It’s getting late – Do you know what your 340(B) program is up to?

1. BDO Center FOR HEALTHCARE excellence AND INNOVATION It’s getting late – Do you know what your 340(B) program is up to? September 25, 2014

2. Agenda • Overview of 340B • HRSA and OIG Audit Focus • Orphan Drugs • “Mega-Reg” • Where Do We Go From Here?

3. Objectives • You should leave today with a better understanding of the following: • The 340B Program • The focus of HRSA and OIG audits • Orphan Drugs and the Issues Surrounding Them • “Mega-Reg” Scope and Status

4. Overview of 340B

5. What is the 340B program? • Created in 1992 • Public Law 102-585, Veteran’s Health Care Act of 1992 • AKA, Section 340Bof the Public Health Service Act • Purpose is to offer pharmaceuticals to a greater amount of eligible patients than could otherwise be done at traditional manufacturer pricing

6. What is the 340B program? (continued) • Administered by the Office of Pharmacy Affairs (OPA) • Part of the Health Resources and Services Administration (HRSA) • Agency of Health and Human Services • Annual spend by 340B “covered entities” is approximately $6 Billion • Enrollment periods are open on a quarterly basis

7. Who are considered “covered entities”? • Disproportionate share hospitals • Sole community hospitals • Rural referral centers • Critical access hospitals • Children’s hospitals • Cancer hospitals

8. HRSA and OIG Focus

9. 340B compliance historically • Regulations are somewhat general, resulting in interpretation gaps • Up until last few years, audits were utilized on a limited basis • HRSA and OIG have increased audits in recent years, with most audit findings related to the following: • Diversion • Duplicate discounts • Contract pharmacies

10. 340B compliance going forward • HRSA and OIG are very active in publishing clarifying documents and conducting more extensive audits • The OIG 2014 Work Plan contains 340B initiatives, including a focus on contract pharmacies. • The OIG 2015 Work Plan will be issued in October, and will likely have carryovers of 340B initiatives • February 2014, HRSA issued a program update addressing contract pharmacy compliance and the continued focus on the program’s integrity

11. 340B compliance going forward • June, 2014 – HRSA issued a program update addressing additional $6 million from Congress • Established a new HRSA branch – Program Performance and Quality • July, 2014 – HRSA program update clarified its audit process, and commitment to increased audits and the intent to no longer issue preliminary audit reports but to only issue final reports

12. Orphan Drugs

13. What are Orphan Drugs? • Definition differs globally, but in the U.S., roughly defined as treatment for those diseases affecting fewer than 200,000 people • Remicade – Crohn’s Disease • Herceptin – Stomach and pancreatic cancer • Orphan drugs can also be utilized in treatment of more common diseases • Remicade – Rheumatoid arthritis • Herceptin – Breast cancer

14. What are financial impacts of Orphan Drugs? • Difference in cost for orphan drug usage vs. non-orphan drug usage can be as much as $1,500 vs. $10 • Orphan drug profits enables manufacturers to offset loss in profits due to expiration of traditional drug patents • Can cost in excess of $500 million to get drug from development through FDA approval

15. What are financial impacts of Orphan Drugs? (continued) • Orphan drug rule incentives for manufacturers include the following: • 7 year market exclusivity • Tax credit of 50% of cost of conducting human clinical trials • Exemption from usual FDA drug application user fee

16. So what is the controversy? • HRSA issued a rule stating that orphan drugs used for non-orphan purposes are not exempt from 340B pricing • Ruling includes critical access hospitals, sole community hospitals, rural referral centers and free-standing cancer hospitals • Traditionally heavy purchasers of orphan drugs for non-orphan application • Pharmaceutical manufacturers have balked at the rule as it would have significant financial implications for them

17. Therefore, we head to court • Pharmaceutical Research and Manufacturers of America’s (PhRMA) position: • Manufacturers would suffer financial harm as a result of extension of price controls beyond the 340B statute • Resources needed to track specific indications for which orphan drugs are ultimately used would be substantial • This works against inherent incentive to develop new orphan drugs

18. Therefore, we head to court (continued) • HRSA’s position: • They have the ability to issue rulings pertaining to all aspects of the 340B program • Safety Net Hospitals for Pharmaceutical Access’ (SNHPA) position: • Exclusion of orphan drug usage for non-orphan applications would result in significant increases in drug purchase costs for those hospitals ill prepared to handle an increase

19. Therefore, we head to court (continued) • D.C. District Court’s ruling: • Vacated HRSA Final Rule on May 23, 2014 on grounds that HRSA does not have authority to issue legislative rule

20. Now what? • HRSA feels it has the right to issue interpretive rule as the court decision did not prohibit • It feels any challenges to an interpretive rule would necessitate a new lawsuit or amendment of existing lawsuit a HRSA considers this a new activity

21. Now what? • On July 21, 2014, HRSA issued an interpretative rule regarding orphan drugs. Under the interpretive rule, • HRSA will publish a quarterly listing of orphan drug designation, providing drug name and designated indication • If covered entity lacks the ability to track by indication, entity cannot purchase orphan drugs through 340B program • HRSA will update quarterly a listing of covered entities that cannot or do not wish to purchase drugs through the 340B program • Group purchasing organization (GPO) prohibition applies to orphan drugs not used for orphan indications

22. Now what? (continued) • PhRMA feels the interpretive rule is in violation of the court decision as it is binding, which makes it a legislative rule • D.C. District Court, in its ruling, stated it was inclined to think the rule could not survive as an interpretive rule, but requested further briefs to support HRSA’s stance

23. Now what? (continued) • What are PhRMA’s options? • They have requested an expedited decision on the court’s viewpoint of the validity of the interpretive rule • Coordinate with counsel as potential for penalties for non-compliance in the interim are possible • Assess financial impact should interpretive rule not be vacated • Congress may intervene as absence of discounts may significantly impact access to drugs for patients

24. “mega-reg”

25. What is the “mega-reg”? • Meant to provide specific guidance on issues such as the following: • Hospital eligibility criteria • Eligibility of off-site hospital facilities • Definition of an eligible patient • Compliance requirements for contract pharmacy arrangements • Was scheduled for release in July, 2014 • D.C. District Court ruling may have an impact

26. What is the “mega-reg”? (continued) • D.C. District Court found that HRSA’s authority is limited to promulgating regulations that deal only with the following: • Administrative dispute resolution process • Calculation of ceiling prices • Civil monetary penalties • Interesting issue for PhRMA in that they have been pushing for more regulatory oversight for the 340B program, but their lawsuit may prevent or limit HRSA’s ability to issue such regulations

27. “Mega-Reg” Status

28. Where do we go from here?

29. Current 340B program challenges Improper Design Non-compliance Improper Program design and non-compliance may reduce potential savings

30. What does a properly designed and compliant 340B program look like?

31. What should be done going forward? • Prepare for the inevitability of more regulatory clarity and increased audit presence • Perform internal assessments of your 340B program policies and procedures • Perform “audits” of the program components • Obtain independent audits of your contract pharmacy arrangements • Develop a routine process of monitoring new HRSA program updates and their impacts, including the new “mega-reg”