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The HHS Office of Inspector General (OIG) has released a report entitled "State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drugs."  By way of background, the 340B program limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals (e.g., community health centers, critical access hospitals, and children’s hospitals). The program is administered at the federal level by the Health Resources and Services Administration (HRSA). State Medicaid agencies also may set specific policies for covered entities that dispense 340B-purchased drugs to Medicaid patients, but CMS does not require such policies for Medicaid programs. According to the OIG, state Medicaid agencies lack the policies and/or information that they need to oversee reimbursements for drugs purchased under the 340B program. Only half of states report having written policies that direct covered entities to bill 340B-purchased drugs at cost, and just one state has a prepay edit to ensure accurate reimbursement specifically for 340B claims. States also reported shortcomings in the data available through the Medicaid Exclusion File, which states use to identify covered entities that dispense 340B-purchased drugs to Medicaid patients so states can exclude the claims from Medicaid rebate requests. The OIG recommends that: (1) CMS direct states to create policies for covered entities billing Medicaid for 340B-purchased drugs and inform states about methods to identify reimbursement for such drugs; (2) HRSA share 340B ceiling prices with states; and (3) HRSA and CMS take steps improve the accuracy of the Medicaid Exclusion File. CMS and HRSA concurred with the recommendations.

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The OIG has issued a report entitled "States' Collection of Medicaid Rebates for Physician-Administered Drugs." In short, the OIG found that most states comply with the Deficit Reduction Act (DRA) requirements that states collect Medicaid drug rebates for certain physician-administered drugs, and that national drug codes (NDCs) be included on physician-administered drug claims. More than half of the states reported difficulties with manufacturer nonpayment of all of the requested rebates for physician-administered drugs, however, which states attributed to mainly to inaccuracies in NDC information entered on claims by providers (particularly the number of units billed). The OIG also found that 31 states had not implemented certain steps necessary for collecting rebates on all eligible physician-administered drugs purchased by 340B entities. The OIG recommends that CMS: (1) take action against states that do not meet the DRA's requirements to collect rebates on physician-administered drugs, (2) ensure that all states are accurately identifying and collecting such rebates, (3) work with states to develop guidance for edits for physician-administered drug claims, (4) work with States to administer guidance to providers and Medicare contractors about the physician-administered drug rebate requirements, and (5) ensure that the NDC crosswalk is complete and accurate, and that it identifies rebateable physician-administered drugs.

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This post was originally written for the Life Sciences Legal Update blog by Joseph W. Metro and Vicky G. Gormanly.

On May 20, 2011, the Health Resources and Services Administration (“HRSA”) released a proposed rule concerning the exclusion of orphan drugs for certain covered entities under the 340B Program. The 340B Program, enacted pursuant to the Veterans Health Care Act of 1992 (“VHCA”), limits the prices that participating manufacturers may charge for outpatient drugs purchased by certain “covered entities” that act as “safety net” providers of services to low-income individuals.

Health care reform included significant changes for the 340B program, including expanding the types of covered entities eligible to participate in the Program. New classes of covered entities include certain freestanding cancer hospitals, rural referral centers, sole community hospitals, critical access hospitals, and children’s hospitals. However, under the amendments, 340B prices are not available for “orphan drugs” purchased by freestanding cancer hospitals, rural referral centers, sole community hospitals and critical access hospitals. This limitation applies to protect financial incentives for manufacturers to bring to market such drugs.

Under the proposed rule, however, such covered entities may in fact purchase orphan drugs at the 340B price so long as the drug is not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drug was designated. In other words, covered entities can purchase the drugs for approved non-orphan uses, as well as potentially unapproved, off-label uses. This proposal potentially “guts” the ineligibility provisions of the statute, as the rule provides no guidance as to how manufacturers can determine what indications (or non-indicated off-label uses) their orphan drugs are used for, and emphasizes that manufacturers may not condition the offer of 340B pricing upon an entity’s assurance that the drug will be used for its orphan indication.

The proposed rule is also somewhat unusual in its specificity, in that HRSA has not previously issue a rule that more generally governs the 340B program. Thus, manufacturers may wish to consider whether it is appropriate to comment on some of the general defined terms (e.g., “covered entity,” “covered outpatient drug”) contained in the proposed rule.

The proposed rule may be viewed here.  Comments are due July 19, 2011.

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As previously reported, last week Congress approved legislation (H.R. 4994) that averts a 25% Medicare physician fee schedule cut scheduled to take effect January 1, 2011 under the statutory “sustainable growth rate” formula (Congress had already approved legislation to provide a one-month fix through December 2010). In addition, H.R. 4994 continues a variety of expiring Medicare provisions and makes other health policy changes, funded primarily through a change in limits on recoveries of excessive tax credits provided to subsidize insurance premiums under the ACA. The legislation still is awaiting the President’s signature, although the White House has previously expressed its support for the bill.

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Today the House of Representatives overwhelmingly approved a bill (H.R. 4994) that averts a 25% Medicare physician fee schedule cut scheduled to take effect January 1, 2011 under the statutory “sustainable growth rate” formula (Congress had already approved legislation to provide a one-month fix through December 2010). The vote, which followed a unanimous Senate vote yesterday, sends the measure to the President, who has expressed his support for the legislation. In addition to extending current Medicare physician payment rates through the end of 2011, H.R. 4994 continues a variety of expiring Medicare provisions and makes other health policy changes, funded primarily through a change in limits on recoveries of excessive tax credits provided to subsidize insurance premiums under the Affordable Care Act (ACA). Other highlights of the legislation include:

• Extensions of: hospital geographic reclassifications authorized under section 508 of the Medicare Modernization Act, the Medicare physician fee schedule work geographic adjustment floor, the outpatient therapy services exception process, the authority for independent laboratories to receive direct payments for the technical component of certain pathology services, ambulance service and physician fee schedule mental health add-on payments, the outpatient hold harmless provision, Medicare reasonable costs payments for certain clinical diagnostic laboratory tests furnished by certain rural hospitals, the qualifying individual program, the Transitional Medical Assistance program, and the Special Diabetes Programs.
• Implementation on October 1, 2010 of version four of the Resource Utilization Groups (RUG IV) case mix system for purposes of the Medicare skilled nursing facility prospective payment system.
• Clarification that residency positions that are being shared between teaching hospitals under an “affiliation agreement” may not be redistributed to other hospitals.
• Inclusion of orphan drugs in the definition of “covered outpatient drugs” with respect to children’s hospitals under the 340B drug discount program. 
• Various technical corrections to Medicaid and CHIP relating to exclusion from participation, children’s income eligibility levels, payment error rate measurement, coverage of children of state employees, and payment for electronic health records. 
• A $275 million reduction in the Medicare Improvement Fund over 10 years.
• $19 billion in savings by revising the limits on recoveries of tax credits under the ACA. Currently, if an individual’s income actually is higher than the amount that was used to calculate advanced premium tax credits, there is a limit on how much of the excessive credits certain low-income individuals and families must return to the government. The legislation replaces these limits with a scaled repayment structure.

As noted, this is the second time in a month that Congress has considered Medicare physician reimbursement. On November 30, 2010, President Obama signed into law H.R. 5712, “The Physician Payment and Therapy Relief Act of 2010.” The law provided a one-month continuation of physician fee schedule rates, paid for by adopting – with modification – the Centers for Medicare & Medicaid Services’ (CMS) new multiple procedure payment reduction (MPPR) policy for outpatient therapy procedures included in the 2011 MPFS final rule. As approved by Congress, the provision applies a 20% (rather than 25% in the CMS rule) MPPR to the practice expense component of Medicare payment for the second and subsequent therapy services when multiple outpatient therapy services are furnished to a single patient by a single provider on the same day. 

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The OIG has released a report on “Payment for Drugs under the Hospital Outpatient Prospective Payment System.” The OIG found that in the aggregate, Medicare payment amounts for separately-payable drugs furnished under the OPPS were substantially higher (31 percent ) than acquisition costs for 340B hospitals. The OIG characterizes this as “an expected result given the purpose of the 340B Program,” which is to allow entities that provide services to disproportionately low-income, uninsured, and underinsured populations to purchase drugs at reduced prices. The OIG also found that OPPS payments were similar to acquisition costs for non-340B hospitals. The findings were based on a comparison of first-quarter 2009 Medicare payment amounts to first-quarter 2009 hospital acquisition costs for 32 separately payable drugs from a sample of 99 340B hospitals and another sample of 110 non-340B hospitals. The report contains no recommendations to CMS.

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On September 28, 2010, the HHS Office of Inspector General (OIG) issued an Advisory Bulletin that notifies drug manufacturers of an OIG enforcement initiative concerning the timely submission of data under the Medicaid Drug Rebate Program, the 340B Drug Pricing Program, the Federal Upper Limit (FUL) Program, and the Medicare Part B outpatient prescription drug benefit. The Bulletin states that in light of OIG's findings that certain manufacturers have failed to submit required product and pricing data in a timely fashion, the OIG intends to pursue enforcement actions against noncompliant manufacturers as appropriate. The bulletin coincides with OIG release of a report, "Drug Manufacturers' Noncompliance With Average Manufacturer Price Reporting Requirements," which determined that in 2008, more than half of the drug manufacturers that were required to submit quarterly average manufacturer price (AMP) data to CMS failed to comply with reporting requirements in at least one quarter. In addition, more than three-quarters of manufacturers submitted late, incomplete, or no AMPs in at least 1 month of 2008. The OIG recommends that CMS take action against manufacturers that do not meet quarterly and monthly AMP data submission requirements. CMS concurred, and stated that it will begin referring manufacturers that submit incomplete quarterly and monthly data to OIG for civil money penalty consideration. The OIG "looks forward to expanding its collaboration with CMS regarding administrative remedies for noncompliance with AMP reporting requirements."  

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The Health Resources and Services Administration (HRSA) has announced that it will start enrollment on August 2, 2010 for entities that are newly eligible for the 340B Drug Pricing Program under the ACA, including children’s hospitals, free-standing cancer centers, critical access hospitals, rural referral centers, and sole community hospitals.

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On July 14, 2010, the House of Representatives approved H.R. 5712, the “Veterans’, Seniors’, and Children’s Health Technical Corrections Act of 2010.” Among other things, the bill would: provide for implementation of version 4 of the SNF Resource Utilization Groups, or “RUG IV” system on October 1, 2010; clarify treatment of distribution of residency positions between teaching hospitals under an “affiliation agreement”; clarify access of children’s hospitals to 340B drug discounts on orphan drugs; and extend through FY 2011 certain hospital geographic reclassifications authorized under section 508 of the Medicare Modernization Act that expire September 30, 2010. The Senate has not yet considered the bill.

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On March 5, 2010, the Health Resources and Services Administration (HRSA) published a final notice on 340B drug pricing program contract pharmacy services. The notice announces the availability of final guidelines regarding the utilization of multiple contract pharmacies and suggested contract pharmacy provisions, which previously had been limited to the “Alternative Methods Demonstration Project” program. These final guidelines, which are effective April 5, 2010, replace all previous 340B program guidance documents addressing non-network contract pharmacy services.  Additional analysis is available on our Life Sciences Legal Update blog.  

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