HRSA’s 340B Drug

Pricing Program
10th Annual Pharmacy Purchasing Networking Conference
August 9, 2005
Las Vegas, NV

Christopher Hatwig, M.S., R.Ph.

Objectives

 Provide an overview of 340B Drug Pricing

Program
 Discuss the relationship between the OPA,
the PSSC, and the PVP
 Discuss how hospitals qualify for the
program and optimize it benefits
 Discuss program challenges and potential
legislative related to the program
Background – The Uninsured
 49 million Americans without health insurance in
2002
 23% of Americans under 65 have no prescription
coverage
 27% of uninsured said they needed a prescription
but did not get it, compared to 10% of the insured
Kaiser Family Foundation 2002
 42% of uninsured with hypertension not taking
medication compared to 25% of insured Health Net of
California, June 2001
Background – Economic Disparity
 Uninsured, non-elderly spent an average of
$30.76 for prescription compared to insured
patients who paid $9.96 and $5.53 for a brand
or generic prescription respectively.
Health Net of California, June 2001

 Drug prices paid by those without drug

insurance are 15% higher than those with
insurance. Kaiser Family Foundation 1996
Medication Access Strategies
 Medication Samples
 Patient Assistance Programs
 Drug Discount Cards/Coupons
 Bulk Donation/Purchasing
 Pharmacy Benefit Management
 340B Drug Pricing Program
Background:
340B Drug Pricing Program
 1990 -Congress created Medicaid rebate law
 Drug manufacturers responded by increasing prices
 1992 - Congress passed Veteran Health Care Act (VHCA)
intended to extend relief to gov’t payers of drugs
 Act stated that manufacturers participating in Medicaid must sign
a Pricing Agreement to participate in the 340B program
 Provides discounts on outpatient covered drugs
 Required drug manufacturers to give best price to
disproportionate share hospitals and certain covered entities
grants
 Also referred to as “Section 602”, “PHS” or “340B” pricing
Program Administration
 Three Legs of the 340B Program
 Office of Pharmacy Affairs (OPA)
 Pharmacy Services 340B Program
Support Center
(PSSC)
OPA

PVP
 340B Prime Vendor
Program (PVP) PSSC
Office of Pharmacy Affairs (OPA) Mission,
Functions and Funding
Federal Register 9/21/2004

 Responsible for management and oversight of the 340B

Programs
 Promote access to (Comprehensive Pharmacy Services)
clinically and cost effective pharmacy services through:
 Maximizing the value of participation in 340B
 Developing innovative pharmacy services
 Being a Federal resource for pharmacy practice

 $2.97 Million Line item in FY2007 President’s Budget

Request
Why 340B?
 Reduce prescription drug expenditures by safety net
providers in order to:
 Expand health services access to:
 Low-income individuals/families
 Vulnerable populations
 Reduce taxpayer burden
 Average savings 25-50% for covered medications
(NACHC Survey)

 Comprehensive Pharmacy Services

Estimated Prices For Selected Public
Purchasers, as Percent AWP
von Oehsen; Pharmaceutical Discounts Under Federal Law: State Program Opportunities

0% 20% 40% 60% 80% 100%

AWP 100.0%

AMP 80.0%

Medicaid (Min.) 67.9%

Medicaid Net 60.5%

FSS 51.7%
Private Sector Pricing
340B 49.0%

FCP 47.9%

VA Contract 34.6%
Stephen Schondelmeyer, PRIME Institute, University of Minnesota (2001)
340B Eligible Covered Entities
 Federally Qualified Health Centers (FQHC)
 Hemophilia Treatment Centers (CHTC)
 Ryan White Programs (RWI, RWII, RWIII, RWIV)
 Sexually Transmitted Disease/Tuberculosis Programs
(STD/TB)
 Title X Family Planning Clinics
 Urban / 638 Tribal Programs
 Federally Qualified Health Center Look-Alikes (FQHC-LA)
 Disproportionate Share Hospitals (DSH)
 Children’s Hospitals (pending clarification of S.1932, the
Deficit Reduction Act of 2005)
 Annual Growth of Section 340B Covered
Entity Sites by Agency
6,000

5,000
Number of covered entities

4,000

3,000

2,000

1,000

0
1998 2000 2002 2004 2006 2008
(Projected)
Year (as of July 1)

CMS/ HRSA DSH CDC (STD/TB) IHS (638 & Urban) OS Family Planning HRSA Grantees and
FQHC-LA
 Annual Total Growth of Participating
Section 340B Covered Entity Sites
14,000

12,162 12,168 12,410

11,442 11,926
12,000

10,325
Number of covered entities

10,000 9,193
8,605
8,035 8,239
7,972
8,000

6,000

4,000

2,000

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(Projected) (Projected)

Year (as of July 1)

Eligibility Criteria for Hospitals
 Must meet one of the following:
 Owned or operated by state or local government
 Granted governmental powers by state or local
government
 Private non-profit with contract with state or local
government to to provide health care services to
low income individuals not eligible for Medicare
or Medicaid
 Additional requirements:
 Medicare DSH adjustment % of 11.75 or greater
 Must withdraw from group purchasing
arrangement (GPO) for outpatient covered drugs
 Including pharmacy wholesalers’ generic source programs
Disproportionate Share (DSH)
 DSH patient percentage defined as:

(Medicaid, Non-Medicare Days) / (Total Patient Days)

+
(Medicare SSI Days) / (Total Medicare Days)
obtained from CMS
_________________________________________________________________
DSH Percentage
Disproportionate Share Hospital (not sites)
340B Participation (July 1, 2006)

Eligible, Registered,
Eligible, Eligible, Urban
Not Registered Registered 544
722 715 76.08%
50.24% 49.76% Eligible,
Registered,
Rural
171
23.92%

N = 715 organizations
N = 1,437 organizations

Eligibility defined as DSH adjustment percentage > 11.75% - to register other criteria must be met.
 Getting Started with HRSA’s Pharmacy
Services Support Center (PSSC)
 American Pharmacists Association (APhA)
 American Association of Colleges of Pharmacy, American
Society of Health-systems Pharmacists and other partners
 5-yr. Contract
 Services to OPA and 340B covered entities
 Information and analysis
 Relationships and networking
 Program development/Technical Assistance
 Partner with schools of pharmacy to encourage students to
develop projects in 340B Safety-net organizations
 Free to eligible covered entities
How Does a Hospital Register to
Participate in 340B Program?
1. Determine the hospital’s DSH Adjustment Percentage
(must be >11.75%)
 Complete 340B Drug Program Enrollment Letter
5. Complete form to certify non-participation in
outpatient Group Purchasing Organization (GPO)
7. Complete form for adding outpatient facilities (as
appropriate)

Access registration forms at

http://www.hrsa.gov/opa/dsh.htm
Enrollment Periods with OPA

Application deadline: Begin purchasing:

(upon written confirmation from OPA)
 December 1  January 1
 March 1  April 1
 June 1  July 1
 September 1  October 1

NOTE: Database of covered entities updated quarterly. Few

exceptions
What Drugs Are Covered?
Covered drugs: Non-covered drugs:
 Outpatient Prescription  Vaccines
drugs  Drugs given to the patient
 Over-the-counter drugs (if in inpatient care settings
accompanied by a written
prescription)
 Clinic administered drugs
within eligible facilities
 ER drugs
 Drugs in other amb care
settings (e.g. day surgery)
 Manufacturer’s Role - Pricing
Structure for 340B and Medicaid
 Medicaid and 340B entities receive prices based on
either “Best Price” or Average Manufacturer Price
(AMP) – 15.1% for branded drugs
 Additional discounts are applied if price increases exceed the
Consumer Prime Index (CPI)
 Generic manufacturers are required to provide a discount
of 11% off of AMP
 “Best Price” is not part of generic calculation

 Pricing are recalculated and submitted quarterly

 Discounts are upfront…..no rebates
Dilbert on Rebates….
 Manufacturers Role (cont.) -
340B/Outpatient Pricing
 Manufacturers must provide 340B pricing if their drug is to be
covered by Medicaid
 Manufacturers cannot sell covered drug above 340B ceiling price
to covered entity
 Manufacturers are not prohibited from selling outpatient drugs at
below 340B ceiling price
 Various methods (direct, via wholesaler or PVP)
 Not required to offer negotiated sub-ceiling price to other covered
entities or Medicaid
 Prices offered covered entities are exempt from “best price”
calculation
 Sub-ceiling prices extended covered entities are exempt from the
VA’s Non-FAMP calculation ONLY WHEN offered through
HRSA’s Prime Vendor
Patients meet eligibility
requirements when….
1) The covered entity has established a relationship with the
individual by maintaining records of the individual’s health
care
2) The individual receives services from a provider either
employed, contracted, or referred by the covered entity and
responsibility for care remains with covered entity

Note - An individual is not considered a “patient” if the sole

health care service received is the dispensing of a drug

Q: Would a hospital’s employees be eligible to receive 340B

priced drugs?
 Program Billing Restrictions
 In most cases, covered entities must bill Medicaid at
acquisition cost plus dispensing fee.
 Drugs purchased under 340B cannot be subject to both
the 340B discount and Medicaid rebate (“Duplicate
Discount Rule”)
 No billing restrictions for non-Medicaid patients or
in situations where Medicaid is not line-item billed
for outpatient drugs
 Clinic administered medications
 Medicaid managed care
 Medicaid Carve-out Option (in some states)
340B Program - Anti-diversion
 Prohibits resale or transfer of discounted drugs to
anyone other than patient of covered entity
 Covered entities are responsible for implementing
procedures to prevent diversion and produce
audit reports.
 Penalty for failing to comply
 forfeiture of discounts back to the manufacturer
 disqualification from program
 HRSA and manufacturers may audit covered
entities
 Contract Pharmacy Alternative
 Guidelines established in Federal Register Notice - August
23, 1996
 Allows covered entity to contract with a community
pharmacy to dispense 340B drugs and provide pharmacy
services to patients of the covered entity
 Allowed one contract pharmacy arrangement unless approved
by HRSA as Alternative Methods Demonstrations Projects
 “Ship to, bill to” arrangement
 Does not require dual inventory
 Pharmacy must provide covered entity with reports
“consistent with customary business practices”
 Covered entity and pharmacy subject to audits
Growth in 340B Contracted Pharmacy
Arrangements
2,500
2,199

2,000
1,824

1,449
1,500

1,075

1,000
699

500 364
151 225
70 104

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(Projected) (Projected)
Year (as of July 1 each year)
DSH Program Optimization
 Inventory Management
 340B splitting software
 Prime Vendor Program - added value for
outpatient
 DSH Inpatient Pricing – added value for
inpatient
Inventory Management
 To ensure compliance and to optimize 340B savings,
DSH will need to utilize 340B pricing within mixed
(inpt/outpt) patient care settings
 Two options in meeting program guidelines:
 Separate physical inventories
 Virtual inventory management using split billing software
 Requirements to avoid diversion of 340B product:
 Retrospective replenishment program
 NDC to NDC match (no substitution)
 Reports/subject to audit
Split Billing Software
 Implementation plan is required
 Interface of billing and pharmacy systems
 Drug product selection
 Setup and maintenance of NDC to CDM crosswalk
 P&Ps for staff
 Routine reports/audits
 Added costs for software & staffing (optional)
 Examples of products available for use with any
pharmacy wholesaler system:
 Talyst (IHS)
 Dimension 21
 Typical 340B Chain of Distribution
AWP $100
WAC $84
Non-340B $70 MANUFACTURER
340B $51 No
WAC Chargeback
Medicaid
340B + Non-340B Acc’ts Rebate
WHOLESALER

Non-340B 340B Payment MEDICAID

Bill AAC FEE-FOR-
CONTRACT COVERED ENTITY
SERVICE
PHARMACY Dispensing Bill U+C
Fee Co-pay
Dispensed or
(if applicable)
Administered OTHER
Dispensed Co-pay
PAYERS
ELIGIBLE PATIENT
Powers Pyles Sutter & Verville, PC Bill von Oehsen
(202) 466-6550 William.vonOehsen@ppsv.com
 HRSA’s 340B Prime Vendor
Program (PVP)
 Agreement signed September 10, 2004
 Awarded to HealthCare Purchasing Partners Intl. (HPPI)
 Voluntary program for covered entities and manufacturers
 Contracting for sub-ceiling pricing on branded and generic
pharmaceuticals
 Represents 2700 eligible covered entities with over $2.5 billion in
340B purchases annually
 23 pharmaceutical suppliers contracted
 AstraZeneca, Bedford, GSK, Novo-Nordisk and others
 >2400 items priced below 340B ceiling price
 Discounts range from 1-70% below ceiling
 PVP - Benefits to Eligible DSHs
 Single national contracting entity to leverage
outpatient purchases of all DSH with the industry
 No risk or added cost to participate
 No change of distributor required
 Does not conflict with DSH’s inpatient purchasing
program (GPO)
 Access to sub-ceiling prices and other discounts
 Pricing transparency (via website)
 Longer term contracts
PVP – Other Discounted Products
and Services
 GSK Vaccines
 Diabetic Meters/strips – Bayer (Ascensia) , HDI (True Track)
 Inventory management/tracking solutions – D21, Talyst
 Patient Assistance Program Software – MedData
 Auditing and overcharge recovery services – e-Aduit, ST Health
 Repackaging services – DSI’s Care340B
 Ambulatory pharmacy dispensing technology – Automed, ScriptPro
 Integrated voice response (IVR) systems – Voice Tech
 Prescription vials/labels/printer cartridges -Tri-State
PVP Participants by Entity Type
(as of 07/27/06 – 2745 participants)
Sexually Transmitted
Disease Treatment, Tuberculosis , 159
232 Other, 11

HIV Programs, 81 Community Health

Center, 877

Title X Family
Planning, 488

Disproportionate
Share Hospitals, 897
 Avg. Sub-ceiling Savings for Carolinas Health
Systems’ Facilities for PVP Contract Purchases
Carolinas Medical Center Carolinas Medical Center Carolinas Medical Center Behavorial Health Center -
Myers Park Biddle Point Pharmacy Northpark CMC
0%

-2%

-4%

-6%

-8%

-10%

-12%

-14%

-16%

-18%
-30%
-25%
-20%
-15%
-10%
-5%
0%
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 PVP - Benefits to Suppliers
 Increased outpatient sales & market share to all DSHs
 Access to the largest teaching hospitals training medical
residents
 Access participant list with verified 340B eligibility - updated
biweekly
 A low cost, efficient means of contracting with the nation’s
safety-net providers
 Medicaid best price, Non-FAMP, and ASP price protection
 Pricing transparency
 Long term contracting
PVP Enrollment & Implementation
 Download and process participation agreement
 www.340bpvp.com
 Select pharmacy wholesaler
 PVP notifies wholesaler to load PVP portfolio of sub-
ceiling prices to your 340B account
 Activated on 1st or 15th of each month
 For DSH
 Entity can maintain any sub-ceiling pricing if negotiated
independently
 Continue use of GPO for inpatient drugs
 PVP Pricing is utilized in all 340B/outpatient areas
DSH Drug Pricing Options
Disproportionate Share Hospitals

340B
(OUTPATIENT)

340B PRIME DSH

VENDOR Inpatient
Program
(NOT 340B)
DSH Inpatient Program Highlights
 Section 1002 of MMA: Amended Medicaid Rebate Law to exclude
inpatient prices from best price reporting by drug manufacturers
 Program is voluntary for manufacturers
 Should not expect all manufacturers to participate
 Should not expect savings to always equal 340B program discounts
 No GPO exclusion for inpatient - Contracts can be negotiated by GPO
or by DSH independently
 Complete and accurate lists of eligible members must be maintained by
GPOs
 Pricing list is restricted to DSH members of GPO
 Some hospitals report 10% or greater in added savings over typical
GPO prices
DSH Inpatient Program
- Non-FAMP Pricing Exemption
 VA policy - 340B DSH inpatient prices can be
excluded by manufacturers from the its non-
FAMP and FSS for the branded products and
Most Favored Customer clauses when
 Manufacturerrequests a ‘hold harmless’ letter and
dear manufacturer letter from the VA listing
specific NDCs
 Manufacturer
offers 340B ceiling price on all
NDCs for drug (nothing more, nothing less)
 DSH Drug Pricing Options
340B Prime Vendor DSH Inpatient
Program Program Program
Managed by HRSA’s HPPI Each GPO
OPA
Eligible 12,000+ 12,000+ 700+
entities
Patients Outpatients Outpatients Inpatients
benefiting
Supplier Mandatory Voluntary Voluntary
participation
Anticipated 20 – 25% Varies on “340B Like”
savings below GPO select products savings on select
pricing products
Future Issues with the 340B Program
 Pending Federal Register notices to modify
current guidance:
 340B Patient Definition
 Multiple Contracted Pharmacies
 Children’s Hospital Participation in 340B
 Major Program Challenges Related to
Integrity Issues
 Possible Legislation
Patient Definition Guidance
Summary of Newly Proposed Guidance
 Clarifies requirement to keep records of the
patient’s health care
 Clarifies relationship between covered entity
and medical provider who generates
prescription of 340B drugs
 Provides guidance for DSHs as to which
clinics may participate in 340B
Proposed Contract Pharmacy Guidance
 Incorporates Multiple Pharmacies as standard option.
(1) the use of multiple contracted pharmacy service sites, and/or
(2) the utilization of a contracted pharmacy to supplement in-house
pharmacy services.

 Keeps Alternative Methods Demonstration Projects (AMDP)

for covered entities seeking to utilize networks and OPA will
continue to review whether networks create potential for
unlawful diversion.

 Updates the contract pharmacy guidance in general.

Children’s Hospitals

Section 6004 of the DRA amends only the

Social Security Act & Not Public Health
Service Act (PHSA)
 Children’s hospitals must agree to abide by the
requirements of section 340B of the PHSA as
condition of participation
 Status under Pharmaceutical Pricing Agreement?
 Technical Amendment?
340B Program Integrity Concerns
 Office of the Inspector General (OIG Reports)
 Industry
 Covered entity compliance
 Diversion
 Patient definition
 Duplicate discounts
 Covered Entities
 Industry compliance
 Overcharges
 Restrictive pricing practices (specialty distributors, IVIG, etc.)
 Pricing transparency
HRSA’s Response to Program Integrity
Challenges 2005/2006
 October 1, 2005 OPA began computing 340B ceiling
prices using data provided by CMS and a third party
contractor for package size data.
 OPA requested drug manufacturers to voluntarily
submit 340B quarterly Prices to OPA and to its
Prime Vendor
 Began comparison of OPA computed prices with
drug company prices and wholesaler price files
 Sent cease and desist letters for 340B Violations
 Began verification of covered entity data in Database
HRSA’s Response to Program Integrity
Challenges 2005/2006 continued
 Participated with OIG/DOJ to prosecute 340B violations
 Worked with OIG/DOJ to process settlement agreement and
refunds (Chiron, King, and others)
 OPA is working with the industry stakeholders to voluntary
improve pricing integrity, increase transparency; disclose
pricing errors and to refund overcharges
• Ad Hoc Industry Workgroup
 Drafting recommendations to OPA for improvements in pricing
integrity and transparency
 The ONLY UNIQUE identifier for a 340B covered entity is the
340B ID number. Do NOT use HIN or DEA to confirm 340B
participation
 340B Legislation
 Expansion efforts
(1) Rural hospitals – included in MMA
(2) Children’s hospitals – included in DRA
(3) Inpatient drugs and critical access hospitals –
S.1840, H.R.3547
 Integrity improvement and 340B reform
(1) Funding to strengthen enforcement and
increase price transparency – S.4
(2) Future hearings and legislation expected
Powers Pyles Sutter & Verville, PC Bill von Oehsen
(202) 466-6550 William.vonOehsen@ppsv.com
Buyers’ Roles with 340B
 Ensure all DSH eligible facilities are enrolled in 340B,
PVP, and DSH inpatient programs to maximize savings
 Compare 340B/PVP program pricing with GPO contract
pricing and recommend purchase of products providing
“best value” across classes of trade
 Monitor pricing changes at the beginning of each quarter
to:
 Identify significant price increases/decreases and
recommend changes when appropriate
 Ensure PVP pricing is loaded correctly
 Ensure key independent agreements are loaded correctly
Buyers’ Roles in Improving Compliance
and Program Integrity
 Take leadership roles with inventory management
systems to ensure NDC to NDC matching
 Ensure compliance with GPO exclusion on
outpatient covered drugs
 Ensure wholesaler generic source or other auto-sub
programs are not loaded within outpatient account
 Document uncontrollable exceptions - IVIG
 Ensure full implementation; No “cherry picking”
340B Program Assistance
HRSA / Office of Pharmacy Affairs (OPA)
 www.hrsa.gov/opa

Pharmacy Services Support Center (PSSC)

 pssc.aphanet.org or 800-628-6297
 Technical Assistance Support - 866-PharmTA

340BPrime Vendor Program/HPPI

 www.340Bpvp.com or 1-888-340B PVP
 Typical 340B Chain of Distribution
AWP $100
WAC $84
Non-340B $70 MANUFACTURER
340B $51 No
WAC Chargeback
Medicaid
340B + Non-340B Acc’ts Rebate
WHOLESALER

Non-340B 340B Payment MEDICAID

Bill AAC FEE-FOR-
CONTRACT COVERED ENTITY
SERVICE
PHARMACY Dispensing Bill U+C
Fee Co-pay
Dispensed or
(if applicable)
Administered OTHER
Dispensed Co-pay
PAYERS
ELIGIBLE PATIENT
Powers Pyles Sutter & Verville, PC Bill von Oehsen
(202) 466-6550 William.vonOehsen@ppsv.com
Drugs administered to patients after
hospital admission
 Q: How should my hospital handle situations
where an ER patient who has received 340B-
priced drugs is subsequently admitted as a
hospital inpatient?
Drugs administered to patients after
hospital admission
 Q: How should my hospital handle situations
where an ER patient who has received 340B-
priced drugs is subsequently admitted as a
hospital inpatient?
 A: This depends on the billing policies of the
hospital. Drugs administered to patients up
until the time of admission may be purchased
through the 340B programs, but not after
admission.
340B discounted drugs and “own use”
 Q: If we use 340B discounted drugs for “own use”
does that meet the prohibition against drug
diversion?
340B discounted drugs and “own use”
 Q: If we use 340B discounted drugs for “own use”
does that meet the prohibition against drug
diversion?
 A: Not necessarily. Covered entities are required
not to resell or otherwise transfer 340B purchased
drugs to an individual who is not a “patient” of the
entity. Selling drug to an employee may meet “own
use” guidelines but it does not necessarily meet
340B use guidelines.
Hospital employees
 Q: Can hospital employees have
prescriptions filled at the hospital outpatient
pharmacy using 340B medications?
Hospital employees
 Q: Can hospital employees have
prescriptions filled at the hospital outpatient
pharmacy using 340B medications
 A: Depends on whether the employees meet
the 340B “definition of patient”. The fact
that they are employees of the DSH is
relevant.
DSH Inpatient Pricing
 Q: Can my hospital participate in the DSH
inpatient program if I do not register for the
340B program with OPA ?
DSH Inpatient Pricing
 Q: Can my hospital participate in the DSH
inpatient program if I do not register for the
340B program with OPA
 A: No, in order to qualify for DSH inpatient
programs the hospital must first enroll and
implement the 340B program for its
outpatient facilities
340B prices and inpatient drugs
 Q: Are 340B prices available when purchasing in
patient drugs?
340B prices and inpatient drugs
 Q: Are 340B prices available when purchasing in
patient drugs?
 A: No. Section 340B applies to covered outpatient
drugs only. However, section 1002(a) of the MMA
excludes DSH inpatient drug purchases from the
Medicaid “best price” calculation, making it easier
for manufacturers to voluntarily offer discounts on
inpatient drugs to DSH’s participating in 340B.