The Proposed Rule would revise and replace, in part, the 340B Program Regulations at 42 C.F.R. part 10, finalized in 2013 under the 340B Orphan Drug Exclusion Final Rule, that were vacated by a U.S. district court in PhRMA v. HHS, No. 13-01501 (D.D.C. May 23, 2014). HRSA proposes to retain certain definitions, for example, that were promulgated under the prior regulations, but proposes to revise or delete others. Stakeholders may be particularly interested in the proposed definition of the term “covered outpatient drug” for purposes of the 340B program.
In addition, the Proposed Rule seeks to define the standards and methodology for calculating 340B ceiling prices, including proposals seeking to codify policies specific to “penny pricing” and regarding “price estimation” requirements for new drugs.
The Proposed Rule also seeks to establish the standards and process for imposing CMPs on certain manufacturers that “knowingly and intentionally” charge a covered entity more than the ceiling price.
HRSA proposes to codify the definition of a “covered outpatient drug” under the 340B regulations to specify that this term has the meaning set forth in section 1927(k) of the Social Security Act—the Medicaid Drug Rebate Program (MDRP) statute.
HRSA also proposes to define the term “manufacturer”—similarly by reference to the MDRP statute without further elaboration.
Calculation of Ceiling Prices
Calculation. Proposed § 10.10(a) provides that “[t]he 340B ceiling price for a covered outpatient drug is equal to the Average Manufacturer Price (AMP) for the smallest unit of measure minus the unit rebate amount (URA) and will be calculated using six decimal places.” HRSA further proposes that, to “ensure the final price is operational in the marketplace, [the Agency] then multiplies this amount by the drug’s package size and case package size.” HRSA plans to publish 340B ceiling prices rounded to the nearest two decimal places.
Penny Pricing. HRSA seeks to codify its “penny pricing” policy as part of this Proposed Rule. To date, HRSA has articulated this policy only through informal guidance; it has not been included in statute or regulation. In the Proposed Rule, HRSA asserts that, in cases where the statutory ceiling price formula results in a zero 340B price, a manufacturer would be required to charge a $0.01 per unit of measure.
New Drug Price Estimation. Consistent with 340B program final guidelines published in 1995, the Proposed Rule seeks to codify a “price estimation” policy for new drugs. Specifically, HRSA proposes that a manufacturer would continue to estimate the 340B ceiling price for a new covered outpatient drug during the first three quarters that such drug is available for sale. The manufacturer would then be required to calculate “the actual 340B ceiling price” for the drug beginning with the fourth quarter that it is available. The manufacturer also would be required, during that fourth quarter, to calculate the actual 340B ceiling price for the first three quarters, “and refund or credit covered entities which paid above the calculated ceiling price during those quarters.” HRSA proposes that such “refunds and credits must be completed by the end of the fourth quarter,” after the drug is available for sale.
Agency Authority. HRSA has proposed these ceiling price provisions pursuant to section 340B(d)(1)(B)(i)(I) of the Public Health Service Act (PHSA), which requires the “[d]evelopment and publishing through an appropriate policy or regulatory issuance [of] precisely defined standards and methodology for the calculation of ceiling prices” under 340B (emphasis added). This provision was added to the 340B statute in 2010 by the Affordable Care Act (ACA).
Application of Civil Monetary Penalties
Agency Authority. The ACA also added PHSA section 340B(d)(1)(B)(vi), which provides for “[t]he imposition of sanctions in the form of civil monetary penalties, which—(I) shall be assessed according to standards established in regulations to be promulgated by the Secretary . . .; (II) shall not exceed $5,000 for each instance of overcharging a covered entity that may have occurred; and (III) shall apply to any manufacturer with an agreement under this section that knowingly and intentionally charges a covered entity a price for purchase of a drug that exceeds the maximum applicable price . . . .” (emphases added).
Applicable Procedures. HRSA proposes that the Department of Health and Human Services Office of Inspector General (OIG) would have the authority to bring 340B CMP actions utilizing the standards applied to other CMPs under 42 C.F.R. Parts 1003 and 1005. HRSA further proposes that any CMP assessed for an “instance of overcharging” will be in addition to repayment owed to a covered entity.
“Knowingly and Intentionally.” The Proposed Rule makes clear that “a manufacturer would only be subject to [the 340B CMPs] when the overcharge was a result of a knowing and intentional act.” The Proposed Rule does not include separate definitions for the terms “knowingly and intentionally” for purposes of these CMP provisions, however.
“Instance of Overcharging.” The Proposed Rule defines an “instance of overcharging” as “any order for a certain covered outpatient drug, by NDC [National Drug Code], which results in a covered entity paying more than the ceiling price . . . for a covered outpatient drug” (emphasis added). HRSA proposes that “each order for a NDC will constitute a single instance, regardless of the number of units of each NDC in that order.” HRSA further states that instances of overcharging can result from “any order placed directly with a manufacturer or through a wholesaler, authorized distributor, or agent.” HRSA also proposes that an “instance of overcharging may occur at the time of initial purchase or when subsequent ceiling price recalculations resulting from pricing data submitted to CMS occur and the manufacturer refuses to refund or issue a credit to a covered entity.”
Specialty Distribution Systems. The Proposed Rule states that “[a]ll requirements for offering the 340B ceiling price to covered entities apply regardless of the distribution system” (emphasis added), and expressly adds that “[s]pecialty distribution, regardless of justification, must ensure 340B covered entities purchase covered outpatient drugs at or below the ceiling price.” According to the Proposed Rule, a manufacturer’s “failure to ensure that covered entities receive the appropriate 340B discount through its distribution arrangements may be grounds for the assessment of [CMPs] under this regulation.”
The full Proposed Rule can be accessed at http://www.gpo.gov/fdsys/pkg/FR-2015-06-17/pdf/2015-14648.pdf.
1 HRSA, Notice of Proposed Rulemaking, 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation, 80 Fed. Reg. 34,583 (June 17, 2015).
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William A. Sarraille
Global Life Sciences Practice
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