It’s been a roller coaster two years for the 340B Program, and we are now back to review some of the major developments and program changes during this time. On the highest level, despite a flurry of proposed legislative action, the 340B Program remains largely unchanged from where it stood prior to 2017. As covered in more detail below, the notable exception to this is the significant Medicare Part B reimbursement reductions for certain categories of 340B covered entities. Of course, in typical 340B Program “see saw” fashion, the future of these reimbursement reductions remains uncertain after a surprising recent court decision striking down the legality of these reductions for 2018. The 340B Program has also seen changes in the audit process for covered entities, which we discuss below.
Medicare Part B Payment Reductions
Certain categories of 340B covered entities now receive significantly reduced Medicare Part B reimbursement for a large portion of discounted drugs purchased under the 340B Program. CMS justified these payment cuts by raising concerns that prior reimbursement for 340B Program drugs greatly exceeded the cost of the drug, encouraged excessive use of hospital services, and have not been directly used to expand hospital charity care offerings.
The cuts effectively imposed a 27 percent payment reduction on separately payable drugs purchased via the 340B Program in the outpatient hospital setting. These cuts were originally imposed via the Centers for Medicare and Medicaid Services (“CMS”) 2018 hospital Outpatient Prospective Payment System (“OPPS”) Final Rule and went into effect on January 1, 2018. The OPPS payment cut represented a significant change for hospitals enrolled in the 340B Program as a disproportionate share hospital (“DSH”), a rural referral center (“RRC”), or an urban sole community hospital (“SCH”). The payment cut did not apply to critical access hospitals (“CAHs”) (which are not paid under the OPPS), rural SCHs, children’s hospitals, and PPS-exempt freestanding cancer hospitals. The payment cuts contemplated by the 2018 OPPS Final Rule did not include non-excepted off-campus provider based departments (which functioned as “Child Sites” in 340B Program parlance) established after November 2, 2015 that are paid under the Medicare Physician Fee Schedule.
The 2019 OPPS Final Rule issued on November 2, 2018 extended these payment cuts to the non-excepted off-campus provider based departments originally exempted under the 2018 OPPS Final Rule. This 2019 OPPS Final Rule created a significant expansion of the payment cuts and took effect on January 1, 2019.
However, on December 27, 2018 Judge Rudolph Contreras of the U.S. District Court for the District of Columbia somewhat surprisingly ruled in The American Hospital Association, et al. v. Alex Azar, et al. that the U.S. Department of Health and Human Services (“HHS”) exceeded its authority in setting the 340B reimbursement rates in the 2018 OPPS Final Rule. While this ruling only applies to 2018 and will likely be appealed, it nonetheless represents a significant victory for 340B covered entities and continues the ongoing “push pull” battle over regulation of the 340B Program. Affected 340B covered entities will want to closely monitor the outcome of this litigation and whether CMS issues any forthcoming guidance on how to handle the submission of 340B drug claims in 2019.
The 340B Program has been an unusually popular legislative item over the past two years, with varying, and often conflicting, proposals circulating within Congress. However, given the well-known Congressional gridlock, most Washington insiders believe any progress is unlikely at this point, particularly with a divided Congress.
Regardless of its likelihood for passage, the legislation provides insight into the potential future of the 340B Program and warrants review. The primary proposals would:
- Reverse the Medicare Part B payment reduction;
- Prohibit the registration of certain new 340B hospitals and Child Sites (generally DSHs) for an indefinite period of time;
- Mandate increased reporting requirements for Covered Entities;
- Amend and narrow the “eligible patient” definition; and
- Provide HRSA OPA with increased oversight authority of 340B Program participants—mainly covered entities.
Enactment of 340B Program Ceiling Price and Civil Monetary Penalty Rule
After years of delay, HRSA OPA will finally implement the long-delayed rulemaking that will both implement civil monetary penalties (“CMPs”) for manufacturers who knowingly and intentionally charge a covered entity more than the ceiling price for a covered outpatient drug and provide clarity regarding the requirement that manufacturers calculate the 340B ceiling price on a quarterly basis and how the ceiling price is to be calculated. The 340B ceiling price refers to the maximum amount that a manufacturer can charge a covered entity for the purchase of a 340B covered outpatient drug. The 340B ceiling price is statutorily defined as the Average Manufacturer Price (“AMP”) reduced by the rebate percentage, which is commonly referred to as the Unit Rebate Amount (“URA”).
The CMP rule, now effective as of January 1, 2019, will require manufacturers who knowingly and intentionally charge a covered entity more than the 340B ceiling price to pay a civil penalty not to exceed $5,000 for each “instance of overcharging.” An “instance of overcharging” is considered “each order for an NDC [national drug code] … regardless of the number of units of each NDC ordered.”
As part of complying with the new rule related to ceiling price clarity, beginning January 1, 2019, manufacturers will be required to submit pricing data into the 340B Office of Pharmacy Affairs Information System (“340B OPAIS”). The pricing component of the 340B OPAIS will be available for approximately two weeks each quarter for manufacturers to upload their data. The first two-week manufacturer submission period is February 15, 2019 through March 4, 2019. HRSA OPA will then use that data to calculate and verify 340B ceiling prices on a quarterly basis. Authorized covered entity users would then be able to access the pricing component of the 340B OPAIS in a secure manner to view 340B ceiling prices once the quarterly validation process has occurred. HRSA expects to publish 340B ceiling prices on April 1, 2019 and encourages all stakeholders to regularly check its website for announcements and further information in the coming weeks.
HRSA OPA Audits
As many of you are likely aware, HRSA OPA recently contracted with The Bizzell Group to conduct 340B Program audits of 340B covered entities on its behalf. While much of the audit process remains the same, we have seen increasingly granular inquiries into the pharmaceutical procurement process. Further, recent HRSA OPA audit reports have also requested annotated copies of covered entities’ 340B policies and procedures. As such, there is no time like the present to work with the appropriate stakeholders to ensure your organization’s policies and procedures are up to speed.
Despite an unusual national focus on the 340B Program over the last few years, the overall state of the program remains relatively consistent. Going forward, and with the prospect of a divided government over at least the next two years, it is quite unlikely for any significant legislative changes to the 340B Program to occur. Nonetheless, CMS has signaled through the imposition of the Part B reimbursement cuts that it is willing to use its regulatory powers to rein in what it perceives as overutilization of certain 340B Program benefits. As such, 340B Program participants, particularly 340B covered entities, should closely monitor CMS rulemaking notices for potential updates to the 340B Program in addition to the ongoing litigation addressing the legality of the CMS rulemaking.