What manufacturers need to know about the new Final Rule on the 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties

and | January 20, 2017                               

The U.S. Department of Health and Human Services (“HHS”) Health Resources and Services Administration (“HRSA”) issued a Final Rule1 on January 5, 2017 to set forth regulations on calculation of 340B Ceiling Price and imposition of Civil Monetary Penalties (“CMP”) on manufacturers that overcharge 340B Covered Entities.  The Final Rule is effective March 6, 2017, and compliance is required at the start of the following quarter (April 1, 2017).  HRSA indicates in the preamble to the Final Rule that the regulations will apply prospectively.2 It remains to be seen whether the incoming Trump administration, which takes office on January 20, 2017, will delay the effective date or otherwise have an impact on these regulations.

The Final Rule included provisions in the following areas, and key takeaways within each are described in more detail below:

  1. Definitions
  2. Quarterly Price Reporting of 340B Ceiling Price
  3. Penny Pricing
  4. Provisional (“Estimated”) 340B Ceiling Price
  5. Civil Monetary Penalties

Definitions

  • HRSA defined “covered outpatient drug” as having the meaning set forth in section 1927(k) of the Social Security Act, which includes the limiting definition in 1927(k)(3) regarding drugs reimbursed separately, as opposed to being reimbursed under bundled payment methodologies. This will have the effect of excluding drugs that are reimbursed as part of a bundled payment from receiving 340B pricing.

Quarterly Price Reporting of 340 Ceiling Price

  • The Final Rule requires pharmaceutical manufacturers to calculate the 340B Ceiling Price on a quarterly basis for each covered outpatient drug by each National Drug Code (“NDC”). When an orphan drug meets the definition of a covered outpatient drug, HRSA requires that the drug adhere to the rules within the Final Rule.
  • The calculation of the 340B Ceiling Price for a covered outpatient drug is unchanged and calculated by taking the Medicaid Average Manufacturer Price (“AMP”) from a preceding calendar quarter less the Unit Rebate Amount (“URA”). In the preamble, HRSA acknowledges and agrees with the industry standard of a two-quarter lag between a calendar quarter’s AMP and URA being used to set 340B Ceiling Price for a later calendar quarter (e., 2Q AMP and URA used to set 4Q 340B Ceiling Price).3
  • The 340B Ceiling Price will be calculated to the sixth decimal place, and Covered Entities will receive the 340B Ceiling Price rounded to two decimal places.
  • Package size and case package size are not defined in the Final Rule. HRSA states in the preamble that it will issue future guidance associated with the 340B Program Ceiling Price reporting system.4

Penny Pricing

  • HRSA confirms the long-standing policy regarding penny pricing. Penny pricing occurs when a pharmaceutical drug’s calculated 340B Ceiling price is less than $0.01. HRSA reminds pharmaceutical manufacturers that they have the ability to adjust price practices and/or opt to not participate in the voluntary program if they do not want to offer penny pricing.

Provisional (“Estimated”) 340B Ceiling Price

  • When a pharmaceutical manufacturer launches new drugs (NDCs for which there was no previously existing AMP and NDC-9), the HRSA requires that an estimated price is made available to 340B Covered Entities. The Provisional 340B Ceiling price is to be calculated by taking the Wholesaler Acquisition Cost (“WAC”) less the appropriate statutory discount (23.1% for single-source and innovator drugs, 17.1% for clotting factors and drugs approved exclusively for pediatric indications, and 13% for generics).
  • No later than the fourth quarter the new drug is available for sale, manufacturers must calculate the “actual” 340B price based on the AMP and URA for the quarters in which Provisional 340B Ceiling Price was used and offer refunds based on the difference between the Provisional and “actual” prices within 120 days of overcharge determination by the manufacturer.
  • HRSA requires manufacturers to contact each Covered Entity impacted and offer refunds within 120 days of identifying the overcharge.
  • HRSA has stated that during the initial discussions with an affected Covered Entity, the manufacturer and Covered Entity may mutually agree upon and follow alternative refund options including forgoing refund payment for insignificant overcharges, netting overcharges across all drugs affecting the manufacturer, crediting, or agreeing on de minimis thresholds. Attainment of mutual agreement between a manufacturer and each individual Covered Entity owed a refund will likely be very challenging to accomplish within the 120-day timeframe required by HRSA.
  • Manufacturers that do not comply with the 120 day refund period or refuse to refund affected Covered Entities may meet the “knowingly and intentionally” standard to apply a CMP (as described further in the following section).
  • Whether distributors play a role in the refund process is determined by individual manufacturers and their business operations with these stakeholders. A manufacturer may use a third party to assist in ensuring they meet those requirements.

Civil Monetary Penalties

  • The HHS may impose penalties on manufacturers for “knowingly and intentionally’ overcharging a 340B Covered Entity more than the 340B Ceiling Price no more than $5,000 per instance.
  • Consistent with the proposed rule, HRSA defined an instance of overcharging as any order, direct or indirect, for each NDC-11 where a Covered Entity paid more than the 340B Ceiling Price. HRSA states that instances of overcharging may occur at the time of the original sale or when recalculations of the 340B drug price occur.  Although each order for an NDC will constitute an instance, the instance will be determined regardless of the number of units involved in each order. An overcharge may not be offset by other discounts provided on any other NDC or discounts provided on the same NDC on other transactions, orders, or purchases.
  • HRSA delegated responsibility for interpreting what “knowingly and intentionally” means on a case by case basis to the Office of Inspector General (“OIG”). HRSA declined to provide an “inclusive” list of examples of knowing and intentional overcharges.  Rather, it provided several examples of what does not constitute knowing and intentional overcharges:
    • The manufacturer made an isolated inadvertent, unintentional, or unrecognized error in calculating the 340B Ceiling Price.
    • The manufacturer sells a new covered outpatient drug using provisional pricing, as long as the manufacturer offers refunds of any overcharges to covered entities within 120 days of determining an overcharge occurred during the estimation period.
    • A Covered Entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase.
    • A Covered Entity chooses to order non-340B priced drugs, and the order is not due to a manufacturer’s refusal to sell or make drugs available at the 340B price.

Frequently Asked Questions on the Apexus 340B Prime Vendor Program website can be accessed at: https://www.340bpvp.com/faqs/.

For more information, please contact:

Marcy Imada
Deloitte Advisory Principal
Deloitte & Touche LLP

1 82 Fed. Reg. 1210 (January 5, 2017), https://www.federalregister.gov/documents/2017/01/05/2016-31935/340b-drug-pricing-program-ceiling-price-and-manufacturer-civil-monetary-penalties-regulation

2 82 Fed. Reg. at 1211

3 82 Fed. Reg. at 1213.

4 82 Fed. Reg. at 1214.

Thomas Benton

Thomas Benton

Tom performs assessments, reviews and documents methodologies, and works with our integrators and operations team to integrate clients into our system. Tom completed Allstate’s three-year Leadership Development Program, where he worked in various areas of the Allstate business operations. Tom recei...

Marcy Imada

Marcy Imada

Marcy is a Principal with Deloitte & Touche LLP and has over 18 years of experience in consulting for the life sciences and health care industries. Marcy leads Deloitte & Touche LLP’s national Government Pricing practice, which provides regulatory compliance services to life sciences companies rela...