Safety Net Hospitals for Pharmaceutical Access

Safety Net Hospitals for Pharmaceutical Access
Safety Net Hospitals for Pharmaceutical Access
April 2, 2012
Marilyn Tavenner
Acting Administrator
Centers for Medicare & Medicaid Services (CMS)
Department of Health and Human Services (HHS)
Attention: CMS–2345–P
P.O. Box 8016
Baltimore, MD 21244–8016
Re:
Comments on Proposed Rule Regarding the Medicaid Program and Covered
Outpatient Drugs (RIN 0938–AQ41; File Code CMS–2345–P)
Dear Acting Administrator Tavenner:
Safety Net Hospitals for Pharmaceutical Access (SNHPA) respectfully submits these comments
in response to the proposed rule to implement the Medicaid drug pricing provisions of the Patient
Protection and Affordable Care Act (PPACA)1, published by the Centers for Medicare and
Medicaid Services (CMS) in the Federal Register on February 2, 2012 (RIN – 0938-AQ41).
SNHPA represents over 800 public and private non-profit hospitals enrolled in the 340B federal
drug discount program, which is directly impacted by several provisions addressed in the
proposed rule.
The 340B program has a 20-year record of successfully expanding services and increasing access
to low-cost drugs for low income and other vulnerable patients served by 340B providers called
“covered entities.” A recent report by the Government Accountability Office (GAO) found that
many of the covered entities surveyed reduce the amount they charge their patients for drugs
based on the lower costs of 340B-priced drugs.2 A 2011 survey of SNHPA members found that
74% of respondents with an outpatient pharmacy use 340B savings to reduce the price of drugs
for their patients.3 Given the value of 340B in patient care, CMS should bear in mind how the
proposed rule, if implemented, will impact the 340B program and whether it could inadvertently
discourage 340B participation or diminish the effectiveness of the program.
SNHPA offers several comments to the proposed rule. First, CMS should promote to states a
policy of reimbursing 340B covered entities and contract pharmacies at a rate greater than actual
acquisition cost (AAC), such as by paying an enhanced dispensing fee or establishing other kinds
1
Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148 (2010).
GAO Report, p. 17.
3
Madeline Carpinelli Wallack & Suzanne Bailey Herzog, Demonstrating the Value of the 340B Program to Safety
Net Hospitals and the Vulnerable Patients They Serve, (June 29, 2011), available at
http://www.snhpa.org/public/documents/pdfs/340B_Value_Report_06-29-11.pdf.
2
Marilyn Tavenner
April 2, 2012
Page 2
of “shared savings” arrangements with 340B providers. Second, CMS should work with the
Health Resources and Services Administration (HRSA) to develop a pharmacy-friendly
regulatory mechanism for states to avoid collecting rebates on 340B drugs paid by managed care
organizations (MCOs). Third, CMS should clarify that pharmaceutical manufacturers may
exclude from their best price calculations any price offered to a 340B covered entity, even if the
price relates to a drug that is not purchased through the 340B program. Lastly, CMS should be
mindful of how changes to the definition of average manufacturer price (AMP) will affect 340B
price calculations and, for that reason, the agency should avoid creating any AMP-related
policies that are detrimental to the 340B program. Each of these recommendations is explained
in more detail below.
I.
§447.518 – State Plan Requirements
With respect to proposed changes to Medicaid state plan requirements, CMS asks for suggestions
on how states can reimburse covered entities that participate in the 340B program.4 Under the
proposed rule, instead of reimbursing pharmacies based on estimated acquisition cost (EAC),
states would reimburse retail pharmacies based on actual acquisition cost (AAC).5 States would
submit 340B-specific reimbursement methodologies to CMS based on AAC and specify if and
how the methodologies vary depending on whether reimbursement is for a 340B covered entity
or a 340B contract pharmacy.6 In the preamble to the proposed rule, CMS said 340B-specific
rates do not have to be set at AAC.7 CMS requested comments on 340B reimbursement
methodologies that, on the one hand, would meet the new AAC framework, but on the other,
would not limit 340B billing and reimbursement to AAC.8
SNHPA applauds CMS for recognizing the benefit of allowing states to develop 340B payment
arrangements that reimburse at rates other than AAC. As explained in more detail below, we
believe that states would actually reduce Medicaid costs by paying above AAC, for example, by
establishing an enhanced professional dispensing fee or paying a modest mark up on the cost of
340B drugs. In fact, recent findings by the Office of the Inspector General (OIG) indicate that
states can save money by entering into “shared savings” arrangements with covered entities.9
Under these arrangements, states require covered entities to pass some of their 340B savings
along to the state in the form of lower reimbursement but allow the entities to retain the rest of
the savings for themselves.
Below, we provide background on how the AAC billing standard evolved in the 340B pharmacy
market and why there is considerable confusion among states and covered entities about the
relevant legal requirements. We then turn to a discussion of why AAC billing systems represent
missed opportunities for states to reduce their Medicaid expenditures. Lastly, we request that, as
4
Proposed Rule, Medicaid Program; Covered Outpatient Drugs, 77 FED. REG. 5318, 5350 (Feb. 2, 2012).
Id. at 5320.
6
Id. at 5350.
7
77 FED. REG. 5318, 5350.
8
Id.
9
State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drugs (OEI-05-09-00321)(OIG
Report), pgs. 9, 16 (June 2011).
5
Marilyn Tavenner
April 2, 2012
Page 3
part of the final rule, CMS promote shared savings arrangements to states as a better alternative
to AAC billing arrangements.
A. Background on AAC Billing Requirements for 340B Drugs
As CMS finalizes its proposal and considers other 340B reimbursement methodologies, CMS
should keep in mind the historical reasons why many states have AAC billing requirements in
place. 340B covered entities are subject to special rules when billing Medicaid. This is because
manufacturers are protected under the 340B statute from the “duplicate discount” problem –
giving a 340B discount and a Medicaid rebate on the same drug. Implementation of the 340B
duplicate discount provision has led to much confusion at the state level regarding how 340B
drugs should be billed and reimbursed under Medicaid. In a June 2011 report, the OIG found
that many states mistakenly believe that federal policy requires covered entities to bill Medicaid
at their actual acquisition cost.10 This is likely due to a change in federal policy that was never
properly communicated to state Medicaid agencies.
In 1993, shortly after the original 340B legislation was signed into law, HRSA issued guidance
intended to implement the statutory mandate that the Secretary develop a mechanism to protect
manufacturers from the duplicate discount problem.11 HRSA’s guidance – which directed states
to exclude 340B claims from their rebate requests and covered entities to bill Medicaid at AAC –
proved to be unworkable for both states and covered entities. Many states did not adhere to the
federal AAC billing standard because their automated billing systems could not accommodate
AAC billing or because states were fearful that AAC reimbursement would jeopardize the
financial viability of safety net pharmacies. Over the ensuing years, a process was developed by
which 340B providers could “carve out” their Medicaid drugs from 340B purchases to avoid
AAC billing. Under the carve-out option, a covered entity chooses not to administer or dispense
drugs purchased at the 340B price to Medicaid patients and instead uses non-340B drug
inventory and is reimbursed at standard Medicaid rates. Some states also worked out alternative
arrangements whereby the savings arising from the purchase of Medicaid drugs through the
340B program was “shared” between covered entities and the states. These so-called “shared
savings” arrangements are explained in more detail below.
In response to comments from states and covered entities that HRSA’s 1993 AAC billing
standard was too restrictive, HRSA revised its position in 2000, issuing guidance that (1) permits
state Medicaid agencies to determine their own billing and reimbursement requirements for 340B
drugs, and (2) formally recognizes the right of covered entities to implement the Medicaid carveout option.12 Unfortunately, many states either did not understand or were not aware of the
removal of the federal AAC billing requirement under HRSA’s 2000 guidance. More than ten
years have passed since the new guidance was published, and yet, according to the OIG, most
10
OIG Report, pgs. 9, 16.
Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Duplicate Discounts and Rebates on Drug
Purchases, 58 Fed. Reg. 27293 (May 7, 1993). This notice was finalized without change in Final Notice Regarding
Section 602 of the Veterans Health Care Act of 1992 Duplicate Discounts and Rebates on Drug Purchases, 58 Fed.
Reg. 34058 (June 23, 1993).
12
65 Fed Reg. 13983, 13984 (March 15, 2000).
11
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April 2, 2012
Page 4
states still expect covered entities to bill Medicaid at AAC based on the misconception that the
federal government continues to require AAC billing.13
B. Missed Opportunities for States to Reduce Medicaid Expenditures
Although some states have worked out shared savings arrangements that benefit covered entities
and states, many states continue to require covered entities to bill at AAC. As CMS finalizes its
rule on state plan requirements, we urge CMS to educate states on the value of shared savings
arrangements. Setting reimbursement at AAC and thereby encouraging 340B providers to carveout represents a missed opportunity for states because 340B-discounted prices are significantly
lower than what Medicaid ordinarily pays for covered outpatient drugs, even taking into
consideration the rebates that states collect from manufacturers under the Medicaid rebate statute
and state supplemental rebate programs. To avoid having covered entities carve-out, the state is
faced with the challenge of finding a middle ground that, on the one hand, generates savings for
the state and, on the other hand, leaves enough revenue for the covered entity that it will decide
against the carve-out option.
States’ misunderstanding in this area could be resulting in higher Medicaid costs. By imposing
AAC billing requirements on 340B providers, states lose an opportunity to lower their drug
expenditures. This is because most covered entities choose to carve out their Medicaid drugs in
this situation to avoid losing much-needed Medicaid revenue. When covered entities carve-out,
Medicaid reimburses at the higher, non-340B rate and receives no benefit from the 340B
program. Implementing the carve-out is costly for covered entities because it requires managing
two different inventories – a 340B and non-340B inventory. But the covered entity is better off
absorbing this cost than incurring the loss of revenue associated with AAC reimbursement.
For covered entities that administer or dispense drugs during an outpatient visit or procedure –
often referred to as physician-administered drugs – application of AAC billing requirements
almost always leads to covered entities carving out such drugs from their 340B programs. This
is especially true for 340B hospitals because most hospital billing systems cannot accommodate
billing one payer at one rate and other payers at different rates. Absent the carve-out option,
hospitals would be forced to bill every physician-administered drug at AAC, not just those
provided to Medicaid patients, which would be fiscally untenable for virtually all 340B hospitals.
1. Prohibiting the Medicaid Carve-Out Option Does Not Benefit States
Outlawing the Medicaid carve-out option may, at first glance, seem like a reasonable solution for
a state seeking to address a high carve-out rate. However, prohibiting covered entities from
carving out leads to even worse outcomes because it drives covered entities out of the 340B
program entirely which, in turn, deprives both the state and covered entity of any opportunity to
reduce drug costs through the 340B program. California serves as a good example. In 2009, the
California legislature established an AAC billing requirement for both retail and physicianadministered drugs payable by Medi-Cal and, at the same time, prohibited covered entities from
13
OIG Report, p. ii.
Marilyn Tavenner
April 2, 2012
Page 5
carving out. The law did not increase the dispensing fee for most retail 340B drugs, nor did it
afford any payment to cover pharmacy handling and overhead costs associated with physicianadministered drugs.14 Not surprisingly, the law has had a devastating impact on most California
safety net providers that treat large numbers of Medi-Cal patients. For example, only one of the
seven children’s hospitals in California that could enroll in the 340B program has chosen to do
so. As a result, the 2009 law has not generated any Medi-Cal savings for the outpatient drugs
dispensed and administered by the hospitals. The hospitals, meanwhile, have lost an opportunity
to use the 340B program to underwrite the cost of serving uninsured patients and other
vulnerable populations. Rather than capitalizing on a “win-win” opportunity, the California law
has produced a “lose-lose” result. We therefore ask CMS to make clear in the final regulation
that when CMS evaluates state reimbursement plans for 340B covered entities and contract
pharmacies, CMS will not approve plans that prevent covered entities from carving their
Medicaid drugs out of the 340B program.
C. CMS Should Encourage the Carve-In Option to Lower Medicaid Spending
Because of the adverse consequences of establishing AAC billing requirements, CMS should
require states to consider shared savings arrangements as a way to encourage covered entities to
carve-in their Medicaid drugs and lower Medicaid spending. It is clear that states need to be
educated about the benefits of pursuing 340B shared savings arrangements because, according to
the OIG, most states limit 340B reimbursement to AAC, causing nearly 60 percent of covered
entities to carve out their Medicaid drugs from 340B purchases.15 We believe that if states
replaced their AAC reimbursement systems with shared savings arrangements that provided
sufficient revenue to incentivize use of the carve-in option, states would experience a net savings
in drug costs. Therefore, we request that the final regulation make clear that when CMS
evaluates state reimbursement plans for 340B covered entities and contract pharmacies, CMS
should analyze whether states have considered 340B reimbursement options that encourage
covered entities to carve-in while still resulting in reduced spending on outpatient drugs and
pharmacy services. If a state proposes an AAC reimbursement methodology, CMS should
require the state to demonstrate through a cost-benefit analysis that the reimbursement
methodology will not result in higher overall Medicaid spending than there would be under a
shared savings model.
1. Enhanced Dispensing Fee Models
Even if a state insists on paying no more than a 340B drug’s AAC, it can still implement a
successful shared savings arrangement by paying covered entities an enhanced dispensing fee
that truly covers the entities’ pharmacy overhead costs.16 Due to this potential for savings, the
14
Pharmacy handling and overhead costs represent over 25 percent of the total cost of physician-administered drugs.
MEDPAC June 2005 Report To Congress, Chapter 6, Payment for Pharmacy Handling Costs in Hospital Outpatient
Departments, p. 140.
15
OIG Report, p. 4.
16
The dispensing fees paid by states today are typically well below the covered entity’s true dispensing costs, as
noted in a recent report by the Government Accountability Office (GAO). Manufacturer Discounts in the 340B
Marilyn Tavenner
April 2, 2012
Page 6
OIG recommended that CMS work with covered entities to explore options in this area, noting
that states could save money under shared savings arrangements “even when paying a higher
dispensing fee.”17 CMS recognized these arrangements in the preamble to the proposed rule,
noting that unique circumstances may warrant 340B-specific professional dispensing fees, and
states should look at these circumstances.18 CMS should recommend that when states evaluate
the cost-effectiveness of shared savings models, states consider paying enhanced dispensing fees
to 340B covered entities and 340B contract pharmacies. As we explain below, the opportunity
for states to find a middle ground in 340B reimbursement through the use of enhanced
dispensing fees is very real.
Under an enhanced dispensing fee arrangement, the state agrees to pay 340B providers a
dispensing fee significantly higher than the normal Medicaid dispensing fee while paying for the
product’s ingredient cost at actual acquisition cost. Massachusetts, for example, pays an
enhanced dispensing fee for retail 340B drugs of $10. Vermont is in the process of seeking
approval from CMS for its proposal to pay an enhanced dispensing fee of $18/$60.
Massachusetts sets a separate dispensing fee for clotting factor at 9 cents per unit. California
offers an enhanced dispensing fee for community clinics and free clinics, the vast majority of
which are 340B providers. The enhanced Medi-Cal dispensing fees are up to $17 for certain
take-home drugs and $12 for all others. We are aware that there are other states that offer
enhanced dispensing fees, however the fees in those states may not be set at a level that would
discourage covered entities from carving out and, therefore, Medicaid programs in these states
may not be achieving the full potential for savings.
The payment of enhanced dispensing fees has a noticeable positive effect on 340B participation
and state Medicaid savings. In 2002, only three covered entities in Massachusetts carved in their
340B drugs.19 After offering an enhanced dispensing fee for retail drugs of $10, the carve-in rate
for hospitals rose to over 75 percent.20 Massachusetts netted $6.5 million in additional revenue
in 2010 alone as a result of its shared savings approach with hospitals and other covered
entities.21 Similarly, Florida and Alaska offer enhanced dispensing fees and have high carve-in
rates of 82 percent and 75 percent, respectively.22 Maine pays entities based on their costs,
which includes both drug acquisition cost and pharmacy handling and overhead, and its carve-in
rate is 94 percent. By contrast, many states that require AAC billing and do not provide
enhanced dispensing fees or other incentives have low carve-in rates. Examples include South
Program Offer Benefits, but Federal Oversight Needs Improvement, General Accountability Office, GAO-11-836, p.
14-15 (September 2011) (GAO Report).
17
OIG Report pgs. 16, 9.
18
77 FED. REG. 5318, 5350.
19
Presentation by Diane Goyette, Medicaid Billing and Reimbursement: Evolution of Shared Savings, 340B
Coalition Conference, July 13, 2011.
20
Health Res. and Servs. Admin. Office of Pharmacy Affairs Covered Entity Database,
http://opanet.hrsa.gov/opa/CE/CEExtract.aspx (last visited May 19, 2011); See Presentation by Diane Goyette,
Medicaid Billing and Reimbursement: Evolution of Shared Savings, 340B Coalition Conference, July 13, 2011.
21
See Presentation by Diane Goyette, Medicaid Billing and Reimbursement: Evolution of Shared Savings, 340B
Coalition Conference, July 13, 2011.
22
Health Res. and Servs. Admin. Office of Pharmacy Affairs Covered Entity Database,
http://opanet.hrsa.gov/opa/CE/CEExtract.aspx (last visited May 19, 2011).
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April 2, 2012
Page 7
Dakota at 2 percent, Oklahoma at 33 percent, Virginia at 43 percent, and Wisconsin at 51
percent.23
2. Other Shared Savings Models
Paying enhanced dispensing fees is not the only way that state Medicaid programs can establish
shared savings arrangements with 340B providers. The basic concept underlying the shared
savings approach is that because 340B prices are on average 20% below Medicaid payments
after rebate for covered outpatient drugs, states can structure a 340B reimbursement program
under which both the state and 340B providers benefit from the spread.24 In addition to the
enhanced dispensing fee model, CMS should encourage states to consider other kinds of shared
savings arrangements. We realize that, because some of these models require states to reimburse
for ingredient costs at levels higher than the drug’s AAC, our recommendation may require
establishing an exception to the AAC reimbursement framework that CMS has proposed.
However, CMS should urge states to consider these options, given the importance of
encouraging 340B participation to lower costs not only for safety net providers, but also for state
Medicaid programs and the federal government.
In the modest markup model, state payments to cover covered entities’ ingredient costs include a
markup over the drug’s cost. For example, California pays 340B covered entities for blood
factor at AAC plus 20%.25 Louisiana pays for anti-hemophilia drugs at AAC plus 10%.26
Connecticut statutes provide for payment to federally qualified health centers (FQHCs) for 340B
drugs at the Federal Supply Schedule (FSS) reimbursement rate, which on average exceeds
340B.27
Utah and Arizona have adopted a targeted disease management model. These states use section
1915(b) freedom-of-choice waivers to steer targeted high-cost Medicaid patient groups into care
management/disease management programs for hemophilia and other clotting factor diseases
operated by 340B providers.28 Because the states reduce their drug expenditures for each patient
23
Id.
Calculated based on Prices for Brand Name Drugs Under Selected Federal Programs, CBO Paper, pgs 3, 9, June
2005.
25
Cal Wel & Inst Code § 14132.01; Cal Wel & Inst Code § 14105.86.
26
La. Admin. Code 50 tit. 29 § 971.
27
Conn. Gen. Stat. § 17b-192.
28
Under an RFP and a § 1915(b) [freedom of choice] waiver, Arizona Medicaid pays Phoenix Children’s Hospital
for hemophilia drugs, as well as dispensing, distribution, and care coordination. The provider is paid for product and
care coordination services. Under a § 1915(b) freedom of choice waiver, the Utah Medicaid program contracts with
a single 340B provider to provide home care and clotting factor for blood clotting disorders. The provider is paid
more than AAC, but less than the standard Medicaid rate. The Utah partnership requires hemophilia patients to make
at least one trip a year to the state’s hemophiliac treatment center. Then throughout the year, nurses either employed
by University of Utah or by a home health agency that is contracted with the hospital, make monthly visits to
patients and provide them with drugs purchased with the 340B program needed for treatment. While the state has
benefitted from the savings associated with discounted drugs, the partnership has significantly improved the
standard of care for patients participating in Utah’s hemophiliac treatment program. Patient satisfaction surveys
consistently indicate that at least 98% of those enrolled in the program approve of the care they are receiving. In
24
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April 2, 2012
Page 8
by virtue of qualifying the patient for 340B pharmacy services, they can afford to pay for both
the facility’s pharmaceutical costs and care management program, while retaining significant
savings for itself. A similar arrangement exists in Oregon.
Lastly, under the cost based reimbursement model, a state pays a covered entity the costs of
acquiring 340B drugs but also pays the costs associated with handling, storing, and housing the
drugs. This model saves money for states because they pay the 340B actual acquisition cost for
the drug, which is lower than the cost for non-340B drugs, yet still pay entities for overhead and
other handling costs. Maine uses this reimbursement model.
3. Application to 340B Managed Care Drugs
The problems associated with AAC billing and reimbursement are not confined to 340B drugs
dispensed or administered to patients covered by state Medicaid fee-for-service (FFS) programs.
They also apply to 340B drugs covered by Medicaid managed care organizations. At least one
state is now requiring 340B covered entities to bill Medicaid MCOs at AAC for 340B drugs. For
reasons described below, SNHPA strongly objects to state interference in what should be a
matter of private negotiation between a Medicaid MCO and its participating 340B pharmacies.
Indeed, in SNHPA’s view, state AAC billing requirements for 340B MCO drugs conflict with
federal law. We therefore ask that CMS not allow states to mandate AAC reimbursement rates
for 340B managed care drugs. We also urge CMS to educate states about the value of shared
savings with regard to state reimbursement rates for 340B covered entities billing MCOs.
Covered entities in Arizona have expressed concern to us over efforts by that state’s Medicaid
agency to require FQHCs participating in 340B to bill at AAC for 340B managed care drugs.
Entities tell us that this requirement could cause them to carve their Medicaid MCO drugs out of
340B. CMS recently approved a proposed rule submitted by Arizona that now requires FQHCs
in 340B to bill MCO contractors at AAC plus a dispensing fee of $8.75.29 Arizona has stated
that it plans to extend this billing requirement to other 340B covered entities later this year.30
CMS should prohibit states from requiring 340B covered entities to bill MCOs at AAC.
Application of AAC billing requirements to MCO drugs interferes with federal requirements
governing Medicaid managed care plans. The provisions in the Medicaid statute that govern use
of managed care arrangements specifically state that payment to managed care entities is to be
made on a prepaid capitated basis.31 The statute is clear that this involves the allocation of risk.32
Under this model, states pay a prospective amount per recipient to the managed care organization
addition, monthly visits have established productive relationships between health care professionals and patients that
have led healthy life style changes that make treating hemophilia easier and less costly.
29
Letter from Larry Reed, Director, Division of Pharmacy, Center for Medicaid and CHIP Services, CMS, to Tom
Betlach, Director, Arizona Health Care Cost Containment System (AHCCCS) (March 9, 2012), available at
http://www.azahcccs.gov/reporting/Downloads/MedicaidStatePlan/Amendments/2011/SPA11015ApprovalLetter.pdf.
30
Memo from Marc Leib, M.D., Chief Medical Officer, AHCCCS to Contractor CEOs, Medical Directors,
Pharmacy Directors (July 14, 2011).
31
42 USCS §§ 1396b(m)(2)(A) and (m)(2)(A)(iii).
32
Id.
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April 2, 2012
Page 9
in return for the organization providing all covered services to Medicaid recipients. In order for
the managed care organization to furnish the care within the payment amount received, the
organization must manage the recipients’ care, which involves negotiating payment rates with
providers, utilization review, etc.33 By imposing AAC billing and reimbursement requirements
on managed care companies, states attempting to implement such policies are interfering with the
allocation of risk and a managed care organization’s obligation to manage enrollees’ care, which
conflicts with the federal requirements cited above.
II.
§447.509(b) – Rebates for Drugs Dispensed Through MCOs
PPACA required state Medicaid programs to collect rebates on drugs paid by Medicaid managed
care organizations.34 Prior to PPACA, drugs furnished by Medicaid managed care plans were
exempt from rebate requirements. PPACA extended Medicaid FFS drug rebate requirements to
Medicaid managed care. Importantly, 340B drugs were specifically exempted from this
requirement.35 CMS proposes to codify the 340B exclusion enacted by PPACA.36 The proposed
rule says that manufacturers are exempt from paying rebates on MCO drugs if the drugs are
dispensed by MCOs and are discounted under 340B.37 Because states cannot include 340B
MCO drug claims in their rebate requests, they must create a mechanism with which they can
exclude these drugs from their requests. As explained below, we have become increasingly
concerned over the last few months that states do not know what they should do to prevent the
collection of rebates on 340B MCO drugs. We have heard that some states are evaluating a
strategy that would compel covered entities to carve their MCO drugs out of 340B. Federal law
does not allow states to take these actions, and such an approach would conflict with
Congressional intent and the purpose of the 340B program. Furthermore, because it is not the
responsibility of covered entities to avoid the collection of rebates on 340B MCO drugs, we ask
that CMS work with HRSA in creating a regulatory mechanism for states to avoid requesting
rebates on the 340B MCO drugs consistent with Congressional intent and the 340B law.
A. The Burden to Prevent Rebate Collection on 340B MCO Drugs Is on States
States are confused as to how to prevent the collection of rebates on 340B MCO drugs. Many
states have yet to issue any guidance on the matter. SNHPA is concerned that, in the absence of
state guidance, states will either explicitly or implicitly rely on the 340B provider community to
solve their problem. It is clear from the law that it is states, not covered entities, which have a
legal obligation to identify and exclude 340B managed care claims from state rebate requests.
While it is true that covered entities have a responsibility to do their part in preventing duplicate
discounts with respect to Medicaid FFS drugs, nothing in PPACA indicates that Congress
33
An exception to this general rule is found in §1903(m)(1)(A)(ix) of the Social Security Act, which requires
managed care organizations to reimburse FQHCs no less than they would reimburse other providers for comparable
services. The purpose of this provision is to mitigate the potential incentives managed care organizations have to
underpay FQHCs, since states are required under federal law to pay the difference between the FQHC’s Prospective
Payment System (PPS) rate and the managed care organization’s payment rate.
34
PPACA § 2501(c).
35
PPACA § 2501(c)(2)(B); 42 USC §1396r-8(j)(1).
36
77 FED. REG. 5318, 5364.
37
Id.
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April 2, 2012
Page 10
intended for those obligations to extend to Medicaid MCO drugs. To the contrary, Congress
decided that when a covered entity purchases a Medicaid MCO drug through the 340B program,
the drug becomes unrebatable under the Medicaid program. How a risk of duplicate discounts is
avoided is a matter that must be resolved between the states and manufacturers.
The original 340B statute enacted in 1992 prohibited covered entities from collecting
reimbursement on Medicaid drugs that were eligible for rebates at the time unless there was a
mechanism in place to prevent the collection of a rebate on those drugs.38 Because only FFS
drugs were eligible for rebates in 1992, this billing requirement only applies to FFS drugs, not
MCO drugs. HRSA created a mechanism to prevent FFS duplicate discounts through guidance
issued in 1993, so covered entities are therefore eligible to collect reimbursement for FFS drugs
provided that they notify OPA of their intent to use 340B drugs for Medicaid FFS patients.39
Clearly, Congress did not believe the FFS billing requirements applied to 340B MCO drugs,
because they felt it necessary to include the 340B exception to the Medicaid managed care rebate
expansion in PPACA. Congress did not believe the FFS duplicate discount billing provision in
the 340B statute applied to the billing of 340B MCO drugs.
Moreover, it is clear Congress did not intend to place the burden of preventing 340B MCO drug
rebate collection on covered entities because Congress used different language in PPACA than in
the FFS duplicate discount provision of the 340B statute. In 1992, Congress clearly placed the
burden of preventing FFS duplicate discounts on covered entities because the statute barred them
from billing Medicaid for drugs on which Medicaid collected rebates. The PPACA 340B
exemption language is entirely different from the original 340B duplicate discount provision.
Rather than directing the Secretary to create a mechanism for avoiding duplicate discounts,
Congress chose to extinguish a state’s right to a rebate on a Medicaid MCO drug as soon as the
covered entity purchases the drug through the 340B program. The purpose of the PPACA 340B
exemption was therefore to preserve the status quo. By imposing an obligation on states to
collect rebates, PPACA created a new revenue stream for states but specifically exempted 340B
drugs from this requirement. Congress wanted to protect 340B covered entities and the
vulnerable patients they serve by exempting the 340B program from the new revenue stream
created for states. States were not receiving revenue from 340B managed care drugs prior to
PPACA, and the exemption ensured that they would not receive any such revenue as a result of
PPACA. Given that covered entities have no obligation to prevent the collection of rebates on
340B MCO drugs, states are left with this responsibility.
B. States May Not Mandate that 340B MCO Drugs Be Carved Out
To meet their obligation to prevent the collection of rebates on 340B MCO drugs, some states
have told us they are evaluating whether the law would allow them to require covered entities to
carve their MCO drugs out of 340B. However, federal law prohibits states from enacting such
requirements. We request that CMS make clear to states that they cannot require covered entities
38
42 U.S.C. § 256b(a)(5)(A).
Final Notice Regarding Section 602 Of The Veterans Health Care Act Of 1992, Duplicate Discounts And Rebates
On Drug Purchases, 58 Fed. Reg. 34058 (June 23, 1993).
39
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April 2, 2012
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to carve their MCO drugs out of 340B. Further, CMS should explain in the final rule that it will
deny any state plan amendment that proposes to mandate an MCO carve-out.
CMS should prohibit state MCO carve-out requirements for 340B because such requirements
conflict with federal law. The federal 340B statute mandates that drug manufacturers discount
their drugs when the drugs are purchased by covered entities.40 There is nothing in the statute
that permits states to prohibit 340B providers from accessing these discounts. The U.S. Supreme
Court recognizes that, pursuant to the Supremacy Clause of the Constitution, any state law that
conflicts with a federal law is without affect.41 Conflict exists when it is impossible to comply
with both laws or when the state law serves as an obstacle to accomplishing and executing
Congressional objectives.42 A state requirement that pharmacies carve their MCO drugs out of
340B would prevent safety net pharmacies from accessing the 340B discounts to which they are
entitled under federal law. Therefore, Medicaid managed care carve-out requirements are
preempted by federal law.
CMS should also prohibit states from requiring a 340B MCO carve-out because such a carveout-policy would frustrate Congressional intent and the purpose of the 340B program.
Our members report to us that some states are contemplating administrative action that would
require covered entities to carve out their MCO drugs from the 340B program. Congress did not
intend for this result. As discussed in a recent report by the GAO, 340B providers are using the
additional revenue they receive to further the program’s purpose, such as by maintaining services
and lowering medication costs for patients.43 The GAO also reported that many covered entities
do not generate enough revenue from the 340B program to offset drug-related costs.44 The 340B
exception from MCO rebates allows covered entities to continue garnering 340B savings from
purchasing MCO drugs at 340B prices, just as they were prior to PPACA. The 340B exemption
is consistent with Congress’s interest in assisting safety net providers with stretching their scarce
resources, but this interest would be thwarted if 340B covered entities are required by states to
carve out their Medicaid managed care claims. By limiting covered entities’ access to the 340B
discount, a state-based MCO carve-out requirement would undermine the very nature of the
340B program and result in fewer services and other assistance for vulnerable patient
populations.
C. CMS Should Work with HRSA to Establish a Regulatory Mechanism for States
to Avoid Collecting Rebates on 340B MCO Drugs
Based on comments from our members, there is significant confusion at the state level as to how
states can prevent the collection of rebates on 340B MCO drugs. States clearly need guidance in
40
42 USC §256b(a).
Altria Group, Inc. v. Good, 555 U.S. 70 (2008).
42
Edgar v. Mite Corp. 457 U.S. 624, 631 (1982)(quoting from Florida Lime & Avacado Growers, Inc. v. Paul), 373
U.S. 132, 142-143 (1963); Hines v. Davidowitz, 312 U.S. 52, 67 (1941); and Jones v. Rath Packing Co., 430 U.S.
519, 526, 549-551 (1977).
43
Drug Pricing Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs
Improvement, GAO-1-836 (Sept. 2011).
44
Id.
41
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April 2, 2012
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this area. It would be inefficient for CMS to leave the issue to states to resolve through separate
state mechanisms. It would also be inefficient to leave it to MCOs to prevent the collection of
rebates. Therefore, we request that CMS work with HRSA in providing states with a federal
mechanism to avoid collecting rebates on 340B MCO drugs. Such a mechanism could be
modeled on the existing Medicaid exclusion file used to prevent duplicate discounts for FFS
drugs.
1. Neither States nor MCOs Should Be Charged with Preventing Rebate
Collection on 340B Drugs
Relying on states to create separate mechanisms would not be an efficient means of preventing
rebate collection for 340B MCO drugs. It would be more efficient for the federal government to
create one tool for states to use to prevent rebate collection on 340B MCO drugs than for each
individual state to create its own policy. Such a framework would be particularly complex for
covered entities that serve Medicaid MCO patients in multiple states as well as for MCOs that
pay claims for individuals in multiple states.
We specifically caution against having MCOs or their pharmacy benefit managers (PBMs) notify
the states as to the drugs for which they should and should not collect rebates. Adding another
player into the mix would unnecessarily complicate the process. Under such a framework, there
would be a multitude of individual systems with different processes in place, which could lead to
mistakes and confusion.
2. HRSA’s Existing Exclusion File Mechanism Can Serve as a Model
Upon creating the 340B program, Congress directed the Secretary to create a mechanism to
ensure that covered entities comply with the prohibition on duplicate discounts.45 Specifically,
the statute required that the mechanism prevent covered entities from requesting payment from
Medicaid for a 340B drug if it is subject to a Medicaid rebate.46 HRSA issued guidance in 1993
intended to comply with this statutory requirement.47 The exclusion file process developed by
HRSA requires covered entities to notify states of their 340B status and to provide their
Medicaid billing numbers so that states could exclude Medicaid FFS drugs used by covered
entities from their rebate collection if they were purchased at a 340B price.48 Because Congress
and HRSA intended for this mechanism to prevent duplicate discounts only for drugs subject to a
Medicaid rebate, the mechanism only applied to FFS drugs. At the time of the mechanism’s
release in 1993, FFS drugs were the only drugs eligible for Medicaid rebates. Medicaid MCO
drugs are now eligible for Medicaid rebates as a result of PPACA, but MCO drugs purchased at a
340B price are not. Thus, HRSA’s existing exclusion file mechanism only applies to FFS drugs.
The Secretary must create a new mechanism to prevent states from collecting rebates on 340B
MCO drugs.
45
42 U.S.C. §256b(a)(5)(A).
Id.
47
Final Notice Regarding Section 602 Of The Veterans Health Care Act Of 1992, Duplicate Discounts And Rebates
On Drug Purchases, 58 Fed. Reg. 34058 (June 23, 1993).
48
Id.
46
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Although the existing mechanism does not apply to 340B MCO drugs, the Secretary could create
a separate mechanism modeled on the existing one to prevent states from collecting rebates on
340B MCO drugs. Under such a mechanism, covered entities would notify the government of
their 340B status and provide their Medicaid billing numbers. If a covered entity chose to
dispense or administer drugs purchased at a 340B price to Medicaid managed care patients, the
state would enter this covered entity into an exclusion file and would exclude those drug claims
from rebate collection. Hence, there is already a federal model in place for excluding 340B
reimbursement claims from MCO drug rebate requests. CMS should consult with HRSA on the
creation of a 340B MCO drug exclusion file based on the FFS model.
CMS should collaborate with HRSA to create this new mechanism because HRSA has already
developed an infrastructure designed to address the duplicate discount problem. HRSA has a
breadth of knowledge on how the exclusion file operates to prevent FFS duplicate discounts, and
states have an understanding of this process as well. Although the OIG has noted areas in which
the exclusion file can be improved, the OIG also recommended that CMS direct states to HRSA
information explaining how the exclusion file operates.49 The OIG recognizes the value in using
an exclusion file, and CMS should work with HRSA to model a new MCO exclusion file based
on the existing one.
3. Covered Entities Are Entitled to Make Separate Choices on Whether to
Carve Out FFS and MCO Drugs
CMS should work with HRSA to create an exclusion file that would allow covered entities to
make independent choices as to whether to use 340B drugs for Medicaid FFS patients and MCO
patients. It is important that any mechanism CMS and HRSA adopts must continue to allow
covered entities to use 340B drugs for Medicaid managed care patients. For example, a covered
entity may choose to avoid the burden of an AAC billing requirement for FFS drugs by carving
out its FFS drugs from 340B. Nevertheless, reimbursement from an MCO may be vital to
ensuring a covered entity saves money through 340B, so the entity may chose to carve in its
MCO drugs.
As explained above, the existing mechanism created by HRSA in 1993 only applies to FFS
drugs, and the Secretary must create a new mechanism to address 340B MCO drugs. Although
the MCO exclusion file process can and should be designed and operated similar to the FFS
mechanism, it is imperative that the two systems not be merged into one. A covered entity’s
decision to carve out or carve in in one system should not carry over to the other system. A
merged FFS/MCO exclusion file process would significantly limit the way covered entities use
the 340B program. As discussed previously, covered entities rely upon program revenue
generated by MCO reimbursement. Without these savings, the program has significantly less
value.
49
OIG Report, p. 16-17.
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April 2, 2012
Page 14
4. A Separate Mechanism Is Needed for Contract Pharmacies
Many 340B providers own retail pharmacies that dispense 340B drugs to eligible patients. To
improve access for their patients, many 340B entities choose to dispense their 340B drugs
through contract pharmacy arrangements with independent pharmacies and chain drug stores.
However, states would not be able to use an MCO-specific exclusion file to prevent the
collection of rebates on 340B MCO drugs dispensed by contract pharmacies. By listing on an
exclusion file all of the Medicaid billing or national provider identifier (NPI) numbers that 340B
covered entities use to bill Medicaid for 340B drugs, states can exclude from their manufacturer
rebate requests any claim received for a 340B drug administered or dispensed by these entities.
However, when a contract pharmacy bills a Medicaid MCO for a 340B drug dispensed to a
covered entity’s patient, the state will not know whether the drug was purchased by a covered
entity listed in the exclusion file. Therefore, we request that CMS create an alternative
mechanism to prevent the collection of rebates on 340B MCO drugs dispensed by contract
pharmacies.
III.
§447.505(c) – Prices Excluded From Best Price
Whether a manufacturer can exclude a drug sale to a 340B participant from its calculation of
“best price” – the lowest price available from a manufacturer for a drug – is important to covered
entities because manufacturers are reluctant to offer discounted prices unless they know the
discounted price will not lower their best price on the market. Because the best price determines
the amount of the rebates that manufacturers owe to state Medicaid agencies, manufacturers are
reluctant to offer discounts that may increase their rebate liability. Since the 340B program’s
inception, the Medicaid statute has directed manufacturers to exclude from their best price
calculation “any prices charged . . . to . . . a [340B] covered entity . . . .”50 CMS addressed prices
excluded from best price in the proposed regulation and attempted to clarify what prices paid by
340B covered entities are subject to the best price exclusion. However, the proposal may have
created more confusion than clarity.
SNHPA recommends that CMS clarify in the final rule that manufacturers may exclude from
best price all drug sales to 340B covered entities, regardless of whether the sales involve a 340B
price or not. CMS should also make clear that manufacturers may exclude from best price any
sale of an orphan drug at a 340B price to rural and free-standing cancer hospitals participating in
the 340B program. Finally, SNHPA recommends that the best price exclusion for nominal
pricing be extended to safety net health systems.
A. CMS Should Clarify That Manufacturers May Exclude “Any” Price Charged to
a 340B Covered Entity
The proposed regulation says best price excludes, among other things, “(i) prices charged under
the 340B drug pricing program to a covered entity described in section 1927(a)(5)(B) of the Act;
50
42 U.S.C. §1396r-8(c)(1)(C)(i)(I).
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and (ii) any inpatient prices charged to hospitals described in section 340B(a)(4)(L) of the
PHSA.”51 The preamble explains that manufacturers can exclude from best price “only drugs
purchased under the 340B Drug Pricing program from their best price calculation where the
covered entities meet the conditions set by PHSA.”52 However, the Medicaid statute clearly
states that manufacturers can exclude from best price any prices charged to 340B covered
entities.53 CMS should make clear in the final rule that manufacturers may exclude from best
price any drug sale to a 340B covered entity, not just “prices charged under the 340B drug
pricing program.”
1. Medicaid Statute Allows Exclusion of All Sales to 340B Covered Entities
Existing statutory language clearly permits drug manufacturers to exclude from their best price
calculations all prices offered to participating covered entities, not just those CMS has deemed to
be “under” the 340B program. The Medicaid drug rebate statute excludes from the calculation of
“best price:”
any prices charged on or after October 1, 1992 to …a covered entity described
in subsection (a)(5)(B) (including inpatient prices charged to hospitals
described in section 340B(a)(4)(L) of the Public Health Service Act …)54
The term “any” is commonly defined as “every” and, therefore, includes all prices offered,
whether at a 340B price or not.55 Thus, under the plain meaning of the current statutory
language, discounted drugs at non-340B prices charged to entities that participate in the 340B
program should be excluded from the calculation of best price under the Medicaid drug rebate
statute. CMS should incorporate the plain meaning of the statutory language in the final rule,
because not allowing manufacturers to exclude these sales from best price would be inconsistent
with the Medicaid statute. It is also noteworthy that nowhere in the law is the best price
exclusion limited to sales “under the 340B Drug Pricing Program.”
2. Limiting the Exclusion to Sales “Under the 340B Drug Pricing Program”
Is Confusing and Would Have Adverse Consequences
The proposed rule has created confusion in this area because CMS suggested that “there may be
circumstances in which covered entities purchase drugs outside of the 340B program” and sales
of drugs under these circumstances should not be excluded from best price.56 CMS noted in the
preamble that addressing this issue was necessary because of changes Congress made to the
program as part of PPACA. PPACA expanded the categories of entities eligible for 340B, but the
new entities cannot access 340B pricing for certain orphan drugs.57 HRSA issued a proposed
51
77 FED. REG. 5318, 5363.
Id. at 5337.
53
42 U.S.C. §1396r-8(c)(1)(C)(I). See also, 42 C.F.R. §447.505(d)(1).
54
42 U.S.C. §1396r-8(c)(1)(C)(I). See also, 42 C.F.R. §447.505(d)(1).
55
Merriam-Webster Online Dictionary, March 2012.
56
77 FED. REG. 5318, 5337.
57
77 FED. REG. at 5337.
52
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rule to implement the so-called “orphan drug exclusion” in May 2011, but has yet to finalize the
rule.58 The proposal limited the exclusion to apply only when a critical access hospital, sole
community hospital, rural referral center or free-standing cancer hospital participating in 340B
uses an orphan drug for the purpose for which it received its orphan designation.59 Thus, under
the proposal, rural and free-standing cancer hospitals in 340B would be able to access 340B
pricing on orphan drugs, provided that they only use orphan drugs purchased at a 340B price for
indications other than the purpose for which they received their designation.60
Since publication of the proposed rule in May 2011, our members have reported to us that many
manufacturers are not offering 340B pricing to rural and free-standing cancer hospitals on any
orphan drug products. We have heard that some manufacturers may be hesitant to offer 340B
pricing on orphan drugs for fear of lowering their best price. In fact, HRSA recognized this
manufacturer concern in the proposed orphan drug rule and noted that it would work with CMS
to come up with a best price policy to provide clarity to 340B stakeholders.61 By making clear in
the final rule that manufacturers may exclude from best price any sale to a covered entity, which
would include all sales of orphan drugs to rural and free-standing cancer hospitals at the 340B
price, CMS would address the confusion over the orphan drug issue. Therefore, we request that
CMS make clear in the final rule that sales of orphan drugs to rural and free-standing cancer
hospitals are sales to 340B covered entities that manufacturers may exclude from best price.
CMS also suggested in the proposed rule that “drugs that have both inpatient and outpatient
uses” are drugs purchased outside the 340B program and therefore must be included in a
manufacturer’s best price.62 Although only drugs administered or dispensed in an outpatient
setting are eligible for 340B pricing, there are many drugs that are administered or dispensed in
an outpatient setting that also have inpatient uses. If a 340B covered entity purchases a drug that
has both inpatient and outpatient uses, it may very well end up using the drug in an outpatient
setting and therefore would be eligible for 340B pricing. CMS should make clear in the final
rule that manufacturers may exclude from best price any sale to a 340B covered entity of drugs
that have both inpatient and outpatient uses by virtue of the purchaser being a covered entity.
In addition, CMS suggested in the preamble that when covered entities choose to carve their
Medicaid drugs out of the 340B program, they purchase the Medicaid drugs outside 340B and
manufacturers must include these sales in their best price calculations.63 Not allowing
manufacturers to exclude these drugs sales from best price calculations is inconsistent with the
Medicaid statute. Furthermore, even when entities choose to carve out their Medicaid drugs
from 340B, CMS should still provide an incentive for manufacturers to provide discounted drugs
to these safety net providers. If a covered entity chooses to carve its Medicaid drugs out from
340B, it should still be able to negotiate a discounted price. By not excluding sales of Medicaid
58
Exclusion of Orphan Drugs for Certain Covered Entities under 340B Program, 76 FED. REG. 29183 (May 20,
2011).
59
Id. at 29186.
60
Id.
61
76 FED. REG. at 29185.
62
Id.
63
Id.
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carved-out drugs to 340B covered entities, CMS could create reluctance on the part of
manufacturers to provide discounted prices to safety net providers. The best price exclusion
policy should not provide manufacturers a reason to deny discounted prices to safety net
providers. CMS should therefore make clear in the final rule that manufacturers may exclude
from best price calculations their sales to covered entities, even when an entity takes advantage
of the Medicaid carve-out option.
Lastly, CMS asked for comments on what other drug sales could be considered to be “outside”
the 340B program. Many covered entities take advantage of sub-340B ceiling prices on certain
products negotiated by the 340B prime vendor program (PVP). These prices are heavily
discounted and are below the 340B price, so one might consider them to be prices charged
“outside” the 340B program. Nevertheless, CMS should not give manufacturers a reason to not
offer these discounted prices by forcing them to include the sales in their best price calculations.
Congress intended to provide covered entities access to sub-ceiling prices when it created 340B
by requiring the development of a prime vendor program.64 The 340B statute clearly states that
nothing in the law prohibits manufacturers from charging prices below 340B ceiling prices.65
CMS should carry out Congress’ intent by clarifying that manufacturers should exclude from
best price all drug sales to 340B covered entities.
3. Manufacturers Should Be Able to Exclude Voluntary Inpatient Sales to
All 340B Hospitals
In its list of circumstances in which sales to covered entities are outside the 340B program, CMS
identified drugs that are purchased for inpatient use. However, purchases of drugs for inpatient
use by 340B covered entities are excludable from best price under the Medicaid statute because,
as previously mentioned, manufacturers can exclude from best price any sale to a covered entity.
The proposed rule itself recognizes that manufacturers may exclude from best price sales of
inpatient drugs to DSH hospitals enrolled in 340B.66 This proposal is a codification of existing
statutory language that directs manufacturers to exclude from best price sales of inpatient drugs
to DSH hospitals.67 However, as mentioned above, the Medicaid statute allows manufacturers to
exclude from best price any sale to a 340B covered entity. We request that CMS make clear in
the final rule that because manufacturers may exclude from their best price calculations any sale
to a 340B covered entity, they may exclude discounted inpatient drug prices paid by all 340B
hospitals.
Initial CMS guidance did not permit manufacturers to exclude from best price calculations their
inpatient sales to covered entities.68 However, Congress subsequently clarified that the definition
of best price is, indeed, intended to exclude inpatient drug sales to 340B hospitals, adding
language to the statute specifically stating that the provision includes inpatient drugs purchased
64
42 U.S.C. §256b(a)(8).
42 U.S.C. §256b(a)(10).
66
77 FED. REG. 5318, 5361.
67
42 U.S.C. §1396r-8(c)(1)(C)(I).
68
Medicaid Drug Rebate Program Release No. 7, p. 3.
65
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by entities listed in section 340B(a)(4)(L) of the Public Health Service Act.69 At the time
Congress made this revision, section 340B(a)(4)(L) referenced all hospitals that were eligible to
participate in the 340B program. Since then, Congress has made children’s hospitals, critical
access hospitals, rural referral centers, sole community hospitals and free-standing cancer
hospitals eligible for 340B. When Congress expanded the program, it listed each of these
hospitals separately in the 340B statute under its own subparagraph of 340B(a)(4) instead of
being listed under 340B(a)(4)(L). This statutory drafting convention has, unfortunately, led to
confusion as to whether manufacturers may exclude from their best price calculations the sale of
inpatient drugs to the newly-added hospitals.
Allowing manufacturers to exclude inpatient sales to all 340B hospitals is consistent with clear
Congressional intent. When Congress addressed this issue in 2003 by specifically stating that
inpatient prices could be excluded from best price calculations, Congress made clear that its
action was merely a “clarification” of existing law, not the creation of a new statutory
requirement.70 Thus, Congress believed that existing language permitted these inpatient charges
to be excluded from the best price calculations. Moreover, the language used by Congress to
clarify this point was in no way intended to limit the safety net hospitals to which this exclusion
applies. The clarification covers all the safety net hospitals that participated in the 340B program
at the time the clarification was made. Further, the language does not specifically limit the
exclusion only to certain types of hospitals. Congress stated that the exclusion “includes”
charges to hospitals described in section 340B(a)(4)(L), rather than saying that the exclusion is
“limited only to” such hospitals.
Most importantly, the health policy rationale upon which the 2003 clarification was based
applies with equal force today. Like the safety net hospitals referenced in section 340B(a)(4)(L),
the newly added safety net hospitals are dedicated to furnishing care to low income, underserved,
and vulnerable populations. Critical access hospitals, for example, are often the only source of
round-the-clock emergency room care for miles in isolated rural areas. Without these hospitals,
individuals would need to travel potentially hundreds of miles for life-saving emergency care.
Similarly, children’s hospitals are dedicated to serving the unique needs of pediatric populations.
The newly added free standing cancer hospitals are focused on furnishing care to individuals
with cancer, while sole community hospitals and rural referral centers represent crucial access
points to the health care system for rural residents. Not only do cancer hospitals, sole
community hospitals, and rural referral centers dedicate their services to vulnerable and
underserved populations, they must also provide a significant level of care to low income
individuals in order to qualify for the 340B program. In short, there is no good policy reason for
extending the Medicaid best price exemption to DSH hospitals but not other hospitals
participating in 340B.
69
70
42 U.S.C. §1396r-8(c)(1)(C)(I).
Medicare Prescription Drug Improvement and Modernization Act, Pub. L. No. 108-173, §1002.
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Page 19
4. CMS’ Proposal Does Not Strengthen Program Integrity
In its justification for the best price exclusion proposal, CMS indicated that allowing
manufacturers to exclude from best price only sales of drugs “under the 340B drug pricing
program” is “consistent with our reading of these provisions and as a result strengthens the
integrity of the MDR program because covered entities are prohibited from diverting drugs
purchased under 340B authority to anyone who is not a patient of the covered entity.”71
However, allowing manufacturers to exclude discounted drug sales to covered entities from their
best price will not encourage diversion. In fact, CMS’ policy on best price exclusion would have
no effect on a covered entity’s actions with regard to the use of 340B drugs. Rather, the policy
would only affect whether a covered entity has access to 340B pricing in the first place. If CMS
does not allow a manufacturer to exclude a discounted drug sale from its best price, it may be
less likely to offer the discount and the cost of drugs for safety net providers could increase. We
applaud CMS’ motivation to strengthen the integrity of the 340B program. SNHPA and its
membership share this important goal and are dedicated to preventing drug diversion. However,
prohibiting manufacturers from excluding drug sales to 340B covered entities from their best
price calculations, thereby increasing costs to safety net providers, does not further this goal.
B. Best Price Exclusion Should Extend to Sales of Any Orphan Drug at the 340B
Price to Rural and Free-Standing Cancer Hospitals
CMS should make clear in the final rule that, per the Medicaid statute, manufacturers may
exclude from best price all sales to 340B covered entities which, in turn, would allow them to
exclude the sale of any orphan drug to 340B hospitals. Regardless of how CMS rules on this
point, we request that CMS make clear that sales of orphan drugs to 340B hospitals at 340B
prices are sales “under the 340B drug discount program” and manufacturers may exclude those
sales from best price. By extension, manufacturers may sell orphan drugs to 340B covered
entities at 340B prices without fear of lowering their best price. Such a policy in the final rule would be consistent with the 340B statute. Under the 340B law,
manufacturers do not have an obligation to ensure a covered entity will use a 340B drug properly
before selling the drug at the 340B price. In fact, the law does not allow manufacturers to
condition sales of 340B drugs on assurances that the covered entity will comply with program
requirements.72 Furthermore, manufacturers must offer a drug at or below the 340B price to
covered entities if they offer that same product to non-340B consumers at any price.73 There are
no exceptions to the 340B obligations of manufacturers based on how a covered entity uses a
340B drug or whether a covered entity complies with program requirements. Complying with
the prohibitions on diversion and duplicate discounts are responsibilities of covered entities, not
manufacturers, and the same is true for new hospital requirements under the orphan drug
71
77 FED. REG. at 5337.
Final Notice Regarding Section 602 of the Veterans Health Care Act of 1992, Entity Guidelines, 59 FED. REG.
25110, 25113 (May 13, 1994).
73
42 U.S.C. §256b(a)(1).
72
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policy.74 HRSA made this clear in the proposed orphan drug rule, noting that the proposal
created “no new reporting or record-keeping requirements for manufacturers . . . .”75
Thus, manufacturers should not be concerned that a sale of an orphan drug at a 340B price to a
participating covered entity will be included in their best price calculation, even if a covered
entity uses the 340B drug improperly. A rural or free-standing cancer hospital participating in
340B must be certain that it only uses orphan drugs purchased at 340B prices for purposes other
than the indications for which the drugs received their designations. Whether the hospital meets
this obligation should not implicate a manufacturer’s best price calculation. The same is true for
sales of non-orphan 340B drugs that manufacturers assume will be used for outpatient purposes.
Even if a covered entity commits diversion and uses a 340B drug in an inpatient setting, the
manufacturer may still exclude the sale from its best price calculation. We therefore request that
CMS make this clear in the final rule and assure manufacturers that selling orphan drugs at 340B
prices to participating covered entities will not implicate a manufacturer’s best price.
C. CMS Should Extend the Best Price Exclusion for Nominal Pricing to Safety Net
Health Systems
We are pleased to see that CMS proposes to codify in regulation the changes Congress made to
the best price exclusion for nominal pricing in 2009. In Section 221 of the FY 2009 Omnibus
Appropriations Act,76 Congress modified the nominal pricing provisions of the Medicaid rebate
law to expand the list of providers that are permitted to receive nominal prices, without such
prices being included in manufacturers’ best price calculations.77 In addition, Congress made
clear that Section 221 of the Appropriations Act does not limit or remove the authority
previously granted to the Secretary to extend nominal pricing to additional facilities or entities.78
While the designation of two new categories of safety net providers for receipt of nominal
pricing under the Medicaid rebate law is a very positive step, we urge CMS to exercise its
statutory authority to extend best-price-exempt nominal pricing to other health care entities that
serve an equally vital role in caring for indigent and vulnerable populations.
SNHPA submits that these should include state and local government providers and other nonprofit institutions – such as outpatient clinics, long term care facilities, health departments, and
correctional infirmaries – that operate within and are jointly owned by the same health systems
of which 340B hospitals are a part. Prior to the Deficit Reduction Act (DRA) of 2005,
manufacturers had nominal price contracts with entire health systems, of which 340B hospitals
were just one component. System-wide contracts were both necessary and effective because
indigent patients are served by entire health systems, not just their 340B components. Thus, non340B providers within these health systems, which share in the responsibility of caring for our
nation’s poor and indigent, are equally in need of the deep discounts that nominal drug pricing
can provide.
74
42 U.S.C. §256b(a)(5)(A); 42 U.S.C. §256b(a)(5)(B).
76 FED. REG. at 29188.
76
Pub. L. 111-8.
77
42 U.S.C. § 1396r-8(c)(1)(D)(i).
78
42 U.S.C. § 1396r-8(c)(1)(D)(i)(IV).
75
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Since Congress enacted the DRA in January 2006 and CMS adopted implementing regulations in
October 2007, the decision by Congress and the former Secretary to limit the kinds of entities
eligible for best-price-exempt nominal pricing have had a negative effect on manufacturers’
willingness to continue nominal price arrangements with safety net health systems. This chilling
effect deprived entire systems of nominal price discounts, even the 340B hospitals and other
covered entities that are a part of such systems. Accordingly, we hope CMS will seize this
opportunity and expand access to nominally priced drugs to the non-340B components of health
care systems that serve the uninsured, the underinsured, and other vulnerable and indigent
populations across the country.
IV.
§447.504 – Determination of Average Manufacturer Price
The provisions in the proposed rule relating to the determination of AMP are important to 340B
covered entities because AMP is an essential component of the 340B ceiling price calculation.79
Just as AMP data is necessary to determine a manufacturer’s rebate liability to Medicaid, if a
drug does not generate AMP data, HRSA will not be able to calculate a 340B price for the drug.
Therefore, we request that CMS keep in mind the 340B significance of AMP as it finalizes its
proposal on the determination of AMP.
We applaud CMS for recognizing in the proposed rule the importance of generating AMP data
with regard to the Medicaid rebate program. CMS defines AMP as “the average price paid to the
manufacturer for the drug in the United States by wholesalers for drugs distributed to retail
community pharmacies and retail community pharmacies that purchase drugs directly from the
manufacturer.”80 CMS noted in the preamble that in determining the definition of “retail
community pharmacy,” it kept in mind the implications for the calculation of Medicaid rebates.81
For example, the preamble notes that “if [certain pharmacies] were to be excluded from AMP
calculations, an AMP would not be available for these oral covered outpatient drugs. As a result,
manufacturers would not be able to calculate rebates for these products and the statutory
provisions requiring rebates for such drugs would, in essence, be rendered meaningless.”82 We
request that CMS also keep in mind the 340B provisions of the Medicaid statute and ensure that
the final regulation not render these provisions meaningless by allowing for a drug to not
generate the AMP data necessary to calculate a 340B price.
Similarly, we were pleased to see CMS address this issue in its discussion of the “5i” AMP.
CMS proposed that manufacturers use a different AMP calculation for inhalation, infused,
instilled, implanted and injectable drugs (5i drugs) that are “not generally dispensed through
retail community pharmacies.”83 In the preamble, CMS proposed guidance on how
manufacturers may determine whether a 5i drug is “not generally dispensed through a retail
79
42 U.S.C. §256b(a)(2).
77 FED. REG. at 5361.
81
Id. at 5328-29.
82
Id.
83
Id. at 5362.
80
Marilyn Tavenner
April 2, 2012
Page 22
community pharmacy.”84 CMS proposed to adopt a quantitative standard requiring that for a 5i
drug to be “not generally dispensed through a retail community pharmacy,” at least 90% of a 5i
drug’s sales be to an entity other than a wholesaler for distribution to a retail community
pharmacy or to a retail community pharmacy that purchases drugs directly from the
manufacture.85 Nevertheless, CMS noted concern that the 90% standard “might result in a
portion of drugs eligible for the 5i alternate AMP calculation to be omitted from AMP because
the percentage of sales required to classify a drug as ‘not generally dispensed through a retail
community pharmacy’ may be too high.”86 We request that as CMS evaluates the 90% standard,
it keep in mind that AMP data is also necessary for HRSA to calculate a 340B price.
*******
Thank you for the opportunity to submit these comments. If CMS has any questions relating to
the above recommendations, it should feel free to contact SNHPA General Counsel William von
Oehsen at 202-872-6765, [email protected], SNHPA Assistant General Counsel
Maureen Testoni at 202-552-5851, [email protected], or SNHPA Associate Counsel
Jeff Davis at 202-552-5867, [email protected]
Sincerely,
William von Oehsen
President and General Counsel
84
Id. at 5335.
Id.
86
Id. at 5335-36.
85
Maureen Testoni
Assistant General Counsel
Jeff Davis
Associate Counsel
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