EXCLUSIVE: HRSA Confirms 340B Hospital Offsite Location and Telehealth Flexibilities Are Permanent

Your 340B Report for Tuesday June 9, 2020

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Happy Tuesday from Publisher and CEO Ted Slafsky: In today’s issue, you will see a great piece on a little covered but important topic regarding the rights that covered entities have to resolve disputes with pharmaceutical manufacturers and payers. The piece by Steve Kuperberg of 340B Report sponsor Powers Law is definitely worth a read.

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The U.S. Health Resources and Services Administration (HRSA) has confirmed that its recent 340B program clarifications about hospital offsite facilities and telemedicine are permanent. | (Source: Shutterstock)

EXCLUSIVE: HRSA Confirms 340B Hospital Offsite Location and Telehealth Flexibilities Are Permanent

The U.S. Health Resources and Services Administration (HRSA) says its recent relaxations of 340B program requirements regarding use of 340B drugs in hospital offsite locations and in telehealth are not just for the duration of the COVID-19 public health emergency but permanent.

HRSA provided the clarification to 340B Report yesterday. “Both of the practices mentioned are in place regardless of the COVID-19 pandemic,” a HRSA spokesperson said.

HRSA formally announced just last Saturday in an FAQ on its COVID-19 resources webpage that patients of a new hospital child site that is not yet listed on the hospital’s cost report “may still be 340B eligible to the extent that they are patients of the covered entity.”

“These situations should be clearly documented in the covered entity's policies and procedures,” HRSA said. “In addition, a covered entity is responsible for demonstrating compliance with all 340B Program requirements and ensure that auditable records are maintained for each patient dispensed a 340B drug.”

This policy clarification may accelerate use of 340B drugs in hospital child sites by up to nearly two years in some cases.

HRSA described in March in an FAQ on the COVID-19 resources page how 340B entities could incorporate new technologies and other “modes” of delivering health care in compliance with 340B program requirements. “HRSA understands that the use of technology in health care delivery during this time is critical, and that telemedicine is merely a mode by which the health care service is delivered,” HRSA said. “For the 340B Program, HRSA recommends that covered entities outline the use of these modalities in their policies and procedures and continue to ensure auditable records are maintained for each eligible patient dispensed a 340B drug.”

Many 340B stakeholders had expressed uncertainty about the permanence of HRSA’s telehealth and hospital offsite facility policy flexibilities because they were published on HRSA’s 340B COVID-19 resources page, not as FAQs on HRSA’s separate 340B program FAQs page.


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340B and Dispute Resolution—Challenges and Opportunities

Stephen Kuperberg, Counsel, Powers Law

Covered entities and others participating in the 340B program face challenges when evaluating pathways to resolve disputes under the program. Although the 340B program has existed for over 25 years, the statute as originally enacted provided no mandatory mechanism for resolution of disputes between participating parties. Instead, the Health Resources and Services Administration (HRSA) proposed an informal and voluntary dispute resolution process in 1996[i] that remains in place to this day, despite a Congressional mandate in 2010 for HRSA to promulgate and implement a mandatory administrative dispute resolution process.[ii] Compounding the challenges for covered entities, in 2011, the Supreme Court decided unanimously in Astra USA v. County of Santa Clara, 563 U.S. 110 (2011), that only the U.S. Health and Human Services Secretary may enforce the manufacturer’s obligation to charge at or below the 340B ceiling price and that covered entities do not have the right to sue manufacturers for overcharges under the program.

More recently, many states have adopted statutes protecting covered entities and pharmacies participating in the 340B program from discriminatory reimbursement practices by prescription benefit managers (PBMs) and other third-party payers; yet to date, these statutes vest enforcement authority for these laws in state insurance commissioners or other state administrative offices, and do not explicitly provide private rights of action for affected covered entities and pharmacies. Finally, in the absence of established dispute resolution pathways at the state or federal level, covered entities and others may seek to include alternative dispute provisions in contractual relationships concerning the 340B program. However, such provisions are subject to negotiation and modification or exclusion, will typically reflect only generalized arbitration or mediation provisions that do not account for the highly technical and specialized nature of the 340B program, and may ultimately offer little to no additional protection than would resort to conventional litigation in courts.

Despite these challenges, covered entities and others participating in 340B who have the foresight to anticipate and resolve disputes regarding the 340B program do have opportunities to utilize effective alternative dispute resolution mechanisms. Although HRSA proposed and then withdrew rules for its mandatory Administrative Dispute Resolution process,[iii] HRSA’s informal dispute process does provide a clear procedure by which covered entities may raise claims of manufacturer overcharges and seek relief from the agency. Despite its characterization as “informal” and “voluntary,” the policy provides for specific and mandatory dates by which the agency will act irrespective of the manufacturer’s choice to respond and participate.[iv]

At the state level—with or without the existence of favorable anti-discriminatory reimbursement or other “any willing pharmacy” laws—state insurance commissioners, state legislators, and other state officials can and often will take action when called upon to protect safety-net providers and affiliated pharmacies when facing a dispute with PBMs and other payers.

In contracts governing relationships relating to the 340B program, for example, between covered entities and contract pharmacies, third party administrators (TPAs), and others, both parties share an interest in addressing effective dispute resolution mechanisms that avoid costly litigation. As with any contractual ADR mechanism, providing specifics for the mechanism helps to ensure that it operates as intended. Parties should consider whether to make the ADR mechanism mandatory, and whether the results of the ADR process should be considered binding, such as is the case with mandatory arbitration.

The parties may also wish to consider specifying in advance whether the mediators or arbitrators must have familiarity with the 340B program; doing so can reduce time and expense associated with educating ADR adjudicators who are unfamiliar with the 340B program about the complexities associated with the program. Specifying in advance a list of mediators or arbitrators that meet the criteria of the parties, or agreeing to submit mediators or arbitrators for review of 340B qualifications to a third party such as a trade association or other industry organization, could save time and expense otherwise associated with hiring and preparing testimony from 340B experts.

In many relationships associated with the 340B program, contractual parties are in positions of unequal bargaining power. Nevertheless, careful consideration of ADR pathways in advance can reduce or avoid costly subsequent battles.

[i] 61 Fed. Reg. 65,406-13 (Dec. 12, 1996).
[ii] Pub. L. 111-148 tit. VII § 7102(a), 124 Stat. 823-24 (Mar. 23, 2010), as codified at 42 U.S.C. § 256b(d)(1)(A).
[iii] Although outside Congress’s September 20, 2010 deadline, HRSA proposed rules governing its binding Administrative Dispute Resolution process in 2016, 81 Fed. Reg. 53,381 (Aug. 12, 2016), but later withdrew those rules, see https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=0906-AA90.
[iv] 61 Fed. Reg. 65,406 (Dec. 12, 1996).

Teva Pharmaceuticals Owes 340B Entities Refunds for Overcharges

Drug manufacturer Teva Pharmaceuticals announced this morning it is offering 340B covered entities refunds for overcharges on an unspecified number of products over nearly four years.

Teva posted a notice about the overcharges on the U.S. Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs (OPA) website. The company said it is adjusting prices on products bearing labeler codes 00228, 00472, 00591, 14550, 16252, 45963, 52152, 52544, 62037, and 67767 for the period from the first quarter of 2014 through the third quarter of 2017. Teva said it has identified covered entities it overcharged and will contact them during the third quarter of 2020.

According to the news site FiercePharma, Teva had $16.9 billion in revenues in 2019, making it the 18th most-profitable drug company globally. Teva originally focused on manufacturing generic drugs but in recent years began marketing branded products.


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HRSA’s Weekend Announcement Raises the Stakes for a 340B Bill in the U.S. Senate

The U.S. Health Resources and Services Administration’s (HRSA) statement last weekend that it can’t waive a certain statutory requirement for 340B hospitals during the COVID-19 pandemic raises the stakes for legislation in the U.S. Senate to lift that requirement.

As we reported June 6, HRSA published an FAQ on its COVID-19 resources webpage on Saturday morning saying it “is unable to waive the disproportionate share adjustment percentage requirements that are set in the 340B statute for certain hospitals seeking to participate as 340B covered entities.” (HRSA simultaneously published a separate FAQ that lets hospitals use 340B-purchased drugs for patients at new outpatient sites not yet registered in the 340B program.)

To qualify and stay eligible for 340B, five types of hospitals must have a specified Medicare disproportionate share adjustment percentage for the most recent cost reporting period that ended before the calendar quarter involved (greater than 11.75 percent for disproportionate share, children’s, and free-standing cancer hospitals, and equal to or greater than 8 percent for rural referral centers and sole community hospitals). Hospitals groups have warned that some of their members could lose eligibility during the pandemic if their DSH percentage falls due to changes in patient mix.

U.S. Sen. Ben Sasse (R-Neb.) introduced legislation (S. 3631) last month to “to ensure that no entity loses eligibility status as a covered entity for any reason related to the COVID–19 public health emergency.” Sasse’s office said the bill “adds a protection as patient mixes are likely to have shifted quite a bit over the last few months for factors beyond a hospital’s control.”

There is no companion legislation in the U.S. House at present. Last month, a bipartisan group of more than 120 representatives sent a letter to the House and Senate’s Republican and Democratic leaders asking that any future COVID-19 relief bill include language protecting hospitals from losing their eligibility during the pandemic due to shifts in payer mix.

The House letter also asks congressional leadership to add language to the next COVID-19 relief bill letting DSH, children’s, and free-standing cancer hospitals obtain covered drugs through group purchasing organizations (GPOs) during the emergency to address COVID-19 related drug shortages and distribution challenges. The 340B statute says that in order to participate in 340B, these types of hospitals may not use GPOs to obtain covered drugs. In March in an FAQ on its COVID-19 resources page, HRSA said it was unable to lift this statutory requirement. It did, however, relax an associated hospital reporting requirement.

According to Sasse’s office, his bill to pause the DSH adjustment percentage requirement for 340B hospitals during the emergency “does not specify anything about GPOs or other rules in statute.”


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Another Fusillade in the Fight Over 340B’s Size

A new report by a drug industry consultant is the latest fusillade in the fight between pharma and 340B health care providers over how to define and measure 340B’s size.

Berkeley Research Group (BRG) last week unveiled its second update to its original 2015 report on 340B’s size funded by Pharmaceutical Research and Manufacturers of America (PhRMA). The first update was in 2017.

BRG says that comparing total 340B branded drug sales (calculated as if 340B drugs were sold at wholesale acquisition cost) with total U.S. outpatient drug sales (also calculated as if all drugs were sold at WAC) is the “appropriate” methodology for determining 340B’s size. Hospital group 340B Health, in a 2017 report, says the proper way to define the program’s size is to compare the total 340B program discount to total U.S. net drug spending. In 2018, researchers at the Pew Charitable Trusts estimated 340B’s size by looking at the percentage by which 340B discounts reduced manufacturer revenues.

In its new report, BRG says that in 2018, total branded 340B drug sales at estimated WAC price were $56.8 billion, compared with $405.8 billion in total U.S. branded outpatient drug sales at WAC. Using this methodology, BRG concludes “the 340B program accounted for 14 percent of total US branded outpatient drug sales in 2018.”

In its 2017 report, 340B Health found that “the total 340B discount in 2015 was $6.1 billion, which was 1.3 percent of the $457 billion in net U.S. drug spending.”

In their 2018 report, the Pew researchers found that in 2015 “340B discounts reduced drug sales by 1.4 percent” and “the 340B program…reduced manufacturer revenues by 1.9 percent.” They pegged total 340B discounts at $6 billion and manufacturer revenues (sales net of all discounts) at $311 billion.

This morning, drug industry consultant Adam Fein reported that, based on data from the U.S. Health Resources and Services Administration (HRSA), “discounted 340B purchases were at least $29.9 billion in 2019.”

“Consequently, the 340B program has grown to account for more than 8 percent of the total U.S. drug market and about 16 percent of the total rebates and discounts that manufacturers provide,” Fein said.

New York Times Again Questions Large Health Systems’ Need for COVID-19 Relief

The New York Times has published a second investigative article questioning whether “deep-pocketed” hospitals and health systems need federal COVID-19 relief.

The first article, published May 25, focused on health systems with billions in cash reserves getting federal assistance. The second, published yesterday, looks at 60 large hospital chains that have received a combined $15 billion in COVID-19 aid. “At least 36 of those hospital chains have laid off, furloughed or reduced the pay of employees as they try to save money during the pandemic,” according to the article. Some, meanwhile, continue to pay their top executives millions of dollars a year, it said.

While neither of the Times’ articles mention the 340B program, some of the health systems in the stories have hospitals enrolled in 340B, including Ascension Health, Beaumont Health, Cleveland Clinic, Fairview Health, Henry Ford Health System, Mayo Clinic, Mercy Health, Prisma Health, Providence Health, SSM Health, Stanford Health Care, and Trinity Health.

The Times published a letter to the editor from American Hospital Association President and CEO Rick Pollack on June 1 responding to the first article in the series. It notes that “COVID-19 has created the greatest financial crisis in history for hospitals and health systems as revenues continue to sink, expenses continue to soar, and the number of uninsured continue to grow. Overall, COVID-19 will claim responsibility for an utterly unsustainable $202.6 billion in loses just through June.” said Pollack.

Pollack also said that health systems cash reserves generally are not liquid, and that the reserves have shrunk due to investment losses during the economic downturn.

Senators Say Health Centers and Safety Net Hospitals Need Emergency Relief

The next federal COVID-19 relief bill should include “additional emergency funding for community health centers,” a bipartisan group of 41 U.S. senators urged in a June 5 letter to the Republican chair and ranking Democrat on the Senate’s health appropriations subcommittee.

A second bipartisan group of 16 Senators asked U.S. Health and Human Services (HHS) Secretary Alex Azar and Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma in a June 8 letter to dedicate a portion of the Provider Relief Fund to hospitals that care for many Medicaid and low-income patients. On June 3, more than 90 members of the House of Representatives signed a similar bipartisan letter to Azar making the same request.

A number of Washington analysts have speculated that last week’s better-than-expected national unemployment report makes it less likely that Congress will pass another COVID-19 relief bill soon.

Health Center Letter

“Health centers are anticipating $7.6 billion in lost revenue and 105,000 lost jobs,” Sens. Roger Wicker (R-Miss.) and Debbie Stabenow (D-Mich.) wrote in the letter to Senate Labor-HHS-Education appropriations chair Roy Blunt (R-Mo.) and ranking member Patty Murray (D-Wash.).

“Over 2,000 centers have already had to close their doors and many more remain concerned about how long they will be able to stay open.”

Although Congress already has provided $2 billion in COVID-19 relief to health centers, they “are still worried about how to keep their doors open to serve their patients,” the letter continues. “These valuable providers will continue to lose more revenue as the pandemic continues. Additional funding is critical for these centers to continue providing quality, affordable health care and front-line response efforts.”

Last month, a bipartisan group of more than 150 U.S. House members sent a similar letter to U.S. Health and Human Services (HHS) Secretary Alex Azar urging more COVID-19 relief for health centers.

Hospital Letter

To date, the way HHS has distributed $175 billion in COVID-19 emergency funding for hospitals and health care providers “has not sufficiently addressed the needs of hospitals and health providers that disproportionately serve Medicaid and low-income patients,” Sens. Shelley Moore Capito (R-W.Va.) and Robert Menendez (D-N.J.) wrote on behalf of themselves and 14 Senate colleagues to Azar and Verma.

“We fully appreciate the challenges involved in quickly and equitably distributing funding to health providers, however we urge you to consider a separate, targeted distribution of funding that prioritizes the particular financial strain facing our hospitals that serve a disproportionate number of Medicaid and low-income patients,” they wrote.

Drug Company Mallinckrodt Loses Round in Lawsuit Over Alleged Price Misstatement

A federal district judge late last month denied drug manufacturer Mallinckrodt’s emergency request that he reconsider his March 2020 ruling that the U.S. Centers for Medicare & Medicaid Services (CMS) properly reset the base date average manufacturer price (AMP) for its most prescribed medicine, Acthar Gel, from 2013 back to 1990, Bloomberg Law reports. The AMP reset resulted in Mallinckrodt owing millions of dollars in unpaid Medicaid drug rebates. Mallinckrodt sued CMS last year, saying it had no grounds for resetting Acthar Gel’s AMP.

The U.S. Justice Department, also in March, joined a separate whistleblower suit against Mallinckrodt alleging that the company misstated AMP for Acthar Gel and owes hundreds of millions of dollars in unpaid Medicaid rebates.

The Justice Department’s legal filing in the whistleblower suit does not seek financial relief for 340B covered entities that presumably overpaid for Acthar Gel due to the same alleged fraud.