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Structuring 340B Contract Pharmacy
Arrangements: Meeting Legal and
Regulatory Requirements
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WEDNESDAY, MARCH 19, 2014
Presenting a live 90-minute webinar with interactive Q&A
Alan J. Arville, Member, Epstein Becker Green, Washington, D.C.
Michael B. Glomb, Partner, Feldesman Tucker Leifer Fidell, Washington, D.C.
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FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
340B Contract Pharmacy
Arrangements
Michael B. Glomb, Partner
March 19, 2014
Key Legal and Policy
Requirements
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Agenda
• 340B background and purpose
• 340B patient definition
• 340B and Medicaid
• Genesis of contract pharmacy model
• Current issues and future directions
5
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Essentials
• Enacted in 1992 – Section 340B of the Public Health Service Act (42
USC 256b).
• Applies only to “covered outpatient drugs” as defined in the Medicaid
statute (Social Security Act, Section 1927(k))
• Requires drug manufacturers to sell covered drugs to at a substantial
discount (25% to 50% off the AWP, according to HRSA)(the “ceiling
price”) in order to have the drug covered under Medicaid
• 340B discount is computed based on Medicaid rebate formula:
• 23.1% (single source/innovator multiple source drugs)
• 17.1% (certain clotting factors and HHS-approved pediatric drugs)
• 13% (non-innovator multiple source drugs)
• Ceiling price = AMP minus Unit Rebate Amount (URA)
• Available only to certain types of organizations - Covered Entities (CE) -
specified in the statute
6
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Essentials - Covered Entities
HRSA Grantees Hospitals
Comprehensive Hemophilia Treatment
Centers
Federally Qualified Health Centers
Native Hawaiian Health Centers
Tribal/Urban Indian Health Centers
Ryan White Programs
Title X Family Planning Clinics
STD, Black Lung, TB Clinics
Disproportionate Share Hospitals
Critical Access Hospitals
Rural Referral Centers
Sole Community Hospitals
Children’s Hospitals
Free Standing Cancer Hospitals
7
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Essentials
• Oversight by HRSA’s Office of Pharmacy
Affairs (OPA)
• Enrollment through OPA website
(www.hrsa.gov/OPA)
• Quarterly registration
• OPA maintains CE, manufacturer, contract
pharmacy, and Medicaid exclusion databases
• 340B Prime Vendor (Apexus) – negotiates
sub-ceiling prices for 340B drugs
(www.340bpvp.com)
8
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Essentials-Compliance Issues
• 340B drugs may be dispensed only to a “patient”
of a CE and may not be resold – i.e. “diversion”
prohibited
• CE may not request payment under Medicaid for
a 340B drug if that drug is subject to the payment
of a rebate to a state Medicaid agency – i.e.
“duplicate discounts” prohibited
9
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Eligible Patients
• Patient Definition (61 Fed. Reg. 55156 (October
24, 1996))
• CE has established a relationship with the individual,
such that the CE maintains records of the individual’s
health care; and
• The individual receives health care services from a
health care professional who is either employed by the
CE or provides health care under contractual or other
arrangements (e.g. referral for consultation) such that
the responsibility for the care remains with the CE; and
10
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B Eligible Patients
• The individual receives a health care service or range of
services from the CE which is consistent with the service or
range of services for which grant funding or federally-qualified
health center look-alike status has been provided to the entity.
(DSH exception)
• An individual will not be considered a “patient” of the entity for
purposes of 340B if the only health care service received by the
individual from the CE is the dispensing of a drug or drugs for
subsequent self administration or administration in the home.
• An individual registered in a state operated or funded AIDS drug
purchasing assistance program is considered a patient
11
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B and Medicaid
• A covered entity shall not request payment under Medicaid for prescribed drugs with respect to a drug that is subject to 340B if the drug is subject to the payment of a rebate to the State.
• The Secretary of DHHS shall establish a mechanism to ensure that covered entities comply [with this provision]
42 USC 256b(a)(5)(A)(i)and(ii))
12
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B and Medicaid
• The mechanism to prevent duplicate
discounts:
• Relies on state-issued Medicaid provider
number to identify prescriptions filled using
drugs purchased at 340B price
• State does not claim manufacturer rebate on
drugs reimbursed under CE’s Medicaid
provider number
• Implemented through HRSA’s “Medicaid
Exclusion File”
13
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
340B and Medicaid
• PPACA requires manufactures to pay rebates on Medicaid MCO drugs, except for 340B drugs
• No duplicate discount issue
• Medicaid agencies can claim rebate on non-340B drugs (raises reporting issues)
• No Federal guidance to date
• Some states are applying policies developed for fee-for-service reimbursement to MCOs
14
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Genesis of Contract Pharmacy Arrangements
• Statute does not address contract pharmacies
• Many (if not most) non-hospital CEs did not have an in-house
pharmacy, limiting benefit of 340B Program to CEs and patients
• In 1996, HRSA permitted CEs to contract with a commercial
pharmacy to dispense 340B drugs to eligible patients, on limited
basis (61 Fed Reg. 43549 (August 23, 1996))
• One contract pharmacy per delivery site
• No chain pharmacy arrangements
• No contract pharmacy if CE operated an in-house pharmacy
• More robust approaches allowed pursuant to an Alternative
Methods Demonstration Project (AMDP)
15
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Genesis of Contract Pharmacy Arrangements
• HRSA issued revised guidance in 2010 (75 Fed. Reg.
10272 (March 5, 2010))
• Allows contracting with multiple pharmacies, pharmacy
chains, and/or operating an in-house pharmacy
• Applies to all contract pharmacy arrangements
• Guidance replaces all prior guidance
• AMDP still available for other arrangements, e.g.
network delivery models
• Substantial emphasis on compliance – in fact, not just
on paper
16
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
HRSA Compliance Initiatives
• In response to GAO report and Congressional interest,
OPA has begun:
• Annual re-certification of all CEs, including contract
pharmacy arrangements
• Random and targeted compliance audits of CEs
(diversion and duplicate discounts)
• Significant uptick in 340B purchases and/or large
contract pharmacy networks attract audits.
17
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
HRSA Compliance Initiatives
• Many PPACA-mandated improvements, have yet to
be implemented.
• Secure website for posting 340B price
• More detailed guidance on methodologies and
options for billing Medicaid
• Dispute resolution process
18
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Future Directions
• Proposed “Mega-Reg” covering patient definition, contract
pharmacies, and hospital eligibility issues expected by June,
2014
• Potential patient definition issues
• Specialty referrals
• Discharge prescriptions
• “Off-premises” services
• Contracted providers and volunteers
• Patient record maintenance
• Case management
19
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Future Directions
• Potential contract pharmacy provisions
• Formalize current guidance as binding regulations?
• Revise requirements regarding oversight, audit?
• Limit number of contract pharmacies per covered entity?
• Return to “one contract per delivery site” model?
• Only 18% of covered entities use contract pharmacies (“small
minority,” according to HRSA)
• 75% of those use fewer than 5 contract pharmacy arrangements
• There is relatively recent (March, 2010) non-regulatory guidance
on contract pharmacy arrangements
20
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com
Future Directions
• Will HRSA/Congress attempt to restrict 340B
access to uninsured patients only?
• Given the wide variety of relationships that
covered entities have with the individuals
served, does it make sense to continue to
impose a patient definition that applies to all
covered entities?
21
FELDESMANTUCKERLEIFERFIDELLLLP
© Feldesman Tucker Leifer Fidell LLP. All rights reserved.
www.FTLF.com 22
Contact Information
Michael B. Glomb Feldesman Tucker Leifer Fidell LLP
1129 20th Street, NW
Washington, DC 20036
(202) 466-8960
Structuring 340B Contract Pharmacy Arrangements
Alan J. Arville Epstein Becker Green
March 19th, 2014
Agenda
• Contract Pharmacy Process Flow
• HRSA’s Essential Elements
• February 2014 OIG Report
• HRSA Letter on Contract Pharmacy Oversight
• Operational and Financial Considerations
24
• HRSA issues revised guidance in 2010
• Allows contracting with multiple pharmacies (previous 1996 guidance only allowed one contract pharmacy per delivery site).
• Requires written agreement between CE and Contract Pharmacy.
• Contract must address HRSA’s “Essential Elements.”
• CE is “expected” to conduct annual independent audits.
• CE retains ultimate responsibility for compliance.
HRSA Notice on Contract Pharmacy Arrangements
25
Contract Pharmacy Process Flow Figure 1: Typical 340B Contract Pharmacy Process Flow
Rx
PBM Health Insurer
Contract Pharmacy
Rx 340B Admn
Covered Enti ty
Whole-sa ler
Data / Process Money Inventory
26
• What is the 340B Contract?
• Contract Pharmacy Services Agreement
• Vendor Services Agreement
Contract Pharmacy Service Agreement
27
• Ship to, Bill to Provisions
• Comprehensive Pharmacy Services
• Patient Choice
HRSA’s Essential Elements
28
• Contract Pharmacy Reporting – Quarterly billing
statements, status reports of collections and receiving and dispensing records.
– Consider role of 340B Administrator.
HRSA’s Essential Elements
29
• Tracking System/Verify Patient Eligibility
• The Covered Entity is “ultimately responsible” for 340B compliance.
• Medicaid Duplicate Discounts Prohibited
HRSA’s Essential Elements
30
• Covered Entity Independent Audits
• HRSA and Manufacturer Audits
• Contract Available to OPA
HRSA’s Essential Elements
31
• OIG interviewed 30 Covered Entities (15 community health
centers and 15 DSHs) and 8 administrators. – Inconsistent determinations of 340B eligibility. – Difficulty identifying Medicaid MCO beneficiaries. – Not all Covered Entities offered discounted 340B price to uninsured
patients in contract pharmacy arrangements. – Most covered entities did not conduct all of the oversight activities
recommended by HRSA.
• OIG stated that the prohibition against duplicate discounts applies to MCO Medicaid.
• OIG acknowledged that neither the 340B statute nor HRSA guidance requires discounted 340B prices to the uninsured.
2014 OIG Report on Contract Pharmacy Arrangements
32
• Issued on February 4th, 2014 to 340B Covered Entities.
• Stresses “Vigilant Oversight” of contract pharmacy arrangements.
• Sets forth 5 contract pharmacy oversight requirements and links to resources.
• HRSA “expects” annual audits by an independent auditor.
• HRSA states that it will terminate contract pharmacy arrangements where the Covered Entity is exercising no oversight.
2014 HRSA Letter on Contract Pharmacy Oversight
33
• Conduct independent annual audits and/or adequate oversight mechanism
• Develop 340B Program policies • Prevent diversion • Prevent duplicate discounts by carving out
Medicaid or establish alternative arrangement with state Medicaid agency
• Maintain accurate information in the HRSA 340B database
HRSA’s 5 Requirements for Contract Pharmacy Oversight
34
• Replenishment
• What is the timing and process?
• Periodic “True-Up”
• Discontinued NDCs
• Slow Moving Drugs
• Formulary
• All-in or are there
carve-outs?
Operational and Financial Considerations
35
• Third Party Reimbursement and Co-Payments
• Dispensing Fees
• Should result in a “win-win” for both the contract pharmacy and the covered entity
• Reports from the covered entity and contract pharmacy
Operational and Financial Considerations
36
• Designation of Wholesaler
• Third-Party Payor Clawbacks
• Retroactive Classification
• Ability to Suspend Services
Operational and Financial Considerations
37
Are all of HRSA’s essential elements covered by the contract pharmacy services Agreement?
Do the operational procedures set forth in the contract pharmacy services agreement accurately reflect the actual arrangement?
Can the Covered Entity and Contract Pharmacy adopt the operational procedures with minimal impact on the organization’s standard workflow and drug inventory management?
What is the process for terminating the agreement?
Contract Pharmacy Agreement Checklist
38
Are the Covered Entity’s and Contract Pharmacy’s responsibilities under the contract pharmacy services agreement appropriate?
Do the Covered Entity, Contract Pharmacy and 340B
Administrator have adequate skin in the game?
Has the Covered Entity and Contract Pharmacy conducted any due diligence on the proposed 340B Administrator?
Will the Contract Pharmacy, Covered Entity, and 340B
Administrator establish a team with representatives from each party that will meet regularly to review various aspects of the contract pharmacy arrangement?
Contract Pharmacy Agreement Checklist
39
• Apexus (340B Prime Vendor) [email protected] (888)340-2787
• HRSA’s Office of Pharmacy Affairs (OPA)
http://www.hrsa.gov/opa
• Health Resources and Services Administration (HRSA) http://www.hrsa.gov (800) 628-6297
• Safety Net Hospitals for Pharmaceutical Access (SNHPA) http://www.safetynetrx.org/ (202) 552-5850
Resources: Where to Go for Help
40
For More Information
Alan J. Arville
Epstein Becker Green
1227 25th Street, NW
Washington, DC 20037
202.861.1805
41