Safety-Net Providers Want HHS to Implement Drugmaker Penalty Rule

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By Bronwyn Mixter

Safety-net providers such as hospitals want the HHS to begin implementing a January final rule that imposes penalties on drugmakers for overcharging for their products in a federal discount program.

Meanwhile, drugmakers said the rule, issued under the 340B drug pricing program, should be delayed until the Department of Health and Human Services addresses their concerns that the rule is overly burdensome.

Pharmaceutical companies are concerned about the 340B program’s expansion and are hoping for legislative and regulatory changes to ensure the program is serving its original intent. But safety-net providers such as hospitals say the program should be protected because what they see as threats to indigent patients—including the repeal of the Affordable Care Act and potential block grants for Medicaid—make it a bad time to clamp down on the 340B program.

In a March 20 notice, the HHS delayed the rule’s effective date until May 22 and sought comments on whether to delay it even longer, until Oct. 1. This follows an earlier postponement until March 21. Comments on the Oct. 1 extension were due April 19.

The rule (RIN:0906-AA89) on ceiling prices and civil monetary penalties, which was issued under the 340B program for drug discounts, originally was published near the end of the Obama administration. Under the 340B program, drug manufacturers provide outpatient drugs to covered entities, such as safety-net hospitals, at significantly reduced prices. Under the rule, drug 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.

Safety-Net Provider Concerns

A coalition of hospitals and other safety-net providers said in comments that it “strongly opposes both delays [of the final rule] because they will harm 340B covered entities and the patients that they serve.” Members of the coalition include 340B Health, America’s Essential Hospitals, the National Association of Community Health Centers and the Children’s Hospital Association, among others.

“Substantial drug price increases negatively impact providers’ financial health and, in turn, their ability to care for patients,” the coalition said. “Therefore, it is critically important that HRSA [Health Resources and Services Administration] have the tools it needs to ensure that covered entities are not subjected to overcharges by manufacturers.” HRSA is the part of the HHS that administers the 340B program.

The 340B program “provides crucial relief from high drug prices to safety-net providers that rely on the savings to fund critical programs for their low-income, uninsured and underinsured patient populations,” the coalition said.

Also, the coalition said that further delays aren’t necessary because HRSA has already spent seven years considering the rule and responding to stakeholder comments. Congress added the civil monetary penalty provision to the 340B statute more than seven years ago, and HRSA missed the statutory deadline for promulgating the final rule by more than six years, the group said.

“No possible benefit can come from a further delay in the final rule because all stakeholders have had ample opportunity to express their concerns, and those concerns have been considered by HRSA and incorporated into the final rule where appropriate,” the coalition said.

Opposition to ‘Impractical’ Rule

Donna Lee Yesner, a partner in Morgan Lewis’s FDA Practice and a Bloomberg BNA advisory board member, told Bloomberg BNA in an April 20 email the final rule “is precisely the type of impractical and burdensome regulation that should be re-reviewed.”

Yesner is on the advisory board of the Coalition for Government Procurement, which filed comments on behalf of its pharmaceutical manufacturer members urging a delay in the implementation of the rule until October. The Coalition is a nonprofit association of commercial contractors advocating for “common sense in government procurement.” Its pharmaceutical manufacturer members include Johnson & Johnson, GlaxoSmithKline, Pfizer, Genentech and Teva Pharmaceuticals.

“We have four primary reasons for urging delayed implementation. First, HRSA still hasn’t issued final program guidance on covered transactions so establishing sanctions first is putting the cart before the horse,” Yesner said. “Second, HRSA treats refunds that are due after routine adjustment to prior period rebate amounts—often due to late realized discounts—the same as overcharges, even though the statute distinguishes between overcharges and routine adjustments and there is no timetable or standard for determining failure or refusal to pay such a routine refund.”

Yesner also said the rule “improperly requires manufacturers to apply the ceiling price retroactively to sales of new drugs that occur before the statutory requirement applies, and to use an estimated price in the interim that prevents manufacturers from avoiding the administrative cost of paying refunds.” The rule also “implements the refund requirement in the most burdensome and inequitable way conceivable,” she said.

Yesner said she doesn’t understand the safety net hospitals’ sense of urgency to finalize the rule because she’s “not aware of any widespread problem of intentional overcharging that needs to be deterred by finalization of the sanctions rule.”

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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