1. Year in Review and What to Expect in 2016 340B Drug Discount Program: Year in Review and What to Expect in 2016 Erin Estey Hertzog, JD, MPH Biotechnology Innovation Organization Barbara Straub Williams Powers Pyles Sutter & Verville PC American Health Lawyers Association 2016 Institute on Medicare and Medicaid Payment Issues

2. 2 Disclaimer None of the information or analyses presented is intended to be legal advice, and should not be relied upon as legal advice. You should consult your own legal organizations or outside counsel if you are seeking legal advice on these topics. Slides may not be copied, photographed, or reproduced in any manner without written authorization from the presenters. 340B

3. 3 340B - Overview Administration of the 340B Program:  Federal Regulatory Agency The Office of Pharmacy Affairs (OPA) within the Health Resources and Services Administration (HRSA) is responsible for administration and oversight of the 340B Program.  Prime Vendor Program (PVP) Contractor to OPA that provides guidance on 340B program. Current prime vendor is Apexus. 340B

4. 4 340B - Overview 340B Program Guidance:  340B Program guidance is generally issued through Federal Register Notices, Policy Releases, and FAQs.  Program guidance is on the HRSA website: http://www.hrsa.gov/opa/programrequirements/index.html (Federal Register and Policy Notices), http://www.hrsa.gov/opa/faqs/index.html (OPA FAQs) http://www.hrsa.gov/opa/programrequirements/index.html http://www.hrsa.gov/opa/faqs/index.html  Prime Vendor maintains FAQs, Sample Policies and Procedures and other Guidance. www.apexus.org.www.apexus.org Manufacturer Notices to Covered Entities: www.hrsa.gov/opa/programrequirements/manufacturerletters/index.html. www.hrsa.gov/opa/programrequirements/manufacturerletters/index.html 4 340B

5. 5 340B - Overview Hospital Eligibility Criteria:  Six (6) categories of hospitals are eligible for 340B: 1.Acute care hospitals with DSH payment % > 11.75% 2.Children’s Hospitals with DSH payment % > 11.75% 3.Free-standing Cancer Hospitals with DSH payment % > 11.75% 4.Sole Community Hospitals (SCHs) with DSH payment % ≥ 8% 5. Rural Referral Centers (RRCs) with DSH payment % ≥ 8% 6. Critical Access Hospitals (CAHs) (no DSH requirement)  DSH payment percentage is different than the DSH patient percentage: DSH patient % of.2733 results in DSH payment % > 11.75% DSH patient % of.2277 results in DSH payment % ≥ 8%  A hospital that qualifies under more than one category (e.g. RRC with DSH % above 11.75%) must choose category for registration and follow applicable restrictions. 340B

6. 6 340B - Overview Hospital Eligibility Criteria:  Hospitals in each of the six categories must be: (1)owned or operated by a State or local government; (2)a public or private nonprofit corporation that is formally granted government powers by a State or local government; or (3)a private nonprofit corporation that has a contract with a State or local government to provide health services to low income individuals who are not Medicare or Medicaid beneficiaries. 6 340B

7. 7 340B - Overview 340B Registration: Facilities that meet the criteria of a “covered entity” apply to participate in the 340B Program by completing the online registration process during the first 15 days of the calendar quarter (e.g., January 1-15) for an effective date on the 1 st of the next calendar quarter (e.g., April 1). Hospitals must register all “off-site” outpatient clinics that use 340B. Only provider-based clinics may register for the 340B Program. Submit cost report worksheets A and C to register. OPA focuses on costs appearing in outpatient or ancillary line. * Registration forms and related instructions are available for each eligible covered entity type on the HRSA/OPA website http://www.hrsa.gov/opa/eligibilityandregistra tion/index.html http://www.hrsa.gov/opa/eligibilityandregistra tion/index.html

8. 8 “Non-Hospital” Eligible Entities:  In addition to hospitals, other qualifying 340B covered entity categories include*: Federally Qualified Health Centers (FQHCs) and “Look-Alikes” Ryan White HIV/AIDS Program Grantees (Parts A, B, and C grantees) Hemophilia Treatment Centers Native Hawaiian Health Centers Tribal/Urban Health Centers Black Lung Clinics Title X Family Planning Clinics Sexually Transmitted Disease Clinics Tuberculosis Clinics  Participating hospital with a provider-based dept. that separately qualifies under one of these categories may separately register the department under that category. *Specific eligibility criteria for each entity category can be found at http://www.hrsa.gov/opa/eligibilityandregistration/index.htmlhttp://www.hrsa.gov/opa/eligibilityandregistration/index.html 340B - Overview 340B

9. 9 340B – Overview 340B Anti-Diversion/Patient Eligibility:  Program guidelines define the three categories of prohibited diversion as use of 340B drugs: for “non-patients” of the covered entity; in ineligible facilities within the covered entity; and for excluded services (e.g., inpatient services).  58 FR 68,922, 68,923 (December 29, 1993).  HRSA audit reports will include as a diversion finding instances in which a covered entity does not replenish a drug with the exact same drug (including package size).

10. 10 Anti-Diversion/Patient Eligibility  Definition of “patient” for 340B: Under current HRSA guidance, issued in 1996, an individual is a “patient” of a covered entity if three criteria are met: 1. Record Maintenance Test -The covered entity maintains records of the individual’s health care. 2. Professional Care -The individual must be under the care of a physician or other health care professional who is employed by, under contract with, or in a referral (or other) relationship to the covered entity such that responsibility for the individual’s care remains with the covered entity. 3. Qualified health care service/range of services -The individual must receive a range of health care services that are consistent with the services for which grant funding or FQHC look-alike status has been provided to the covered entity. (This requirement is not applicable to hospitals.) 61 Fed. Reg. 55,156, 55,157 (October 24, 1996). 340B – Overview 340B

11. 11 Duplicate Discount Prohibition:  Drug manufacturers are required to give rebates to State Medicaid programs on drugs reimbursed by Medicaid, either FFS or managed care, but are protected from giving a both a 340B discount and a Medicaid rebate on the same drug.  Covered entities may elect to use 340B drugs for Medicaid patients (“carve-in”) or may elect not to use 340B for Medicaid patients (“carve-out”). May make different election for each Medicaid billing number.  Medicaid programs submit for rebates on carve-out (i.e., non-340B) drugs, but forgo rebates for entities that carve-in.  Covered entities notify OPA of their carve-in/out election and OPA maintains an “exclusion file” for State Medicaid agencies to determine if an entity has carved-in. States may also require billing modifiers to identify 340B drugs. 340B – Overview 340B

12. 12 Contract Pharmacy Arrangements :  Covered entities may contract with retail pharmacies to dispense 340B drugs to the covered entity's patients. A covered entity purchases the drugs, and manufacturers/wholesalers bill the covered entity, but ship the drugs directly to the contract pharmacy (i.e., “ship- to/bill-to”). 340B – Overview 340B

13. 13 340B – Year in Review March 24, 2015  House Energy and Commerce Hearing – 1 st in over 10 years Only government officials testified but many letters from stakeholders submitted for record. Members expressed support for 340B Program, but need for greater clarity, oversight, and transparency. 340B

14. 14 340B – Year in Review April 21, 2015  Information Collection Request (ICR) regarding manufacturer ceiling price reporting. 80 Fed. Reg. 22,207 (Apr. 21, 2015). Outlines data points to be reported to HRSA; part of implementing the requirement that HRSA develop a system to verify manufacturer-calculated ceiling prices. Approved by OMB in September 2015. HRSA is currently “beta testing” ceiling price reporting system with a number of manufacturers; expects to roll out system by the end of 2016. Subsequent ICR, issued in October, proposed to add the ceiling price reporting obligation added by the ACA to the 340B Pharmaceutical Pricing Agreement (PPA). 80 Fed. Reg. 63,560 (Oct. 20, 2015). HRSA also issued a proposed rule in June, 2015, regarding the calculation of the 340B ceiling price, as well as the application of manufacturer CMPs. 80 Fed. Reg. 34,583 (June 17, 2015). 340B

15. 15 340B – Year in Review May 2015  Changes to 340B statute included in draft 21 st Century Cures legislation Changes to Patient Definition Emphasis on how 340B savings are being used by hospitals Additional resources and regulatory authority for HRSA Language deleted after strong objections from stakeholders 15 340B

16. 16 340B Year in Review June 2015  MedPAC’s June, 2015 Report to Congress described options for reducing Part B payment (as well as beneficiary copayments) for 340B drugs, which laid the groundwork for a formal recommendation to this effect earlier this year. In its March, 2016 Report to Congress, MedPAC recommended that Congress: (1) reduce Medicare payments for 340B drugs by 10%; (2) direct the program savings to the Medicare-funded uncompensated care pool; and (3) distribute all uncompensated care payments using data from the Medicare cost reports’ Worksheet S–10 (to be phased in over three years). 16 340B

17. 17 340B – Year in Review July 2015  GAO Report 15-442  “Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals” Report concluded that Medicare spending at 340B Hospitals for Part B drugs higher than at non-340B Hospitals Recommended that Congress consider eliminating incentive to prescribe drugs created by Medicare’s statutorily defined formula to pay hospitals for drugs at set rates regardless of hospitals' acquisition costs 17 340B

18. 18 340B – Year in Review August 2015  Proposed “Mega Guidance” HRSA received over 1,000 comments https://www.federalregister.gov/articles/2015/08/28/2015- 21246/340b-drug-pricing-program-omnibus-guidance https://www.federalregister.gov/articles/2015/08/28/2015- 21246/340b-drug-pricing-program-omnibus-guidance 18 340B

19. 19 The “Mega Guidance” proposes to “clarify” the 1996 “patient” definition. A prescription or order for a 340B drug would have to be generated by an encounter that meets all of the following six criteria: 1. Location: The individual receives a “health care service” at a covered entity site; 2. Prescriber: The individual receives a healthcare service from a provider who is employed by or an independent contractor of the covered entity “such that the covered entity may bill for services” on behalf of the provider; 3. 1+2 = 3: The individual receives a drug that is ordered/prescribed by the covered entity as a result of the service described in (2), but only if the service is not limited to “the infusion of a drug or the dispensing of a drug;” 4. Scope Restriction: The individual receives a healthcare service that is consistent with the covered entity’s scope of grant, project, or contract, as applicable (grantees only); 5. Outpatient: The individual is classified as an outpatient when the drug is ordered or prescribed, determined by how the services for the patient are billed to the insurer (or would have been billed, for the uninsured); and 6. Records: The individual has a relationship with the covered entity such that the covered entity maintains “access to auditable health care records” which demonstrate that the covered entity has a “provider-to-patient relationship, that the responsibility for care is with the covered entity, and that each element” of this patient definition is met. 340B – Compliance Issues 340B

20. 20 340B – Year in Review Proposed Patient Definition  Must be on a prescription-by-prescription (or order-by-order) basis  Practical Implications No 340B for discharge prescriptions No 340B for infusions if prescription written outside the hospital No prescriptions for outpatients provided in 3 days before admission (because billed as inpatient) No 340B for prescriptions written as a result of referred follow up care 20 340B

21. 21 340B – Year in Review Proposed Covered Outpatient Drug (COD) Definition  340B statute defines COD by reference to definition in the Medicaid drug rebate statute (42 USC 1927(k)).  Covered entities had argued for modified definition.  HRSA Proposal: Drugs billed to Medicaid as part of certain bundled services (including hospital outpatient) are not covered outpatient drugs (i.e., not 340B).  Practical Implication: Virtually all physician administered drugs (e.g., infusions) provided to Medicaid fee-for-service beneficiaries may not be purchased with 340B discounts. 21 340B

22. 22 340B Year in Review Contract Pharmacy Proposals  Scope: Covered entities would still be permitted to contract with one or more licensed pharmacies to dispense 340B drugs to eligible patients of the covered entity (even if have an in-house pharmacy).  Contract: Covered entities would be still be required to have a contract in place with the contract pharmacy (or pharmacy corporation to include multiple locations).  Compliance: Certain documents would be required for the registration of contract pharmacy arrangements, including:  Covered entity attestation regarding the arrangement; and  A series of compliance requirements related to diversion, duplicate discounts, and oversight.  Termination: HRSA would be permitted to terminate non-compliant contract pharmacies. 22 340B

23. 23 October 2015 Second Orphan Drug Decision:  Background: Certain types of 340B hospitals added by the ACA (SCHs, RRCs, CAHs and cancer) may not purchase orphan drugs with 340B discounts. HRSA issued regulations in 2013 to implement orphan drug exclusion. Hospitals may choose to apply orphan drug restriction only "to uses for the rare disease or condition for which the orphan drug was designated” or to any use of orphan drugs. PhRMA filed lawsuit alleging that orphan drug restriction applies to any use of orphan drugs and that HRSA did not have the authority to issue regulations on this matter. PhRMA v. HHS, 1:13-cv-01501, D.C. District Court. Court ruled that HRSA lacked rulemaking authority regarding orphan drug exclusion. Orphan drug regulation invalidated. 340B Year in Review 340B

24. 24 340B Year in Review October 2015 Second Orphan Drug Decision (Cont’d):  OPA issued guidance that repeated orphan drug regulation.  PhRMA filed second lawsuit challenging orphan drug guidance.  Second court decision held that HRSA interpretation of orphan drug restriction violates the 340B statute. PhRMA v. HHS, 1:14-cv-01685- RC, D.C. District Court. 24 340B

25. 25 340B Year in Review February 2016 Medicaid Covered Outpatient Drug Final Rule:  Actual Acquisition Cost (AAC) reimbursement for all Medicaid fee-for- service, brand name retail pharmacy drugs effective 04/01/17. States must state payment rates for 340B entities and contract pharmacies.  Sub-340B discounts to covered entities are not included in calculation of manufacturer’s “best price”.  States must establish process for avoiding duplicate discounts for Medicaid managed care drugs. 25 340B

26. 26 340B - What to Expect in Year Ahead  Finalize “Mega Guidance”?  HRSA will issue regulations on: 1) mandatory dispute resolution process (proposed); 2) standards for calculating ceiling prices (final); 3) imposition of civil monetary penalties on manufacturers (final).  HRSA will activate website for manufacturers to report, and covered entities to check, 340B ceiling prices. 26 340B

27. 27 340B – What to Expect in Year Ahead More Audits of Covered Entities:  HRSA audit reports posted: 51 audits for FY 2012 94 audits for FY 2013 99 audits for FY 2014 190 audits for FY 2015 23 audits for FY 2016 (as of March)  Manufacturers may also audit covered entities, but OPA must approve audit workplan based on “reasonable cause” of violation. 61 Fed. Reg. 65,406 (Dec. 12, 1996).  To date, HRSA has conducted one manufacturer audit (outsourced to OIG); audit protocols for manufacturers are currently under development. 27 340B

28. 28 340B – What to Expect in Year Ahead More Focus on Drug Prices? 28 340B

29. 29  Stakeholder Interviews  Document/Data Request  Gap Analysis and Benchmarking (Industry Guidance and Best Practices)  Assessment Report and Implementation Plan  St. Luke’s Hospital Facilities – Allentown – Bethlehem – Miners Memorial – Quakertown – Riverside  Primary/Urgent Care?  Home Care/Hospice? Health Resources and Services Administration (HRSA)- Office of Pharmacy Affairs (OPA) http://www.hrsa.gov/opa/ Prime Vendor Program (PVP) and Pharmacy Flash (monthly e- newsletter http://www.340Bpvp.com 340B Health (formerly “SNHPA”) http://www.340Bhealth.org Drug Discount Monitor (340B Health news service) http://www.drugdiscountmonitor.com 340B – 340B Program Resources 340B

30. 30 Questions? CONTACT INFORMATION: Barbara Straub Williams Powers Pyles Sutter & Verville PC P: 202.872.6733 E: barbara.williams@ppsv.com Erin Estey Hertzog, JD, MPH Director, Health Law & Policy Biotechnology Innovation Organization P: 202.449.6384 E: ehertzog@bio.org 340B