HRSA’s 340B Drug Pricing Program 10th Annual Pharmacy Purchasing Networking ConferenceAugust 9, 2005Las Vegas, NV

Christopher Hatwig, M.S., R.Ph.

Objectives

Provide an overview of 340B Drug Pricing Program

Discuss the relationship between the OPA, the PSSC, and the PVP

Discuss how hospitals qualify for the program and optimize it benefits

Discuss program challenges and potential legislative related to the program

Background – The Uninsured 49 million Americans without health insurance in

2002 23% of Americans under 65 have no prescription

coverage 27% of uninsured said they needed a prescription

but did not get it, compared to 10% of the insured Kaiser Family Foundation 2002

42% of uninsured with hypertension not taking medication compared to 25% of insured Health Net of

California, June 2001

Background – Economic Disparity Uninsured, non-elderly spent an average of

$30.76 for prescription compared to insured patients who paid $9.96 and $5.53 for a brand or generic prescription respectively.

Health Net of California, June 2001

Drug prices paid by those without drug insurance are 15% higher than those with insurance. Kaiser Family Foundation 1996

Medication Access Strategies Medication Samples Patient Assistance Programs Drug Discount Cards/Coupons Bulk Donation/Purchasing Pharmacy Benefit Management 340B Drug Pricing Program

Background: 340B Drug Pricing Program

1990 -Congress created Medicaid rebate law Drug manufacturers responded by increasing prices

1992 - Congress passed Veteran Health Care Act (VHCA) intended to extend relief to gov’t payers of drugs Act stated that manufacturers participating in Medicaid must sign

a Pricing Agreement to participate in the 340B program Provides discounts on outpatient covered drugs Required drug manufacturers to give best price to

disproportionate share hospitals and certain covered entities grants

Also referred to as “Section 602”, “PHS” or “340B” pricing

Program Administration

Three Legs of the 340B Program Office of Pharmacy Affairs (OPA)

Pharmacy Services Support Center

(PSSC)

340B Prime Vendor Program (PVP)

340B Program

PSSC

PVPOP

A

Office of Pharmacy Affairs (OPA) Mission, Functions and FundingFederal Register 9/21/2004

Responsible for management and oversight of the 340B Programs

Promote access to (Comprehensive Pharmacy Services) clinically and cost effective pharmacy services through: Maximizing the value of participation in 340B Developing innovative pharmacy services Being a Federal resource for pharmacy practice

$2.97 Million Line item in FY2007 President’s Budget Request

Why 340B? Reduce prescription drug expenditures by safety net

providers in order to: Expand health services access to:

Low-income individuals/families Vulnerable populations

Reduce taxpayer burden Average savings 25-50% for covered medications

(NACHC Survey)

Comprehensive Pharmacy Services

Estimated Prices For Selected Public Purchasers, as Percent AWPvon Oehsen; Pharmaceutical Discounts Under Federal Law: State Program Opportunities

Stephen Schondelmeyer, PRIME Institute, University of Minnesota (2001)

100.0%

80.0%

67.9%

60.5%

51.7%

49.0%

47.9%

34.6%

0% 20% 40% 60% 80% 100%

AWP

AMP

Medicaid (Min.)

Medicaid Net

FSS

340B

FCP

VA Contract

Private Sector Pricing

340B Eligible Covered Entities

Federally Qualified Health Centers (FQHC) Hemophilia Treatment Centers (CHTC) Ryan White Programs (RWI, RWII, RWIII, RWIV) Sexually Transmitted Disease/Tuberculosis Programs

(STD/TB) Title X Family Planning Clinics Urban / 638 Tribal Programs Federally Qualified Health Center Look-Alikes (FQHC-LA) Disproportionate Share Hospitals (DSH) Children’s Hospitals (pending clarification of S.1932, the

Deficit Reduction Act of 2005)

Annual Growth of Section 340B Covered Entity Sites by Agency

0

1,000

2,000

3,000

4,000

5,000

6,000

1998 2000 2002 2004 2006 2008(Projected)

Year (as of July 1)

Nu

mb

er o

f co

vere

d e

nti

ties

CMS/ HRSA DSH CDC (STD/TB) IHS (638 & Urban) OS Family Planning HRSA Grantees andFQHC-LA

Eligibility Criteria for Hospitals Must meet one of the following:

Owned or operated by state or local government Granted governmental powers by state or local

government Private non-profit with contract with state or local

government to to provide health care services to low income individuals not eligible for Medicare or Medicaid

Additional requirements: Medicare DSH adjustment % of 11.75 or greater Must withdraw from group purchasing arrangement

(GPO) for outpatient covered drugs Including pharmacy wholesalers’ generic source programs

Disproportionate Share (DSH)

DSH patient percentage defined as:

(Medicaid, Non-Medicare Days) / (Total Patient Days)

+(Medicare SSI Days) / (Total Medicare Days)

obtained from CMS_________________________________________________________________

DSH Percentage

Disproportionate Share Hospital (not sites) 340B Participation (July 1, 2006)

Eligible,Not Registered

72250.24%

Eligible,Registered

71549.76% Eligible,

Registered, Rural 171

23.92%

Eligible, Registered,Urban544

76.08%

N = 1,437 organizations

N = 715 organizations

Eligibility defined as DSH adjustment percentage > 11.75% - to register other criteria must be met.

Getting Started with HRSA’s Pharmacy Services Support Center (PSSC)

American Pharmacists Association (APhA) American Association of Colleges of Pharmacy, American

Society of Health-systems Pharmacists and other partners 5-yr. Contract Services to OPA and 340B covered entities

Information and analysis Relationships and networking Program development/Technical Assistance Partner with schools of pharmacy to encourage students to

develop projects in 340B Safety-net organizations Free to eligible covered entities

How Does a Hospital Register to Participate in 340B Program?1. Determine the hospital’s DSH Adjustment Percentage

(must be >11.75%)

2. Complete 340B Drug Program Enrollment Letter

3. Complete form to certify non-participation in outpatient Group Purchasing Organization (GPO)

4. Complete form for adding outpatient facilities (as appropriate)

Access registration forms at http://www.hrsa.gov/opa/dsh.htm

Enrollment Periods with OPA

Application deadline:

December 1 March 1 June 1 September 1

Begin purchasing:(upon written confirmation from OPA)

January 1 April 1 July 1 October 1

NOTE:NOTE: Database of covered entities updated Database of covered entities updated quarterly.quarterly. Few Few exceptionsexceptions

What Drugs Are Covered?

Covered drugs: Outpatient Prescription

drugs Over-the-counter drugs (if

accompanied by a written prescription)

Clinic administered drugs within eligible facilities

ER drugs Drugs in other amb care

settings (e.g. day surgery)

Non-covered drugs: Vaccines Drugs given to the patient

in inpatient care settings

Manufacturer’s Role - Pricing Structure for 340B and Medicaid

Medicaid and 340B entities receive prices based on either “Best Price” or Average Manufacturer Price (AMP) – 15.1% for branded drugs

Additional discounts are applied if price increases exceed the Consumer Prime Index (CPI)

Generic manufacturers are required to provide a discount of 11% off of AMP

“Best Price” is not part of generic calculation

Pricing are recalculated and submitted quarterly

Discounts are upfront…..no rebates

Dilbert on Rebates….

Manufacturers Role (cont.) - 340B/Outpatient Pricing

Manufacturers must provide 340B pricing if their drug is to be covered by Medicaid

Manufacturers cannot sell covered drug above 340B ceiling price to covered entity

Manufacturers are not prohibited from selling outpatient drugs at below 340B ceiling price Various methods (direct, via wholesaler or PVP) Not required to offer negotiated sub-ceiling price to other covered

entities or Medicaid Prices offered covered entities are exempt from “best price”

calculation Sub-ceiling prices extended covered entities are exempt from the

VA’s Non-FAMP calculation ONLY WHEN offered through HRSA’s Prime Vendor

Patients meet eligibility requirements when….

1) The covered entity has established a relationship with the individual by maintaining records of the individual’s health care

2) The individual receives services from a provider either employed, contracted, or referred by the covered entity and responsibility for care remains with covered entity

Note - An individual is not considered a “patient” if the sole health care service received is the dispensing of a drug

Q: Would a hospital’s employees be eligible to receive 340B priced drugs?

In most cases, covered entities must bill Medicaid at acquisition cost plus dispensing fee. Drugs purchased under 340B cannot be subject to both

the 340B discount and Medicaid rebate (“Duplicate Discount Rule”)

No billing restrictions for non-Medicaid patients or in situations where Medicaid is not line-item billed for outpatient drugs Clinic administered medications Medicaid managed care

Medicaid Carve-out Option (in some states)

Program Billing Restrictions

340B Program - Anti-diversion

Prohibits resale or transfer of discounted drugs to anyone other than patient of covered entity

Covered entities are responsible for implementing procedures to prevent diversion and produce audit reports.

Penalty for failing to comply forfeiture of discounts back to the manufacturer disqualification from program

HRSA and manufacturers may audit covered entities

Contract Pharmacy Alternative Guidelines established in Federal Register Notice - August

23, 1996 Allows covered entity to contract with a community

pharmacy to dispense 340B drugs and provide pharmacy services to patients of the covered entity

Allowed one contract pharmacy arrangement unless approved by HRSA as Alternative Methods Demonstrations Projects

“Ship to, bill to” arrangement Does not require dual inventory Pharmacy must provide covered entity with reports

“consistent with customary business practices” Covered entity and pharmacy subject to audits

Growth in 340B Contracted Pharmacy Arrangements

70 104151 225

364

699

1,075

1,449

1,824

2,199

0

500

1,000

1,500

2,000

2,500

1999 2000 2001 2002 2003 2004 2005 2006 2007(Projected)

2008(Projected)

Year (as of July 1 each year)

DSHDSH Program Optimization Inventory Management

340B splitting software Prime Vendor Program - added value for

outpatient DSH Inpatient Pricing – added value for

inpatient

Inventory Management To ensure compliance and to optimize 340B savings,

DSH will need to utilize 340B pricing within mixed (inpt/outpt) patient care settings

Two options in meeting program guidelines: Separate physical inventories Virtual inventory management using split billing software

Requirements to avoid diversion of 340B product: Retrospective replenishment program NDC to NDC match (no substitution) Reports/subject to audit

Split Billing Software Implementation plan is required

Interface of billing and pharmacy systems Drug product selection Setup and maintenance of NDC to CDM crosswalk P&Ps for staff Routine reports/audits

Added costs for software & staffing (optional) Examples of products available for use with any

pharmacy wholesaler system: Talyst (IHS) Dimension 21

Typical 340B Chain of DistributionTypical 340B Chain of Distribution

MANUFACTURER

MEDICAIDFEE-FOR-SERVICE

WHOLESALER

COVERED ENTITY

ELIGIBLE PATIENT

CONTRACTPHARMACY

WAC Chargeback

Payment340BNon-340B

OTHER PAYERS

Bill AAC

Bill U+C

No Medicaid Rebate340B + Non-340B Acc’ts

Co-pay(if applicable)Dispensed or

AdministeredDispensed Co-pay

DispensingFee

Powers Pyles Sutter & Verville, PC Bill von Oehsen(202) 466-6550 William.vonOehsen@ppsv.com

AWP $100

WAC $84

Non-340B $70

340B $51

HRSA’s 340B Prime Vendor Program (PVP)

Agreement signed September 10, 2004 Awarded to HealthCare Purchasing Partners Intl. (HPPI) Voluntary program for covered entities and manufacturers Contracting for sub-ceiling pricing on branded and generic

pharmaceuticals Represents 2700 eligible covered entities with over $2.5 billion in

340B purchases annually 23 pharmaceutical suppliers contracted

AstraZeneca, Bedford, GSK, Novo-Nordisk and others >2400 items priced below 340B ceiling price

Discounts range from 1-70% below ceiling

PVP - Benefits to Eligible DSHs Single national contracting entity to leverage

outpatient purchases of all DSH with the industry No risk or added cost to participate No change of distributor required Does not conflict with DSH’s inpatient purchasing

program (GPO) Access to sub-ceiling prices and other discounts Pricing transparency (via website) Longer term contracts

PVP – Other Discounted Products and Services GSK Vaccines Diabetic Meters/strips – Bayer (Ascensia) , HDI (True Track) Inventory management/tracking solutions – D21, Talyst Patient Assistance Program Software – MedData Auditing and overcharge recovery services – e-Aduit, ST Health Repackaging services – DSI’s Care340B Ambulatory pharmacy dispensing technology – Automed, ScriptPro

Integrated voice response (IVR) systems – Voice Tech

Prescription vials/labels/printer cartridges -Tri-State

PVP Participants by Entity Type (as of 07/27/06 – 2745 participants)

HIV Programs, 81

Title X Family Planning, 488

Disproportionate Share Hospitals, 897

Community Health Center, 877

Sexually Transmitted Disease Treatment,

232

Tuberculosis , 159

Other, 11

Avg. Sub-ceiling Savings for Carolinas Health Systems’ Facilities for PVP Contract Purchases

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Carolinas Medical CenterMyers Park

Carolinas Medical CenterBiddle Point Pharmacy

Carolinas Medical CenterNorthpark

Behavorial Health Center -CMC

UNC Percentage Savings by PVP Contract – June ‘05 - May ‘06

-30%

-25%

-20%

-15%

-10%

-5%

0%

PVP - Benefits to Suppliers Increased outpatient sales & market share to all DSHs Access to the largest teaching hospitals training medical

residents Access participant list with verified 340B eligibility - updated

biweekly A low cost, efficient means of contracting with the nation’s

safety-net providers Medicaid best price, Non-FAMP, and ASP price protection Pricing transparency Long term contracting

PVP Enrollment & Implementation

Download and process participation agreement www.340bpvp.com

Select pharmacy wholesaler PVP notifies wholesaler to load PVP portfolio of sub-

ceiling prices to your 340B account Activated on 1st or 15th of each month

For DSH Entity can maintain any sub-ceiling pricing if negotiated

independently Continue use of GPO for inpatient drugs PVP Pricing is utilized in all 340B/outpatient areas

Disproportionate Share Hospitals

DSH Drug Pricing Options

DSH Inpatient Program

(NOT 340B)

340B(OUTPATIENT)

340B PRIME VENDOR

DSH Inpatient Program Highlights Section 1002 of MMA: Amended Medicaid Rebate Law to exclude

inpatient prices from best price reporting by drug manufacturers Program is voluntary for manufacturers

Should not expect all manufacturers to participate Should not expect savings to always equal 340B program discounts

No GPO exclusion for inpatient - Contracts can be negotiated by GPO or by DSH independently

Complete and accurate lists of eligible members must be maintained by GPOs

Pricing list is restricted to DSH members of GPO Some hospitals report 10% or greater in added savings over typical

GPO prices

DSH Inpatient Program - Non-FAMP Pricing Exemption

VA policy - 340B DSH inpatient prices can be excluded by manufacturers from the its non-FAMP and FSS for the branded products and Most Favored Customer clauses when

Manufacturer requests a ‘hold harmless’ letter and dear manufacturer letter from the VA listing specific NDCs

Manufacturer offers 340B ceiling price on all NDCs for drug (nothing more, nothing less)

DSH Drug Pricing Options340B

ProgramPrime Vendor

ProgramDSH Inpatient

Program

Managed by HRSA’s OPA

HPPI Each GPO

Eligible entities

12,000+ 12,000+ 700+

Patients benefiting

Outpatients Outpatients Inpatients

Supplier participation

Mandatory Voluntary Voluntary

Anticipated savings

20 – 25% below GPO

pricing

Varies on select products

“340B Like” savings on select

products

Future Issues with the 340B Program

Pending Federal Register notices to modify current guidance: 340B Patient Definition Multiple Contracted Pharmacies Children’s Hospital Participation in 340B

Major Program Challenges Related to Integrity Issues

Possible Legislation

Patient Definition GuidanceSummary of Newly Proposed Guidance

Clarifies requirement to keep records of the patient’s health care

Clarifies relationship between covered entity and medical provider who generates prescription of 340B drugs

Provides guidance for DSHs as to which clinics may participate in 340B

Proposed Contract Pharmacy Guidance

Incorporates Multiple Pharmacies as standard option.(1) the use of multiple contracted pharmacy service sites, and/or (2) the utilization of a contracted pharmacy to supplement in-house

pharmacy services.

Keeps Alternative Methods Demonstration Projects (AMDP) for covered entities seeking to utilize networks and OPA will continue to review whether networks create potential for unlawful diversion.

Updates the contract pharmacy guidance in general.

Children’s Hospitals

Section 6004 of the DRA amends only the Social Security Act & Not Public Health Service Act (PHSA) Children’s hospitals must agree to abide by the

requirements of section 340B of the PHSA as condition of participation

Status under Pharmaceutical Pricing Agreement? Technical Amendment?

340B Program Integrity Concerns

Office of the Inspector General (OIG Reports) Industry

Covered entity compliance Diversion Patient definition Duplicate discounts

Covered Entities Industry compliance Overcharges Restrictive pricing practices (specialty distributors, IVIG, etc.) Pricing transparency

HRSA’s Response to Program Integrity Challenges 2005/2006 October 1, 2005 OPA began computing 340B ceiling

prices using data provided by CMS and a third party contractor for package size data.

OPA requested drug manufacturers to voluntarily submit 340B quarterly Prices to OPA and to its Prime Vendor

Began comparison of OPA computed prices with drug company prices and wholesaler price files

Sent cease and desist letters for 340B Violations Began verification of covered entity data in Database

HRSA’s Response to Program Integrity Challenges 2005/2006 continued

Participated with OIG/DOJ to prosecute 340B violations Worked with OIG/DOJ to process settlement agreement and

refunds (Chiron, King, and others) OPA is working with the industry stakeholders to voluntary

improve pricing integrity, increase transparency; disclose pricing errors and to refund overcharges • Ad Hoc Industry Workgroup

Drafting recommendations to OPA for improvements in pricing integrity and transparency

The ONLY UNIQUE identifier for a 340B covered entity is the 340B ID number. Do NOT use HIN or DEA to confirm 340B participation

340B Legislation

Expansion efforts(1) Rural hospitals – included in MMA(2) Children’s hospitals – included in DRA(3) Inpatient drugs and critical access hospitals –

S.1840, H.R.3547 Integrity improvement and 340B reform

(1) Funding to strengthen enforcement and increase price transparency – S.4

(2) Future hearings and legislation expected

Powers Pyles Sutter & Verville, PC Bill von Oehsen(202) 466-6550 William.vonOehsen@ppsv.com

Buyers’ Roles with 340B

Ensure all DSH eligible facilities are enrolled in 340B, PVP, and DSH inpatient programs to maximize savings

Compare 340B/PVP program pricing with GPO contract pricing and recommend purchase of products providing “best value” across classes of trade

Monitor pricing changes at the beginning of each quarter to: Identify significant price increases/decreases and

recommend changes when appropriate Ensure PVP pricing is loaded correctly Ensure key independent agreements are loaded correctly

Buyers’ Roles in Improving Compliance and Program Integrity Take leadership roles with inventory management

systems to ensure NDC to NDC matching Ensure compliance with GPO exclusion on

outpatient covered drugs Ensure wholesaler generic source or other auto-sub

programs are not loaded within outpatient account Document uncontrollable exceptions - IVIG

Ensure full implementation; No “cherry picking”

340B Program AssistanceHRSA / Office of Pharmacy Affairs (OPA)

www.hrsa.gov/opa

Pharmacy Services Support Center (PSSC) pssc.aphanet.org or 800-628-6297 Technical Assistance Support - 866-PharmTA

340B Prime Vendor Program/HPPI www.340Bpvp.com or 1-888-340B PVP

Typical 340B Chain of DistributionTypical 340B Chain of Distribution

MANUFACTURER

MEDICAIDFEE-FOR-SERVICE

WHOLESALER

COVERED ENTITY

ELIGIBLE PATIENT

CONTRACTPHARMACY

WAC Chargeback

Payment340BNon-340B

OTHER PAYERS

Bill AAC

Bill U+C

No Medicaid Rebate340B + Non-340B Acc’ts

Co-pay(if applicable)Dispensed or

AdministeredDispensed Co-pay

DispensingFee

Powers Pyles Sutter & Verville, PC Bill von Oehsen(202) 466-6550 William.vonOehsen@ppsv.com

AWP $100

WAC $84

Non-340B $70

340B $51

Drugs administered to patients after hospital admission Q: How should my hospital handle situations

where an ER patient who has received 340B-priced drugs is subsequently admitted as a hospital inpatient?

Drugs administered to patients after hospital admission Q: How should my hospital handle situations

where an ER patient who has received 340B-priced drugs is subsequently admitted as a hospital inpatient?

A: This depends on the billing policies of the hospital. Drugs administered to patients up until the time of admission may be purchased through the 340B programs, but not after admission.

340B discounted drugs and “own use” Q: If we use 340B discounted drugs for “own use”

does that meet the prohibition against drug diversion?

340B discounted drugs and “own use” Q: If we use 340B discounted drugs for “own use”

does that meet the prohibition against drug diversion?

A: Not necessarily. Covered entities are required not to resell or otherwise transfer 340B purchased drugs to an individual who is not a “patient” of the entity. Selling drug to an employee may meet “own use” guidelines but it does not necessarily meet 340B use guidelines.

Hospital employees Q: Can hospital employees have

prescriptions filled at the hospital outpatient pharmacy using 340B medications?

Hospital employees Q: Can hospital employees have

prescriptions filled at the hospital outpatient pharmacy using 340B medications

A: Depends on whether the employees meet the 340B “definition of patient”. The fact that they are employees of the DSH is relevant.

DSH Inpatient Pricing Q: Can my hospital participate in the DSH

inpatient program if I do not register for the 340B program with OPA ?

DSH Inpatient Pricing Q: Can my hospital participate in the DSH

inpatient program if I do not register for the 340B program with OPA

A: No, in order to qualify for DSH inpatient programs the hospital must first enroll and implement the 340B program for its outpatient facilities

340B prices and inpatient drugs Q: Are 340B prices available when purchasing in

patient drugs?

340B prices and inpatient drugs Q: Are 340B prices available when purchasing in

patient drugs? A: No. Section 340B applies to covered outpatient

drugs only. However, section 1002(a) of the MMA excludes DSH inpatient drug purchases from the Medicaid “best price” calculation, making it easier for manufacturers to voluntarily offer discounts on inpatient drugs to DSH’s participating in 340B.