On August 28, 2015, the Health Resources and Services Administration (HRSA), which administers 340B Drug Pricing Program, released long-awaited proposed guidance (“Guidance”). The purpose of the Guidance is to assist 340B covered entities and drug manufacturers in complying with the statutory requirements of the 340B Program. In its current form, the Guidance is not currently effective and was issued with a 60-day comment period. Covered entities that will be impacted by the Guidance should consider drafting comments and submitting those comments to HRSA on or before October 27, 2015.

The Guidance makes significant changes in three major areas: (1) who may be considered a patient of a covered entity; (2) the requirements for contract pharmacy arrangements; and (3) the eligibility of off-site outpatient locations. The Guidance also provides some detail the auditing of covered entities by the Department of Health and Human Services (HHS) and drug manufacturers. If the Guidance becomes final, covered entities and drug manufacturers alike will need to significantly alter policies, procedures, and systems to become compliant with the requirements of the Guidance.

Patient Definition

Most notably, the Guidance changes the definition of a “patient” of a covered entity for purposes of the 340B Program. The Guidance indicates that an individual will be considered a patient of a covered entity on a prescription-by-prescription or order-by-order basis. To be a patient of a covered entity, individuals must meet all six of the following requirements:

• The individual must receive a health care service at a facility or clinic which is registered for the 340B Program and listed on the public 340B database;

• The individual must receive a health care service furnished by a covered entity provider who is either employed by the covered entity or who is an independent contractor for the covered entity such that the covered entity may bill for services on behalf of the provider;

• An individual must receive a drug that is ordered or prescribed by the covered entity provider as a result of the services described in (2). An individual will not be considered a patient of the covered entity if the only health care received by the individual from the covered entity is the infusion of a drug or the dispensing of a drug;

• The individual must receive a health care service that is consistent with covered entity’s scope of grant, project, or contract;

• The individual must be classified as an outpatient when the drug is ordered or prescribed; and

• The individual must have a relationship with the covered entity such that the covered entity maintains access to auditable health care records which demonstrate the covered entity has a provider-to-patient relationship, such that the responsibility for care is with the covered entity, and that each element of the patient definition is met for each 340B drug dispensed by the covered entity.

The proposed patient definition will impact covered entities in several ways. Covered entities will need to evaluate whether their current affiliations and relationships with external providers generate relationships between providers and patients that meet the criteria of the proposed new patient definition. For example, if a covered entity’s patient is referred to an outside, private specialist who sees the patient and writes a prescription, that prescription would not be eligible for 340B under the proposed Guidance because the health care service received by the individual resulting in the prescription was not provided at a covered entity site and the covered entity does not bill for the specialist’s services. These new requirements may also harm those covered entities which provide medication and supportive services, such as case management or behavioral health, but do not write prescriptions.

Associated Sites or “Child Sites”

Non-hospital covered entities can register multiple, associated health care delivery sites on the public 340B database. If the authorizing official of the covered entity provides information demonstrating that each site is performing services under the main qualifying grant, contract, designation, or project, the associated sites may be registered as “child sites” of the “parent site” covered entity. Parent covered entities are responsible for ensuring that HHS is notified if a child site loses eligibility for the 340B Program. The Guidance states that a parent covered entity may be liable for repayment to manufacturers for any 340B drug purchase made after the child site loses eligibility. However, it is important to note that the inclusion of a covered entity within a larger organization does not make the entire organization eligible for the 340B Program.

In contrast to parent-child sites, HHS will list sub-recipients that seek their own 340B identification numbers separate from parent entity if those entities provide information confirming the receipt of grant funds and the grant number. The extent to which a covered entity may be liable for an independently registered sub-recipient’s compliance with the 340B Program requirements is not explicit in the Guidance. Covered entities may wish to seek clarification on this issue.

Medicaid Exclusion File

The Guidance maintains the current policy of HHS with respect to the Medicaid Exclusion File as the tool to allow covered entities to “carve-in” or “carve-out” Medicaid fee for service patients from 340B dispensing. But the Guidance adds that covered entities may make a different determination for their patients enrolled with a Medicaid Managed Care Organization (MCO) and that determinations may be made on a site-by-site basis.

HHS is proposing a Medicaid Exclusion File that would be for Medicaid MCO patients, in addition to a Medicaid Exclusion File for Medicaid fee-for-service patients. However, the proposed Guidance also requests comments and suggestions from stakeholders regarding alternative methods of identifying or documenting whether or when 340B drugs will be used for Medicaid MCO patients.

Contract Pharmacy Arrangements

Covered entities are permitted to contract with pharmacies on behalf of parent sites as well as child sites, as long as such arrangements are permitted under local law. As is the current practice, covered entities must register all contract pharmacies and such information will be available in the public 340B database. In addition, the covered entity is responsible for ensuring that the contract pharmacies follow all 340B statutory requirements, and the Guidance states that HHS expects the covered entity to conduct quarterly reviews and an annual audit of contract pharmacies to demonstrate sufficient oversight over the contract pharmacy. Furthermore, the Guidance advises covered entities to evaluate their contract pharmacy arrangements to ensure that it is the covered entity receiving the benefits of the 340B Program (as opposed to the contract pharmacy or a third party administrator).

The Guidance provides that contract pharmacies will not dispense 340B drugs to Medicaid fee-for-service or Medicaid MCO patients, unless otherwise noted in the 340B database. In addition to the notation in the 340B database, a covered entity wishing to purchase and dispense 340B drugs for its Medicaid patients using contract pharmacies must provide to HHS for its approval an agreement between the covered entity, the contract pharmacy, and the State Medicaid agency or MCO.

Audits 

The Guidance reiterates that HHS maintains the authority to audit covered entities for compliance with the statutory prohibition on duplicate discounts and diversion. In that regard, the Guidance states that HHS may audit the parent covered entity site, child sites, and any pharmacy under contract with the covered entity. The Guidance also provides additional details on the audits, including the expectation that a covered entity maintain auditable records and the use of a notice and hearing process to provide a covered entity with an opportunity to respond to adverse audit findings or other findings of noncompliance.

Overall, the Guidance makes significant changes to many aspects of the 340B Program. While covered entities should evaluate their current programs or systems for compliance with the Guidance, it is important to remember that the Guidance is only in a proposed form and is not yet final. Covered entities and other stakeholders have until October 27, 2015 to submit comments on the Guidance.

The statements and information contained in this post represent the interpretations of Feldesman Tucker Leifer Fidell LLP and do not constitute legal advice. If you have additional questions on the impact of the guidance on your program, please contact Michael B. Glomb.