HHS Issues Proposed Rule On 340B Drugmaker Penalties

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By Bronwyn Mixter

June 16 — The HHS issued June 16 a proposed rule (RIN 0906-AA89) that would establish civil monetary penalties for drug manufacturers that charge safety-net providers too much for medications under a federal discount program.

The proposed 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 drug discount program. A ceiling price is the maximum amount a manufacturer can charge for a drug.

The rule from Department of Health and Human Services' Health Resources and Services Administration will be published in the June 17 Federal Register. Comments on the proposed rule are due Aug. 17.

The 340B program, created in 1992, requires drug manufacturers participating in the Medicaid program to have an agreement with HHS under which the manufacturer provides discounts on covered outpatient drugs purchased by safety-net providers.

Attorneys' Comments 

Attorney Donna Lee Yesner, with Morgan Lewis & Bockius LLP in Washington, told Bloomberg BNA June 16 that the proposal “utterly fails to address the significant administrative burden and high cost of refunding small amounts to thousands of covered entities as the result of selling new covered drugs prior to the date on which a statutory price is calculated and routine restatements of prices reported to Medicaid that result in adjustments to prior year rebate percentages.” Yesner added that it's “disingenuous in this regard and represents the type of insensitivity to the cost of compliance on industry that makes regulations so burdensome.”

For instance, Yesner said that 340B is a purchase program “in which thousands of entities buy small quantities primarily through wholesalers.” Although manufacturers can identify sales through wholesalers to covered entities by reference to the 340B agreement and chargeback data, “there is no central place to remit retroactive price adjustments and no way to credit covered entities who purchase indirectly from wholesalers,” she said. This means drug manufacturers “would have to send checks, and the amount of each check is likely to be far less than the cost of processing the check.”

She also said that overcharges shouldn't include automatic refunds of small or de minimis amounts, disputed charges or shortage situations.

Attorney Travis Jackson, with Polsinelli LLP in Los Angeles, told Bloomberg BNA June 16 that the “notice of proposed rulemaking is more of a fizzle than a firework” and that its “lasting effect should be the conversation that the proposed rule ignites between covered entities,” a reference to health-care providers, and drug manufacturers “about how ceiling prices are calculated and civil monetary penalties are imposed for purposes of the 340B program.”

Jackson said, “Even that might be wishful thinking, though. HRSA received only 15 comments when it first solicited feedback on these issues in 2010.” In 2010, the HHS published an advance notice of proposed rulemaking on the civil penalties under 340B (75 Fed. Reg. 57,230, Sept. 20, 2010).

Jackson said that “given that civil monetary penalties are appropriate only when a manufacturer knowingly and intentionally overcharges a covered entity, HRSA admits that a manufacturer would face these penalties ‘very rarely if at all.'”

“One area that may signal HRSA’s attempt to level the playing field between manufacturers and covered entities on ceiling price calculations comes from HRSA’s commentary regarding wholesalers and other distributors,” Jackson said. “HRSA expects manufacturers to police these arrangements to ensure that covered entities pay no more than the ceiling price. Otherwise, HRSA has taken the position that a manufacturer’s failure to do so may be grounds for imposing civil monetary penalties.”

Jackson said the proposed rule “does little to quiet the criticism from covered entities that they have no reliable means of determining whether a manufacturer has overcharged them and how to resolve allegations of overcharging.”

Industry, Provider Reaction 

Lori Reilly, executive vice president of policy and research at the Pharmaceutical Research and Manufacturers of America (PhRMA), said in a statement that PhRMA looks “forward to reviewing the newly released proposed rule on civil monetary penalties and ceiling prices and providing comments to HRSA on how to best move forward.”

“PhRMA believes the 340B program needs reform and remains committed to working with HRSA and stakeholders to ensure 340B benefits the vulnerable or uninsured patients it was intended to help,” Reilly said.

The drug industry, affected hospitals and other providers are watching for other developments in 340B. In November 2014, HRSA withdrew a comprehensive proposed rule on the 340B drug discount program from review by the White House Office of Management and Budget. HRSA has said that instead of the proposed rule, it plans to issue proposed guidance in some areas and proposed regulations where the statute provides explicit rulemaking authority, such as for penalties. In May, the OMB began review of an “omnibus” guidance on the 340B program.

Stephanie Silverman, a spokeswoman for the Alliance for Integrity and Reform of 340B (Air340B), told Bloomberg BNA in an e-mail that “AIR340B believes 340B needs reform to ensure the program works for vulnerable patients as intended.”

“Increased oversight and accountability from HRSA are important steps forward,” Silverman said. “AIR340B looks forward to continued conversation about how best to reform and strengthen the 340B program.”

AIR 340B is a coalition of patient advocacy groups, clinical care providers and biopharmaceutical innovators and distributors “dedicated to reforming and strengthening the 340B program to ensure it directly supports access to outpatient prescription medicines for uninsured indigent patients,” according to the coalition's website. Members of the coalition include the Biotechnology Industry Organization (BIO) and PhRMA.

From the provider side, the group 340B Health said in a June 16 statement that it “looks forward to commenting on today's proposed 340B program regulation aimed at preventing drugmakers from overcharging safety-net hospitals, health centers, and clinics for lifesaving medicines.” 340B Health, which represents safety-net hospitals and other providers, said, “We want to make sure that federal officials can efficiently and responsibly exercise their power to impose monetary penalties against drug companies that charge above statutorily defined 340B ceiling prices. Today's proposed rule is a welcome first step in putting a process in place to guarantee that safety-net providers receive the lower prices to which they are legally entitled.”

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

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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