Long-Delayed 340B Rule Takes Effect in January

Hospitals should have access to a secure website for looking up ceiling prices by April 1.

Nov. 30—A highly anticipated rule to require better drug company compliance with a major discount drug program will go into effect Jan. 1—following multiple delays.

The latest change, however, advances the timetable for implementation. Previously scheduled to go into effect in July 2019, regulatory changes to the 340B program’s ceiling price and monetary penalties will become effective Jan. 1, 2019, according to a final rule issued this week.

The final rule issued by the Health Resources and Services Administration (HRSA) implements civil monetary penalties for pharmaceutical manufacturers that knowingly and intentionally charge 340B-covered entities more than the designated ceiling price for a 340B-covered drug.

Other key provisions include requiring manufacturers to determine 340B ceiling prices quarterly and to charge 340B-covered entities one penny for drugs when the 340B ceiling price is zero. The “penny pricing policy,” an exception to the ceiling price methodology, was designed to discourage manufacturers from raising prices faster than inflation. A report from the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) found that manufacturers overcharged for more than half of the drugs that will be subject to the penny pricing policy, with incorrect charges ranging “anywhere from $1.65 to $1,931 per purchase over the ceiling price.”

The ceiling price, or the maximum price per unit that can be charged to 340B providers for outpatient drugs, is key to defining the discounts made available under the 340B program, said hospital officials.

OIG has found that many drug companies do not accurately provide the required discounts. For instance, in a July 2006 report, OIG found that in one month, 14 percent of total purchases made by 70 sampled 340B providers exceeded the 340B ceiling prices, resulting in total overpayments of $3.9 million.

Maureen Testoni, interim president and CEO of 340B Health, described the final rule as “a big step toward stopping drug companies from overcharging 340B hospitals, clinics, and health centers.”

The rule initially was scheduled to go into effect on March 6, 2017, but was delayed several times. The first delay stemmed from the Trump administration’s regulatory freeze, which directed federal agencies to delay any pending regulations for 60 days.

In a recent letter to HRSA, the Pharmaceutical Research and Manufacturers of America (PhRMA) cited a range of concerns with the new regulations and urged a further delay in their implementation until at least April 2019. In part, further delay would help drug manufacturers meet the complex new requirements, PhRMA and other advocates argued.

But HRSA officials rejected those arguments.

“The effective date of the final rule has been delayed for nearly two years, which has provided affected entities more than enough time to prepare for its requirements,” HRSA officials wrote in the rule.

Testoni noted that the regulation will go into effect more than eight years after Congress mandated it—and only after a lawsuit filed by hospitals and their advocates that demanded an end to the rule’s repeated administrative delays.

Data Access

After issuing the final rule, HRSA announced that by April 1, it expects to complete online publication of drug ceiling prices under the 340B program. HRSA also notified stakeholders that the secure pricing component of the 340B Office of Pharmacy Affairs Information System will be open for the submission of manufacturer pricing data in the first quarter of 2019.

Quick access to drug data was seen as key by hospitals and their advocates.

“We believe it is equally important for the website to be published as soon as possible after Jan. 1 because the website is essential for effective enforcement of the 340B program,” Owen Bailey, CEO of the University of South Alabama Health System, wrote to HRSA.

 “We continue to strongly urge HHS to make available online drug pricing information for 340B hospitals as this rule requires as soon as possible after Jan. 1, and no later than April 1, so that instances of drug company overcharging can be uncovered and penalties enforced,” Tom Nickels, executive vice president of the American Hospital Association, said in a written statement.

Ongoing Issues

The 340B program continues to face turmoil and uncertainty in other areas.

For instance, the Centers for Medicare & Medicaid Services (CMS) cut the Medicare payment rate for 340B-acquired drugs from 6 percent above the average sales price (ASP) to 22.5 percent less than ASP. Hospitals and their advocates have an ongoing lawsuit challenging that $1.6 billion payment reduction.

Beginning Jan. 1, 2019, CMS will expand that policy by implementing the same reduction for separately payable 340B-acquired drugs provided in a nonexcepted, off-campus, provider-based department (PBD) in accordance with the adjusted Medicare Physician Fee Schedule amount.

Rural sole-community hospitals, children’s hospitals, and Prospective Payment System-exempt cancer hospitals will still be paid at ASP plus 6 percent.

Ted Slafsky, a former leader of 340B Health, said the Democrats’ takeover of the House of Representatives could impact 340B. For instance, Reps. David McKinley (R-W.Va.) and Mike Thompson (D-Calif.) have introduced legislation that would repeal the Medicare Part B cuts in 2019.

Slafsky said in an hfm Blog post that HHS may propose further restrictions to 340B, including reducing the number of patients who can access discounted drugs and scaling back providers’ ability to partner with contract pharmacies to make medications available closer to home.

“It will be critically important for hospital leaders and other 340B program stakeholders to remain active in advocating for support of the program with their congressional delegations and in ensuring their messages reach the White House,” Slafsky wrote. 

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare