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HRSA 340B Mega-GuidanceHow We Got Here + What's Next

Disclaimer

The information contained in this presentation is forinformational purposes only. It should not be construed orrelied upon as legal advice.

101: Acronyms and Relationships

HRSAHealth Resources and Services Administration

Responsible for oversight of the 340B Program

OPAOffice of Pharmacy AffairsDepartment within HRSA

Responsible for administration of the 340B Program

OMBOffice of Management and BudgetAssists in the preparation of the federal budget and supervisesbudget administration in executive branch agencies

Responsible to review and approve HRSA mega-guidance draft

101: Legislative Rules

Non-Legislative Rules

Statutory laws enacted by Congress don't often include enough detailed guidance to carry out thelaw. Therefore government agencies issue "rules" to provide this clarity. HRSA's explicit authoritythrough the law to enact legislative rules as opposed to non-legislative rules has been an ongoingdebate.

What's the difference?

Interprets statute and indicatesenforcement directions

Not binding on courts but difficultto challenge

Legislative Rules

May create new rights and/orobligations

Binding and very difficult tooverturn via a court challenge

101: HRSA Explicit Authority

So what explicit authority does HRSA have to enact legislative rules withregard to the 340B program? Until the enactment of the Affordable Care Act(ACA) in 2013 the answer was none. However, with the ACA HRSA wasprovided with the explicit authority to implement three new provisions.

Establish anadministrative disputeprocess for claims bymanufacturers andcovered entities

Issuance of preciselydefined standards ofmethodology forcalculating ceiling prices

Establish standards for theimposition of monetary civilsanctions applicable toparticipating manufacturers

HRSA still has considerable authority over the 340B program through theissuance of non-legislative rules. They are enforcing these rules throughsteadily increasing auditing of hospital covered entities.

HRSA publishesOrphan DrugRegulation,expanding use of340B program fororphan drugs

Jul 2013

PhRMA files lawsuitagainst OrphanDrug Regulationciting HRSA's lackof authority

Sep 2013

HRSA announces itwill release formalstatutory rules -referred to as the"mega-reg"

Jan 2014

Federal judge voidsOrphan Drug regciting HRSA's lackof authority to issuelegislative rules

May 2014

HRSA changescourse announcing aforthcoming "mega-guidance" ratherthan legislative rules

Nov 2014

HRSA submitsmega-guidance toOMB for review

May 2015

The "mega-guidance" actually began as a "mega-reg." The difference? The "mega-reg" HRSAannounced in January 2014 was to be a series of legislative rules. HRSA later changed course and inNovember announced they would issue a series of non-legislative rules with legislative rules only in theareas where they have explicit authority through the ACA.

Mega-Guidance History

HRSA stands byOrphan Druginterpretation;PhRMA files briefasking judge toinvalidate rule

Jun 2014

Judge enters finaljudgement denyingPhRMA's request toinvalidate rule;HRSA continues toaudit based onthe regulation

Aug 2014

Now that HRSA has submitted themega-guidance to the OMB, whathappens next?

What's Next?

May 6, 2015HRSA submittedmega-guidanceto OMB

The OMB now has90 days to reviewthe mega-guidanceand will ask for moretime or...

90 DaysOPTION

01Reject the guidance andreturn to HRSA forrevision

OPTION

02Approve guidance andsend to the FederalRegister

Process Restarts

60DAYS

Guidance is madepublic and open for

comment for 60 days

HRSA will reviewcomments and

revise theguidance

OPTION

01Make minor changes

OPTION

02Process Restarts

Make major changes

Final Published

Through previous guidance, current audit practices and other HRSA communications manyindustry experts believe the following categories are likely to be addressed in the mega-guidance. This is not for certain but informed predictions.

Expected Guidance

Hospital eligibility for private hospitals

Types of patients that can use 340B drugs

Use of 340B prior to admission

Qualifying prescriptions

Patient definition

Physician administered drugs

Medicaid

Contract pharmacies

Reporting and record keeping requirements

The following slides will provide and overview of each of the above bullets.

Currently private hospitals must have a "contract with a State or local government toprovide health care services to low income individuals who are not entitled to benefitsunder [Medicare] or eligible for assistance under [Medicaid]" in order to be eligible forthe 340B program.

The mega-guidance may propose a specific amount of care provided under thesecontracts in order to qualify as a 340B entity.

Eligibility for Private Hospitals

If you are a private hospital qualifying for 340Bthrough this provision, consider doing the following:

Review current contracts, identify any measures ofamount of care required to be providedEvaluate amount of charity care, bad debt, financialassistance provided compared to revenue and anycontractual obligations

The 340B program only applies to outpatients. However, it's not uncommon for anoutpatient to transition to inpatient care. In that scenario 340B drugs can be used for apatient up until the time of admission. Additional stipulations and/or clarification aroundthe eligibility of these patients is likely in the mega-guidance. Potential changes couldbe the following:

Use of 340B Prior to Admission

Drugs administered to an outpatient but billed as a portion of an inpatientservice per the payer's billing rule may be excluded (i.e. Medicare 72-hourrule, observation days)

Only drugs used for a service that is billed as outpatient may qualify

Estimate financial impact on your hospital of eliminatingthese drugs from the 340B program. Evaluate ability ofcurrent billing system and operational processes toisolate these scenarios

Today discharge prescriptions written in connection with an inpatient stay are eligible for340B pricing when they are billed and used on an outpatient basis.

A potential change may be that only drugs written in connection with an outpatientservice can be included.

Also, the mega-guidance may require qualifying drugs to be both separately billed andseparately paid. For example, a flu vaccine bundled with an office visit may no longerqualify.

Qualifying Prescriptions

Under the current 340B program, patients who qualify for the program must meet all ofthe following criteria:

Patient Definition: Current Guidance

Source: healthaffairs.org

The covered entity has anestablished relationshipwith the individual andmaintains medical recordsof the individual's care

Individual receives healthcare services from aprovider that is eitheremployed or contractedwith the covered entity orreferred through thecovered entity; howeverthe covered entitymaintains responsibility forthe care

The individual receives ahealth care service that isconsistent with the servicesfor which grant funding orfederally qualified healthcenter look-alike status hasbeen provided to the entity(Not applicable todisproportionate-sharehospitals)

What patients qualify for 340B drugs is another likely area for clarification and change.Currently 340B drug pricing can be utilized for a prescription written during a visit to aparticipating hospital or registered offsite location. Additionally, prescriptions written inconnection with documented referrals qualify.

Patient Definition

It may no longer be enough for a hospital to be a part of the continuumof care but rather must be responsible for the care relating to theprescription.

Previously proposed language added the requirement the patient musthave an in-person clinical or medical visit and receive a prescription asa result of that visit from a 340B covered entity.

The "Morford letter" stated 340B drugs could be used for drugs prescribedoutside of a covered entity but proximate in type and time to a qualifyingencounter. HRSA has stated this was not a guidance but in response to aspecific situation. HRSA is enforcing this stance through audits.

If a patient receives an order for a physician-administered drug from a non-qualifyinghospital but the drug is administered by a 340B entity the covered entity can utilize340B drugs for this service.

Under the mega-guidance 340B pricing could potentially be limited to only drugsordered by a provider of a 340B entity.

Physician Administered Drugs

States are prohibited from receiving rebates on 340B Medicaid managed care drugs.However, the methodology for states to identify these drugs is unclear.

A potential new requirements may be to require hospitals to identify retail 340BMedicaid managed care drugs at point of service. This could potentially be required byusing the NCPDP standard or a claim modifier. HRSA may be required to share 340Bceiling pricing with state Medicaid agencies.

The identification of 340B drugs at point of service could be challenging for contractpharmacies utilizing virtual inventory.

Medicaid Managed Care

HRSA initially allowed the use of a single contract pharmacy for the distribution of 340Bdrugs in 1996 for covered entities without an on-site pharmacy. In 2010 HRSA issuednew guidance that removed the requirement stipulating the covered entity did not havean on-site pharmacy and made allowance for more than one contract pharmacy. Sincethen, the number of contract pharmacies has grown significantly.

Potential changes to the use of contract pharmacies may be:

Contract Pharmacy

Requirement for the covered entity to conduct an annual, independentaudit of each contract pharmacy. HRSA has communicated a contractpharmacy audit is expected although there are no rules today.

Potential limit on the number of contract pharmacies and/or thedistance of the pharmacy from the covered entity

Requirement that the contract pharmacy provide the drug at adiscounted price to the uninsured patient

Potentially require contract pharmacies track the income and amountpaid by the patient for 340B drugs

The mega-guidance could require hospitals to report on how they are utilizing their340B savings.

Additional reports could also include:

Reporting Requirements

Payer mix

Aggregate reimbursement received for 340B drugs

Aggregate amount spent on 340B drugs

How duplicate discounts are prevented

Number of outpatient drugs dispensed through contract pharmacy

Amount and/or percentage of uncompensated care provided

Name of any third-party vendors

Again, what will be covered in the mega-guidance is uncertain. The following are a fewmore areas where HRSA may issue proposed guidance:

Additional Potential Guidance

Program intent

Enforcement/Audits

User fees

HRSA's regulatory authority

Correctional facility eligibility

Manufacturer requirements

Uninsured patients

We are still months, possibly years from the finalization of the HRSA mega-guidance. The current draft submitted to the OMB on May 6, 2015 will be made public onceapproved. The 90-day review period ends in early August although it's possible theOMB may approve and publish in advance or after that deadline.

Participating hospitals should remain very committed to compliance to the existingrules. Enforcement through HRSA audits of the new rules will not apply to claimsoccurring prior to the finalization date. However, hospitals should begin evaluatingsystem capabilities and processes that would be impacted by the mega-guidance assoon as possible.

Conclusion

PSG has a 20-year legacy of offering products and services to hospitalsacross the country.

We offer highly compliant, customized 340B solutions for: - Contract pharmacy - Split-billing - Uninsured patient programs.

About PSG

800.687.4404www.psg340b.com