1. 340B Introduction Session by Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access 340B Workshop & Networking Luncheon Sponsored by Apexus/340B PVP and co-hosted by SNHPA Orlando, FL December 7, 2008

2. Overview How much 340B saves DSH hospital inpatient drug discounts Medicaid billing requirements to avoid duplicate discounts Children’s hospitals Application of patient definition to 340B hospitals Contract pharmacies Supply chain dynamics Additional 340B resources Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

3. How Much Does 340B Save? Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005); Pharmaceutical Discounts under Federal Law: State Program Opportunities, William H. von Oehsen (May 2001). Private Sector Pricing “Best Price” 63% 42% Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

4. DSH Inpatient Drug Prices As a result of Section 1002 of the Medicare Modernization Act (MMA), manufacturers may offer 340B hospitals deep discounts on inpatient drugs without adversely affecting the companies’ “best price” used to calculate their Medicaid rebates and 340B prices Letter from HRSA to industry encourages manufacturers to take advantage of best price exemption by lowering inpatient drug prices paid by 340B hospitals SNHPA survey indicates that 340B hospitals have received post-MMA inpatient discounts on 12 percent of their most commonly used brand name drugs To address disappointment among 340B hospitals, members of Congress are supporting legislation that would mandate 340B pricing on DSH inpatient drugs – see S.1376 and H.R.2606 Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

5. Medicaid Billing Requirements Covered entities must change how they bill 340B drugs to Medicaid but not to other payers The rationale for covered entities adjusting their Medicaid billing practices is the need to protect manufacturers from a “duplicate discount” problem The duplicate discount problem and its impact on covered entities, manufacturers and state Medicaid agencies is one of the most challenging aspects of the 340B program Medicaid billing procedures do not have to be altered if the 340B drugs are billed to a Medicaid managed care organization or are billed and paid by Medicaid as part of a bundled rate Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

6. Duplicate Discount Issue Manufacturer State Medicaid Agency Covered Entity Step 5: Manufacturer pays rebate on 340B drug Step 4: State submits rebate request Step 3: Covered entity bills Medicaid for 340B drug Medicaid patient Step 2: 340B drug is dispensed to Medicaid patient Step 1: Manufacturer sells drug at 340B discount STEPS 1 AND 5 = DUPLICATE DISCOUNT Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

7. How to Avoid Duplicate Discounts OptionsCovered Entity Procedures State Medicaid Procedures 340B Pass- Through Bills state at actual acquisition cost (AAC) and submits pharmacy’s Medicaid billing number to HRSA for posting on website Excludes from rebate request files any claims paid under billing number posted on HRSA website Medicaid Carve-Out Purchases its Medicaid outpatient drugs outside 340B program, bills Medicaid at regular non-340B rates and submits “N/A” for posting on HRSA website Includes covered entity’s claims in rebate request files Shared Savings Same as 340B pass-through option except covered entity and state enter into alternative billing and payment arrangement Pays enhanced dispensing fee or above AAC rates Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

8. Children’s Hospitals Under the Deficit Reduction Act of 2005 (DRA), freestanding children’s hospitals are eligible for 340B pricing if (1) they are public institutions or have a contract with state or local government to provide significant levels of indigent care; (2) they abide by the GPO exclusion; and (3) their revenue from state, local and Medicaid payors is more than 30 percent of total revenue or they have a sufficient number of Medicaid inpatient days to have a DSH adjustment percentage greater than 11.75 percent if they were a DSH hospital On July 6, 2007, HRSA published a Federal Register notice proposing how children’s hospitals can qualify and apply for participation in the 340B program Children’s hospitals may not enroll in the program until the proposed guidelines are finalized Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

9. HRSA’s Three-Part Patient Definition Test 1.The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s health care; and 2.The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and 3.The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or federally-qualified health center look-alike status has been provided to the entity. Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

10. Application to 340B Hospitals Third prong of patient definition does not apply Receipt of care outside the hospital does not disqualify the patient if the individual’s care is initiated at the hospital and there is a proximate relationship between the off-site care and the care provided by the hospital. See letter to SNHPA from former HRSA Deputy Administrator Thomas Morford (1/26/01) SNHPA has posted on its website a set of “Principles” to help guide both SNHPA and non-SNHPA members in complying with patient definition standards Transfer of discounted drugs to non-patients may violate both the 340B definition of patient and the Prescription Drug Marketing Act Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

11. Contract Pharmacies HRSA recognized the difficulties facing 340B covered entities that lack in-house pharmacies In 1996, HRSA issued guidelines approving the use of contract pharmacies to dispense 340B drugs and requiring manufacturers to offer 340B pricing on drugs dispensed by contract pharmacies Patients may choose to obtain drugs from any pharmacy, not just the contract pharmacy The covered entity must use a “ship to/bill to” arrangement so that drugs are purchased by the covered entity but sent to the contract pharmacy The covered entity is responsible for the contract pharmacy’s compliance with 340B requirements Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

12. Contract Pharmacies (cont’d) A contract pharmacy “will provide all pharmacy services...”  A covered entity may contract with a pharmacy chain, but only one site within the chain can dispense the covered entity’s 340B drugs  A covered entity with multiple sites may have an in- house or contract pharmacy for each site, but not both On January 12, 2007, HRSA issued a Federal Register notice that proposes to expand the use of contract pharmacies by allowing covered entities to enter into multiple contract pharmacy arrangements, including covered entities with in-house pharmacies, without having to establish alternative method demonstration projects (AMDPs) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

13. Supply Chain Dynamics MANUFACTURER MEDICAID FEE-FOR- SERVICE WHOLESALER COVERED ENTITY PATIENT CONTRACT PHARMACY WACChargeback Payment340BNon-340B OTHER PAYERS Bill AAC Bill U+C No Medicaid Rebate 340B + Non-340B Acc’ts Co-pay (if applicable) Dispensed or Administered DispensedCo-pay Dispensing Fee AWP$100 WAC$78 Non-340B$70 340B$51 Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

14. Upcoming Conferences/Events Pharmacy Managers Networking Session ASHP Midyear December 8, 2008 12:30 – 2:00 PM Convention Center, Room W304, Level 3 Visit SNHPA’s Booth at ASHP Exhibition Area Booth 1600 One-on-one TA visits 5 th Annual 340B Coalition Winter Conference co-hosted by Apexus/340B PVP February 2-4, 2009 San Diego, CA www.340Bwinterconference.org 13 th Annual 340B Coalition Conference July 13-15, 2009 Washington, DC www.340Bconferences.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

15. Additional 340B Resources SNHPA Web Site www.safetynetrx.org Contact Laurinda Dennis at 202-552-5854 or Laurinda.Dennis@safetynetrx.orgLaurinda.Dennis@safetynetrx.org about membership Newsletter Federal Drug Discount and Compliance Monitor www.drugdiscountmonitor.com SNHPA Career Service Site www.rxjobsolutions.com Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

16. Additional 340B Resources (cont’d) OPA Website ww.hrsa.gov/opa 340B Prime Vendor Program (888) 340-BPVP or (888) 340-2787 www.340bpvp.com Pharmacy Services Support Center 1-800-628-6297 or www.pssc.aphanet.orgwww.pssc.aphanet.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org

17. Contact Information Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access (SNHPA) 1501 M Street, NW 7 th Floor Washington, DC 20005 Tel: (202) 872-6765 Fax: (202) 785-1756 E-mail: William.vonOehsen@safetynetrx.orgWilliam.vonOehsen@safetynetrx.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen 202-552-5850 william.vonoehsen@safetynetrx.org