the drug manufacturer overcharged for the drug,” Nickels said.

Nickels said it recommends HRSA develop a fast-track process “to provide 340B hospitals and other covered entities access to ceiling prices, which would help ensure a level-playing field in the dispute resolution process.”

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Brian Broderick at

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