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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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340B Contract Pharmacy

Arrangements

Michael B. Glomb, Partner

March 19, 2014

Key Legal and Policy

Requirements



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



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



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



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

http://www.hrsa.gov/OPA

http://www.340bpvp.com/



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



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



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



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



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



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

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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



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



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



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



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



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

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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



www.FTLF.com 22

Contact Information

Michael B. Glomb Feldesman Tucker Leifer Fidell LLP

1129 20th Street, NW

Washington, DC 20036

(202) 466-8960

[email protected]

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.


29

• Tracking System/Verify Patient Eligibility

• The Covered Entity is “ultimately responsible” for 340B compliance.

• Medicaid Duplicate Discounts Prohibited


30

• Covered Entity Independent Audits

• HRSA and Manufacturer Audits

• Contract Available to OPA


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


36

• Designation of Wholesaler

• Third-Party Payor Clawbacks

• Retroactive Classification

• Ability to Suspend Services


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

[email protected]

41

Documents

Structuring 340B Contract Pharmacy Arrangements: …media.straffordpub.com/products/structuring-340b-contract-pharmacy... · Structuring 340B Contract Pharmacy Arrangements: Meeting