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Compliance Issues Relating to Intersection of Medicaid Rebate and 340B Programs

Compliance Issues Relating to Intersection of Medicaid Rebate and 340B Programs. by Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access NAMFCU Directors Symposium March 24, 2010 Washington, DC. Overview. 340B background Calculating ceiling price

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Compliance Issues Relating to Intersection of Medicaid Rebate and 340B Programs

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  1. Compliance Issues Relating to Intersection of Medicaid Rebate and 340B Programs by Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access NAMFCU Directors Symposium March 24, 2010 Washington, DC

  2. Overview • 340B background • Calculating ceiling price • 340B litigation update • Medicaid intersection: duplicate discounts • 340B-specific billing and payment options • Medicaid billing compliance issues • SNHPA Medicaid billing survey • What’s next? • Additional 340B resources and upcoming events Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  3. 340B Background • 340B drug discount program requires pharmaceutical manufacturers participating in the Medicaid program to provide discounts on covered outpatient drugs purchased by federally-funded clinics and other safety net providers referred to as “covered entities” • The rights and obligations of covered entities and manufacturers are set forth in Section 340B of the Public Health Service Act (PHSA) • Section 1927 of the Social Security Act (SSA) requires manufacturers to enter into a pharmaceutical pricing agreement (PPA) with the Secretary of HHS as a condition of Medicaid covering and paying for the companies’ outpatient drugs • Under the PPA, a manufacturer agrees to provide discounts and otherwise comply with 340B requirements Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  4. 340B Background (cont’d) • Program is administered by the Health Resources and Services Administration (HRSA) through the Office of Pharmacy Affairs (OPA) • Because several aspects of the 340B program depend on interpretation and application of SSA provisions (e.g. average manufacturer price, best price, etc.), the Centers for Medicare & Medicaid Services (CMS) also plays a significant role in 340B program administration • Covered entities include high-Medicaid disproportionate share hospitals owned by or under contract with state or local government; community health centers; ADAPs; family planning clinics; AIDS, TB and STD clinics; and other grantees under the Public Health Service Act • Covered entities, manufacturers and other 340B participants are listed in the OPA database Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  5. 340B Background (cont’d) • Discounts are calculated using the Medicaid rebate formula; but 340B pricing is better because (1) sales do not involve retail pharmacies thereby avoiding retail mark-ups and (2) 340B providers regularly negotiate sub-ceiling prices • Use of drugs limited to “patients” of 340B covered entity • Medicaid billing procedures may need to be adjusted to avoid manufacturers giving duplicate discounts Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  6. 340B Background (cont’d) Private Sector Pricing “Best Price” 63% 42% Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  7. 340B Background (cont’d) 82% Private Sector Pricing 71% 67% “Best Price” 66% 60% 55% 53% 51% 44% 42% Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  8. Calculating Ceiling Price • Manufacturer’s Medicaid drug rebate agreements require drug companies to calculate average manufacturer price (AMP) and best price as part of their obligation to pay rebates to Medicaid for covered outpatient drugs • Medicaid rebate formula also requires manufacturers to calculate the average total rebate for a drug unit for each dosage and strength, often referred to as the unit rebate amount (URA) • 340B ceiling price = AMP – URA • Accordingly, if a manufacturer miscalculates AMP, best price or URA in a manner that results in the underpayment of Medicaid rebates, the miscalculation will lead to 340B providers being overcharged for the same drug Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  9. Calculating Ceiling Price (cont’d) April 1st – 30th May 1st – 15th June 15th July 1st Days 1-30 Manufacturer submits AMP and BP data from Jan-March to CMS Days 31-45 CMS validates data and calculates the unit rebate amount and the 340B-ceiling price. Because in middle of 2nd quarter, price not in effect until beginning of 3rd quarter, the next full quarter. Day 75 Manufacturer sends 340B price to wholesaler &/or entries Day 90 340B price in effect for 3rd Quarter, July-September Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  10. Calculating Ceiling Price (cont’d) • Special procedures for calculating 340B price for new drugs: • Manufacturers must estimate a new drug’s 340B ceiling price for the first three quarters that the drug is on the market • After three quarters, manufacturers will have AMP and best price data to calculate the ceiling price • If the manufacturer overestimates the new drug’s price during the initial three quarter period, it must issue a refund to the covered entity upon request • Penny prices – Under HRSA policy, if the 340B formula results in a negative price (because the inflation-based penalty exceeds AMP minus 15.1% or best price), then the manufacturers must charge a penny for the drug Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  11. 340B Litigation Update Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  12. 340B Litigation Update (cont’d) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  13. 340B Litigation Update (cont’d) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  14. 340B Litigation Update (cont’d) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  15. Medicaid Intersection: Duplicate Discounts • Covered entities are generally free to bill and be reimbursed for 340B drugs without making any adjustments to their billing procedures, unless Medicaid is the payer • Covered entities sometimes must bill Medicaid at reduced prices for 340B drugs • The sole reason that covered entities must adjust their Medicaid billing practices is to protect manufacturers from the duplicate discount problem Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  16. Medicaid Intersection: Duplicate Discounts (cont’d) Step 5: Manufacturer pays rebate on 340B drug Step 1: Manufacturer sells drug at 340B discount Manufacturer Step 4: State submits rebate request Step 3: Covered entity bills Medicaid for 340B drug Covered Entity State Medicaid Agency Medicaid patient Step 2: 340B drug is dispensed to Medicaid patient STEPS 1 AND 5 = DUPLICATE DISCOUNT Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  17. Medicaid Intersection: Duplicate Discounts (cont’d) • Manufacturers are protected from paying a Medicaid rebate and giving a 340B discount on the same drug. PHSA 340B(a)(5)(A); SSA 1927(a)(5)(C) • To avoid the duplicate discount problem, the Secretary is directed to develop a mechanism that 340B providers and states can use to ensure compliance; alternatively covered entities should not seek Medicaid reimbursement for 340B drugs that are subject to Medicaid rebates. PHSA 340B(a)(5)(A); SSA 1927(a)(5)(C) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  18. 340B-Specific Billing and Payment Options • HRSA guidelines allow covered entities to comply with the statute in different ways: 1. Bill Medicaid at “acquisition cost” plus the state-allowable dispensing fee and the state does not request a rebate. 58 Fed. Reg. 34,058 (6/23/93) 2. “Carve out” Medicaid drugs from the 340B program and allow the state to collect rebates. 65 Fed. Reg. 13,983 (3/15/00) 3. Follow state guidelines for applicable billing limits. 65 Fed. Reg. 13,983 (3/15/00) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  19. 340B-Specific Billing and Payment Options Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  20. Medicaid Billing Compliance Issues Question: Has a covered entity overbilled Medicaid if it does not bill its state at actual acquisition cost (AAC) for 340B drugs? Answer: Not necessarily Explanation: There are numerous exceptions to the AAC billing restriction, for example: • when billing a managed care organization • if the drug is not rebatable under Medicaid • if the state has different billing and reimbursement limits Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  21. Medicaid Billing Compliance Issues (cont’d) • There are some within the Medicaid program who believe that the AAC billing restriction was established to save money for Medicaid • Not true for several reasons: • It is clear in both 340B law and legislative history that the sole purpose of AAC billing is to compensate states for the loss of their rebates that they would otherwise receive but for the protection of manufacturers from duplicate discounts • HRSA’s 1993 guidance establishing the AAC billing standard is an informal, non-binding policy • HRSA essentially withdrew the policy in March 2000 when it issued another guidance directing covered entities to “refer to their respective Medicaid state agency drug reimbursement guidelines for applicable billing limits” Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  22. Medicaid Billing Compliance Issues (cont’d) • States allow deviation from AAC billing for different reasons: • State utilizes billing system that does not accommodate AAC billing • AAC billing does not affect reimbursement (prospective payment for Medicaid services) • Hospital systems do not accommodate AAC billing , so billing must be by hand and state recognizes onerous administrative burden • Regardless of state’s perceived billing and payment policy for 340B drugs, there may be no clear guidance in statute, rules, or provider’s manual or transmittal Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  23. Medicaid Billing Compliance Issues (cont’d) • While HRSA clarified in 2000 that AAC is not required under federal law, CMS has never issued parallel guidance • Considerable lack of clarity among Medicaid programs • Many (e.g. Medi-Cal) believe that federal law requires billing at AAC • Medicaid auditors in at least three states – FL, AK, NY – have investigated 340B covered entities for alleged overbilling • Federal whistle blower suit against family planning clinics in Los Angeles sued for billing at other than AAC Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  24. SNHPA Medicaid Billing Survey • 45 percent of the hospital respondents reported that their state Medicaid agency allowed them to deviate from AAC billing • 55 percent indicated that they were not allowed to deviate • 10 states that reportedly allow non-AAC billing include: Arizona, Georgia, Maine, Maryland, Minnesota, New Jersey, Ohio, Oregon, Texas and West Virginia. • 5 states that require AAC billing include: Idaho, Iowa, Kansas, Rhode Island and South Dakota. • Hospitals in 12 states gave conflicting answers: Arkansas, California, Florida, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New York, North Carolina, Pennsylvania and Washington Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  25. What’s Next? • 340B Coalition urging CMS and HRSA to work on a uniform and coherent policy • 340B Coalition offering input on law, state variations, history • 340B Coalition keeping pressure on CMS, HRSA to produce • HHS Office of Inspector General reviewing Medicaid billing by 340B covered entities • Time is of the essence: • June 2009: California legislature mandated AAC billing, prohibited carve-out • Medi-Cal results in “lose-lose”. HRSA and CMS have opportunity to educate states on shared savings “win-win” Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  26. Additional 340B Resources • Safety Net Hospitals for Pharmaceutical Access • www.snhpa.org • Bill von Oehsen • william.vonoehsen@snhpa.orgor 202-466-6550 • Stuart Gordon • stuart.gordon@snhpa.org or 202-552-5851 • Federal Drug Discount and Compliance Monitor • www.drugdiscountmonitor.com • SNHPA/340B Job Site • www.rxjobsolutions.com Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  27. Additional 340B Resources (cont’d) • Office of Pharmacy Affairs • www.hrsa.gov/opa • 340B Prime Vendor Program • www.340Bpvp.com • Pharmacy Services Support Center • 1-800-628-6297 or www.pssc.aphanet.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

  28. Upcoming Events 14th Annual 340B Coalition Conference July 19-21, 2010 Washington, DC www.340bconferences.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 552-5850 william.vonoehsen@snhpa.org

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