340b contract pharmacy arrangements: what does...

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340B Contract Pharmacy Arrangements:

What Does the Future Hold? Structuring Arrangements, Meeting Legal and Regulatory Requirements

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, NOVEMBER 29, 2017

Travis F. Jackson, Partner, King & Spalding, Los Angeles

Claire F. Miley, Member, Bass Berry & Sims, Nashville, Tenn.

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340B Contract Pharmacy

Arrangements:

What Does the Future Hold?

November 29, 2017

5

Outline

I. Structuring and implementing contract pharmacy arrangements A. Overview and need for services

B. Due diligence

C. Fee structures

D. What operational and contractual considerations should counsel keep in mind when structuring and implementing these arrangements?

E. What compliance challenges must be overcome when structuring a contract pharmacy arrangement?

II. 340B entity compliance issues A. Certifications

B. Contractor-associated liability

C. Covered entity requirements

III. A look ahead A. Enforcement and sanctions

B. Future of 340B Guidance

6

Overview and Need For

Services

7

340B Program Overview

The 340B Drug Pricing Program

► requires drug manufacturers who participate

in Medicaid to provide outpatient drugs to

eligible healthcare organizations (“Covered

Entities,” or “CEs”) at significantly reduced

prices.

8

340B Program Overview

CEs receive significant discounts on covered outpatient drugs

► Estimated average savings of 20-50%

► Estimated $16 billion in 340B drug purchases in 2016 (5% of U.S. Drug Market), per Drug Channels

CEs are defined in statute and include ► HRSA-supported health centers,

► Ryan White clinics and State AIDS Drug Assistance programs,

► Medicare/Medicaid Disproportionate Share Hospitals,

► children’s hospitals, and

► other safety net providers.

9

340B Program Overview:

Contract Pharmacies

HRSA permits CEs to contract with pharmacies to provide pharmacy services on the CE’s behalf to CE patients.

Initially, CEs were limited to one contract pharmacy relationship

In 2010, HRSA allowed CEs to enter into multiple contract pharmacy relationships

Contract pharmacies (“CPs”) are a growth area, but also one under OIG, GAO, and manufacturer scrutiny

10

Contract Pharmacy Arrangement: Example

Process Flow

Patient

CE purchases 340B Drugs Drugs shipped to CP

Covered Entity

Payer CP remits reimbursement less fee

340B eligible patient relationship

CP adjudicates script

Payer reimburses CP

CP dispenses; collects Patient

cost-share

11

Wholesaler

Contract Pharmacy

Need For Contract Pharmacy

Services

HRSA: “[T]he delivery of pharmacy services is central to the mission” of covered entities, which “rely on outside pharmacies to fill the need. It would defeat the purpose of the 340B program if these covered entities could not use their affiliated pharmacies in order to participate in the 340B program [emphasis supplied].”

► 61 Fed. Reg. 43549, 43550 (Aug. 23, 1996).

BUT, there is growing backlash among some 340B stakeholders to CP arrangements

There is also growing government scrutiny of the 340B program in general

12

Congressional Scrutiny Extensive number of Congressional hearings

Potential draft legislation discussed in May 2017: ► At a trade association event, Rep. Collins (R-NY) promised to introduce

340B reform legislation

► Reports indicate that the proposed bill would narrow the eligible patient definition, limit new CE enrollment, limit CPs, and expand HRSA oversight of the program

► Has not been introduced in Congress

Even if the Rep. Collins legislation does not materialize, we do expect some legislative package, which may contain one or more of the following:

► Definition of patient

► Limits on contract pharmacies (e.g., by number and/or location)

► Limits on charges for 340B drugs

► Required reporting of amount and use of 340B savings

13

Congressional Scrutiny July 2017 – Testimony of GAO Before Congress

“Update on Agency Efforts to Improve 340B Program Oversight”

Highlights of Testimony:

► HRSA Audits

► Clarifying Program Guidance on - Definition of Patient

- Eligibility Criteria for non-publicly owned hospitals

► Due in 2018 -- Oversight of 340B Contract Pharmacies

14

Reimbursement –

340B Trend to Watch Government Program Capture of 340B Savings

2018: Final Medicare OPPS Rule

► Cuts the applicable payment rate for separately payable drugs and biologicals (other than drugs on pass-through payment status and vaccines) acquired under the 340B program from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent.

► Exemptions for certain rural sole community hospitals, CAHs, PPS-exempt cancer hospitals, and HOPDs subject to site neutrality rules

15

Reimbursement –

340B Trend to Watch

Government Program Capture of 340B Savings


► The AHA and other advocacy groups filed suit against HHS on11/13/17.

► The complaint alleges that HHS’s rulemaking was: - arbitrary and capricious; and/or

- contrary to law; and

- is in excess of the agency’s statutory authority.

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Reimbursement –



► Rep. David McKinley (R-WV) introduced H.R. 4392 to block the 340B OPPS cuts on 11/14/17

► Bill has been referred to the House Committee on Energy and Commerce and the House Ways and Means Committee

17

Reimbursement –


2016: Medicaid Covered Outpatient Drug Rule

► “[T]his final rule is designed to ensure that pharmacy reimbursement is aligned with the acquisition cost of drugs and that the states pay an appropriate professional dispensing fee.”

► Requires States to transition to AAC-based methodology for pharmacy reimbursement

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Reimbursement –

What Effect on Contract Pharmacies?

OPPS cut due to take effect January 1, 2018

If cuts survive, the 340B program will likely become less attractive to covered entity hospitals

Therefore, despite the recent boom in contract pharmacies, will they dry up in the future?

19

340B Program Overview:

Contract Pharmacies

Contract pharmacy growth has perhaps

leveled off:

► Per Apexus:

20

Date # of Unique 340B CPs % Growth

1/1/12 4,238

1/1/13 9,832 132%

1/1/14 13,707 39%

1/1/15 16,269 19%

1/1/16 17,463 7%

1/1/17 18,705 7%

Due Diligence

21

Contract Pharmacy Due Diligence

Three Areas of Inquiry

1. The Pharmacy 2. The Vendor 3. The Covered Entity

22

The Pharmacy

• What is the business justification for the contract pharmacy relationship?

• What is the pharmacy’s compliance record?

• Is the pharmacy a good fit for the covered entity’s culture?

• What processes does the pharmacy have in place to ensure 340B outpatient drugs are dispensed only to qualifying patients?

• How does the pharmacy store prescription records?

• Is the pharmacy equipped to connect to the covered entity through its EHR?

• What restrictions might exist on the pharmacy through

managed care or vendor agreements?

23

The Vendor

• What is the vendor’s experience and reputation?

• Is the vendor a good cultural fit for the covered entity?

• Does the vendor offer a system that supports compliance?

― Identifying eligible patients

― Preventing duplicate discounts

• How does the vendor support inventory management?

• What are the vendor’s reporting capabilities?

• How is the fee structured?

• Does the covered entity control the revenue?

24

The Covered Entity

• Is the contract pharmacy network exclusive?

• What is the pharmacy’s role and responsibilities in audits?

• Will the engagement affect any wholesaler arrangements? • Will the engagement impact any rebates?

• What miscellaneous costs might exist, e.g. EHR and additional

oversight?

• What is the covered entity’s compliance record? • Is the covered entity a good cultural fit?

25

Fee Structures

26

Fee structures

HRSA permits CEs and CPs wide flexibility

to develop mutually acceptable fee

structures

Compensation must comply with state and

federal fraud and abuse requirements

27

Fee structures In a typical contract pharmacy arrangement, the contract pharmacy receives a fixed dispensing fee for each 340B prescription dispensed.

Many contract pharmacy arrangements also use what is known as a “replenishment model”

► CP uses its own inventory initially

► Accumulator software is used after the fact to tally the eligible 340B patients from records of prior prescriptions

► CE then replenishes the inventory, in an amount equaling the actual prior usage by such eligible patients, with covered drugs purchased at the discounted 340B price from manufacturers.

28

Typical Financial Arrangement –

“Pass-Through Model”

Transaction Payments

CP buys initial inventory $100

CP bills payer $120

CP collects co-pay $20

CP collects reimbursement $100

CP transfers total reimbursement to CE $120

CE pays CP fixed dispensing fee for the 340B prescription (if not already netted out of reimbursement transferred to CE)

$20

CE pays for replenishment inventory $60

Gross Margin to CP (dispensing fee) $20

Gross Margin to CE (reimbursement – COGs – dispensing fee) $40 29

Other Fee structures Tiered Dispensing Fees

► What drives the tier?

► Payer Reimbursement Amount

► Cost of Drug

Variations of Per Rx Dispense Fees

► Per Processed Claim

► Per Eligible Claim

30

Other Fee structures

Flat Monthly Fees

Percentage of Collections Fees

“Reference Pricing” Model

Combinations and “Add-On” Fees

31

Operational and

Contractual Considerations

32

Operational Considerations

• The Compliance Challenge − Applying the covered entity’s policies and procedures to the

contract pharmacy − Patient definition − GPO prohibition

− Ensuring adequate oversight of the day-to-day contract

pharmacy operations ― Contract pharmacy registration

― Conducting internal and external audits ― Understanding financial expectations

― Third party payors ― Financial assistance ― Dispensing fees

33


• The IT Challenge

― Incorporating all necessary data components to identify eligible patients

― Minimizing/eliminating manual processes

― Understanding inventory management protocols

― Replenishment

― True Ups

― Formulary

― Making appropriate payments

34


• The People Challenge

― Developing policies and procedures that allow covered entity and pharmacy employees to work as a team

― Identifying key contacts

― Understanding when and how audits will be conducted

― Discussing implementation or operational issues

― Developing a mechanism to resolve disputes

35


• Vendor Agreement

― Fee Structure ― Application of other federal and state laws ― Non-Exclusivity ― Replenishment ― Reports

36


• Contract Pharmacy Agreement ― HRSA Essential Covered Entity Compliance

Elements ― Operational Needs

― The Compliance Challenge

― The IT Challenge

― The People Challenge

― Term and Termination ― Compliance with Laws ― Exclusivity v. Non-Exclusive

37

Contracting Compliance

Challenges

38

Contracting Compliance Challenges:

HRSA’s 12 Essential Compliance Elements

Ship to, Bill to

Compliance with law

Patient Choice Comprehensive

Pharmacy Services

340B Pricing Restriction

Contract Pharmacy Reporting

Tracking System

Duplicate Discounts Prohibited

Patient Eligibility

Verification

Subject to Audits

Maintain Auditable Records

Provision of Agreement to

OPA

39

Typical Roles –

Allocation of Functions Among Different Parties

Underscores Need for Compliance Coordination

Role Covered Entity

Contract Pharmacy

Admin

Determine Patient Eligibility

Dispense Drug and Provide Patient Care

Track Replenishment and Prepare Order for Drug

Order Replenishment Drug from Wholesaler

Bill Payer

Receive Reimbursement and Collect Copay

Written Materials such as Policies and Procedures ? ? ?

CE Training/Internal Audits ? ? ?

Coordination with Account Managers, Operations, and IT for Items on COPs

? ? ?

40


Challenges – Focus Areas

Implementation of 2018 OPPS changes

► Modifier JG

► Includes PVP/Apexus drugs acquired at sub-ceiling prices

► Modifier TB – rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals

Required reporting of amount and use of savings – Expected part of any legislative package

41



Prevention of Diversion and Potential

Legislative Narrowing of Definition of

“Patient”

Duplicate Discounts, including Managed

Medicaid

► No formal guidance from HRSA

► 2016 Medicaid managed care rule obligates plans

to exclude 340B drugs from rebate claims

► BUT, still no standard reporting practices

42



Standard advice regarding carve out of

Medicaid Claims at Contract Pharmacies

vs.

State Legislative Initiatives

Overpayments from Payers

43

Contractor Liability?

Compliance with 340B program rules is

the sole responsibility of the CE

A CP generally does not have direct

exposure for program violations

Therefore, CEs seek recourse against

CPs and TPAs via contract provisions:

► Indemnification/consequential damages

► Insurance?

44

Certifications

45

Certifications

46

Certifications

• All information listed on the 340B Program database for the covered entity is complete, accurate and correct.

• The covered entity meets 340B Program eligibility requirements.

• The covered entity will comply with all requirements of the 340B Program, e.g.:

― Diversion ― Duplicate discounts ― GPO prohibition, if applicable

• The covered entity maintains auditable records pertaining to compliance with 340B Program requirements.

• Contract pharmacy arrangements will be performed in accordance with OPA requirements and guidelines.

47

Certifications

• Covered entity will contact OPA as soon as possible if a breach occurs or change in 340B Program eligibility.

• Covered entity may be liable to manufacturers for repayment and could be terminated from participating in the 340B Program.

48

Contract Pharmacy Registration

• Enrolling in the 340B Program is a multi-step process that varies based on entity type

− Must meet all eligibility criteria prior to registering with OPA

− Must register the calendar quarter prior to participating in the 340B Program

− Poor planning regarding eligibility and prospective registration requirements often result in improper or denied applications and the loss of significant savings / revenue

49

Contract Pharmacy Registration

• Covered entities must register contract pharmacies prior to use. A new contract pharmacy can only be registered during quarterly periods:

Registration Periods Start Date

January 1 – 15 April 1

April 1 – 15 July 1

July 1 – 15 October 1

October 1 – 15 January 1

50

Covered Entity

Requirements

51

Covered Entity Requirements

• Eligibility • Diversion • GPO Prohibition* • Duplicate Discount Prohibition • Orphan Drug Exclusion** • Contract Pharmacy Arrangements • OPA Database Registration *DSHs, children’s and cancer hospital only **SCHs, RRCs, CAHs and cancer hospitals only

52

Eligibility

• Hospitals − Certain Disproportionate Share Hospitals − Critical Access Hospitals − Rural Referral Centers − Sole Community Hospitals − Children’s Hospitals − Free Standing Cancer Hospitals

• Federal Grantees

− Comprehensive Hemophilia Treatment Centers − Federally Qualified Health Centers − Urban/638 Health Center − Ryan White Programs − Sexually Transmitted Disease/Tuberculosis − Title X Family Planning

53

Hospital Eligibility

Covered Entity Non- profit

/ govt

contract

DSH% GPO

Exclusion

Orphan

Drug

Exclusion

Critical Access Hospital Yes No No Yes

Rural Referral Center Yes > 8% No Yes

Sole Community

Hospital

Yes > 8% No Yes

Free-Standing Cancer

Hospitals

Yes >11.75% Yes Yes

Children’s

Hospitals

Yes >11.75% Yes No

DSH Hospital Yes >11.75% Yes No

54

Diversion

• Diversion is strictly prohibited!

― 340B drugs can only be provided to eligible outpatients

― Cannot re-sell, give, or otherwise transfer 340B drugs to any other entity or individual

― Cannot loan or borrow 340B drugs to/from another entity

• Must maintain an audit trail for every dispensation

55

GPO Prohibition

• DSHs, children’s hospitals and freestanding cancer hospitals may not “obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement”

• February 7, 2013 HRSA Policy Release

• Sanctions for violating GPO prohibition can include, but are not limited to the following:

• Removal from the program • Corrective action plans • Repayments to wholesalers/manufacturers

• Examples of when the GPO prohibition applies:

• 340B outpatients • Drugs that are not available at 340B pricing (must notify OPA) • Carved-out Medicaid patients

56

GPO Prohibition

• GPOs come in many shapes and sizes • GPO accounts may include:

− Traditional GPO accounts (Cardinal, McKesson, AmerisourceBergen, etc.)

− Generic source accounts − Other collectively negotiated drug purchasing

accounts (e.g. multi-covered entity health system)

57

Duplicate Discounts

• Manufacturers only required to provide 340B discount OR Medicaid (MCD) Drug Rebate Program rebate, not both

− Statute places onus on covered entity and state to ensure no duplicate discounts are obtained

− Must properly register with OPA/MCD Exclusion File − Carve-in = 340B drugs to MCD patients; state will not

seek rebates; on exclusion file − Carve-out = non-340B drugs to MCD patients; state

should seek rebates; not on exclusion file − Contract pharmacies must carve-out unless a limited

exception is met

58

Orphan Drug Exclusion

• An orphan drug is a drug designated by the FDA to treat a specific rare disease or condition

• Orphan drugs cannot be purchased at 340B rates if the covered entity is a rural referral center, sole community hospital, critical access hospital or free-standing cancer hospital.

• Manufacturers are not required to provide these covered entities orphan drugs under the 340B Program.

− A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals

59

Contract Pharmacy Arrangements

• Examples of published OPA findings include:

― Covered entity was using a pharmacy with which it had a written contract in place, but the pharmacy was not listed on the 340B database

― Covered entity registered contract pharmacies on the 340B database without having written contracts in place

― Patients were ineligible for 340B

60

Enforcement and Sanctions

61

Enforcement and Sanctions -

HRSA CEs are subject to audit by HRSA for compliance with 340B Program requirements, including CP requirements.

HRSA regularly sanctions CEs for failing to comply with CP registration and oversight requirements.

Sanctions include: manufacturer repayment; CE or CP termination from the 340B program; corrective action plan

62

HRSA Audit Expectations

Annual Re-certifications

Self-Disclosures/Material Breach

Internal Investigations

HRSA/OPA/Bizzell Audits

63


Manufacturers CEs are also subject to audit by manufacturers for violation of diversion or duplicate discount prohibitions.

At least 45 days prior to conducting an audit, manufacturers must submit audit work plans to HRSA for review.

Manufacturer audits must be performed by an independent auditor at the manufacturer’s expense. CEs must respond to audit findings within 30 days. Unlike HRSA audits, results of manufacturer audits are not publically available.

64


Manufacturers Manufacturer Audit Guidelines:

► Number of Audits – may only conduct audits when “reasonable cause” to believe a CE has violated 340B program requirements

► Scope of Audits – audit work plan must be approved by HRSA. Limited to the manufacturer's drugs (not CE’s entire 340B operations)

► Duration of Audits – audit duration of no more than 1 year; performed with the minimum time and intrusion necessary

65


Manufacturers Post-Audit Procedures

► Manufacturer submits copy of final audit to CE, and CE has 30 days to respond with a corrective action proposal or grounds for disagreement.

► Manufacturer submits copies of final audit report & CE response to HRSA

Potential sanctions (HRSA determines penalty): manufacturer repayment; termination of participation in 340B Program; corrective action plan

66

Enforcement and Sanctions

HRSA has published the results of 103

audits of CEs for FY 2017.

► Of these, HRSA identified non-compliance

with 340B Program requirements in about

45% of audits.

67

Examples of HRSA Sanctions

Baptist Health Medical Center – Arkadelphia

(FY 2017)

► Audit Findings:

- Diversion; 340B drugs dispensed at contract

pharmacy for prescriptions written at ineligible sites

► Sanction Imposed:

- Corrective Action Plan

- Manufacturer Repayments

68


Escambia Community Clinics, Inc. (FY 2017)

► Audit Findings:

- Incorrect 340B database record; Registered

contract pharmacies without written contracts in

place.

- Duplicate Discounts


- Termination of 2 CPs from 340B Program

- Manufacturer Repayment


69


San Joaquin Community Hospital (FY 2017)

► Audit Findings:

- Entity’s written contract pharmacy agreement listed

information inconsistent with the 340B database

record.

- Diversion; 340B drugs were not properly

accumulated.




70


Southwest Memorial Hospital (FY 2017)

► Audit Findings:

- Entity did not provide contract pharmacy oversight.

- Diversion; 340B drugs dispensed at entity and at

contract pharmacies for prescriptions written at

ineligible sites.


- Termination of CPs from 340B Program



71

Future of 340B Guidance

72

Where do we go from here?

73

June 2017:

• Media reports cite a leaked draft executive order targeting

the 340B Program.

• Resources provided by the 340B Program directed so they

primarily benefit lower income or otherwise vulnerable

• Rescind or revise regulations or guidance that allow 340B

Program benefits to accrue to entities or populations other than

the safety net healthcare providers that the program was

intended to strengthen

Where do we go from here?

October 2017

― Reportedly leaked policy document from the administration prescribes “serious 340B reform.”

November 2017:

― Joseph Grogan, associate director of health programs for the Office of Management and Budget, criticized the 340B program.

― President Trump nominates Alex Azar to be the next Secretary of the U.S. Department of Health & Human Services.

74

Questions?

Contact Information:

Travis F. Jackson, [email protected]

Claire F. Miley, [email protected]

75

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