hrsa says it will begin 340 · the drug discount monitor is a national electronic news service ()...

In this Issue

Long-awaited GAO report expected to have far-reaching impact on drug discount program.

3

Anticipated bill would halt 340B discounts on shortage drugs for up to three years.

4

OPA clarifies policies on manufacturer audits, shortage allocation procedures, penny pricing.

6

HRSA removes roadblock keeping hospitals from adding 340B outpatient sites.

8

Make plans to attend the 340B Coalition Winter Conference in San Diego.

11

COPYRIGHT 2011 BY SAFETY NET HOSPITALS FOR PHARMACEUTICAL ACCESS ALL RIGHTS RESERVED. This newsletter is protected by U.S. Copyright Law. Reproduction, photocopying, storage, transmission or any other sharing with any unauthorized third party of any portion of this newsletter by any means (including electronic redistribution) is strictly prohibited, except with the prior written permission of Safety Net Hospitals for Pharmaceutical Access and payment of any applicable licensing fee. Violation of copyright may result in legal action, including civil and/or criminal penalties and immediate suspension or revocation of subscription services without refund. Those desiring authorization to copy or use any portion of this newsletter should contact Tom Mirga at [email protected] or (202) 552-5853.

The Health Resources and Services

Administration (HRSA) plans to begin its first-

ever audits of 340B covered entities

beginning in February 2012 and to publish the

results two to three months later, the agency

revealed in response to questions from three

influential Republican members of Congress.

The agency also said it plans to send a policy

letter to drug manufacturers encouraging

them "to submit audit plans ... to investigate

claims of diversion and duplicate discounts."

HRSA also disclosed that during the past year

it referred two suspected cases of drug

diversion by covered entities to the

Department of Health and Human Services

(HHS) Office of Inspector General (OIG) "to

determine whether further action ... is

warranted." It said that it has records of only

two other cases of diversion over the course

of the program's 19-year history and that in

both "the covered entities were removed

from 340B participation."

HRSA referenced those two prior cases in

another section of its Oct. 21 letter.

In 2006, an HHS appeals board ruled that the

Mashantucket Pequot Tribal Nation could not

use federal drug discounts for its non-Indian

employees, ending a six-year legal battle over

whether the Nation could dispense drugs

purchased through 340B and off of the

Federal Supply Schedule (FSS) to employees

of a large casino it owned. That same year,

federal prosecutors reached a settlement

with a Pittsburgh-area physician who had

been charged with illegally distributing

pharmaceuticals obtained through 340B. Dr.

Joseph Rudolph agreed to cease involvement

in the 340B program and pay the government

$565,000—the sum the government said

represented his profits from the program he

ran through Aliquippa Community Hospital.

(See Monitor, April 2006.)

Also in its letter to the GOP lawmakers, HRSA

said:

• In addition to the initial covered entity

audits scheduled to begin in February, it

will be "conducting selected audits of

participating covered entities annually ...

to investigate 340B compliance and cases

of diversion."

• It is still reviewing draft guidance on the

definition of "patient" for 340B purposes

and if it "determines a new patient

definition is needed, it would be

published as a proposed guidance and/or

a proposed regulation depending on the

scope of the definition."

• It would issue three publicly available

policy letters to manufacturers

addressing "its non-discrimination

guidance, penny pricing, and

manufacturer audits" and a policy letter

to all stakeholders "outlining in detail the

hospital criteria for 340B eligibility." (See

story, p. 6.)

DECEMBER 2011 WWW.DRUGDISOUNTMONITOR.COM

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continued on p. 2

HRSA Says It Will Begin 340B Covered Entity Audits in February Agency plans to encourage drug manufacturers to submit their own audit plans

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DECEMBER 2011 PAGE 2

Editors-in-Chief Ted Slafsky William von Oehsen Executive Editor Tom Mirga Contributing Editors Maureen Testoni Greg Doggett Jeff Davis Thomas Giannettino Business Manager Miriam Lasar Subscription Manager Lee-Anne Gabrielli Webmaster Mike Hess

The Drug Discount Monitor is a national electronic news service (www.drugdiscountmonitor.com) that covers the legal and political issues surrounding the 340B drug discount program and other developments in federal drug pricing law and policy. The Monitor also publishes special print editions four times annually in conjunction with major national conferences. The Monitor is published by Safety Net Hospitals for Pharmaceutical Access, a Washington, D.C.,-based trade association representing approximately 800 hospitals in the 340B program. Drug Discount Monitor 1101 15th Street NW, Suite 910 Washington, DC 20005 Phone: (202) 552-5853 Fax: (202) 552-5868 www.drugdiscountmonitor.com For information about the Monitor or to find out about advertising opportunities, contact Tom Mirga at [email protected] or (202) 552-5853.

340B Audits

COPYRIGHT 2011 BY SAFETY NET HOSPITALS FOR PHARMACEUTICAL ACCESS ALL RIGHTS RESERVED. Unauthorized photocopying is prohibited by law. See page one.

• It plans to hold a webinar with the Centers for Medicare

and Medicaid Services (CMS) for 340B stakeholders and

state Medicaid agencies regarding the 340B Medicaid

exclusion file and duplicate discounts.

• The 0.1 percent 340B user fee that Congress is

considering would be used to finance program integrity

activities in the areas of manufacturer civil monetary

penalties; covered entity guidance and/or regulations;

pricing changes and transparency; administrative dispute

resolution; and the creation of a secure web site to

permit covered entities to access 340B ceiling price

information. HRSA said "covered entities would have to

pay the user fee to continue to participate" in 340B.

• It is "aware that some states are auditing covered

entities" but that it "is not involved in state Medicaid

audits or other processes involving financial transactions

between states and covered entities for overpayments."

• "Under its own authority" it is currently investigating a

manufacturer's claim, initially submitted for voluntary

dispute resolution and subsequently dismissed without

prejudice, that a covered entity "was diverting 340B

drugs to non-patients."

• It has recertified the eligibility of all 340B Ryan White

grantees, has begun recertifying STD/TB grantees and

Indian Health Service clinics, and plans to begin

recertifying hospitals in February 2012.

• It would release a policy notice about allocation

procedures when a sufficient supply of a covered drug in

inadequate to meet market demands.

HRSA's letter was dated Oct. 21 but it was made public only on

Nov. 9 when one of its recipients, Sen. Charles Grassley (R-

Iowa), issued a news release calling for enhanced oversight of

340B in light of HRSA's acknowledgement that "it has not

conducted a single audit since the program began."

HRSA “Needs to Get a Handle on Potential Abuse”

HRSA "needs to get a handle on potential abuse" in the 340B

program "before program growth gets out of hand, the

taxpayers have to pay for it, and program sustainability is in

question," said Grassley, the ranking Republican member of

the U.S. Senate Judiciary Committee.

Grassley, Sen. Orrin Hatch (R-Utah) and Rep. Fred Upton (R-

Mich.) asked HRSA for the detailed accounting of its oversight

of 340B on the same day that the Government Accountability

Office (GAO) released a major report on the program. (See

story on p. 3.) Hatch is the ranking Republican member of the

Senate Finance Committee and a senior member of the

Health, Education, Labor, and Pensions Committee and Upton

chairs the House Energy and Commerce Committee.

Noting that participation in 340B has nearly doubled during

the past decade, the lawmakers said "it is critical that HRSA

provides diligent oversight of both the program and its

participants." Adequate monitoring "is fundamental to

ensuring that the 340B program meets its goals of providing

affordable outpatient drugs to patients of covered entities,"

they said. ▪ ▪

continued from p. 1

GAO: 340B Yields Benefits as Intended but Needs More Oversight Long-awaited study is expected to have far-reaching effect on program's future direction


All of the health care providers interviewed for an important

new study of the 340B drug discount program say that the

substantial savings they get by participating allow them to

maintain services and reduce medication costs for patients,

just as Congress intended when it created the program

nearly 20 years ago.

In a much-anticipated Sept. 22 report mandated by last

year's health care reform law, the Government Accountabil-

ity Office (GAO) observed that many covered entities pass

their 340B savings on to uninsured patients in the form of

lower drug costs, while others use them to provide care for

more patients and offer services that otherwise would have

been unaffordable, including "additional service locations,

patient education programs, and case management."

The congressional watchdog agency also found, however,

that the Health Resources and Services Administration's

(HRSA) oversight of the program is inadequate to ensure

both drug manufacturers' and covered entities' compliance

with program requirements.

Too Much Reliance on Self-Policing

"The agency largely relies on participants' self-policing to

ensure compliance with program requirements, and has

never conducted an audit of covered entities or drug manu-

facturers," GAO said. "As a result, HRSA may not know when

participants are engaging in practices that are not in compli-

ance."

GAO investigators also found "that HRSA has not always

provided covered entities and drug manufacturers with

guidance that includes the necessary specificity on how to

comply with program requirements."

"With the program's expansion," GAO said, "program integ-

rity issues may take on even greater significance unless ef-

fective mechanisms to monitor and address program viola-

tions, as well as more specific guidance are put in place."

The study recommended that the Secretary of Health and

Human Services direct HRSA to:

• conduct selective audits of 340B covered entities to

deter potential diversion;

• finalize new, more specific guidance on the definition of

a 340B patient;

• further specify its 340B nondiscrimination guidance for

cases in which distribution of drugs is restricted and re-

quire reviews of manufacturers' plans to restrict distribu-

tion of drugs at 340B prices; and

• issue guidance to further specify the criteria that hospitals

that are not publicly owned or operated must meet to be

eligible for the 340B program.

Safety Net Hospitals for Pharmaceutical Access (SNHPA),

which represents about 800 hospitals enrolled in 340B, issued

a statement saying it was "pleased to see that the report high-

lights the numerous ways in which 340B providers use pro-

gram savings to reduce costs for indigent patients and in-

crease access to care for this vulnerable population."

With respect to GAO's recommendation that HRSA issue clari-

fying guidance on the definition of an eligible patient, SNHPA

noted that "manufacturers and covered entities often disagree

on which individuals may receive discounted drugs due to mis-

perceptions on how hospitals dispense and administer outpa-

tient drugs."

"These misperceptions," it continued, "can result in the incor-

rect belief that covered entities are diverting 340B drugs to

ineligible patients." SNHPA and other 340B provider organiza-

tions have urged HRSA to adopt a revised patient definition

that they say would clarify the rules without placing unreason-

able and unnecessary burdens on safety-net providers.

SNHPA said that while it agrees that there should be clearer

eligibility criteria for private nonprofit hospitals, it "is confi-

dent that a significant majority of private nonprofit hospitals

in the program are providing substantial levels of indigent

care."

The hospital group also said it was pleased that the GAO re-

port "documents the difficulties 340B covered entities face

due to discriminatory reimbursement rates from third party

payers."

"For covered entities to fulfill Congress' intent that the 340B

program help safety-net providers and their indigent patients,

pharmacy benefit managers and other third party payers

should not be able to reimburse 340B covered entities less

than non-340B providers," it said "SNHPA looks forward to

working with policymakers to address this and other problems

faced by safety-net providers in a way that maximizes the pro-

gram's potential and continues to improve this critical pro-

gram."


continued on p. 9


Anticipated Bill Would Pause 340B Discounts on Some Shortage Drugs Medicaid rebates on "medically necessary" drugs might also be halted for up to three years

U.S. Sen. Orrin Hatch (R-Utah), the ranking Republican on the

Senate Finance Committee and a senior member of the

Health, Education, Labor and Pensions (HELP) Committee, re-

portedly is drafting legislation that would exclude "medically

necessary" drugs that are in short supply from 340B discounts

and Medicaid rebates for possibly up to three years,

the Monitor has learned.

The measure is expected to be introduced shortly. In addition

to the moratorium on 340B discounts and Medicaid re-

bates, the bill reportedly would base Medicare Part B reim-

bursement for affected drugs on wholesale acquisition cost

(WAC) instead of average sales price (ASP). In 2005, Congress

switched the basis of Part B drug reimbursement from average

wholesale price (AWP) to ASP.

Health care professionals who track drug shortages say they

see no evidence that the 340B program is contributing to the

current crisis. (See Monitor, June 2011.) In light of that conclu-

sion, hospitals that participate in 340B say that addressing

shortages by stopping 340B discounts would solve nothing,

increase costs, and actually exacerbate the problem.

Calls for Congressional Hearings

News of Senator Hatch's proposed bill came about a week

after Sens. Amy Klobuchar (D-Minn.), Bob Casey (D-Pa.), Rich-

ard Blumenthal (D-Conn.) and Jeff Merkley (D-Ore.) called for

the Senate Health, Education, Labor and Pensions (HELP) Com-

mittee to hold a hearing on possible legislative solutions to the

growing problem of drug shortages and about two weeks after

President Obama's executive order on the subject.

"Shortages of critical prescription drugs have forced delays in

treatment for patients across our nation who require these

often lifesaving medications for the treatment of serious and

chronic medical conditions, including cancer," Klobuchar

said. "A HELP Committee hearing would provide a timely op-

portunity to build on the work of the bipartisan drug shortages

working group, and allow for experts from the [Food and Drug

Administration], physicians, patients, and the pharmaceutical

industry to explore legislative solutions."

Klobuchar and Casey are the main sponsors of bipartisan Sen-

ate legislation (S. 296) that would require drug companies to

notify the FDA of shortages. A similar measure (H.R. 2245) is

also pending in the House.

The President's Oct. 31 order partially addresses some of

those bills' goals. He directed the FDA to broaden its require-

ment for drug manufacturers to report production stoppages

that could cause shortages and to speed up its review of

new drug suppliers, manufacturing sites, and manufac-

turing changes that could prevent or alleviate shortages.

The President also ordered the FDA to inform the De-

partment of Justice (DOJ) if it finds that market partici-

pants have responded to shortages by stockpiling af-

fected drugs or selling them at dramatically inflated

prices. DOJ will then determine if any laws have been

broken and, if so, take appropriate enforcement actions.

Hospital groups applauded the President and implored

Congress to act swiftly. "The executive order is a solid

step in the right direction but there is more to do to ad-

dress this issue," said Rick Pollack of the American Hospi-

tal Association (AHA) in urging Congress to pass the drug

shortage bills. "The FDA has been working hard to ad-

dress drug shortages for some time, but needs more

people and more funding to address the broad-based

issues that cause drug shortages," added Henri R. Ma-

nasse Jr. of the American Society of Health-System Phar-

macists (ASHP).

Economic Forces Overlooked?

Some industry analysts say that the President's order

and the pending bills ignore economic forces behind

shortages, which mainly affect generic injectable drugs.

According to the FDA, there have been over 200 so far

this year, more than triple the number five years ago. Of

the 178 FDA-recorded shortages in 2010, 74 percent

involved sterile injectable drugs, including oncology

drugs, anesthetics, and emergency room medications.

Fifty-four percent of these shortages of injectables were

due to product quality issues, the FDA said, while 21 per-

cent were caused by production delays and capacity is-

sues. Other causes included product discontinuations,

raw material challenges, increased demand to due to

another shortage, loss of a manufacturing site, and com-

ponent problems. ▪ ▪


The Health Resources and Services Administration's (HRSA) Of-

fice of Pharmacy Affairs (OPA) issued three documents Nov. 21

clarifying its policies in three areas: manufacturer audits of 340B

covered entities, procedures for allocating 340B-priced drugs in

short supply, and the office's "penny pricing" policy when the

statutory 340B ceiling price formula yields a zero or negative

price.

HRSA had previously disclosed that it would be issuing the three

policy releases in its Oct. 21 reply letter to Sens. Charles Grassley

(R-Iowa) and Orrin Hatch (R-Utah) and Rep. Fred Upton (R-

Mich.). (See story, p. 1.) The lawmakers had asked HRSA for a

detailed accounting of its oversight of 340B in the wake of

the Government Accountability Office's (GAO) major report on

the drug discount program. (See story, p. 3.)

In its letter to the lawmakers, HRSA said that it would issue a

fourth policy release "to all stakeholders ... outlining in detail the

hospital criteria for 340B eligibility." In its report on 340B, the

GAO recommended that HRSA "issue guidance to further specify

the criteria that hospitals that are not publicly owned or oper-

ated must meet to be eligible for the 340B program." It is not

known when HRSA will be issuing that fourth notice.

Clarification on Audits

The new policy notice on manufacturer audits states that:

• Manufacturers should continue to follow the existing manu-

facturer audit guidelines that HRSA published in the Federal

Register on Dec. 12, 1996.

• As stated in those guidelines, prior to conducting an audit,

manufacturers must submit audit work plans to HRSA for

review at least 45 days in advance of conducting an audit of

a covered entity.

• If manufacturers have concerns or specific issues with diver-

sion and violations of duplicate discounts by covered enti-

ties, they are encouraged, after attempting to resolve the

matters directly with covered entities, to submit their audit

plans to HRSA per the audit guidelines.

• OPA will work with manufacturers in its consideration of

submitted audit work plans, and will respond within 15 cal-

endar days with an approval or denial of the submitted work

plan.

• Covered entities should be informed at least 15 days in ad-

vance of a conducting an audit.

It is unclear how the audit process will interact with the 340B

dispute resolution process. The policy release makes no

mention of the current voluntary dispute resolution

process or the mandatory 340B administrative dispute

resolution process that Congress directed HRSA to es-

tablish when it passed the Affordable Care Act (ACA)

last year. (See Monitor, September 2010.) For example,

HRSA did not address whether 340B stakeholders could

challenge audit findings through the dispute resolution

process. In September 2010, HRSA invited stakeholders

to submit comments in advance of rulemaking to estab-

lish the new process but it has yet to publish a pro-

posed rule. OPA officials have said that they will not

implement the new process until the office secures

more funding from the government.

It also appears that HRSA will continue to rely on the

1996 audit guidelines without making any changes. In

its September 2010 request for comments, it invited

stakeholders to weigh in on whether it would be appro-

priate or necessary to modify the guidelines prior to

implementing the administrative dispute resolution

regulation.

Clarification on Non-Discrimination Policy

HRSA's policy release on the treatment of 340B covered

entities when covered outpatient drugs are in short

supply restates that under guidelines issued in 1994,

"manufacturers have the ability to develop alternate

allocation procedures during situations when the avail-

able supply of a covered drug is not adequate to meet

market demands."

HRSA noted, however, that these allocation procedures

"must demonstrate that 340B providers are treated the

same as non-340B providers." Under the 1994 guide-

lines, it said, "manufacturers may not single out cov-

ered entities from their other customers for restrictive

conditions" nor "place limitations on the transactions

(e.g., minimum purchase amounts) which would have

the effect of discouraging entities from participating in

the discount program."

To ensure alternate allocation procedures are transpar-

ent to all stakeholders, HRSA said manufacturers must

provide notification to OPA in writing at least four

weeks prior to actual implementation. Their allocation

plans must include a description of the product (e.g.,

drug name, dosage, form and NDC) and details for a



HRSA Issues Three 340B Policy Clarifications Documents cover manufacturer audits, allocation procedures during shortages, and penny pricing

continued on p. 8


340B Policy Clarifications

non-discriminatory practice for restricted distribution to all

purchasers, including 340B covered entities, including:

• Explanation of the product’s limited supply and rationale

for restricted distribution among all purchasers.

• How manufacturers will impose restrictions on non-340B

purchasers.

• Specific details of the drug allocation plan, including a

mechanism that incorporates potential 340B sales to cov-

ered entities and sales to non-340B covered entities that

may not have a previous history of purchasing the re-

stricted drug.

• Dates the restricted distribution begins and concludes.

• Plan for notification of wholesalers and 340B covered enti-

ties.

In the policy release, HRSA chose not to reference the so-called

"must sell" language in ACA stating that manufacturers must

offer each covered entity covered outpatient drugs for pur-

chase at or below the applicable ceiling price if such drug is

made available to any other purchaser at any price. Some say

the non-discrimination policy might have been stronger if HRSA

had cited this congressional authority.

Manufacturers have argued that that ACA's must-sell provision

cannot take effect until HRSA amends the PPAs. Provider

groups have countered that the 340B statute, not the PPAs, are

the source of manufacturer obligations to covered entities and

thus the must-sell provision is now binding.

Manufacturers' obligations to 340B providers during drug

shortages could be altered by a bill that Senator Hatch is ex-

pected to introduce shortly. That measure reportedly

would exclude "medically necessary" drugs that are in short

supply from 340B discounts and Medicaid rebates for possibly

up to three years. (See story, p. 4.)

Penny Pricing Policy

The third policy release deals with situations in which the 340B

ceiling price formula results in a zero price due to the additional

Medicaid rebate a manufacturer must pay when a manufac-

turer increases a drug's average manufacturer price (AMP)

faster than the rate of inflation.

HRSA noted that historically, the 340B ceiling price calculation

could result in a negative number when the additional rebate

caused the Medicaid unit rebate amount (URA) to be greater

than AMP. In these instances, HRSA said that the 340B price

should be a penny. However, as amended by ACA, the Medi-

caid Act now limits the URA to 100 percent of AMP. Thus, it

said, "an increase in the basic rebate and inflation factor

would not result in a negative 340B price, but could result in

a zero 340B price."

"HRSA recognizes that when the URA equals the AMP in the

calculation of the 340B ceiling price, it is not reasonable for a

manufacturer to set a zero 340B ceiling price," the document

states. "In these cases, the manufacturer should charge $0.01

per unit of measure for zero-priced drugs."

When a 340B price drops to a penny price, HRSA continued,

"a manufacturer may anticipate challenges with equitable

market distribution of the drug, and should develop a plan

for non-discriminatory, restricted distribution to all purchas-

ers, including 340B covered entities."

Manufacturers, it said, "must notify OPA of this plan in writ-

ing ... at least four weeks before the proposed restricted dis-

tribution implementation date."

Plans to restrict sales "must be applied to all purchasers of

the affected drug and must be applied equitably to 340B and

non-340B providers," it said. ▪ ▪


continued from p. 6

Roadblock To Adding Outpatient Sites Cleared

Hospitals that have been unable to enroll outpatient facilities

in 340B because a form and software that they need are still

being developed can use last year's form and software in-

stead, the Health Resources and Services Administration

(HRSA) has decided.

HRSA announced the "special exception policy" on the Office

of Pharmacy Affairs (OPA) Web site on Nov. 2. According to

the notice, it applies to "340B eligible hospitals with Medi-

care cost reporting periods ending on or after April 30, 2011,

that wanted to add outpatient facilities and submit their cost

reports to meet HRSA's September 1st deadline for 340B

enrollment beginning on October 1, 2011, [but] were unable

to do so."

The Centers for Medicare and Medicaid Services' (CMS) new

Medicare hospital cost report form was originally scheduled

to be implemented early this year but, according to industry

consultants, changes were still being made to it as late as

August. Those changes have in turn pushed back the release

of commercial software that hospitals use to complete the

form. ▪ ▪


GAO 340B Report

continued from p. 3

Drug manufacturers, meanwhile, are pleased that the report

has opened what they feel is a long-overdue conversation

about drug diversion in the program, industry attorneys and

consultants say.

According to industry advisers, loose program guidance and

lax oversight have encouraged 340B hospitals and health

centers to push the boundaries of allowable use beyond

what Congress intended. It is common, they say, for their

clients to see evidence that suggests diversion but they are

reluctant to perform audits because they are costly and bur-

densome. The GAO's calls for a clearer definition of a 340B

"patient" plus government-conducted audits of covered enti-

ties are a good start, they say, but even more should be done

to keep potential diversion in check.

Jimmy Mitchell, the former director of the Office of Phar-

macy Affairs (OPA), says that in the wake of the GAO report,

340B hospitals should gird themselves for audits and that all

covered entities should prepare for congressional hearings

that could raise concerns about the 340B program.

"By and large, most covered entities go out of their way to be

compliant, but in today's political climate when does that fact

carry the day?" Mitchell observed. "One bad herring can make

the whole bundle stink. If there is a political goal to do away

the program and if there are hearings to build a public record

to support that goal, then yes, the program is at risk."

Mitchell believes that hospitals would be the first in the cross-

hairs if there is a push in Congress to curtail 340B. "If there a

political move to pare this program back, you would go after

the biggest purchasers with greatest opportunity to divert,

those that can be most easily accused of diverting or of violat-

ing the integrity of program," he says. "Covered entities need to

be alerted to the potential harm that may come to this pro-

gram."

Recommendations Focus Mainly on Covered Entities

Although the GAO concluded that HRSA's oversight of 340B is

inadequate to ensure both drug manufacturers' and covered

entities' compliance with program requirements, its four rec-

ommendations for executive action to improve program integ-

rity focused more on covered entities than drug companies.

In its written response to the report, HHS said that HRSA would

work with manufacturers to identify potential diversion and to

develop audit plans where evidence suggests diversion might

be occurring.

continued on p. 10



HHS also told the GAO that HRSA would review its draft pa-

tient definition guidelines and revise them for publication.

The White House Office of Management and Budget com-

pleted its review of the guidance on April 20. At a mid-July

meeting of 340B stakeholders, OPA Director Krista Pedley

said she was not sure if the guidelines would be published

before the end of this year. (See Monitor, July 2011.)

HHS also said that OPA's $4.4 million annual budget provides

sufficient funds to "allow for the planning of and initiation of

a phased approach" to recertifying the eligibility of all 340B

covered entities beginning this fall.

In response to the recommendation that HRSA clarify its

340B eligibility criteria for private nonprofit hospitals, HHS

noted that the recertification initiative will include hospitals

and thus enable OPA to verify that they meet statutory re-

quirements.

According to attorney John Shakow, a partner at King and

Spalding who represents drug manufacturers, industry's con-

cerns about 340B are growing in proportion to the program's

expanding enrollment. As more providers become eligible

and enroll, he says, manufacturers are paying out more in

discounts—all against a backdrop of declining profits and a

diminished product pipeline.

"The pressure is mounting for OPA and HRSA to establish

smart, enforceable guidelines for many critical aspects of the

program," Shakow says. "The program has matured in terms

of dollars and legal risks to participants, both covered entities

and manufacturers. It is irrational to not have a well-laid-out

playing field in which participants can make the program

work. The costs and risks are too great to not have clearly

articulated rules."

“It’s Not All Aliquippa”

Shakow doubts there is an abundance of malign diversion in

340B. "It's not all Aliquippa," he explained, an allusion to the

high-profile Aliquippa Community Hospital drug diversion

case that shook the 340B community in 2006. "It's much

more likely a lack of rigorous separation of inpatient and out-

patient drug use. Manufacturers think that it's probably quite

common that 340B covered entities adopt an aggressive in-

terpretation of what it means to be a patient without any

fear of enforcement by HRSA or any fear of contradiction by

drug manufacturers. That's the locus of our concern."

Chris Coburn, vice president for regulatory compliance at

Compliance Implementation Services (CIS), has a similar

take on the nature and extent of diversion in 340B. "Are

manufacturers saying that every entity does it? No. But it

is fairly common to see symptoms of it," he says.

"It has been clear for years what manufacturers need to

do to be compliant: get the price right, validate covered

entities' eligibility, and if you find out that you have to

make a price correction, make sure to make the covered

entities whole," he continues. "The frustrating part for

manufacturers was, what about the entities? We might

look at chargeback data and say, hey wait a second,

there's something anomalous here that suggests potential

diversion. But the manufacturer was limited on what ac-

tion it could take."

CIS, which helps manufacturers comply with federal drug

pricing program regulations, recently sponsored a well-

attended webinar for drug companies on the ins and outs

of 340B covered entity audits. Just over half of those who

participated said they were "very concerned" about diver-

sion and double-dipping in 340B and another 38 percent

said they were "somewhat concerned."

"We put on this webinar because of the high level of in-

terest," Coburn says. "There's been a lot of noise about

audits lately from the prime vendor and the agency.

Manufacturers are hearing this and want to be updated.

They're saying, 'If we did have an interest in pursuing an

audit, how do we go about it?' "

“They Are Going to Get Hammered”

Former OPA Director Mitchell agrees that audits of cov-

ered entities are likely in the near future. Hospitals will be

in the center of the audit target "because that's where the

money, the complexity, and the opportunity to divert is,"

he says. "They need to know that if they are diverting

340B outpatient drugs for inpatient use or for non-

patients they are going to get hammered."

Mitchell says that, for their own benefit, covered entities

should rally behind the proposed 0.1 percent user fee on

340B drug purchases because the revenues it would gen-

erate would enable OPA to oversee the program and

demonstrate "that it is within the bounds of integrity."

In the absence of funding that enables random audits or

other periodic forms of testing, "the program will always

be subject to assault and allegations of a lack of over-

sight," he warns. ▪ ▪

GAO 340B Report

continued from p. 9

continued from p. 10

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Topics to include: • Increased Scrutiny of the 340B Program From Congress & Government Agencies • Upcoming Covered Entity Audits by the Government & Drug Manufacturers • How a User Fee to Fund 340B Would Work • Third-Party Reimbursement Trends • Developments in Medicaid Billing & Shared Savings Arrangements • Regulation Defining Scope of Orphan Drug Discount Ban • Status of Various 340B Legislative Initiatives

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