E7-13239. Notice Regarding the 340B Drug Pricing Program; Children's Hospitals

AGENCY:

Health Resources and Services Administration, HHS.

ACTION:

Notice.

SUMMARY:

Section 340B of the Public Health Service Act (section 340B) and section 1927(a) of the Social Security Act (section 1927(a)) implement a drug pricing program in which manufacturers who sell covered outpatient drugs to covered entities must agree to charge a price that will not exceed an amount determined under a statutory formula. Section 6004 of the Deficit Reduction Act of 2005 (Pub. L. 109-171) (section 6004) added children's hospitals to the list of covered entities eligible to access 340B discounted drugs. The purpose of this notice is to inform interested parties of proposed guidelines regarding the addition of children's hospitals that meet certain requirements, specifically: (1) The process for the addition of children's hospitals to the 340B Program; and (2) the obligation of manufacturers to provide the statutorily mandated discount to children's hospitals. These proposed guidelines will not take effect until final guidelines are issued.

DATES:

The public is invited to comment on the proposed guidelines by September 7, 2007. After consideration of the submitted comments, the Health Resources and Services Administration (HRSA) will issue the final guidelines.

ADDRESSES:

Address all comments to Mr. Bradford R. Lang, Public Health Analyst, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), HRSA, 5600 Fishers Lane, Parklawn Building, Room 10C-03, Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT:

Mr. Jimmy Mitchell, Director, OPA, HSB, HRSA, 5600 Fishers Lane, Parklawn Building, Room 10C-03, Rockville, MD 20857, or by telephone through the Pharmacy Services Support Center at 1-800-628-6297.

SUPPLEMENTARY INFORMATION:

(A) Background

Section 602 of Public Law 102-585, the Veterans Health Care Act of 1992, enacted section 340B, Limitation on Prices of Drugs Purchased by Covered Entities and added certain implementation provisions for the 340B Program to section 1927(a) of the Social Security Act. Section 340B contains the majority of the requirements for covered entities participating in the 340B Program, while the relevant provisions of section 1927(a) of the Social Security Act provide primarily for the requirement that manufacturers provide the statutorily mandated discount to covered entities.

Section 340B contains a list of covered entities that are eligible to receive discounts through the 340B Program. The list includes entities such as Federally Qualified Health Centers, State-operated AIDS drug purchasing assistance programs, and certain disproportionate share hospitals. Children's hospitals were not included as covered entities under section 340B in the Veterans Health Care Act of 1992 as enacted.

Section 6004 added children's hospitals as covered entities eligible to access 340B discounted drugs. To accomplish this, section 6004 did not amend section 340B (which contains many of the requirements for covered entities). Section 6004 amended section 1927(a) of the Social Security Act (which primarily contains requirements for manufacturers' participation) to add children's hospitals to the 340B Program.

To be eligible for the 340B Drug Pricing Program, section 1927(a), as amended by section 6004, requires children's hospitals to meet the requirements of clauses (i) and (iii) of section 340B(a)(4)(L) of the Public Health Service Act, which contain provisions for State or local government affiliations and non-participation in group purchasing organizations. In addition, children's hospitals must meet the requirements of clause (ii) of such section, which contains requirements for the provision of indigent care, if such section “were applied by taking into account the percentage of care provided by the hospital to patients eligible for medical assistance” under Medicaid.

(B) Obligation of Manufacturers To Provide 340B Discounts to Children's Hospitals

Section 1927(a)(5)(A) of the Social Security Act requires manufacturers to enter into agreements with the Secretary that meet the requirements of section 340B with respect to covered outpatient drugs purchased by a covered entity. Section 1927(a)(5)(B), as amended by section 6004, defines covered entities for purposes of section 1927(a)(5) as those covered entities listed in the Public Health Service Act and certain children's hospitals. As section 1927(a)(5)(A) requires manufacturers to enter into agreements “with respect to covered outpatient drugs purchased by a covered entity,” and covered entity is defined as including children's hospitals for purposes of section 1927, manufacturers are required to extend 340B pricing to eligible children's hospitals.

The Pharmaceutical Pricing Agreements (PPA) between the Secretary and each manufacturer require manufacturers to provide 340B discounted covered outpatient drugs to covered entities. Given the clear congressional intent in Section 6004 to expand the category of covered entities, the PPAs currently in place effectively require manufacturers to provide 340B discounts to children's hospitals without need for further amendment to currently existing PPAs.

(C) Process for Admission of Children's Hospitals to the 340B Program

(1) Children's Hospitals Participation

Children's hospitals participation in the 340B Drug Pricing Program is voluntary. Consistent with the participation of other covered entities, once a children's hospital has elected to participate in the program, it must wait to enter or withdraw from the program until the next official updating of the 340B covered entity database. OPA will update this list two weeks before the beginning of each calendar quarter. Participating children's hospitals must comply with all program guidelines for covered entities until the date they are removed from the 340B covered entity database. OPA will accept applications from children's hospitals for entry into the 340B Program as of the date of publication of the final notice of these guidelines.

(2) Certification by Children's Hospitals Prior to 340B Drug Pricing Program Entry

As with other covered entities, prior to entry into the 340B Drug Pricing Program, children's hospitals will be required to provide OPA with a certification regarding several different program requirements.

As a threshold matter, a hospital wishing to qualify for the 340B Program as a children's hospital must demonstrate that the hospital is a “children's hospital” as defined by section 6004. Section 6004 requires that a hospital wishing to qualify as a children's hospital covered entity must (1) satisfy the definition of “children's hospital” contained in section 1886(d)(1)(B)(iii) of the Social Security Act; and (2) meet minimum requirements for the receipt of an additional payment under Medicare pursuant to section 1886(d)(5)(F)(i) of the Social Security Act (if such clause were applied by taking into account the percentage of care provided by the hospital to Medicaid patients). Given the reliance of section 6004 on Medicare payment provisions for the definition of “children's hospital,” a hospital will need to demonstrate that it has been provided a Medicare provider number identifying the hospital as a “children's hospital” (i.e., a hospital with a 3300 series Medicare provider number).

Prior to entry into the 340B Program, a children's hospital must certify that it will abide by all the requirements of section 340B that all other covered entities abide by (e.g., prohibition on resale of covered outpatient drugs; prohibition on duplicate discounts or rebates). While children's hospitals are not explicitly mentioned in section 340B, it is implicit in section 1927(a) of the Social Security Act that children's hospitals abide by the requirements of section 340B. Section 1927(a) provides that manufacturers must have entered into agreements with the Secretary that meet the requirements of section 340B and several of the provisions contained in these agreements concern covered entities' compliance with provisions of section 340B. Furthermore, it is within the Secretary's authority under section 340B to create guidelines necessary for the implementation of the program. Unless children's hospitals are subject to all of the same rules as other covered entities, the inclusion of children's hospitals in the 340B Program would be difficult, if not impossible.

Prior to entry into the 340B Program a children's hospital must certify compliance (along with the date of compliance) with clauses (i), (ii), and (iii) of section 340B(a)(4)(L) (in accordance with section 1927(a)(5)(B) of the Social Security Act). To comply with section 340B(a)(4)(L)(i), a children's hospital will have to certify (and include such supporting documentation as requested by OPA) that the children's hospital is:

(1) Owned or operated by a unit of State or local government;

(2) a public or private non-profit corporation which is formally granted governmental powers by a unit of State or local government; or

(3) A private non-profit hospital under contract with State or local government to provide health care services to low income individuals who are not eligible for Medicare or Medicaid.

To comply with section 340B(a)(4)(L)(ii), a children's hospital will have to certify (and include such supporting documentation as requested by OPA) that the children's hospital:

(1) Is located in an urban area, has 100 or more beds, and can demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to Medicare), during the cost reporting period in which the discharges occur, for indigent care from State and local government sources and Medicaid exceed 30 percent of its total of such net inpatient care revenues during the period; or

(2) for the most recent cost reporting period that ended before the calendar quarter involved, had a disproportionate share adjustment percentage (as determined under section 1886(d)(5)(F) of the Social Security Act) greater than 11.75 percent.

To comply with section 340B(a)(4)(L)(iii), a children's hospital will have to certify that the children's hospital will not participate in a group purchasing organization or group purchasing arrangement for covered outpatient drugs as of the effective date in the 340B covered entity database.

Prior to entry into the 340B Program, OPA requires certification of a children's hospital's compliance with section 340B(a)(4)(L)(ii). In addition to having a 3300 series Medicare provider identification number, initially, OPA will seek verification of compliance based on the Medicare cost report submitted by the children's hospital to the Centers for Medicare and Medicaid Services (CMS). Given that children's hospitals are not eligible for the prospective payment system, the materials submitted by any particular children's hospital may not provide the required verification. To the extent that OPA is unable to obtain independent verification, a children's hospital will be expected to verify that the children's hospital meets the requirements of section 340B(a)(4)(L)(ii) if requested by OPA.

OPA is considering whether it would be appropriate to require a statement from an independent auditor certifying that a children's hospital meets the requirements of section 340B(a)(4)(L)(ii) in those cases where there is no established method of verification analogous to that utilized to annually certify DSH eligibility in the 340B Drug Pricing Program. OPA invites comments from stakeholders on the feasibility of an independent auditor to verify eligibility of children's hospitals. OPA also seeks comments from children's hospitals as to the relative burden that an independent auditor statement may entail and welcomes alternate proposals as to how to best ensure the integrity of the 340B Drug Pricing Program while minimizing costs.

(3) Eligibility for Retroactive Discounts

Section 6004 indicates that the amendment authorizing entry of children's hospitals into the 340B Program “shall apply to drugs purchased on or after the date of the enactment of this Act.” Section 6004 was enacted on February 8, 2006. Therefore, once they are admitted to the 340B Program, children's hospitals are eligible for 340B drug pricing retroactive to February 8, 2006. However, a children's hospital will be eligible for retroactive discounts only to the extent that it has satisfied all requirements for participation in the 340B program back to the date discounts are requested.

Similar to when the 340B Program was first started, children's hospitals that participate in the program will be eligible for retroactive discounts. Until 120 days after publication of the final notice, children's hospitals which have been included in OPA's database of covered entities may request retroactive discounts (discounts, rebates, or account credit) from pharmaceutical manufacturers for covered outpatient drugs that satisfy all the following conditions:

(1) The covered outpatient drugs must have been purchased on or after February 8, 2006;

(2) The covered outpatient drugs must not have generated Medicaid rebates (the children's hospital must have appropriate documentation to demonstrate this); and

(3) The covered outpatient drugs must have been purchased on or after the date on which the children's hospital satisfied all requirements for participation in the 340B Program as outlined in section (C)(2) of this notice.

In order to satisfy the last condition listed above, a children's hospital must be able to demonstrate, at a minimum, that as required by section 340B(a)(4)(L)(iii) of the Public Health Service Act the children's hospital did not have a group purchasing agreement for covered outpatient drugs and satisfied the requirements of section 340B(a)(4)(L)(i) and 340B(a)(4)(L)(ii) at the time the covered outpatient drugs for which rebates are requested were purchased.

Dated: June 29, 2007.

Elizabeth M. Duke,

Administrator.