340B: An Overview

Overview 340B and Drug Pricing DSH Hospital Inpatient Drug Discounts Medicaid & 340B Application of Patient Definition to 340B Hospitals Contract Pharmacies Supply Chain Dynamics Additional 340B Resources

Creation of the 340B Program DRUG PRICING PROGRAM 340B $ Drug Manufacturers Outpatient Drugs In the early1990s, during a period of rapidly rising drug costs, a group of safety net providers began to strategize about the best way to provide pharmacy services to their patients. Their efforts resulted in the federal legislation called “Section 340B” of the Public Health Service Act, hence the terminology the “340B Program.” This program requires drug manufacturers that participate in the Medicaid rebate program to provide outpatient drugs to specific entities listed in the legislation at a reduced price. Source: HRSA Presentation on 340B 3

Intent of the 340B Program SAVINGS Safety net providers 340B Eligible Entities Safety net providers SAVINGS Improve financial stability Stretch dollars to serve vulnerable patients Patients The program’s intent was to benefit the specific safety net providers. Saving on drug prices would enable these providers to improve financial stability, and would position the providers to stretch scarce dollars to serve vulnerable patients. In addition to providing a clear benefit to safety net providers, the 340B Program legislation would potentially decrease the taxpayer burden by reducing the federal dollars spent on medications by safety net providers. While 340B entities often pass the pricing discounts to patients, the entities are not required to do so. 4

Can offer sub-ceiling prices The 340B Price DRUG PRICING PROGRAM 340B The 340B price is actually a “ceiling” price 25-50% of the average wholesale price Drug Manufacturers How “discounted” is the 340B price? The 340B discount is very steep---one of the largest discounts available on drug prices in the United States. Studies have reported the 340B price to be approximately 25-50% of the average wholesale price, or AWP, and 340B prices have been reported to represent savings of 22%, or often much greater, on the entity’s total drug purchases. The 340B price is at least as low as the price that the state Medicaid agencies pay.   The 340B price is actually a “ceiling” price, meaning it is the highest price a participating entity may be charged. However, drug manufacturers are able to offer entities sub-ceiling prices on drugs as well. The data used to calculate the 340B ceiling price is kept confidential. Manufacturers calculate the ceiling price using a formula found in the 340B statute. Can offer sub-ceiling prices Source: HRSA Presentation on 340B 5

Centers for Medicare and Medicaid Services OFFICE OF PHARMACY AFFAIRS The 340B Price DRUG PRICING PROGRAM 340B The 340B price is actually a “ceiling” price 25-50% of the average wholesale price Drug Manufacturers Centers for Medicare and Medicaid Services OFFICE OF PHARMACY AFFAIRS The manufacturers report data components used in the formula to the Centers for Medicare and Medicaid Services, or CMS, and CMS shares these components with the Office of Pharmacy Affairs. The OPA uses this CMS data to calculate and verify 340B prices. Source: HRSA Presentation on 340B 6

340B Overview – What is it? Program established by Congress in 1992 Requires pharmaceutical manufacturers that contract with the Medicaid program to provide discounts on outpatient drugs purchased by “covered entities,” Generally, designated safety net providers that receive government funds Program “named” by section of the Public Health Service Act Original statute also amended the Medicaid statute, Section 1927 of the Social Security Act

340B Overview “Covered entities” include Federally-qualified health centers (FQHCs) and “look-alikes” Public and non-profit DSH hospitals that have indigent care contracts with state/local governments DRA added Children’s Hospitals Ryan White CARE Act grantees Title X Family Planning/STD clinics TB and Black Lung Clinics Urban Indian clinics Homeless clinics Others

340B Overview 340B Program administered by the Office of Pharmacy Affairs (OPA) in the Health Resources and Services Administration (HRSA) Qualified providers must apply for 340B status. Providers are expected to purchase all of their outpatient drugs through a 340B program, but can ‘carve out’ Medicaid.

340B Discounts and Pricing 340B “ceiling” price = rough Medicaid “net” price (or AMP – mandatory rebate amount under SSA §1927(c)) Impact of Medicare Part D best price exemption Impact of DRA Medicaid pricing changes Covered entities can negotiate prices lower than the “ceiling” price on their own or through a statutorily-chartered “Prime Vendor” program Actual 340B prices may be significantly lower than Medicaid “net” price

340B Offers Savings/Revenues for Safety Net Providers 340B law does not require covered entities to provide their discounts to patients or 3rd party purchasers Covered entities that provide free or reduced price/sliding scale drugs to indigent or low-income patients can save money by using 340B drugs Covered entities that bill patients, commercial insurance,or government payers for patients’ drugs can make money by using 340B drugs Medicaid reimbursement is a challenge, however

DSH Inpatient Drug Prices 340B only covers outpatient drugs. Thus, inpatient and outpatient drugs must be segregated within the covered entities. As you will see Medicaid drugs need to identified also in DSH hospitals. 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

Medicaid Billing Requirements Covered entities must change how they bill 340B drugs to Medicaid to avoid duplication. This is a big problem. The rationale for covered entities adjusting their Medicaid billing practices is the need to protect manufacturers from a ‘double dipping’ problem. They must bill at invoice price to avoid duplication. Medicaid billing procedures do not have to be followed if the 340B drugs are billed to a Medicaid managed care organization or are billed and paid by Medicaid as part of a capitated or bundled rate.

340B and Medicaid State may elect to forgo Medicaid rebate and reimburse for 340B drug at 340B acquisition cost plus, dispensing fee/admin fee State must evaluate potential for budget savings Weigh difficulty of pursuing rebates on the back end; value of supplemental rebates; state’s up-front reimbursement rate, etc. E.g., Massachusetts States may also treat 340B rules differently from what is expected under national statutes. This has caused confusion all across the nation.

HRSA’s Definition Of A Patient The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s health care; and 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 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.

Application to 340B Hospitals This is vague and hard to understand. It can be interpreted a number of ways. 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. BUT, transfer of discounted drugs to non-patients may violate both the 340B definition of patient and the Prescription Drug Marketing Act

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

340B and Medicare HOPPS Reimbursement Does 340B influence HOPPS payment for drugs? Not part of the calculation of ASP. Is part of the claims data used to check the reality of ASP plus or minus in hospital outpatient departments. CMS wants to pay 340B hospitals less for drugs than other hospitals. ACCC opposes this.

Issues to Ponder Regulation to stop differing state interpretations of the laws. Enforcement of anti-diversion rules in terms of the patient definition. More Medicare hospital outpatient rate debates. Better definition of “patient”? Guidance on use of contract pharmacies? Inpatient 340B? OVERALL: Tensions between program expansion and heightened attention to program integrity issues and causes friction between Providers Manufacturers Regulators

Additional 340B Resources 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.org