[Federal Register Volume 59, Number 180 (Monday, September 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23095]
[[Page Unknown]]
[Federal Register: September 19, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
Notice Regarding Section 602 of the Veterans Health Care Act of
1992 Outpatient Hospital Facilities
AGENCY: Public Health Service, HHS.
ACTION: Final notice.
-----------------------------------------------------------------------
SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care
Act of 1992'' (the ``Act''), enacted section 340B of the Public Health
Service Act (``PHS Act''), ``Limitation on Prices of Drugs Purchased by
Covered Entities.'' Section 340B provides that a manufacturer who sells
covered outpatient drugs to eligible entities must sign a
pharmaceutical pricing agreement (the ``Agreement'') with the
Secretary, Department of Health and Human Services, in which the
manufacturer agrees to charge a price for covered outpatient drugs that
will not exceed the amount determined under a statutory formula.
The purpose of this notice is to inform interested parties of final
program guidelines concerning the inclusion of outpatient
disproportionate share hospital (DSH) facilities in the PHS drug
discount program.
FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Director,
Office of Drug Pricing, Bureau of Primary Health Care, 4350 East West
Highway, West Tower, 10th Floor, Bethesda, MD 20814, tel: (301) 594-
4353.
EFFECTIVE DATE: October 19, 1994.
SUPPLEMENTARY INFORMATION:
(A) Background
Proposed guidelines were announced in the Federal Register at 59 FR
29300 on June 6, 1994. A period of 30 days was established to allow
interested parties to submit comments. The Office of Drug Pricing
received 8 letters with comments concerning legal authority for
developing the proposed guidelines, responsibility for determining
eligibility, the inclusion of non-traditional outpatient facilities,
the need for a definition of eligible hospital facility, ambiguity in
the policies of the Health Care Financing Administration (HCFA)
regarding the Medicare cost report, possible exceptions for unique
circumstances, a retroactive effective date, and general comments
concerning the definition of ``patient'' and a contracted pharmacy
service mechanism.
The following section presents a summary of all major comments,
grouped by subject, and a response to each comment. All comments were
considered, and the guideline is adopted as proposed, with minor
changes to increase clarity.
(B) Comments and Responses
Comment: Manufacturers should not be required to provide discounts
to outpatient facilities that are included on the Medicare cost reports
of eligible DSHs until the PHS Office of Drug Pricing includes the
names of the eligible outpatient facilities on the master list of
eligible covered entities.
Response: When an eligible DSH submits the list of all outpatient
facilities (on-site and off-site) included on its Medicare cost report
and Medicaid billing status information to the Office of Drug Pricing
and the Office adds these facilities to the master list of eligible and
participating entities during regular quarterly updates, the facilities
will then be able to access PHS discount pricing. This information will
be posted on the Electronic Data Retrieval System (EDRS), maintained by
the Office of Drug Pricing. To access this information call (301) 594-
4992.
Comment: The proposed guidelines have created a new definition of
``DSH'' which appears to be within the realm of legislating as opposed
to rulemaking.
Response: Section 340B(a)(4) of the PHS Act lists the various
groups of entities eligible to receive PHS discount pricing. Section
340B(a)(4)(L) describes a subset of ``hospitals'' as defined in section
1886(d)(1)(B) of the Social Security Act as eligible to participate in
the program. Because section 1886 addresses Medicare payment for
hospital inpatient services only, the scope of the term ``hospital''
has been limited to the hospital inpatient services. However, section
340B deals exclusively with outpatient drugs. Although Congress clearly
intends this narrow definition be used to identify the Medicare
disproportionate share hospitals which are eligible for section 340B
drug discounts, we do not believe it is reasonable to use this same
definition to limit where the section 340B outpatient drugs can be
used. Some disproportionate share hospitals offer outpatient services
in off-site or satellite outpatient facilities. Further, the movement
of nonprofit hospitals in recent years has been to reorganize and offer
a variety of services, other than traditional inpatient hospital
services, through separate divisions, lines of business, or entities.
Therefore, for purposes of section 340B drug discounts, a further
interpretation of ``hospital'' is needed.
Comment: In some instances, the Medicare cost report does not
include all of the clinics and services which should be eligible for
the PHS discount pricing. For example, hospitals refer patients for
specific types of treatments to other hospitals, such as large teaching
hospitals which have specialized equipment and medical personnel.
Further, hospitals are establishing separate primary care services in
different areas of the community. These facilities are often free-
standing and not included on the DSH Medicare cost report, but
generally are customers of the hospitals and have limited financial
resources.
Response: Although it is understandable that the DSH would desire
to obtain PHS pricing for these various facilities, the statute clearly
states that it is only the DSH that qualifies for discount pricing. We
have attempted to define DSH in a manner consistent with HCFA policy
guidelines (Provider Certification, State Operation Manual, section
2024). Only outpatient facilities which are an integral component of
the DSH will be included on the DSH Medicare cost report, and only
these facilities will be eligible for PHS discount pricing.
Comment: The proposed guidelines would permit any health care
entity, by means of its business relations with other health care
entities, to make itself eligible for PHS pricing. Any clinic,
facility, or community hospital affiliated with a DSH could consolidate
its cost reporting requirements and use the Medicare provider number of
the DSH to make itself eligible for PHS pricing. This is not consistent
with Congress's intent in precisely defining a list of entities
eligible for the PHS discount pricing.
Response: Congress referred to section 1886 of the Social Security
Act (Medicare inpatient hospital payment) for the definition of DSH;
therefore, it is reasonable to utilize existing Medicare rules to
determine eligibility for PHS discount pricing. The proposed Medicare
cost report test was developed by Medicare officials and used, in part,
to determine whether a facility is a component of a hospital. If an
outpatient facility does not share in the hospital cost report, it is
properly viewed as an independent, free-standing facility.
When a DSH attempts to certify multiple components as a single
hospital for purposes of Medicare certification, it must follow
guidelines developed by HCFA. These guidelines (Provider Certification,
State Operation Manual, section 2024) establish tests to determine
whether an additional hospital facility, geographically separated but
in the same metropolitan area, is a separate facility from or a
component of a single hospital. These tests include: (a) all components
subject to the control and direction of one common owner (i.e.,
governing body) which is responsible for the operational decisions of
the entire hospital enterprise; (b) one chief medical officer who
reports directly to the governing body and who is responsible for all
medical staff activities of all components; (c) integration of the
organized medical staff (e.g., all medical staff members having
privileges at all components); and (d) one chief executive officer
through whom all administrative authority flows and who exercises
control and surveillance over all administrative activities of all
components. This does not preclude the establishment of a deputy or
assistant executive officer position.
If the off-site clinic meets these tests, it would be included in
the DSH Medicare cost report. This test clearly determines whether a
facility is an integral part of a DSH hospital, and is an appropriate
standard to determine eligibility. It incorporates Medicare criteria
that are not ambiguous and forms an independent and objective basis on
which to determine eligibility.
Comment: The proposed guidelines should be applied uniformly to all
DSH outpatient facilities, regardless of whether they fit the common
perception of a traditional hospital outpatient clinic (e.g., include
facilities that serve prison inmates, HMOs, home infusion and home
health patients). Anything short of this would be extremely difficult
to administer since separating traditional from non-traditional
facilities would be a highly subjective and time-consuming exercise.
Further, PHS should include in the final notice a specific definition
for eligible ``outpatient facility.''
Response: Section 340B(b) of the PHS Act refers to section 1927(k)
of the Social Security Act for the definition of ``covered outpatient
drug.'' This definition does not include any limitations on outpatient
settings, and there is no requirement that the covered drug be used in
a ``traditional'' outpatient setting. Any outpatient facility included
on an eligible DSH's Medicare cost report can access PHS pricing if it
is included on the master list of eligible entities.
Comment: There are certain circumstances which might prevent an
otherwise eligible outpatient facility from billing under the DSH's
provider number (e.g., State or local laws requiring a facility or
pharmacy to bill all third party payers directly). In these instances,
the facility should be permitted to access PHS discount pricing if the
eligible DSH facility can demonstrate that the pharmacy would meet the
proposed Medicare test but for the unique circumstances.
Response: The test used to determine the eligibility of hospital
outpatient facilities must incorporate criteria that form an
independent and objective basis. This will provide fair and easy
administration. To include a ``but for'' test would create a difficult
standard to administer. If an outpatient facility is not included on
the eligible DSH's Medicare cost report, it will not meet the
requirements for eligibility.
Comment: The effective date of this notice should be made
retroactive to December 1, l992. Further, the June 13 deadline for
requesting retroactive rebates or credits should be extended.
Response: In a Federal Register notice, dated May 13, l994, a
deadline was announced for requesting retroactive discounts. Eligible
and potentially eligible covered entities could request these discounts
until June 13, 1994. See 59 FR 25112. The notice permits an off-site
outpatient DSH facility to receive retroactive discounts if it meets
the following requirements: (1) is included on an eligible DSH's
Medicare cost report, (2) has not participated in a group purchasing
arrangement for covered outpatient drugs, (3) has not billed Medicaid
for the covered outpatient drugs for which retroactive discounts are
being requested, and (4) has preserved its right to such discounts by
sending manufacturers a letter requesting such refunds and providing
adequate documentation of drug purchases by June 13, l994. After this
date, the right to retroactive discounts ceased. See 59 FR 25112.
(``Any DSH outpatient clinic which is or will be eligible for
retroactive discounts may preserve its right by sending manufacturers a
letter requesting such refunds and providing adequate documentation of
purchases.'')
Comment: There is no definition of the term ``patient,'' thereby
permitting a DSH to distribute discounted drugs to virtually anyone it
can argue is a patient without running afoul of the drug resale
prohibition of section 340B(a)(5)(B) of the PHS Act.
Response: PHS will address this issue in a future Federal Register
notice which will request public comment. All comments concerning the
definition of ``patient'' will be addressed at that time.
Comment: PHS has approved a contracted pharmacy service model
without public notice and an opportunity to comment.
Response: PHS will discuss the contracted pharmacy service model in
a future Federal Register notice which will invite public comment. All
comments concerning this issue will be addressed at that time.
(C) DSH Outpatient Facility Guidelines
Set forth below are the final guidelines regarding the inclusion of
DSH outpatient facilities: The outpatient facility is considered an
integral part of the ``hospital'' and therefore eligible for section
340B drug discounts if it is a reimbursable facility included on the
hospital's Medicare cost report. For example, if a hospital with one
Medicare provider number meets the disproportionate share criteria and
this hospital has associated outpatient clinics whose costs are
included in the Medicare cost report, these clinics would also be
eligible for section 340B drug discounts. However, free-standing
clinics of the hospital that submit their own cost reports using
different Medicare numbers (not under the single hospital Medicare
provider number) would not be eligible for this benefit.
A DSH, eligible for PHS pricing, must first request that the Office
of Drug Pricing include in the PHS drug discount program the outpatient
facilities that are included in its Medicare cost report. A list of
these outpatient facilities along with Medicaid billing status
information must be included with the request. Second, an appropriate
official of the DSH must sign a statement that he/she is familiar with
HCFA guidelines concerning Medicare certification of hospital
components as one cost center, has examined the list of outpatient
facilities, and certifies that the facilities are correctly included on
the DSH's Medicare cost report. When these facilities are added to the
master list of eligible and participating covered entities, the off-
site facilities will be able to access PHS discount pricing. On-site
clinics that are not included on the Medicare cost report will not be
eligible for PHS discount pricing. This information will be posted on
the Electronic Data Retrieval System (EDRS), maintained by the Office
of Drug Pricing, on a quarterly basis. To access this information, call
(301) 594-4992.
DSHs which have questions concerning this process, or manufacturers
which have questions concerning the eligibility of certain DSH
outpatient clinics, should contact Elizabeth Hickey (301-594-4353), at
the Office of Drug Pricing.
Dated: September 13, 1994.
James A. Walsh,
Acting Administrator, Health Resources and Services Administration.
[FR Doc. 94-23095 Filed 9-16-94; 8:45 am]
BILLING CODE 4160-15-P
