Key provisions for hospitals include a reaffirmation of a requirement that drugmakers provide pharmaceuticals to 340B-covered entities for a penny when the calculated ceiling price is less than a penny.

Jan. 5—Drugmakers face penalties of up to $5,000 each time they intentionally charge a 340B hospital more than the program’s ceiling price, according to a new final rule.

The final rule issued Jan. 5 by the Health Resources and Services Administration (HRSA) outlined how the ceiling price is calculated for drug companies participating in the 340B drug pricing program, which mandates steep discounts on drugs to safety net providers.

The penalties were required by the Affordable Care Act for drugmakers charging 340B hospitals more than the ceiling price established under the procedures of the program.

340B Health, a coalition of hospitals in the 340B program, hailed the new rule for providing the transparency needed to prevent the drug industry from overcharging providers.

“It’s a welcome development in light of public outrage about the unsustainable cost of prescription drugs,” Randy Barrett, vice president of 340B Health, said in a written statement.

But some drugmakers and advocates warned that the requirements—including a reaffirmation of HRSA’s longstanding policy requiring drugmakers to provide pharmaceuticals to 340B-covered entities for a penny when the calculated ceiling price is less than a penny—will significantly impact their pricing and reporting systems.

“Given potential drug shortages and complex allocation occasioned by a penny pricing system, mandating such pricing over extended periods can hardly be characterized as facilitating congressional intent to create ‘minimum administrative costs and burdens,’” Leigh Anne Leas, a vice president for Novartis, wrote in comments on the proposed rule.

Observers said little was changed in the final rule from the proposed version, first issued in June 2015 and then partially reopened for comments in April 2016.

“While the ceiling price components are complex and will undoubtedly create some work for pharmaceutical manufacturers, the final rule should help balance the scales at a time when audit and enforcement activity has traditionally been focused only on covered entities,” Kyle Vasquez, JD, a shareholder for Polsinelli who represents hospitals, said in an interview.

Hospitals said the rule was needed to ensure that manufacturers comply with 340B obligations and their pharmaceutical pricing agreements with the U.S. Department of Health and Human Services (HHS).

Key Provisions

The rule establishes a new drug-pricing policy for situations where insufficient information is available to establish a 340B ceiling price for a new drug. The policy would require manufactures to refund 340B-covered entities within 120 days if the manufacturer determines an overcharge occurred.

Other requirements of the final rule include greater transparency in calculating the 340B drug ceiling prices. That change aimed to ensure that drug manufacturers were not overcharging 340B hospitals.

Further guidance is expected on the 340B ceiling price reporting system and on ways for 340B hospitals to access ceiling price information to establish instances of manufacturer overcharges.

Hospitals also hailed the requirement that pharmaceutical manufacturers ensure their distributors give providers the 340B ceiling price.

The penny-pricing provision also was seen as key.

Some drugmaker advocates had warned that the policy would have adverse consequences.

“The penny pricing policy has been in place for many years and HHS does not have evidence that the policy causes significant risks of stockpiling, diversion, harm to patients, and abuse of controlled substances,” HRSA officials wrote in the final rule.

Other provisions highlighted by hospital advocates included:

  • Requiring manufacturers to offer refunds for overcharges on new drugs instead of maintaining the current rule requiring covered entities to request refunds
  • Giving the Office of the Inspector General responsibility for imposing civil monetary penalties on 340B manufacturers, given OIG’s extensive experience with applying such penalties in other contexts

The new rule goes into effect on April 1.

340B Outlook

Important to hospitals, the final rule cited data showing that in 2015, the $12 billion in 340B sales continued to comprise a small share (2.6 percent) of the overall U.S. drug market. HHS estimated 340B participants saved $6 billion on those purchases.

A report by the Alliance for Integrity and Reform of 340B, a coalition of patient advocacy groups, providers, and pharmaceutical manufacturers, estimated 340B sales increased to $16.1 billion in 2016.

The program’s growth comes amid an uncertain outlook. Hospital advocates are hopeful that HRSA has dropped plans to issue so-called mega-guidance, which is under review by the Obama administration’s Office of Management and Budget. Even if that guidance is issued, the incoming Trump administration or Congress could block it from taking effect. The political uncertainty left some industry observers unprepared even for this week’s final rule to be issued.

The proposed omnibus guidance for the program from HRSA aimed to clarify rules that were first issued in 1992. But 340B Health said about one-third of its members have reported they would leave the program if the proposed rule changes were finalized.

Also outstanding is a final rule implementing formal regulations of the administrative dispute resolution process for reviewing claims and resolving disputes in the 340B program. HRSA issued a notice of proposed rulemaking on the process in August 2016.

An overhaul to the 340B program that would have tightened the definition of eligible patientsand required participating hospitals to track how the 340B discounts are spent was dropped from the 21st Century Cures Act before passage.

Pharmaceutical industry advocates are expected to push for further changes to the 340B program in 2017.


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

Publication Date: Thursday, January 05, 2017