Penalties for Drugmakers in Federal Discount Program Laid Out in Rule

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By Bronwyn Mixter

Drug manufacturers face new penalties if they charge safety-net providers too much for medications under a federal discount program.

The Department of Health and Human Services Department Jan. 4 released a final rule (RIN:0906-AA89) on civil monetary penalties under the 340B drug discount program. Under the program, drug manufacturers participating in Medicaid agree to provide outpatient drugs to covered entities, such as safety-net hospitals, at significantly reduced prices.

The rule is required under the Affordable Care Act, which could be repealed or revised in the new Congress. Under the rule, manufacturers must pay a penalty if they intentionally charge above what is known as the ceiling price. The law says the penalty can’t exceed $5,000 for each instance of overcharging a covered entity.

While a safety-net provider group praised the rule saying it would prevent manufacturers from charging too much for 340B drugs, an attorney said the rule would impose significant regulatory burdens on manufacturers.

The rule will be published Jan. 5 in the Federal Register and takes effect March 6.

Same as Proposed Version

Stephanie Trunk, a health-care attorney with Arent Fox LLP in Washington, told Bloomberg BNA Jan. 4 the HHS “basically finalized what was in the proposed rule.” Trunk counsels pharmaceutical and device manufacturers, distributors and their customers, including pharmacy benefit managers, on regulatory, reimbursement and compliance matters.

The Health Resources and Services Administration (HRSA), the part of the HHS that administers the 340B program, sought additional comments on the proposed rule, particularly on whether it “should stay away from the idea of penny pricing,” Trunk said. However, the final rule sticks with penny pricing, which is when the calculation of the 340B ceiling price for a drug results in an amount less than $0.01. When this happens the ceiling price is set at $0.01 per unit of measure.

Trunk said HRSA and others were concerned that penny pricing could “exacerbate shortages in drugs, especially if covered entities are stockpiling them because they are penny priced,” and HRSA had been considering other metrics.

Publication of Ceiling Price?

The final rule also “talks about publishing the 340B ceiling price” and the question is whether the ceiling prices would only be available to covered entities or publicly available, Trunk said.

The pharmaceutical industry could object if the ceiling prices are publicly available, “because it’s comprised of pricing that is confidential under the Medicaid drug rebate program,” she said.

But Trunk said it’s likely there would be a portal that manufacturers and covered entities could log onto for the ceiling price information.

Also, Trunk said “it’s very clear that manufacturers have to have a mechanism to offer the covered entity the right to buy a drug at the ceiling price, whether or not it’s a limited distribution drug.” Limited distribution drugs have special requirements and are usually dispensed through specialty pharmacies.

“The other thing that manufacturers are probably not very happy about and that received a lot of comments in the proposed rule, is that manufacturers obviously estimate the 340B ceiling price for a period of time until they have actual Medicaid drug rebate program metrics and historically HRSA had a materiality threshold for when manufacturers were required” to increase the price from the estimated to the actual price, Trunk said.

Trunk said HRSA has “done away with that materiality threshold and every manufacturer is required to essentially true up the difference” between the estimated price and the actual price to the extent that the estimated price is higher and have a mechanism to refund that difference within 120 days after the manufacturer determines that an overcharge has occurred.

“So, that’s a little bit of a change because it could be a penny and the manufacturer is still going to have to have some sort of process to refund that differential,” Trunk said.

Trunk said it’s unlikely that this rule would be affected if the ACA is repealed. She said that in her opinion, “there’s no way Congress could fully repeal the entire” ACA. It’s more likely, she said, that Congress would repeal Title I of the ACA, which deals with the exchanges and the expansion of Medicaid.

Rule Is Burdensome

Attorney Donna Lee Yesner told Bloomberg BNA in a Jan. 4 e-mail “the final rule will impose tremendous regulatory burdens on manufacturers and is the type of impractical regulation that should get the attention of the new Administration.” Yesner, with Morgan, Lewis & Bockius in Washington, often counsels companies on government program reimbursement, drug price reporting and compliance requirements.

“First, it rigidly applies the statutory language where convenient to require manufacturers to retroactively refund the difference between a standardized provisional price for new drugs and the calculated price, a costly process, while denying manufacturers the right to estimate a higher price more in line with the expected calculated price that could avoid refunds,” Yesner said. At the same time, the rule “ignores the statutory lag time between reported AMP [average manufacturer price] and the 340B price thereby requiring manufacturers to refund an additional full quarter.”

Yesner also said “it is grossly unfair to require manufacturers to charge penny pricing when the statutory price calculation based on Medicaid prices is zero while simultaneously allowing covered entities to buy drugs under the program for a penny and resell them to insured patients for full price.”

The rule also “ignores aspects of the Medicaid program to which the 340B program is closely aligned, in particular the right to net credits and additional payments, and refuses to recognize a de minimus amount, requiring manufacturers that restate their Medicaid reported prices to provide tiny refunds on individual drugs that could easily cost more to process than the value of the refund,” Yesner said.

Safety-Net Providers Praise Rule

A group representing health-care providers, including hospitals, that participate in 340B praised the rule. The rule “should help prevent the drug industry from overcharging America’s 340B health providers for lifesaving medicines. It’s a welcome development in light of public outrage about the unsustainable cost of prescription drugs,” 340B Health said in a Jan. 4 statement provided to Bloomberg BNA.

“By specifying how 340B ceiling prices should be calculated, the regulation will help ensure those prices are right,” 340B Health said.

340B Health also said it is “pleased” that the rule incorporates penny pricing, requires manufacturers to refund overcharges on new drugs and gives the HHS Office of Inspector General responsibility for imposing the civil monetary penalties.

Drug Industry Still Reviewing

Allyson Funk, senior director of communications at the Pharmaceutical Research and Manufacturers of America, told Bloomberg BNA Jan. 4 “we’re still reviewing the rule and hope HRSA took our comments into account.”

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

For More Information

The rule is at http://src.bna.com/k8e.

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