U.S. House Democrats and Republicans “Deeply Concerned” About 340B Rebate Model

Your 340B Report for Thursday Oct. 22, 2020

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Clockwise from top left, U.S. Reps. Abigail D. Spanberger (D-Va.), Cindy Axne (D-Iowa), David McKinley (R-W.Va.), Doris Matsui (D-Calif.), John Katko (R-N.Y.), and Dusty Johnson (R-S.D.) are asking House colleagues to sign a letter to HHS Secretary Alex Azar expressing concern about efforts to provide 340B pricing as rebates instead of as discounts. | Source: C-SPAN

U.S. House Democrats and Republicans “Deeply Concerned” About 340B Rebate Model

Update, Thursday Oct. 22, 2020, 2:45 p.m. EDT—Kalderos provided us with the following updated comment regarding members of Congress’ concerns about its 340B Pay platform to enable drug manufacturers to provide 340B pricing as a rebate, rather than as a discount:

At Kalderos, our core philosophy is to value all stakeholders, so we sought feedback from multiple covered entities, consulted with experts at HHS, HRSA and CMS, and ran three pilot studies before bringing our solution to the market. Today, Kalderos is confident that the rebate model can help covered entities achieve their compliance goals with less stress, while continuing to deliver all the 340B program’s benefits to the communities they serve. The 340B statute supports the use of rebates, and the model has been implemented in full compliance with the statute. Kalderos looks forward to collaborating with all stakeholders to deliver unifying solutions that support the needs of all.

Six U.S. House members—three Democrats and three Republicans—are asking House colleagues to sign a letter to U.S. Health and Human Services (HHS) Secretary Alex Azar expressing deep concern about drug industry technology services company Kalderos’ work with drug manufacturers to reconfigure the 340B drug pricing program “from one of up-front discounts to post-sale rebates.” The lawmakers—Reps. Abigail D. Spanberger (D-Va.), Cindy Axne (D-Iowa), David McKinley (R-W.Va.), Dusty Johnson (R-S.D.), John Katko (R-N.Y.), and Doris Matsui (D-Calif.)—set a Friday deadline for signatures.

In a cover letter to their House colleagues, the six lawmakers said “such a change would greatly harm Community Health Centers’, Ryan White HIV/AIDS clinics’, safety-net hospitals’, and other covered entities’ access to 340B savings. It also threatens to cause manufacturers to be in violation of their statutory responsibility to provide 340B pricing, creating significant compliance issues.”

The lawmakers said their letter to Azar urges the U.S. Health Resources and Services Administration (HRSA) “to make clear that manufacturers and third-party vendors may not unilaterally change 340B into a rebate model without HRSA’s approval.” The lawmakers also said their letter to Azar says “HRSA must go through a formal rulemaking process with notice and comment before making any such change.”

Their letter also asks Azar to answer by Nov. 1:

  • Has Kalderos, any other third-party vendor, or any drug company sought input from HHS regarding the use of a rebate model [for] covered entities?

  • What guidance has HHS provided to Kalderos, any other third-party vendors, or drug companies regarding the use of a rebate model for covered entities?

  • What oversight, if any, would HRSA have into the operations of [Kalderos’ 340B discount-to-rebate platform] or similar third-party platforms that provide manufacturers with significantly more authority over the 340B program and jeopardize their compliance with 340B statutory requirements?

  • What steps would be taken to ensure that drug companies not deny 340B pricing to covered entities and that covered entities would be able to access 340B pricing in a timely manner and without facing unnecessary administrative or financial burden?

The text of the letter to Azar says “unilaterally forcing 340B participants to purchase drugs at list price and then request rebates would give drug manufacturers tremendous leverage over covered entities.” It continues:

This action is also inconsistent with HRSA’s long-standing guidance that the 340B program is an up-front discount program. HRSA issued guidance in both 1993 and 1994 stating that discounts must be made available to 340B covered entities. In addition, HRSA has previously only allowed the use of a rebate model in a limited case, and only after issuing guidance through the notice-and-comment process and soliciting feedback from stakeholders.

This platform could make participation in 340B more difficult for covered entities, effectively reshaping the 340B program in a way that only serves manufacturers’ and these third-party vendors’ financial interests. These tactics open the door for significant compliance issues, threatening to put manufacturers in violation of their statutory obligation to provide 340B pricing.

We asked Kalderos for comment about the lawmakers’ concerns. It said:

We created the 340B rebate model after working with thousands of covered entities to identify where 340B duplicate discounts are occurring and the underlying root cause for why they continue to happen even with best efforts to prevent them. The 340B statute supports the use of rebates and discounts. Kalderos designed 340B Pay working closely with covered entities, manufacturers, and states in order to ensure it was non-burdensome for covered entities large and small. Finally, 340B Pay's rebate process has been compliantly implemented, consistent with the statute. 

In late August, Kalderos announced a platform, 340B Pay, under which manufacturers would choose which drugs to pay rebates on in lieu of 340B discounts, on an NDC by NDC basis, and on which drugs to pay traditional 340B discounts. For NDCs on which rebates would be paid instead of discounts, covered entities would have to use 340B Pay or connect their pharmacy software to Kalderos’ software to request reduced 340B pricing. Manufacturers would then use the platform to identify “noncompliant discounts,” including Medicaid, Medicare Part D, and commercial managed care rebates. After this validation process, manufacturers would “approve appropriate 340B rebate requests and authorize electronic 340B discount payments to 340B covered entities,” Kalderos said.

Kalderos told 340B Report that 340B Pay would be configured by default to honor covered entities’ requests for 340B payments in the event of duplicate requests for rebates for drugs dispensed to Medicaid managed care or commercially insured patients. The final decision, however, would be up to participating manufacturers, it said.

340B Pay was slated to launch on Sept. 8, but did not, and there have been no further announcements from the company about a new launch date.

340B Pay’s delayed launch roughly coincided with separate moves by five drug manufacturers—Lilly, AstraZeneca, Sanofi, Novartis, and Merck—either to stop providing 340B pricing on drugs dispensed by contract pharmacies, or to condition continuation of 340B pricing for contract pharmacies on covered entities’ provision of pharmacy claims data to let the companies look for and act on overlapping 340B discounts and Medicaid, Medicare Part D, and commercial rebates.

Lilly, Astra Zeneca, and Sanofi’s denials of 340B pricing have created a firestorm of controversy—apparently with blowback on Kalderos.

Kalderos told 340B Report in August that it communicated with HRSA during 340B Pay’s design and testing. It said HRSA “has not identified any enforcement issues raised by our model.”

HRSA told 340B Report in late September that it “is aware of the Kalderos model and is in the process of reviewing and determining next steps.” We had asked HRSA to comment on reports that Kalderos and/or manufacturers that have contracted with it asked either HHS, HRSA, or both to grant a waiver to let drug manufacturers provide 340B ceiling pricing to covered entities in the form of a rebate.

In late September, HHS General Counsel Robert Charrow told Lilly it should not have interpreted the absence of a final determination by HRSA about the legality of Lilly’s plans to limit 340B pricing to contract pharmacies on virtually all of its products as a green light to implement those plans on Sept. 1.

Hospital group 340B Health asked Azar last month either to reject a 340B rebate model or to approve one only after publishing 340B program guidance subject to notice and comment. The National Association of Community Health Centers (NACHC) last month characterized “forcing health centers to pay full sticker price for medications upfront and then deciding if and when to reimburse them for the discounts required under the statute” as an attack against the 340B program.


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CMS Head’s Involvement with Trump Re-Election Campaign Draws Attention

U.S. Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma’s attendance this week at three campaign events in North Carolina for President Trump, and the administration’s push for $200 Medicare Part D drug discount cards for older Americans before the election, have raised question about whether the president and his re-election campaign are breaking norms, perhaps even laws, governing use of federal resources for partisan political purposes.

According to the Trump campaign website, Verma was the “special guest” at three back-to-back events Oct. 21 at the campaign’s Raleigh, N.C., field office: an Operation MAGA: Prime Timers for Trump event, an Indian Voices for Trump event (Verma’s parents immigrated to the United States from India), and a Student MAGA Meet Up. Trump and Democrat Joe Biden are in a tight race for North Carolina’s 15 votes in the Electoral College.

The federal Hatch Act limits partisan political activity by federal civil servants. A CMS spokesperson told reporters before the North Carolina events this week that Verma was not appearing or speaking in her official capacity, and received guidance from CMS ethics officials before the appearances. The Trump campaign has not released the text or recordings of Verma’s remarks at the campaign events.

During an official visit to North Carolina in late September, Trump, accompanied by Verma and U.S. Health and Human Services (HHS) Secretary Alex Azar, announced that “33 million Medicare beneficiaries will soon receive a card in the mail containing $200 that they can use to help pay for prescription drugs….The cards will be mailed out in coming weeks.”

“I will always take care of our wonderful senior citizens,” Trump said. “Joe Biden won’t be doing this.”

U.S. House Ways and Means Chairman Richard E. Neal (D-Mass.), House Energy and Commerce Chairman Frank Pallone, (D-N.J.), and Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) on Oct. 13 asked the Government Accountability Office (GAO) for an expedited review of whether the administration has legal authority to issue the drug discount cards. In a letter to Azar, they called the cards a “thinly veiled political stunt” of “questionable legality.”

In his Sept. 24 remarks in North Carolina, Trump also brought up his July 24 executive order requiring community health centers to pass along to patients their “giant” 340B drug discounts on insulin and epinephrine autoinjectors for severe allergic reactions.

“We’re also requiring that low-income patients receive the benefits of government discounts on insulin and the EpiPen, and that—you know, that is a big—that is a big deal,” Trump said. “That is a big deal. Insulin is one of the most common medicines for seniors. And this is something that Seema worked on so hard….And under certain circumstances, Seema, it’s literally almost free. This insulin, which they were just ripping you on, is close to being free….So, you did a fantastic job on that. Thank you very much.”

This week Tuesday, on Twitter, Verma applauded a full federal appeals court’s Oct. 16 decision not to reconsider a three-judge appellate panel’s July decision upholding CMS’s nearly 30 percent cut since 2018 in 340B hospitals’ drug reimbursement under the hospital Outpatient Prospective Payment System (OPPS).

Thanks to the decision, Verma tweeted, the administration’s actions will continue to help patients save money “on prescription drugs in certain hospitals. The Trump Administration is strengthening & modernizing the #Medicare program for our seniors!”


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New York State Community Health Groups Unite to Fight Medicaid Rx Drug Benefit Transfer

Fifteen New York State community health clinics, community-based organizations, and specialized HIV health plans have united to oppose the governor and state legislature’s agreement, effective April 1, 2021, to carve out Medicaid prescription drugs from managed care and move them into Medicaid fee for service. Reimbursement for 340B purchased drugs will be actual acquisition cost plus a dispensing fee, costing 340B health care providers millions of dollars in 340B program savings that the providers say they cannot afford to lose.

The new coalition, called Save NY’s Safety Net, was launched on Oct. 20. Members include Ryan White Clinics for 340B Access (RWC-340B), AIDS Healthcare Foundation, and Community Health Care Association of New York State.

“If 340B savings are lost, medically underserved, low-income and minority communities across New York will be impacted the most and existing health disparities will worsen,” the coalition says on its website. “From Montauk to Buffalo, changes to 340B will force Safety Net Providers to eliminate services, downsize operations and close locations.”

On Oct. 1, more than 100 New York State safety net health care providers and service organizations sent Gov. Andrew Cuomo (D) a letter asking him not to implement the Medicaid pharmacy benefit transfer, which was approved in state budget legislation passed in April.


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Two New Drug Manufacturer Notices to 340B Covered Entities

Drug manufacturer Janssen (a division of Johnson & Johnson) recently notified 340B covered entities on the U.S. Health Resources and Services Administration (HRSA) website about revisions to its limited distribution plan for Balversa, a targeted therapy for metastatic bladder cancer.

Drug manufacturer Merck posted an update on the HRSA website about a continuing shortage and supply allocation for TICE BCG, a treatment for non-metastatic bladder cancer.

GAO: Congress and IRS Can Improve Oversight of Hospitals’ Tax Exemptions

Congress should amend the federal tax code to specify what hospital community benefits it considers sufficient to justify hospitals’ tax exempt status, the U.S. Government Accountability Office (GAO) recommends in a new report. GAO also recommends that the U.S. Internal Revenue Service (IRS) “establish a well-documented process to ensure hospitals' community benefit activities are being reviewed, and…create codes to track audit activity related to hospitals' community benefit activities.”

U.S. Senate Finance Chairman Chuck Grassley (R-Iowa), who has pressed for years for hospitals to be held more accountable for their tax exemptions, asked for the report together with U.S. House Ways and Means ranking Republican Kevin Brady (Texas).

The GAO report did not address the 340B program. Last month, the American Hospital Association (AHA) reported that “340B tax-exempt hospitals provided more than $64.3 billion in total benefits to their communities in 2017,” the most recent year for which comprehensive data is available, representing 13.8 percent of their total expenses in 2017.

OIG Reviewing State Efforts to Collect Medicaid Rebates on Physician-Administered Drugs

The U.S. Health and Human Services (HHS) Office of Inspector General (OIG) recently announced a nationwide review of state efforts to collect Medicaid rebates on physician-administered drugs.

“Previous OIG work identified significant concerns with States' efforts in obtaining rebates for these physician-administered drugs,” OIG said. “We will summarize the results and issues identified in these audits and examine CMS's policies and procedures to ensure States appropriately collect Medicaid rebates on physician-administered drugs.”

OIG did not say if the report will address state and covered entity methods of and success at preventing duplicate 340B discounts and Medicaid rebates on physician-administered drugs. OIG said it expects to issue the report this fiscal year, which ends Sept. 30, 2021.