340B Drug Discount Updates: Contract Pharmacies and Congressional Activity
July 20, 2018
The past few weeks have seen significant activity regarding the 340B Drug Discount Program (the “340B Program”), suggesting that the government may be contemplating certain reforms. First, on June 28, the Government Accountability Office (GAO) released a report on the 340B Program titled “Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement.” The report (available here) found that Health Resources and Services Administration’s (HRSA’s) oversight of the 340B Program is insufficient, specifically noting deficiencies in HRSA’s ability to ensure compliance with the prohibition on duplicate discounts, to require that covered entities assess the full extent of noncompliance during an audit, and to require that covered entities provide evidence regarding corrective actions before closing an audit. The report states that “[g]iven these weaknesses, HRSA does not have a reasonable assurance that covered entities have adequately identified and addressed noncompliance with 340B Program requirements.”
Congress requested that GAO review the use of contract pharmacies and how their growth affects the integrity of the program. GAO found that, as of July 1, 2017, about one-third of covered entities in the 340B Program had contract pharmacies. GAO also found that 30 of the 55 covered entities that responded to a survey stated that they provide discounts to low-income and uninsured patients for drugs dispensed at a contract pharmacy. GAO made a number of findings regarding HRSA’s oversight in relation to contract pharmacies, identifying a number of concerns and weaknesses in this area. For example, the report stated that HRSA lacks complete data on contract pharmacy arrangements, that HRSA has weaknesses in its audit process, and that HRSA’s lack of guidance impedes oversight of contract pharmacies. GAO stated that the lack of data means that HRSA cannot effectively target its audits on covered entities with a high number of contract pharmacy arrangements. Further, GAO identified two additional concerns with HRSA’s audit process: “1) the process does not include an assessment of all potential duplicate discounts, and 2) the process for closing audits does not ensure all covered entities have fully addressed any noncompliance identified.” Finally, the lack of guidance, according to the GAO, means that covered entities have significant discretion on how they choose to conduct oversight on their contract entities, which results in a wide range of oversight activities.
GAO made seven recommendations as part of the report, including a recommendation that HRSA require covered entities to register contract pharmacies for each site of the entity for which a contract exists. GAO also recommended that HRSA issue guidance in a number of areas, including regarding contract pharmacy oversight, the lookback period for conducting audits, and the prevention of duplicate discounts under Medicaid managed care. With respect to HRSA-conducted covered entity audits, GAO recommended that audits include an assessment of duplicate discount compliance, that covered entities specify methodology for identifying noncompliance, and that covered entities provide evidence that their corrective action plans have been successfully implemented prior to closing audits. HRSA did not concur with three of GAO’s seven recommendations, which related to registering contract pharmacies and certain audit-related recommendations, citing concerns about the recommendations being too burdensome.
Separately, the Energy and Commerce Committee Subcommittee on Health conducted a hearing on July 11, 2018 to address 340B issues. The hearing, titled “Opportunities to Improve the 340B Drug Pricing Program,” was expected to address a number of proposed bills specific to 340B that the Committee released in advance of the hearing. The full text of the proposed bills for discussion can be found at the hearing website; bills for discussion would require HRSA to implement the GAO recommendations from the recently issued report discussed above, would statutorily codify a 340B “patient” definition (including two different bills that would codify different definitions), would raise the minimum disproportionate share adjustment percentage required in certain hospital covered entities from 11.75% to 18% in 2020, would require reporting on the number of low-income patients served and how savings are used, and would create a 340B Administrator within HRSA. Other bills would limit the orphan drug exclusion to only be effective when the drug is used for that orphan indication, would establish a moratorium on the registration of certain new 340B hospitals and associated sites and would impose reporting requirements on certain covered entities, would reverse the rule cutting 340B drug payments to hospitals under Medicare Part B, and would create a covered entity user fee.
We will continue to monitor for additional developments, but please contact us if you have any questions.
CMS Approves Amendment to Oklahoma Medicaid State Plan to Authorize Value-Based Supplemental Rebate Agreements
July 2, 2018
On June 27, 2018, the Centers for Medicare and Medicaid Services (CMS) approved Oklahoma State Plan Amendment 18-0008 (OK SPA 18-0008), an amendment to Oklahoma’s Medicaid state plan that authorizes Oklahoma to negotiate value-based supplemental rebate agreements with drug manufacturers for the purchase of pharmaceuticals. Specifically, OK SPA 18-0008 permits Oklahoma to “enter into value-based contracts with manufacturers on a voluntary basis” when negotiating supplemental drug rebate agreements.
A key area of legal uncertainty for value-based rebate arrangements has been the impact of such arrangements on Medicaid Best Price (Best Price). Rebates to state Medicaid agencies through a supplemental rebate agreement are generally exempt from Best Price. In this regard, OK SPA 18-0008 may allow for more innovative value-based arrangements within the Medicaid Drug Rebate Program because it minimizes the Best Price concerns. Time will tell whether this in turn encourages CMS to provide greater legal certainty for commercial arrangements and Best Price impact.
CMS’s approval of OK SPA 18-0008 also signals a change in CMS’ attitude toward outcomes-based arrangements, consistent with one of the initiatives outlined in the Trump Administration’s American Patients First Blueprint. In a press release issued by CMS, the U.S. Secretary of Health and Human Services (HHS), Alex Azar, stated, “Oklahoma’s plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs.” Furthermore, Seema Verma, the CMS Administrator noted, “We applaud Oklahoma’s proposal for a state-plan amendment, which is an innovative approach to reform how we pay for prescription drugs and will lead to better deals for our beneficiaries and our program.”
It remains to be seen if other states similarly seek to implement outcomes-based rebate arrangements by requesting CMS approve a modification to their Medicaid state plan.
HHS Secretary Azar Details Drug Pricing Actions, Encourages Industry Feedback in New RFI
May 15, 2018
This week, Health and Human Services (HHS) Secretary Alex Azar provided a more detailed assessment of HHS’s approach to advancing the “American Patients First” blueprint (Blueprint) released on Friday, May 11. Secretary Azar’s speech preceded the release of a request for information (RFI) to be published in the Federal Register on May 16. The Blueprint and RFI (together, the Proposals) summarize the Administration’s actions to address drug pricing to date, outline near-term policy changes, and solicit stakeholder feedback on a range of proposals HHS is actively considering. The RFI comment period will remain open for 60 days.
The Proposals include a number of policy changes that HHS is expected to pursue in the near term. These policy changes fall into four broad areas that HHS identified as part of its comprehensive strategy to address drug pricing.
- Better negotiation. The Proposals reference a number of changes to drug pricing in the Medicare Part B and Part D programs that fall within the Centers for Medicare and Medicaid Services’ (CMS) existing regulatory authority. CMS will consider using its authority under the Competitive Acquisition Program (CAP) to expand competitive bidding for Part B physician-administered drugs currently paid under the average sales price methodology. Secretary Azar noted on May 14 that CMS would soon release a separate RFI addressing changes to the CAP. The Proposals also call for a number of potential changes to the Part D prescription drug program, including increased flexibility for Part D plan sponsors to negotiate lower prices for high-cost drugs in protected classes that lack competition and evaluating options to cover high-cost drugs differently based on their indication.
- Lower list prices. The Proposals call on the Food and Drug Administration (FDA) to evaluate the inclusion of list prices in direct-to-consumer advertising and for CMS to improve the transparency of drug prices through an updated Medicare and Medicaid drug pricing dashboard. In addition, Secretary Azar indicated that CMS will develop proposals, potentially through new legislation, to modify the Patient Protection and Affordable Care Act’s maximum rebate amount provision, which limits manufacturer rebates on brand and generic drugs.
- Reducing out-of-pocket spending. The Proposals direct CMS to prohibit Part D plan contracts from preventing pharmacists from informing patients of lower-cost alternatives, including when they pay for drugs out of pocket—sometimes referred to as “gag” clauses. Secretary Azar announced that CMS will be notifying Part D plan sponsors during the week of May 14 that use of such clauses should end.
- Improved competition. The Proposals indicate that FDA will continue prioritizing approvals for generic drugs by curbing what Secretary Azar called “abusive” practices of branded drug companies seeking to block new generic entrants.
In addition to near-term policy changes, the Proposals include a number of actions that HHS is actively considering and on which it has requested stakeholder feedback in the RFI. Policies under consideration include statutory and regulatory changes to:
- promote value-based drug pricing, indication-based payments, and long-term financing models;
- limit manufacturer rebates from drug manufacturers to pharmacy benefit managers (PBM), Part D plan sponsors, and other health plans, including through potential changes to the federal Anti-Kickback Statute’s discount safe harbor and applicable Part D regulations;
- exclude certain remuneration from the average manufacturer price (AMP) and best price (BP) calculations;
- address the role of manufacturer copay discount cards in AMP and BP calculations and their use in federal healthcare programs;
- address growth in the 340B Drug Discount Program through a new “patient” definition and restrictions on duplicate discounts; and
- expand price transparency in Part D through a revised end-of-year statement on drug price changes and rebates and technology to inform Medicare beneficiaries with Part B and Part D about cost-sharing and lower-cost alternatives.
The RFI also seeks suggestions on other approaches to improve the affordability and accessibility of prescription drugs, as well as changes to other regulations or government policies that impact drug prices and out-of-pocket spending. Consistent with the HHS’s ongoing efforts to address regulatory burdens, the RFI solicits feedback on revisions to current regulations and policies that impose a burden on providers, payors, and others.
As he concluded his speech, Secretary Azar encouraged industry to work with HHS on approaches to increase access to drugs while lowering costs, warning that not doing so would risk moving toward policies seen in countries that set prices for pharmaceuticals. Secretary Azar noted that, if industry is unwilling to work with the Administration to lower drug prices, the Administration will “turn up the pressure” until patients start to see the benefits.
Connecticut Poised to Pass Drug Price Transparency Law
May 11, 2018
On May 8, 2018, the Connecticut Senate passed House Bill 5384 (HB 5384), concerning prescription drug price transparency. HB 5384 awaits the Governor’s signature, which is expected to be duly provided. Thus, Connecticut appears poised to join the growing number of states with a prescription drug price transparency law.
Much like other state drug price transparency laws, HB 5384 would impose reporting requirements on various parties in the prescription drug insurance system, including pharmacy benefit managers, health insurers, and pharmaceutical manufacturers, among others.
However, HB 5384 is different than other state laws that have preceded it in that it creates a process that allows health insurance carriers to file a complaint against prescription drug manufacturers. In particular, carriers can file a complaint with the Connecticut Insurance Commissioner about certain prescription drugs covered by their health plans whose WAC increases cause the premium of the health benefit plan to increase by at least one dollar per member per month. Manufacturers must provide a written response to the Commissioner, including information regarding rebates paid to the carrier and product utilization. The Commissioner must issue a determination as to whether the increase in the cost of the prescription drug caused the health plan’s premiums to increase by at least one dollar per member, per month.
A copy of the bill is available here.
Trump Administration Releases Blueprint to Lower Drug Prices
May 11, 2018
On May 11, the Trump Administration released the “American Patients First” proposal, a “Blueprint” containing a number of regulatory and legislative changes aimed at reducing prescription drug prices. President Trump and Health and Human Services (HHS) Secretary Alex Azar emphasized that all stakeholders would experience changes as a result of the Administration’s proposed immediate actions. Furthermore, the Blueprint solicits stakeholder feedback on a number of issues that could result in additional policy changes moving forward. Secretary Azar is expected to provide more detailed implementation guidance in the coming days through meetings with Members of Congress and a formal announcement at HHS headquarters next week.
Two particularly noteworthy provisions of the Blueprint relate to the Federal Anti-Kickback Statute (AKS). As part of the Blueprint’s proposals to incentivize lower list prices, HHS will consider as a “further opportunity” the possibility of revisiting the AKS discount safe harbor for drug rebates. The Blueprint also requests information and feedback from stakeholders regarding potential revisions to the AKS to facilitate broader adoption of value-based arrangements.
Please check back for additional updates on the Blueprint and its implications for industry stakeholders.
Nevada Legislative Commission Announces Early Review of Drug Price Transparency Regulation, Likely Speeding Adoption
May 10, 2018
The Nevada Legislative Commission (Commission) recently announced that it will hold an “early review” meeting to consider regulations the Department of Health & Human Services (DHHS) has proposed to implement SB 539, the state’s price transparency law governing prescription drugs considered “essential” to the treatment of diabetes.
The Commission will meet on Wednesday, May 16 at 8:30 am PST to review a number of pending regulations, including the SB 539 regulations (R042-18). Additional information, including a meeting agenda and link to streaming video will be available on the Legislature’s Calendar of Meetings here.
The Commission’s decision to conduct an early review of the regulation suggests the DHHS will adopt the regulation in its current form during the May 31 meeting (see our post from May 1) and positions the regulation to become effective prior to the July 1 deadline for adoption of permanent regulations.
Under the Nevada Administrative Procedure Act, if the regulation adopted after the DHHS’ May 31 hearing is identical to the regulation the Commission reviews on May 16, the legislative counsel must promptly file the final draft of the regulation with the Secretary of State. The regulation then becomes effective when the final draft of the regulation is filed.
HRSA Again Proposes To Delay 340B Rule Effective Date
May 7, 2018
On Friday, May 4, 2018, the Health Resources and Services Administration (HRSA) once more proposed to delay the effective date of an Obama-era 340B final rule that set forth regulations for the calculation of 340B ceiling prices and the implementation of civil monetary penalties (CMPs) for manufacturers that knowingly and intentionally charge more than the 340B ceiling price for covered outpatient drugs purchased by 340B participating entities. The final rule, which was published in the Federal Register in January 2017, has already been delayed multiple times. Currently, the final rule is scheduled to take effect July 1, 2018. In the new proposed rule, HRSA proposes to delay the effective date until July 1, 2019, “to allow a more deliberate process of considering alternative and supplemental regulatory provisions and to allow for sufficient time for additional rulemaking.” HRSA further notes that HHS is “in the process of developing new comprehensive policies to address the rising costs of prescription drugs,” including policies affecting Medicare, Medicaid, and the 340B program. HRSA does not provide a time frame for these additional regulations and policies. The proposed rule provides a short, 15-day comment period for stakeholders to provide feedback on the proposal to delay the January 2017 final rule’s effective date for an additional year, to July 1, 2019. The proposed rule is available here.
Nevada Announces Public Hearing on Proposed SB 539 Diabetes Drug Pricing Regulations
May 1, 2018
Nevada’s Department of Health & Human Services (NV DHHS) recently announced a public hearing on regulations it is proposing for the implementation of SB 539, a drug price transparency law that requires manufacturers to report detailed information about drugs NV DHHS determines are essential to the treatment of diabetes.
The public hearing will take place on Thursday, May 31, 2018 at 11:00 am PST. The hearing will be broadcast through Nevada’s legislative website and NV DHHS is taking written public comments on or before May 31, 2008 at 5:00 pm PST. More information about Nevada’s Public Hearing can be found on NV DHHS’ SB 539 website, available here.
NV DHHS also recently released a new version of its proposed regulations containing an expanded preamble. The current draft of the proposed regulations, dated April 23, 2018, is primarily concerned with establishing specific procedures NV DHHS will follow when it receives a public records request for information manufacturers report pursuant to SB 539 that may constitute a trade secret under the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (DTSA). The preamble provides a summary of the proposed regulations as well as the State’s summary of the Nevada Public Records Act and certain federal laws governing the protection of trade secrets.
Importantly, the revised proposed regulations require NV DHHS to undertake an initial review to determine whether NV DHHS reasonably believes public disclosure of information manufacturers request to keep confidential would constitute misappropriation of a trade secret under the DTSA. The proposed regulations also require NV DHHS to treat as persuasive authority the interpretation and application of the term “trade secrets” in the trade secret statutory exemption of the federal Freedom of Information Act, 5 U.S.C. §552(b)(4).
Given that the protection of trade secrets is an issue under multiple state drug price transparency statutes, this development may inform how manufacturers approach other public records request-like issues in other state drug price transparency statutes.
HHS Secretary Announces New “Drug Czar”
March 29, 2018
On Thursday, March 29, 2018, U.S. Department of Health and Human Services Secretary Alex Azar announced that Daniel Best would be the new “drug czar.” His specific title is Senior Advisor to the Secretary for Drug Pricing Reform and he is tasked with leading the initiative to lower the high price of prescription drugs. Best previously worked at CVS Caremark as corporate vice president of industry relations for the company’s Medicare Part D business. Prior to his work at CVS Caremark and affiliated companies, he worked at Pfizer for twelve years as Director of Business Development. Secretary Azar touted Best’s experience in the industry, stating “[h]e has the deep experience necessary to design and enact reforms to lower the price of medicines that help Americans live healthier and longer lives.” For more information on the U.S. Department of Health and Human Services website, please click here.
U.S. Senator Releases Report on Prescription Drug Prices Increases
March 26, 2018
On March 26, 2018, at the request of ranking member U.S. Senator Claire McCaskill, the minority staff of the Committee on Homeland Security and Governmental Affairs released a report examining the history of drug prices for the brand-name drugs most commonly prescribed for seniors. The report found that the prices for each of the top 20 most-prescribed brand-name drugs in the Medicare Part D program increased over the last five years. Specifically, the report found that, on average, the prices for these drugs increased 12% every year for the last five years; twelve of these drugs had increased their prices over 50% in the five-year period; and six of these drugs had prices increase over 100%. The report does not examine the benefits and value these drugs offer seniors or the research and development cost needed to find the next generation of breakthrough drugs. To view the report, please click here.
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