340b Program Patient Definition Essay

The 340B Drug Discount Program is a US federal government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at significantly reduced prices. The intent of the program is to allow covered entities to "[s]tretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services."[1][2][3] Maintaining services and lowering medication costs for patients is consistent with the purpose of the program, which is named for the section authorizing it in the Public Health Service Act (PHSA)[4][5][6] It was enacted by Congress as part of a larger bill signed into law by President George HW Bush.

Program description and history[edit]

Congress created the Medicaid Drug Rebate Program in 1990. It required pharmaceutical manufacturers to provide rebates for medication purchases, based on sales to Medicaid beneficiaries, as a condition of having their products covered by Medicaid.[3] The amount of the rebates paid to the states were based on a "best price" calculation that did not take into account the discounted prices that manufacturers were offering directly to Federally funded clinics and public hospitals serving large numbers of low-income and uninsured patients.[2][7]

Congressional hearings in 1992 found that failing to exempt these voluntary discounts under the Medicaid Drug Rebate Program caused prices to rise "dramatically" for such facilities. According to a detailed study of the most widely used outpatient drugs at five public hospitals, hospital costs for the previously discounted drugs increased, on average, by 32 percent, far in excess of the historical 5 to 9 percent annual increases in drug prices experienced by public hospitals. The steep rise reflected the size of the discounts previously offered, and the dramatic shift once "best prices" were imposed in place of voluntary discounts.[8] Consequently, Congress created the 340B program in November 1992 through the enactment of Public Law 102-585, the Veterans Health Care Act of 1992, which is codified as Section 340B of the Public Health Service Act (created under Section 602 of the Veterans Health Care Act of 1992).[9] The law protected specified clinics and hospitals ("covered entities") from drug price increases and gave them access to price reductions.[8] This law requires pharmaceutical manufacturers participating in the Medicaid program to enter into a second agreement with the Secretary of HHS — called a pharmaceutical pricing agreement (PPA) — under which the manufacturer agrees to provide statutorily specified discounts on "covered outpatient drugs" purchased by government-supported facilities, known as covered entities, that are expected to serve the nation's most vulnerable patient populations.[10] These discounts only apply to purchases of covered outpatient drugs.[11] Covered entities are allowed to dispense the discounted medication both to uninsured patients, and patients covered by Medicare or private insurance. In cases where the covered entity treats an insured patient with discounted medication, the federal government or the patient’s private insurance routinely reimburses the entity for the full price of the medication, and the entity is able to retain the difference between the reduced price it pays for the drug and the full amount for which it is reimbursed.[12]

The number of covered entity sites ("parent" sites plus off-site outpatient facilities, also referred to as "child" sites) that take advantage of the 340B program has grown from 8,605 in 2001 to 16,572 in 2011.[13] From 2005-2011, the number of hospitals participating nearly tripled, from 591 to 1,673, and the number of hospital sites (separate locations of a given hospital that all participate in 340B) almost quadrupled, from 1,233 to 4,426.[14] The program's growth can be attributed in part to three laws that Congress passed over the last decade.[15][16][17] Growth in the number of covered entity sites also stems from a recent federal policy change. In 2012, the Health Resources and Services Administration (HRSA) began requiring hospitals to register all offsite facilities using 340B drugs. Previously, hospitals had to register only those sites at separate addresses that received direct shipments of 340B drugs. Additionally, all clinics located off-site of the parent hospital, regardless of whether those clinics are in the same building, must register with HRSA as outpatient facilities of the parent 340B-eligible hospital if the covered entity purchases and/or provides 340B drugs to patients of those facilities.[18] Approximately one-third of all U.S. hospitals participate in the 340B program.[19]

Pharmaceuticals purchased at 340B pricing now account for five percent of all medicines purchased in the United States each year.[20] As of 2016 covered entities’ spending on 340B drug purchases was estimated to be about $16.2 billion annually.[20]

Administration[edit]

The program is administered by the Office of Pharmacy Affairs (OPA), located within the Health Resources and Services Administration (HRSA) of the Department of Health and Human Services, (HHS). OPA is charged with designing and implementing necessary policies and procedures to enforce agency objectives and assess program risk.[6][21] These policies and procedures are supposed to include internal controls that provide reasonable assurance that an agency has effective and efficient operations and that program participants are in compliance with applicable laws and regulations.[22]

Eligibility[edit]

Eligibility for the 340B program is defined under federal law.[23] Six categories of hospitals are eligible to participate in the program: disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals (CAH).[24] Hospitals in each of the categories must be (1) owned or operated by or under contract with state or local government non-profit, (2) a public or private non-profit corporation that is formally granted governmental powers by a state or local government, or (3) a private non-profit hospital that has a contract with a state or local government to provide indigent care and, with the exception of CAHs, all hospitals must meet payer-mix criteria related to the Medicare DSH program. There are also ten categories of non-hospital covered entities that are eligible based on receiving federal funding. They include federally qualified health centers (FQHCs), FQHC "look-alikes", Ryan White HIV/AIDS program grantees, tuberculosis, black lung, family planning and sexually transmitted disease clinics, hemophilia treatment centers, public housing primary care clinics, homeless clinics, Urban Indian clinics, and Native Hawaiian health centers.[6][11][24]

To participate in the 340B program covered entities must register, be enrolled, and comply with all program requirements. Once enrolled, covered entities are assigned a 340B identification number that vendors must verify before allowing an organization to purchase discounted drugs. Covered entities must complete the recertification process on the Office of Pharmacy Affairs (OPA) 340B database website every year. Failure to recertify will result in removal from the 340B program.[25]

Two specific criteria are common to most of the 340B-eligible hospital types: the requirement for a "disproportionate share hospital (DSH) adjustment percentage" above a certain level;[26] and the requirement that the hospital: (a) be owned or operated by a state or local government; (b) be a private nonprofit hospital "formally granted governmental powers" by a state or local government; or (c) be a private nonprofit hospital with a contract with a state or local government to provide care to low-income individuals who are not eligible for Medicare or Medicaid.[27]

The Disproportionate Share Hospital (DSH) Adjustment Percentage[edit]

The DSH adjustment percentage determines whether hospitals receive higher cash payments from the federal government under Medicare’s Inpatient Prospective Payment System.[28] The DSH adjustment percentage was implemented as part of the Medicare program in 1986 so that hospitals with substantial low-income patient loads could get higher payments to cover the higher costs of treating low-income patients.[29] Since then, some policymakers have viewed the DSH adjustment as a way to help hospitals with their uncompensated care.[30] "Uncompensated care" is a general measure of hospital care provided for which no payment was received from the patient or insurer, usually in the form of charity care or bad debt. Policymakers have used the DSH adjustment percentage as an indicator of how much uncompensated care hospitals are providing patients without receiving payment.

Expansion[edit]

Covered Entity Eligibility:In 1994 HRSA issued guidance clarifying which hospital outpatient facilities may use 340B drugs. The guidance said that hospital outpatient facilities whose costs are listed on a reimbursable line of the hospital's Medicare cost report(meaning their services are reimbursable under the Medicare program)are an "integral" part of the hospital and are eligible to use 340B discounted drugs. In April 2012, HRSA made clear that hospitals must improve transparency by registering all outpatient facilities using 340B drugs with OPA and list these sites on OPA's database, which led to an increase in the number of sites enrolled in 340B.[31][32]

In 2003, Congress enacted a law that allowed more rural and small urban hospitals to become eligible for the program by meeting the DSH percentage threshold required for program enrollment.[15]

In 2005, Congress expanded the program under the Deficit Reduction Act to make certain free standing children's hospitals eligible.[16]

In 2010, Congress passed the Affordable Care Act (ACA), which broadened the program to cover four new types of eligible entities: outpatient settings of certain free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals.[17]

Patient Definition: Not all patients that seek care from a covered entity are qualified to receive outpatient prescription drugs at 340B discounted prices. Likewise hospitals participating in the 340B program are not required under the statute to provide 340B-discounted medications to patients in need. Only "outpatients" are eligible to receive prescription drugs at 340B discounted prices because the program is an outpatient program. In 1996, HRSA issued guidance for an individual to qualify as a patient of a 340B facility.[33] Individuals are considered "patients" if (1) the covered entity has established a relationship with the individual, such that the covered entity maintains records of the individuals health care; and (2) the individual receives health care services from a professional which is either employed by the covered entity or provides health care under contractual or other arrangement (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and (3) the individual receives a health care service from the covered entity which is consistent with the services for which the grant funding or federally qualifies health care center look-a like status has been provided to the entity. Hospitals are exempt from this third requirement.[3][34] In 2007, HRSA stated that "some 340B covered entities may have interpreted the definition too broadly, resulting in the potential for diversion of medications purchased under the 340B program."[35] The GAO noted in a 2011 study that this definition of "patient" lacked clear direction and "raised concerns that the guidance may be interpreted in ways that are inconsistent with its intent" and that "covered entities could interpret it either too broadly or too narrowly."[3]

Contract Pharmacies: In 1996 HRSA also issued guidance allowing covered entities that did not have an in-house pharmacy to contract with a single outside pharmacy. In April 2010, HRSA began allowing all 340B covered entities to contract with multiple pharmacies, instead of just one.[36] Between April 2010, when this change went into effect, and 2013 the number of contract pharmacies has gone up 700%, from 3,785 to 30,046 according to HRSA enrollment data.[37]

Government Reports[edit]

There have been a number of government reports relating to the 340B program.

Contract Pharmacy Arrangements[edit]

Covered entities that participate in the 340B program may contract with pharmacies to dispense drugs purchased through the program on their behalf. Although the majority of covered entities do not use contract pharmacies, their use has increased rapidly over the past few years.[38] Additionally, recent HRSA audits of covered entities have found program violations related to contract pharmacies. The Department of Health and Human Services Office of Inspector General conducted this study to learn about how participating covered entities operate and oversee their contract pharmacy arrangements, and what steps they may or may not take to effectively prevent diversion and duplicate discounts in contract pharmacy arrangements.

Findings: (1) Since 2010, the percentage of all covered entities that use contract pharmacies has risen from 10 percent to 22 percent. Moreover, the number of unique pharmacies serving as 340B contract pharmacies has grown by 770 percent, and the total number of contract pharmacy arrangements has grown by 1,245 percent. (2) 340B contract pharmacy arrangements create complications in preventing diversion, and covered entities are addressing these complications in different ways. The covered entities reviewed in the study reported different methods of identifying 340B eligible prescriptions to prevent diversion in their contract pharmacy arrangements. In some cases, these different methods lead to differing determinations of 340B eligibility from one covered entity to another for similar types of prescriptions. As a result, there is inconsistency within the 340B Program as to which prescriptions filled at contract pharmacies are treated as 340B eligible. (3) Contract pharmacy arrangements create complications in preventing duplicate discounts. Most covered entities in the study prevent duplicate discounts by not dispensing 340B purchased drugs to Medicaid beneficiaries through their contract pharmacies. However, some covered entities that do dispense 340B purchased drugs to Medicaid beneficiaries through their contract pharmacies did not report a method to avoid duplicate discounts. (4) Some covered entities in the study do not offer the discounted 340B price to uninsured patients in their contract pharmacy arrangements. (5) Most covered entities in the study do not conduct all of the oversight activities recommended by HRSA. Although almost all covered entities reported monitoring their contract pharmacy arrangements, the extent of such monitoring varies. Few covered entities reported retaining independent auditors for their contract pharmacy arrangements as recommended in HRSA guidance.

Manufacturer Discounts Offer Benefits, but Federal Oversight Needs Improvement[edit]

We examined (1) the extent to which covered entities generate 340B revenue, factors that affect revenue generation, and how they use the program; (2) how manufacturers' distribution of drugs at 340B prices affects covered entities' or non-340B providers' access to drugs; and (3) HRSA's oversight of the 340B program.[3][39]

Findings: Thirteen of the 29 covered entities GAO interviewed reported that they generated 340B program revenue that exceeded drug-related costs, which includes the costs of purchasing and dispensing drugs. Of those remaining, 10 did not generate enough revenue to exceed drug-related costs, and six did not report enough information for GAO to determine the extent to which revenue was generated. Several factors affected 340B revenue generation, including drug reimbursement rates. Regardless of the amount of revenue generated, all covered entities reported using the program in ways consistent with its purpose. For example, all covered entities reported that program participation allowed them to maintain services and lower medication costs for patients. Entities generating 340B program revenue that exceeded drug-related costs were also able to serve more patients and to provide additional services.[3]

According to 340B program stakeholders that GAO interviewed, manufacturers' distribution of drugs at 340B prices generally did not affect providers' access to drugs. However, 340B stakeholders reported issues with covered entities accessing intravenous immune globulin (IVIG) at 340B prices.[3] Stakeholders reported that manufacturers restricted the distribution of the drug at 340B prices, resulting in 340B hospitals having to purchase at higher prices in order to meet their demand. These restrictions happen on an ongoing basis because the IVIG is susceptible to drug shortages.[3]

GAO said that HRSA's oversight of the 340B program is inadequate to provide reasonable assurance that covered entities and drug manufacturers are in compliance with program requirements—such as, entities' transfer of drugs purchased at 340B prices only to eligible patients, and manufacturers' sale of drugs to covered entities at or below the 340B price. GAO said HRSA primarily relies on participant self-policing to ensure program compliance. However, GAO continued, HRSA's guidance on program requirements often lacks the necessary level of specificity to provide clear direction, making participants' ability to self-police difficult and raising concerns that the guidance may be interpreted in ways inconsistent with the agency's intent. Other than relying on self-policing, HRSA engages in few activities to oversee the 340B program, GAO said. Moreover, GAO said the 340B program has increasingly been used in settings, such as hospitals, where the risk of improper purchase of 340B drugs is greater, in part because they serve both 340B and non-340B eligible patients. The 2010 changes allowing unlimited outside contract pharmacies to distribute 340B discounted medications were also seen by GAO as a specific source of heightened concern for HRSA’s inadequate oversight. To ensure appropriate use of the 340B program, GAO recommended that HRSA take steps to strengthen oversight regarding program participation and compliance with program.[3]

Recommendations[3] (1) HRSA was instructed to conduct selective audits of 340B covered entities to deter potential diversion. HRSA began conducting such audits in 2012. In FY2012, HRSA completed 51 audits of 340B covered entities,[40] the reports of which are available on the HRSA website.[41](2) HRSA was instructed to finalize new, more specific guidance on the definition of a 340B patient. HRSA reportedly is studying the matter.[42](3) HRSA should be instructed to further specify its 340B nondiscrimination guidance for cases in which distribution of drugs is restricted and to require reviews of manufacturers' plans to restrict distribution of drugs at 340B prices. HRSA has issued guidance on these issues.[43] (4) HRSA should be instructed to further specify the criteria that hospitals that are not publicly owned or operated must meet to be eligible for the 340B program. Since then HRSA has issued guidance on this issue (Release No. 2013-3).

State Medicaid Policies and Oversight Activities[edit]

Objective: To describe state Medicaid agencies’ policies and oversight activities related to drugs purchased under 340B.[44]

Findings: (1) Approximately half of states have written 340B policies that direct covered entities to bill Medicaid at cost for 340B-purchased drugs. (2) States do not have necessary pricing information to create prepay edits for 340B-purchased drugs; 20 States conduct post-pay reviews to identify overpayments. (3) Over half of states developed alternatives to OPA's Medicaid Exclusion File to identify 340B claims and prevent duplicate discounts.[44]

Recommendations: (1) The Centers for Medicare & Medicaid Services (CMS) should direct states to create written 340B policies. (2) CMS should inform States about tools they can use to identify claims for 340B-purchased drugs. (3) HRSA should share 340B ceiling prices with states. (4) HRSA, in conjunction with CMS, should improve the accuracy of the Medicaid Exclusion File.

Review of 340B Prices[45]

Objective: To determine whether 340B covered entities pay more than the statutory defined 340B ceiling price and, if so, the potential reason for the price discrepancies.[45]

Findings: (1) In June 2005, 14 percent of total purchases by 340B entities exceeded 340B ceiling prices, resulting in total overpayments of $3.9 million. (2) The largest overpayments were due to prices that did not follow HRSA's "penny price" policy in situations to which the statutory 340B ceiling price calculation yielded a negative number. (3) Low-volume entities, manufacturers, and wholesalers were associated with higher rates of overpayments. (4) Inaccuracies in HRSA's ceiling prices limit HRSA's ability to monitor 340B program compliance.[45]Recommendations: (1) HRSA should improve its oversight of the 340B program to ensure that entities are charged at or below the 340B ceiling price. (2) HRSA should provide technical assistance regarding 340B program implementation to all participating entities, manufacturers, and wholesalers. (3) HRSA should publish guidelines regarding its penny price policy. (4) To accurately calculate 340B ceiling prices, HRSA should obtain data on consistent unit of measure and package size.[45]

Pharmaceutical Manufacturers Overcharged 340B-Covered Entities[edit]

Objective: To determine (1) whether five manufacturers of 11 prescription drugs sold them to 340B covered entities using the correct Medicaid rebate amount; and (2) the extent of any overcharges.

Findings: The five manufacturers overcharged 340B covered entities an estimated $6.1 million for sales during the one-year period ending in September 30, 1999.[46]

Recommendations: HRSA should require the five drug manufacturers identify the exact amounts of the overcharges for each of the affected 340B- covered entities and apply the overcharged amounts as offsets or credits to each entities future purchases.[46]

Other Reports[edit]

Analysis of 340B DSH Hospital Services Delivered to Vulnerable Patient Populations[edit]

A 2015 study commissioned by 340b Health, a coalition of hospitials receiving 340b drug discounts, concluded that hospitals in the 340B drug pricing program care for nearly twice as many poor patients as other hospitals and also shoulder a much higher burden of uncompensated care.[47]

The study, conducted by the healthcare economics and policy consulting firm Dobson DaVanzo & Associates, set out to determine the extent to which disproportionate share (DSH) hospitals enrolled in the 340B drug pricing program focus their services on vulnerable patient populations. The study found that:

  • 340B DSH hospitals provide nearly twice as much care as non-340B hospitals – 41.9 percent versus 22.8 percent – to Medicaid beneficiaries and low-income Medicare patients.
  • 340B hospitals provide 40 percent more uncompensated care as a percent of total patient care costs than non-340B hospitals – $24.6 billion to $17.5 billion. Although 340B hospitals accounted for only 35 percent of all hospitals included in the analysis, 340B hospitals provided 58 percent of all uncompensated care. In addition, when taking hospital size into account and looking at uncompensated care as a percent of total patient care costs, 340B hospitals across all hospital sizes provided consistently high levels of uncompensated care.
  • A higher percentage of 340B DSH hospitals provide public health and specialized services – many of which are unprofitable but essential to their communities – than non-340B hospitals.

Outpatient Prescription Dispensing Patterns Through Contract Pharmacies In 2012[edit]

A study published in the November 2014 edition of Health Affairs provided the first comparison of 340B prescriptions[48] and all prescriptions dispensed by retail pharmacies operating under contracts with 340B covered entities. The study used 2012 data from Walgreens, the national leader in 340B contract pharmacies. The study found that:

  • Medications used to treat chronic conditions such as diabetes, high cholesterol levels, asthma, and depression accounted for an overwhelming majority of all prescriptions dispensed at Walgreens as part of the 340B program.
  • A higher percentage of anti-retrovirals used to treat HIV/AIDS were dispensed through 340B prescriptions than through all prescriptions dispensed at Walgreens.
  • The majority of 340B prescriptions dispensed at Walgreens originated at tuberculosis clinics, consolidated health centers, disproportionate-share hospitals, and Ryan White clinics.
  • 340B contract pharmacies dispense medications used to treat Americans’ chronic disease burden and disproportionately dispense medications used by key vulnerable populations targeted by the program.

Federal Drug Discount Program Critical for Oregon’s Health[edit]

A study commissioned by the Oregon Primary Care Association concluded that the 340B program is vital to helping health providers in Oregon better treat the vulnerable and underserved.'[49]

Specifically, the report found that 340B savings allow federally qualified health centers in the state to provide:

  • financial assistance to patients unable to afford their prescriptions
  • clinical pharmacy services, such as disease management programs or medication therapy management
  • additional clinics
  • community outreach programs

"FQHCs rely on the 340B funding to offset the costs of providing these and other important (yet unreimbursed) services. And as safety-net community providers, FQHCs use the funding to benefit all patients of the community, indirectly passing savings to the state as a whole," said the report which was commissioned by the Oregon Primary Care Association.

Oregon is weighing whether to require these health centers to hand over essentially all of their savings on 340B drugs provided to Medicaid beneficiaries.

"Policies that shift cost savings to the state may not actually be effective and could adversely impact patient care," the study concluded.

Unfulfilled Expectations: An analysis of charity care provided by 340B hospitals[edit]

A new analysis published in 2014 indicates that a substantial portion of hospitals enrolled in the 340B program provide only a minimal amount of charity care; as such, they may not be fulfilling Congress’ expectations.[50]

The study, compiled from newly available public data noted that the 340B drug discount program was designed by Congress to help safety net providers improve access to prescription medicines for uninsured, vulnerable patients in the outpatient hospital setting. Yet, the analysis shows, most hospitals that benefit from the program provide less charity care than the national average for all hospitals, and charity care in about a quarter of all 340B hospitals represents 1% or less of total patient costs. A small number of 340B hospitals provide the lion’s share of all charity care delivered by 340B hospitals.

The analysis raises questions about whether the current 340B eligibility criteria specifically used for DSH hospitals are serving the spirit and intent of the law in that they may be overly broad and not just target those entities that serve high numbers of vulnerable, uninsured patients. Specifically, the new research shows:

  • More than two-thirds of hospitals that receive 340B drug discounts provide less charity care as a percent of patient costs than the national average for all hospitals, including for-profit hospitals which do not qualify for 340B under current eligibility criteria.
  • For approximately a quarter (24%) of 340B hospitals, charity care represents 1% or less of the hospitals’ total patient costs.
  • Approximately one-fifth (22%) of 340B hospitals provide 80% of all charity care delivered by 340B DSH hospitals.

Currently, hospitals that qualify for the program claim 340B discounts for most outpatient prescription drugs, for both insured and uninsured patients. And while the 340B program lowers outpatient drug costs for qualifying hospitals on the presumption that it will help significant numbers of vulnerable, uninsured patients, participating hospitals currently see no restrictions on the way they spend the revenue generated if they charge both insured and uninsured patients higher prices than the 340B-discounted price.

This stands in contrast to many other covered entities that participate in the 340B program as a result of a specific grant (often referred to as "grantees") from the U.S. Department of Health and Human Services. The grant-approval process typically requires these providers to demonstrate that they provide services to certain specified vulnerable populations, at times based upon the patients’ "ability to pay", and that the entities reinvest resources into services for those populations.

According to the report, overly-broad eligibility criteria for hospitals have led to an explosion in the number of hospitals that have come into the 340B program. Today, one-third of all hospitals in the country participate in the 340B program and get 340B discounts; that number is expected to grow, particularly absent an effort to tighten eligibility requirements. Drug purchases through the 340B program will almost double, from $6 billion in 2010 to $13.4 billion by 2016, though little of the billions of dollars in discounts has been directly tracked to or linked with charity care for vulnerable indigent patients.

While not disputing the report's findings, Safety Net Hospitals for Pharmaceutical Access (SNHPA), the main group that lobbies on behalf of the hospitals studied in the report, issued a statement in response to the report stating:

In its continued public relations campaign to discredit the 340B drug discount program, the pharmaceutical industry has financed another study that intentionally misrepresents its purpose. This report goes a step further by suggesting that many hospitals don’t deserve to be in the program based on a narrow and misleading interpretation of care to needy patients.

  • The 340B program has lived up to congressional expectations, which is why Congress chose to add several new categories of hospitals to its ranks under both Republican and Democratic administrations.
  • Congress was clear when it established the program that eligible hospitals must serve a disproportionately high percentage of Medicaid patients, low-income seniors or be located in remote rural areas. Congress allows these hospitals to advance the real purpose of the program: to stretch their limited resources so that they are less dependent on taxpayers dollars.
  • The report is based on unreliable estimates of charity care that even the government refuses to use to determine uncompensated hospital expenses. In addition, hospitals are significantly underpaid by Medicaid, a fact completely omitted from the analysis.
  • The average 340B hospital provides three times more uncompensated care than non-340B hospitals.
  • Private oncology practices refer their Medicare, Medicaid and uninsured patients to hospitals.
  • The 340B program represents only 2 percent of the $325 billion U.S. pharmaceutical market.

Another lobbying group, the American Hospital Association issued a statement in response to the report stating:

The AHA today said a report examining the charity care levels of 340B hospitals "ignores the fact that the 340B program enables hospitals to provide essential health care services to the nation's most vulnerable populations." The Alliance for Integrity and Reform of 340B report found that some hospitals enrolled in the 340B Drug Pricing Program provided only a minimal amount of charity care. However, AHA Senior Vice President for Public Policy Analysis and Development Linda Fishman noted that the report is "based on Medicare’s worksheet S-10, which is still in the development stages and judged by Medicare policymakers to be not yet ready for use in payment calculations." Fishman also said that 62% of all uncompensated care provided by U.S. hospitals is provided by 340B hospitals, and "charity care alone does not account for the myriad programs and services that hospitals provide, which are tailored to the needs of their own unique community."

RAND Corporation 2011 Study[edit]

In 2011 the RAND Corporation published a study of policy options for addressing medicare payment differentials across ambulatory settings.[51] sponsored by the Assistant Secretary of Planning and Evaluation in the U.S. Department of Health and Human Services that analyzed potential options for modifying Medicare payment policies to improve the value of services provided in ambulatory settings by addressing the differential in the amount that Medicare pays for similar facility services in various ambulatory settings.[52] In their summary the authors verify that "The findings confirm that payments tend to be highest for services provided in hospitals, but they also indicate that payment differentials generally exceed cost differentials and vary by procedure."[53]

Page 55 of the RAND Study states: "There has been a substantial increase in hospital purchases of provider practices in recent years, largely to expand the hospital’s referral base and to position the hospital system as an accountable care organization. However, the consequences are increased Medicare payments and beneficiary coinsurance, as well as additional competition for community-based practices...For oncology practices, one reason cited for the growth is the opportunity to expand the patient base for drugs purchased under the 340B discount drug purchase plan. The program allows facilities to purchase outpatient drugs at prices below market. Because the [Outpatient Prospective Payment System] payment rates for drugs furnished to hospital outpatients are the same for all hospitals without regard to whether the drugs were purchased through the 340B program, hospitals have an incentive to increase margins by expanding their patient base for chemotherapy administration. At the same time, changes in Medicare payments for chemotherapy drugs furnished in [physician offices] have limited the ability of oncologists to profit on these drugs and have increased the attractiveness of affiliating with a hospital."

The Oncology Business Review published a similar report in September 2011. The authors of that piece found that the acquisition of community oncology practices by hospitals with 340B pricing is leading to more cancer patients being treated by hospitals rather than in specialized community practices, reversing a 20-year trend.[54]

In 2008, the Centers for Medicare & Medicaid Services solicited public comment on whether it should adjust Outpatient Prospective Payment System (OPPS) payments to hospitals for separately payable drugs based on hospitals’ participation in the 340B program.[55] After receiving and reviewing comments, it decided not to make any changes.

Charlotte News Observer April 2012 Series: "Prognosis: Profits" and Subsequent Congressional Investigation[edit]

In April 2012 the Charlotte Observer and The News & Observer of Raleigh, North Carolina published a five-part series under the headline "Nonprofit hospitals thrive on profits.[56]

In response to those stories Senator Chuck Grassley (R-Iowa), former Chairman of the Senate Finance Committee and current ranking Republican on the Senate Judiciary Committee initiated a series of letters to the hospitals identified in the series to investigate whether the 340B program is functioning as intended. In a September 28, 2012 letter to the Carolinas Medical Center Senator Grassley stated: "The intent and design of the [340B] program is to help lower outpatient drug prices for the uninsured. It is not intended to subsidize covered entities for providing inpatient services to those who are covered by private insurance, Medicare, or Medicaid. As such, I have been examining the 340B program."[57]

Safety Net Hospitals for Pharmaceutical Access (SNHPA) Report[edit]

"Setting the Record Straight on 340B: A Response to Critics," was released on July 9, 2013 by Safety Net Hospitals for Pharmaceutical Access (SNHPA), a 501(c)(6) non-profit organization of 1,000 public and private non-profit hospitals and health systems throughout the U.S. that participate in the Public Health Service 340B drug discount program.[58][59] The report, which includes documented independent research funded by SNHPA, describes the program and provides examples of how some providers are using their savings. It also argues the program is saving money for federal, state, and local governments and taxpayers and attempts to refute many of the statements made by critics of the program.[60]

The report calls for a number of reforms to modernize the program, including more pricing transparency to ensure that health care providers are not being overcharged, audits of drug manufacturers, as well as a look at the use of contract pharmacies to determine whether the program is helping vulnerable patients better access prescription medications and pharmacy care. As part of its advocacy SNHPA also assists its members maximize the benefits of the 340B program.[61]

Senator Charles Grassley (R-Iowa), a leader in the Senate investigating the operations of the 340B report responded to the SNHPA report by stating: "A report by an association representing the affected hospitals is not objective. Through my inquiries, I’ve been able to document that several hospitals are profiting from the 340B program rather than simply providing discounted drugs to the uninsured. Instead of using the deeply discounted drugs these hospitals receive for the most vulnerable in need, the hospitals are up-selling those drugs to patients with Medicare and private insurance because those patients can pay more. The hospitals are keeping the difference." [62]Third Way: As the ACA Stands Up, Can Programs for the Uninsured Stand Down?[63]

"Given the uncertainty facing safety net hospitals, no one is proposing to end programs like disproportionate share and 340B. In fact, it is very likely that some version of these programs will be needed for the foreseeable future because, under the best-case scenario, the ACA will still leave millions without adequate coverage. But the Administration has an opportunity to bolster the oversight of programs like 340B to ensure the most vulnerable are protected and no one is abusing the program. That will make it easier when the time comes to recalibrate safety net programs for a level of services appropriate to the number of remaining uninsured."

Legislative Oversight[edit]

  • September 2005 letter from Sen. Charles Grassley (R-IA) to HRSA asking for an accounting of what the government had done to recover overcharges of 340B covered entities by Aventis, Bristol-Myers Squibb, GlaxoSmithKline, and TAP Pharmaceuticals reported by OIG in 2003 and 2004. http://www.finance.senate.gov/newsroom/chairman/release/?id=abbe3661-fb03-4ac3-a6d9-6f2217d0662c
  • December 2005 House hearing on Oversight and Administration of the 340B Drug Discount Program: Improving Efficiency and Transparency* September 2012 letter from Sen. Charles Grassley (R-IA) to Carolinas Medical Center inquiring into participation in the 340B program. [6]
  • September 2011 from House and Senate members to HRSA requesting information on oversight and effectiveness of the 340B program.[7]
  • July 2012 letter from House members to HRSA requesting an updated definition of 340B "patient." [8]
  • September 2012 letter from Sen. Charles Grassley (R-IA) to Carolinas Medical Center inquiring into participation in the 340B program. [9]
  • January 2013 Senate letter to HRSA seeking details on 340B program oversight. [10]
  • May 8, 2013 News Release by Sen. Charles Grassley, "Questions Continue About 340B Discount Drug Program" [11]
  • June 18, 2013 News Release by Sen. Charles Grassley, "Discount Drug Program, Hospital Executive Bonuses" [12]
  • July 9, 2013 News Release by Sen. Charles Grassley, "Grassley on Hospital Industry Report on Discount Drug Program: A report by an association representing the affected hospitals is not objective" [13]
  • September 26, 2013 letters by Sen. Charles Grassley, "Grassley Seeks Answers from Drug Companies on Providing Required Discounts" [14]

References[edit]

  1. ^340B Drug Pricing & Pharmacy Affairs http://www.hrsa.gov/opa/
  2. ^ abVeterans Health Care Act of 1992, Pub. L. No. 102-585 § 602, 106 Stat. 4943, 4967-4971 (1992).
  3. ^ abcdefghijGAO, Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement, GAO (Washington, D.C.: Sep. 2011) at 1 [hereafter referred to as GAO 340B Report].
  4. ^GAO 340B Report p. 1:"Thirteen of the 29 covered entities we interviewed reported that they generated 340B program revenue that exceeded drug-related costs, which includes the costs of purchasing and dispensing drugs."
  5. ^"340B Drug Pricing Program". hrsa.gov. 
  6. ^ abchttp://www.hrsa.gov/opa/340Bsurveyrpt.pdf
  7. ^H.R. Rep. No 102-384 (II), at 10-11 (1992).
  8. ^ abH.R. Rep. No 102-384 (II), at 10-11 (1992)
  9. ^Veterans Health Care Act of 1992, Pub. L. No. 102-585 §602, 106 Stat. 4943, 4967-4971 (1992).
  10. ^42 U.S.C. § 1396r-8(a)(1), (a)(5).
  11. ^ abU.S. Government Accountability Office, Report to Committees: Drug Pricing (GAO-11-836), September 2011.
  12. ^Andrew Pollack, Dispute Develops Over Discount Drug Program, N.Y. Times, Feb. 13, 2013.
  13. ^GAO 340B Report, 8
  14. ^GAO 340B Report, 27-28
  15. ^ abPub.L. 108–173, 117 Stat. 2066
  16. ^ abDeficit Reduction Act of 2005, Pub. L. No. 109-171, § 6004, 120 Stat. 4, 61 (2006) (amending 42 U.S.C. § 1296r-8(a)(5)(B)).
  17. ^ abPatient Protection and Affordable Care Act, Pub. L. 111-148, §§ 7101-3, 124 Stat. 119, 128 (2010).
  18. ^"FAQs". hrsa.gov. 
  19. ^GAO 340B Report, 20
  20. ^ abDrug Channels analysis, The 340B Program Hits $16.2 Billion in 2016; Now 5% of U.S. Drug Market.
  21. ^H.R. Rep. No 102-384 (II), at 12 (1992)
  22. ^GAO, Standards for Internal Control in the Federal Government, GAO-AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999)
  23. ^Public Health Service Act § 340B, 42 U.S.C. § 256B (2013).
  24. ^ abU.S. Department of Health and Human Services, Health Resources and Services Administration, Fiscal Year 2014 Justifications for Estimates for Appropriation Committees.
  25. ^"Get ready for 340B recertification! - Sentry Data Systems, Inc". sentryds.com. 
  26. ^Disproportionate share hospital (DSH) as defined under Social Security Act § 1886(d)(1)(B), 42 U.S.C. § 1395ww(d)(1)(B), with a DSH adjustment percentage greater than 11.75.
  27. ^42 U.S.C. § 256(a)(4)(L)-(O).
  28. ^"Interpretation of Medicaid days in Medicare DSH adjustment calculation" (PDF). Health Care Financing Administration Ruling no. 97-2. United States Department of Health and Human Services. February 1997.
  29. ^MedPAC, Report to the Congress: Medicare Payment Policy (Washington, D.C.: 2007) p. 70.
  30. ^Ibid. p. 50
  31. ^59 Fed. Reg. 47884 (Sep. 19, 1994).
  32. ^"FAQs". hrsa.gov. 
  33. ^Notice Regarding Sec. 602 of the Veterans Health Care Act of 1992: Patient and Entity Eligibility, 61 Fed. Reg. 55156-8 (Oct. 24, 1996).
  34. ^Ibid.
  35. ^72 Fed. Reg. 1543, 1544 (Jan. 12, 2007)
  36. ^Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. Reg. 10,272 (Mar. 5, 2010)
  37. ^HRSA 340B contract pharmacy arrangement data, available at http://www.hrsa.gov/opa
  38. ^U.S. Department of Health and Human Services, Office of Inspector General, https://oig.hhs.gov/oei/reports/oei-05-13-00431.asp
  39. ^http://www.gao.gov/new.items/d11836.pdf
  40. ^"Program Integrity: Audit Results". hrsa.gov. 
  41. ^Office of Pharmacy Affairs, Fiscal Year 340B Completed Program Audits – February 8, 2013
  42. ^Office of Budget and Management,Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Definition of "Patient"
  43. ^Office of Pharmacy Affairs,340B Drug Pricing Program Notice:Clarification of Non-Discrimination Policy
  44. ^ abOIG, State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drug, OIG (Washington, D.C.: June 2011).
  45. ^ abcdOIG, Review of 340B Prices, OIG (Washington, D.C.: July. 2006) at 1 [hereafter referred to as OIG 2006 340B Report].
  46. ^ abOIG, Pharmaceutical Manufacturers Overcharged 340B-Covered Entities, OIG (Washington, D.C.: March 2003).
  47. ^[1]
  48. ^BobL. Clark. "The 340B Discount Program: Outpatient Prescription Dispensing Patterns Through Contract Pharmacies In 2012". healthaffairs.org. 
  49. ^[2]
  50. ^AIR 340B Charity Care Paper.pdf
  51. ^B. Wynn, P. Hussey and T. Ruder, Policy Options for Addressing Medicare Payment Differentials Across Ambulatory Settings, RAND Technical Report (Santa Monica, CA; RAND, 2011) [hereafter "RAND Study"]
  52. ^RAND Study p. iii
  53. ^"Policy Options for Addressing Medicare Payment Differentials Across Ambulatory Settings". rand.org. 
  54. ^R. Schleif, Bruce Edelen, and Mary Lou Bowers, "340B Benefits Some, Not Others," Oncology Business Review, Sep. 2011. [3]
  55. ^"CMS-1404-FC - Final Changes to the Hospital Outpatient Prospective Payment System and CY 2009 - Centers for Medicare & Medicaid Services". cms.gov. 
  56. ^"Prognosis Profits". charlotteobserver.com. 
  57. ^Letter from Charles E. Grassley, U.S. Senator, to Michael C. Tarwater, CEO, Carolinas Medical Center (Sept. 28, 2012), http://www.grassley.senate.gov/about/upload/2012-09-26-CEG-to-Carolinas-Medical-Center-340B.pdf[4]
  58. ^http://www.snhpa.org/public/about.cfm
  59. ^Setting the Record Straight on 340B
  60. ^at 4-6Setting the Record Straight on 340B
  61. ^http://www.340bcoalition.org/conferences/2011_annual/web_agenda.pdf
  62. ^[5]
  63. ^"As the ACA Stands Up, Can Programs for the Uninsured Stand Down? - Third Way Perspectives". thirdway.org. 

Key Acronyms & Terms

©2017 340B Health.  Unauthorized copying is expressly prohibited.
To request authorization to share this document, please contact Mike Hess at mike.hess@340bhealth.org or (202) 552-5869.

Key Acronyms

"5i" Drug Inhalation, Infusion, Instilled, Implanted, or Injectable Drugs
AAC Actual Acquisition Cost
ACA Affordable Care Act (abbreviation of PPACA)
ADR Administrative Dispute Resolution (or Alternative Dispute Resolution)
AMDP Alternative Methods Demonstration Project
AMP Average Manufacturer Price
ASP Average Sales Price
CAH Critical Access Hospital
CBO Congressional Budget Office
CMP Civil Monetary Penalty
CMS Centers for Medicare & Medicaid Services
COD Covered Outpatient Drug
DOD Department of Defense
DRA Deficit Reduction Act of 2005
DSH Disproportionate Share Hospital
FCP Federal Ceiling Price
FDA Food and Drug Administration
FSS Federal Supply Schedule
FQHC Federally Qualified Health Center
GAO Government Accountability Office
GPO Group Purchasing Organization
HCPCS Healthcare Common Procedure Coding System
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HMO Health Maintenance Organization
HRSA Health Resources and Services Administration
HTC Hemophilia Treatment Center
IPAP Institutional Patient Assistance Program
IPPS Inpatient Prospective Payment System
MAC Maximum Allowable Cost
MCO Managed Care Organization
MDRP Medicaid Drug Rebate Program
MMA Medicare Modernization Act
MTM Medication Therapy Management
NDC National Drug Code
Non-FAMP Non-Federal Average Manufacturer Price
NPI National Provider Identifier
OIG Office of Inspector General
OPA Office of Pharmacy Affairs
OPPS Outpatient Prospective Payment System
PAP Patient Assistance Program
PBM Pharmacy Benefit Manager
PDL Preferred Drug List
PHS Public Health Services
PPA Pharmaceutical Pricing Agreement
PPACA Patient Protection and Affordable Care Act
PPO Preferred Provider Organization
RRC Rural Referral Center
SCH Sole Community Hospital
SPAP State Pharmaceutical Assistance Program
STD Clinic Sexually Transmitted Disease Clinic
URA Unit Rebate Amount
VA Department of Veterans Affairs
WAC Wholesale Acquisition Cost

Key Terms

08 Modifier: The National Council for Prescription Drug Programs’ D.0 standard for retail pharmacy claims submission allows a pharmacy to indicate that the submitted ingredient cost of the drug that is the subject of the claim is the drug’s 340B price. Some payers require the pharmacy to indicate that a drug’s 340B price was the method by which the billed ingredient cost was calculated by submitting the value “08” in field 423-DN, also known as the Basis of Cost Determination field. The 08 Modifier might be used in conjunction with the 20 Modifier. Based on NCPDP’s description of the 08 value, the modifier applies only to Medicaid and other state or federal programs when required by law or regulation and when the payer and/or processor has communicated a unique Bank Identification Number (BIN) or BIN/Processor Control Number (PCN) combination to distinguish these from other lines of business that do not meet the requirement.

20 Modifier: The National Council for Prescription Drug Programs’ D.0 standard for retail pharmacy claims submission allows a pharmacy to indicate that a drug that is the subject of the claim was purchased through the 340B Drug Pricing Program (340B program). Some payers require the pharmacy to identify 340B drugs by including the value “20” in field 420-DK, also known as the Submission Clarification Code field. The 20 Modifier might be used in conjunction with the 08 Modifier.

340B Ceiling Price: The maximum price that manufacturers can charge covered entities participating in the Public Health Service's 340B program for covered outpatient drugs (CODs). The 340B discount is calculated using the Medicaid rebate formula and is deducted from the manufacturer's selling price rather than paid as a rebate. Compared to a drug's average manufacturer price (AMP), covered entities receive a minimum discount of 23.1 percent for brand-name drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP), and 13 percent for generic and over‐the‐counter drugs. Brand-name drugs are entitled to an additional discount if the manufacturer’s best price for a drug is lower than the AMP minus 23.1 percent for that drug or if the price of the drug has increased more quickly than the rate of inflation. Manufacturers must offer greater discounts on generic drugs if the price of a generic drug increases more quickly than the rate of inflation. Covered entities are free to negotiate discounts that are lower than the maximum allowable statutory price (i.e., sub‐ceiling prices). Pursuant to the Patient Protection and Affordable Care Act (PPACA or ACA), 340B ceiling prices for CODs must be publicly available through a secured website. HRSA is in the process of developing that website.

340B Health: A non-profit organization based in Washington, D.C. that represents the interests of hospitals in the 340B program. 340B Health, formerly known as Safety Net Hospitals for Pharmaceutical Access (SNHPA), has been advocating on behalf of the hospitals in the 340B program since the program’s inception almost 25 years ago. It has over 1,300 member hospitals and provides a range of advocacy, educational, and technical assistance services. More details about 340B Health can be found at www.340bhealth.org or by contacting Anna Mangum at anna.mangum@340bhealth.org or 202-552-5863.

340B ID: The unique identification number assigned by the Office of Pharmacy Affairs (OPA) to each 340B parent or child site.

340B OPAIS: HRSA implemented its new 340B Office of Pharmacy Affairs Information System (340B OPAIS) in September of 2017, changing how covered entities provide and edit information in the 340B database.  The 340B OPAIS can be found at https://340bopais.hrsa.gov/.  The user guide applicable to the 340B OPAIS can be found at https://www.hrsa.gov/sites/default/files/hrsa/opa/publicuserguide.pdf.

340B Prime Vendor Program: The 340B statute requires the Department of Health and Human Services (HHS) to create a "prime vendor" program for the entities participating in the 340B program. The prime vendor’s key responsibilities are to negotiate prices below the 340B ceiling price and to provide distribution services for covered entities that choose to join the program. Regarding the latter responsibility, the prime vendor works with a variety of wholesalers in the distribution of pharmaceuticals. The prime vendor also provides a variety of other “value‐added” services, including providing technical assistance to covered entities, operating a 340B educational program called 340B University, offering 340B-related online training and certification programs, and offering discounted pricing on non-340B drugs and non-COD products such as vaccines. HRSA has a contract with Apexus to serve as the prime vendor. The current contract, which was renewed in September 2014, runs through September 29, 2019. Participation in the prime vendor program is optional for covered entities, though they may be able to access more favorable prices through the prime vendor program than they would on their own.

340B Program: The federal drug discount program authorized under section 340B of the Public Health Service Act and established by Congress under the Veterans Health Care Act of 1992 (Public Law 102-585, § 602, codified at 42 U.S.C. § 256b). The 340B program requires drug manufacturers to enter into pharmaceutical pricing agreements (PPAs) with the HHS Secretary, under which manufacturers agree not to sell CODs above 340B ceiling prices to covered entities.

"5i" Drug: An inhaled, infused, instilled, implanted, or injected drug. Manufacturers, when identifying “5i” drugs, are not required to use any particular Food and Drug Administration (FDA) file or publication. Manufacturers rely on different sales transactions than they use for other drugs in their product line when calculating the AMP for their “5i” drugs that are not generally dispensed through a retail community pharmacy. Effective April 1, 2016, CMS adopted new procedures for identifying “5i” drugs and calculating “5i” AMP. See definition of “Average Manufacturer Price.”

Actual Acquisition Cost (AAC): The price that a provider pays for a drug. Some state Medicaid programs have a history of using AAC to set reimbursement rates for 340B fee-for-service (FFS) retail drugs to compensate for the loss of the states’ rebates for such drugs. Effective April 1, 2017, all state Medicaid programs must apply reimbursement rates based on AAC to covered outpatient drugs that are used in the retail setting and covered by Medicaid on a FFS basis. The April 1, 2017 deadline was established by CMS by regulation – commonly referred to as the COD rule – that implemented changes to the federal Medicaid drug rebate and reimbursement laws established by Congress as part of the ACA. The COD rule, which was released on February 1, 2016, directs states to move away from basing reimbursement for FFS Medicaid retail drugs on estimated acquisition cost and to use instead AAC as the basis for reimbursement, including for 340B drugs. The COD rule went into effect on April 1, 2016 and states had until June 30, 2017 to submit their State Plan Amendments for adopting the new AAC-based reimbursement changes.

Administrative Dispute Resolution (ADR): A binding process mandated by the ACA to resolve certain disputes under the 340B program. The ACA stated that the purpose of the ADR process is to resolve (1) claims by covered entities that they have been overcharged for covered outpatient drugs by manufacturers; and (2) claims by manufacturers, after a manufacturer has conducted an audit, that a covered entity has violated the prohibitions against diversion or duplicate discounts. HRSA issued a proposed rule in August 2016 that would establish a panel of government officials charged with reviewing and adjudicating disputes brought by covered entities and manufacturers. The rule was withdrawn effective August 1, 2017 (https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=0906-AA90).

HRSA currently has a voluntary non-binding dispute resolution process that has sometimes has been referred to as Alternative Dispute Resolution.  (See (https://www.hrsa.gov/sites/default/files/opa/programrequirements/federalregisternotices/disputeresolutionprocess121296.pdf)).

Affordable Care Act (ACA): Abbreviated term used for Patient Protection and Affordable Care Act.

Alternative Methods Demonstration Projects (AMDP): HRSA-approved projects that gave 340B covered entities flexibility to operate programs or enter into agreements with other covered entities that would otherwise not be allowed under 340B guidelines. These demonstration projects were intended to test new methods of participating in the 340B program to improve access to 340B CODs. The last AMDP listed on the OPA website ended in September 2015. OPA does not currently accept AMDP applications.

Any Willing Pharmacy: By law, Medicare Part D plans must offer network participation contracts to any willing pharmacy that meets the standard terms and conditions of the network contract. Furthermore, Medicare regulations state that Part D plans must have standard contracts with “reasonable and relevant terms and conditions of participation whereby any willing pharmacy may access the standard contract and participate as a network pharmacy.” Some states have enacted any willing pharmacy laws that extend to commercial insurance plans.

Apexus Generic Portfolio: Hospitals subject to the prohibition against using a group purchasing organization (GPO) to obtain CODs (GPO exclusion) are generally required to pay higher, non-GPO prices – typically at wholesale acquisition cost (WAC) – for CODs that do not qualify or are otherwise unavailable for 340B pricing. For example, HRSA prohibits the use of GPO drugs for 340B-ineligible outpatients. To reduce the cost of these non-340B, non-GPO drugs, Apexus, which runs the 340B prime vendor program, has contracted with wholesalers to give participating hospitals access to the wholesalers’ non-340B generic source price files. Hospitals can purchase drugs in this Generic Portfolio without violating the GPO exclusion.

Apexus, Inc.: The organization under contract with HRSA to administer the 340B prime vendor program. Apexus is responsible for negotiating discounts below the 340B ceiling price for those covered entities that choose to participate. Apexus also contracts with wholesalers to distribute 340B pharmaceuticals and with other vendors to provide value-added services. It also provides educational and technical assistance services. The prime vendor contract was first awarded to Apexus in 2007. The current contract, which was renewed in September 2014, runs through September 29, 2019.

Authorizing Official: Per HRSA, an authorizing official is someone who represents and confirms that he/she is fully authorized to legally bind a 340B covered entity into a relationship with the federal government and has knowledge of the practices and eligible programs at that site. This would be the person responsible for and to whom the federal government would reach out about compliance issues, integrity evaluations, and audits. Covered entities are required to provide HRSA with their authorizing official’s name and contact information upon enrollment and to update this information when any changes are made. The authorizing official is also responsible for completing OPA’s online registration process for 340B covered entities and outpatient facilities as well as the annual recertification process. The authorizing official must also approve contract pharmacy registrations. For many entities, this is the grantee of record or the Clinic Director based upon federal funding streams. For hospitals, it is required that someone of the Chief Executive Officer/Chief Financial Officer/Chief Operating Officer/President/Vice President level perform this role.

Average Manufacturer Price (AMP): The average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from manufacturers. Congress established AMP as part of the Medicaid drug rebate statute to facilitate calculating Medicaid rebates. AMP was originally defined as the average price paid to manufacturers by wholesalers for the retail class of trade. Congress changed the definition in 2010 as part of the ACA and the new definition went into effect on April 1, 2016 pursuant to the COD rule issued by CMS on February 1, 2016. The COD rule excludes from AMP calculations 340B prices, sales to non-retail purchasers, as well as a number of other prices. CMS also clarified, among other things, how manufacturers should identify and report AMP data for all CODs, including “5i” drugs. Further discussion on AMP can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf. Besides being used to calculate manufacturer rebates owed to state Medicaid agencies, AMP is a key component of the formula used to calculate the 340B ceiling price. Manufacturers are required to report AMP to CMS on a quarterly basis. AMP is also used to determine the federal upper limit on Medicaid pharmacy reimbursement for multiple source drugs.

Average Manufacturer Price True-Up: An AMP true-up occurs when a manufacturer corrects a previously stated AMP for a specific time period and then, in order to remedy the misstated AMP, adjusts the amounts owed to states under the Medicaid Drug Rebate Program (MDRP) and the discounts owed to covered entities under the 340B program. According to HRSA’s 340B ceiling price calculations and manufacturer CMPs final rule, an instance of overcharging may occur when subsequent 340B ceiling price recalculations due to pricing data submitted to CMS result in a covered entity paying more than the ceiling price due to a manufacturer’s failure or refusal to refund or credit the entity. The regulation is scheduled to go into effect on October 1, 2017. The regulation can be found at 82 Fed. Reg. 1,210 (Jan. 5, 2017), https://www.gpo.gov/fdsys/pkg/FR-2017-01-05/pdf/2016-31935.pdf.

Average Sales Price (ASP): A measure of a pharmaceutical’s price that is equal to a manufacturer's sales to all purchasers divided by units sold. The ASP calculation excludes sales, such as 340B purchases, that are excluded from the Medicaid “best price” calculation as well as sales at nominal charge, as applied by the Secretary. ASP was first used by government prosecutors in settlements with several pharmaceutical manufacturers to ensure more accurate price reporting. Under the Medicare Modernization Act, Congress adopted the ASP system to replace average wholesale price for reimbursing outpatient drugs in non-hospital settings under Medicare Part B, beginning in 2005. CMS decided several years ago to also use ASP to set reimbursement for drugs administered in hospital outpatient departments under Part B.

Best Price: See “Medicaid Best Price.”

Big 4: The four largest purchasers of pharmaceuticals within the federal government: Department of Veterans Affairs, Department of Defense, Public Health Service, and Coast Guard. These four federal agencies have the right to purchase their pharmaceuticals through federal supply schedule (FSS) contracts like every other federal agency. However, the Big 4 often get pricing below FSS on brand-name drugs because these drugs are subject to a maximum statutory price called the federal ceiling price.

Black Lung Clinic: One of the categories of non-hospital covered entities that participate in the 340B program. Black lung clinics receive funding from the HRSA Black Lung Clinic Program to seek out coal miners, whether they are currently involved in mining or not, and provide services to them and their families, regardless of their ability to pay. Services may be provided either directly by grantees or through formal arrangements with appropriate health care providers, such as Federally Qualified Health Centers (FQHCs), hospitals, state health departments, mobile vans, and clinics. The Black Lung Clinic Program is authorized by Section 427(a) of the Black Lung Benefits Act (codified at 30 U.S.C. § 901).

Cancer Hospital:  See “Free-Standing Cancer Hospital.”

“Carve-In”: The term “carve-in” is used to describe a covered entity’s decision to use 340B discounted drugs for its Medicaid patients that meet the 340B program’s patient definition test. To avoid having a state Medicaid program request rebates on 340B drugs given to FFS Medicaid patients, covered entities that carve in must inform OPA of that decision and submit to OPA the numbers that they use to bill FFS Medicaid for 340B drugs. OPA publishes these billing numbers in a Medicaid Exclusion File, which is posted on the agency’s website. State Medicaid agencies use the file to identify claims that should be excluded from the states’ rebate requests to manufacturers. In a February 2013 policy release, HRSA directed covered entities that elect the carve-in option to work with their states to develop a mechanism for notifying the state when 340B drugs are not used for a Medicaid patient so that the state can seek rebates on such drugs.  The Medicaid Exclusion File identifies carve-in entities by billing number, so if a covered entity has clinics or owns pharmacies with different Medicaid provider numbers, some clinics or pharmacies might be able to carve in while others carve out. In December 2014, HRSA issued a policy notice clarifying that the purpose of the Medicaid Exclusion File is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care. HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid managed care organization (MCO) patients. Some states have issued rules or policies stating that the state considers the Medicaid Exclusion File to apply to both Medicaid FFS and Medicaid MCO claims.

“Carve-Out”: The term “carve-out” is used to describe a covered entity’s decision not to use 340B discounted drugs for Medicaid patients if such drugs are subject to a potential Medicaid rebate claim by a state Medicaid agency.   Unless the entity chooses to carve in as described above, the  covered entity  must purchase outside the 340B program any COD subject to a Medicaid rebate.  If a covered entity decides not to buy its Medicaid drugs at 340B discounts, state Medicaid agencies are free to request manufacturer rebates on such drugs without creating a duplicate discount problem for the manufacturers. In 2009 and 2012, respectively, the California legislature and Illinois legislature prohibited 340B covered entities from utilizing the Medicaid carve-out. If a covered entity has clinics or owns pharmacies with different Medicaid provider numbers, some clinics or pharmacies might be able to carve out while others carve in.

Catastrophic Limit: The annual level of out-of-pocket spending that a Medicare Part D enrollee must incur before being eligible for catastrophic coverage. Part D enrollees receive 95% - 100% coverage during the catastrophic coverage phase.

Centers for Medicare and Medicaid Services (CMS):The federal agency within HHS that administers the Medicare and Medicaid programs, including the MDRP and the Medicare Part D prescription drug benefit. CMS and HRSA are sister agencies within HHS.

Change Requests: The process by which covered entities can update or modify the information listed in their entries in the 340B database.  HRSA implemented its new 340B OPAIS in September2017 which resulted in fundamental changes in how covered entities provide and edit information in the database. The change request process has therefore been modified. A recorded tutorial on covered entity change requests can be found at https://hrsa.connectsolutions.com/p4cog89ipdx/.  The 340B OPAIS user guide can be found at https://www.hrsa.gov/sites/default/files/hrsa/opa/publicuserguide.pdf.

Chargeback: The method by which wholesalers typically process 340B and other discounts. A wholesaler purchases a drug from the manufacturer at WAC, sells the drug to a 340B covered entity, and then requests that the manufacturer pay it for the difference between the drug’s WAC and 340B price. This last step of the process is known as a “chargeback.” Wholesalers typically use the chargeback process whenever they sell a drug at a price lower than what they paid for it.

Children’s Hospital:  Hospitals that meet criteria set forth under section 1886(d)(1)(B)(iii) of the Social Security Act, codified at 42 U.S.C. § 1395ww, and whose patients are mostly under age 18. (Regulations are available at 42 C.F.R. § 412.23(d)).  Such hospitals are exempt from the Medicare inpatient prospective payment system.  Section 6004 of the Deficit Reduction Act of 2005 (Pub. L. 1090171) added certain qualifying children’s hospitals to the list of covered entities eligible to participate in the 340B Drug Pricing Program.  To qualify for 340B, a children’s hospital must (1) be owned or operated by or be under contract with state or local government, (2) certify that it will not purchase CODs through a GPO and (3) have a payer mix that would result in a Medicare DSH adjustment percentage greater than 11.75 percent if it were a DSH hospital.HRSA published a final notice in the Federal Register in 2009 explaining how such hospitals can demonstrate eligibility and register to participate in the 340B Drug Pricing Program.  The final notice can be found at https://www.hrsa.gov/sites/default/files/opa/programrequirements/federalregisternotices/childrenshospitals090109.pdf.   HRSA uses “PED” (presumably for pediatric) as the entity type identifier for children’s hospitals on the 340B OPA database.

Child Site: A hospital offsite clinic/department/service that is eligible to participate in the 340B program because it is an integral part of a hospital that participates in the 340B program, as evidenced by the fact that it is reimbursable on the hospital’s Medicare cost report. OPA requires that a covered entity register as child sites all offsite clinics/departments/services where 340B drugs are purchased or used, regardless of whether those clinics/departments/services are in the same offsite building or space. Offsite generally refers to a location that has a physical address separate from the hospital parent site and is not otherwise located within the four walls of the main hospital. A hospital does not need to register outpatient clinics/departments/services located within the four walls of the entity’s main hospital but may do so if it wishes. In implementing this guidance, OPA has taken the position that, to be 340B-eligible, a clinic/department/service’s costs must appear on a reimbursable line of a hospital’s most recently filed cost report. Non-hospital covered entities are also required to list on the OPA website all offsite locations where 340B drugs are purchased or provided. For non-hospital covered entities to purchase or provide 340B drugs at child sites, the sites must first be within the scope of the covered entity’s grant and listed on the 340B database.

Civil Monetary Penalty (CMP): A fine that HHS is authorized under the Affordable Care Act to levy on manufacturers that knowingly and intentionally overcharge a covered entity for 340B drugs.  On January 5, 2017, HRSA issued a final rule implementing its statutory authority to impose CMPs on manufacturers.  The regulation allows for a CMP of $5,000 for each instance in which a manufacturer “knowingly and intentionally” charges higher than the 340B ceiling price.  Although the statute directed the Secretary to promulgate regulations implementing this authority in 2010, and the final rule was originally set to become effective March 6, 2017, the regulation has been delayed several times and now is set into effect on July 1, 2018.  The regulation can be found at 82 Fed. Reg. 1,210 (Jan. 5, 2017), https://www.gpo.gov/fdsys/pkg/FR-2017-01-05/pdf/2016-31935.pdf.

Comprehensive Hemophilia Treatment Centers (HTCs): One of the categories of non-hospital covered entities that participate in the 340B program. HTCs are specialized treatment centers that receive funding from HRSA to provide complete hemophilia services through multidisciplinary teams that focus on preventing complications of the disease. HTCs treat a wide variety of bleeding disorders, primarily inherited bleeding and clotting disorders. HTCs offer evaluations by hemophilia experts as well as consultations with other specialists as needed. The program is authorized under section 501(a)(2) of the Social Security Act (codified at 42 U.S.C. § 701).

Contract Pharmacy: Is a pharmacy which contracts with a covered entity to dispense 340B drugs to eligible patients on the covered entity’s behalf in accordance with HRSA guidelines. Under this arrangement, the covered entity purchases the 340B drug from a wholesaler or manufacturer, and the wholesaler or manufacturer bills the entity for the drug purchased but ships the drug to the contract pharmacy. The contract pharmacy serves as the covered entity’s dispensing agent and is paid a dispensing fee for the services associated with filling each prescription dispensed. Contract pharmacies may provide other services for covered entities and typically serve as the entity’s billing agent.

Covered Entity: The statutory name for a facility or program eligible to purchase discounted drugs through the 340B program. Covered entities include six categories of hospitals and eleven categories of non-hospitals. Hospitals that may qualify as covered entities include disproportionate share hospitals, freestanding children’s and cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals. Hospitals that fall within one or more of these categories must satisfy additional eligibility criteria to participate in the program. (See the definition for each type of hospital for eligibility criteria.) The non-hospital facilities and programs include FQHCs; FQHC “look-alikes;” state-operated AIDS drug assistance programs; the Ryan White Comprehensive AIDS Resources Emergency (CARE) Act programs; tuberculosis, black lung, family planning, and sexually transmitted disease (STD) clinics; HTCs; public housing primary care clinics; homeless clinics; Urban Indian clinics; and Native Hawaiian health centers. FQHC “look-alikes” are the only group of providers among the non-hospital facilities and programs that are not federal grantees or sub-grantees.

Covered Outpatient Drug (COD): The category of drugs for which manufacturers must give 340B discounts to covered entities under the 340B program. The 340B statute defines “covered outpatient drug” by referencing the definition found in the Medicaid rebate statute at §section 1927(k) of the Social Security Act (codified at 42 U.S.C. § 1396r-8(k)).

Critical Access Hospital (CAH): A rural hospital with 25 or fewer inpatient acute care beds that furnishes 24‐hour emergency services, either with its own staff or on‐call staff, and has an average annual length of stay of 96 hours or less. The CAH may have up to 10 additional rehabilitation or psychiatric beds. A CAH must be located either more than 35 miles from the nearest hospital or CAH or more than 15 miles in areas with mountainous terrain or only secondary roads, or be state‐certified as a “necessary provider” of health care services to area residents. The CAH must be located in one of the 46 jurisdictions with a Medicare Rural Hospital Flexibility (FLEX) Program (as of May 2016, Connecticut, Delaware, Maryland, New Jersey, and Rhode Island did not have such programs). CAHs are eligible for the 340B program if they are either publicly owned or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid, low‐income patients. CAHs are defined under Medicare law. Their requirements can be found at 42 C.F.R. §§ 485.601–485.647.

Deficit Reduction Act of 2005 (DRA): Federal legislation passed by Congress in 2005 and intended to help reduce the federal deficit. Among many other changes, the DRA significantly affected Medicaid and Medicare spending. Government payments to several health care provider groups, including physicians, hospitals, and pharmacies, were affected by the law, which also contained provisions aimed at reducing Medicare and Medicaid fraud, waste, and abuse. Several of the Medicaid measures within the DRA have had an impact on 340B providers. Among them are provisions adding freestanding children’s hospitals to the 340B program, requiring the collection of National Drug Codes and Medicaid rebates for physician-administered drugs, changes to the Medicaid drug rebate formula, phasing out average wholesale price-based reimbursement for outpatient drugs, and the narrowing of the Medicaid best price exemption for nominal prices.

Dispensing Fee: The charge for the professional services provided by a pharmacist when dispensing a prescription, including overhead expenses and profit. Medicaid and most direct-pay prescription drug insurance plans use dispensing fees to pay pharmacists for their dispensing activities and other professional services. Dispensing fees do not include any payment for the actual drugs being dispensed. Effective April 1, 2017, state Medicaid agencies must pay a “professional” dispensing fee based on the pharmacist’s professional services and costs to dispense the drug product to a Medicaid beneficiary. This new requirement was established in the COD rule and can be found at 42 C.F.R. § 447.578(d). “Professional dispensing fee” is defined at 42 C.F.R. § 447.502 to include the pharmacist’s time in checking the computer for information about an individuals’ coverage, performing drug utilization review and preferred drug list review activities, measurement or mixing of the covered outpatient drug, filling the container, beneficiary counseling, physically providing the completed prescription to the Medicaid beneficiary, delivery, special packaging, and overhead associated with maintaining the facility and equipment necessary to operate the pharmacy. CMS acknowledged in the rule that 340B covered entities have unique circumstances that may warrant a different professional dispensing fee than for non-340B providers (81 Fed. Reg. 5171, 5317 (Feb. 1, 2016)).

Disproportionate Share Adjustment: See “Medicare DSH Adjustment Percentage.”

Disproportionate Share Hospital (DSH): A category of hospitals that are defined under section 1886(d)(1)(B) of the Social Security Act (codified at 42 U.S.C. § 1395ww with regulations at 42 C.F.R. § 412.106) and eligible to participate in the 340B program if they meet certain 340B eligibility criteria. A DSH serves a disproportionately large share of low‐income patients. The Medicare and Medicaid programs provide additional payments to DSHs to compensate them for the higher costs attributable to treating low‐income patients. The Medicare DSH adjustment is a percentage add‐on to a hospital’s prospective payment and is based on the share of Medicaid patients and patients eligible for both Medicare Part A and supplemental security income that the hospital serves on an inpatient basis. In order for a DSH to qualify for the 340B program, it must have a Medicare DSH adjustment percentage of more than 11.75 percent.

Drug Repackager: A business that takes drugs out of their original manufacturer stock bottles and puts them into new packaging. Some repackagers specialize in “pre-packed” drugs; these are small quantities of drugs that are ready to dispense, either in bottles or unit-of-use packaging, with pre-printed labels.

DSH Adjustment: See “Medicare DSH Adjustment Percentage.”

DSH Hospital: See “Disproportionate Share Hospital.”

Duplicate Discount: An instance where a manufacturer gives both an upfront 340B discount to a covered entity at the time of purchase and a post-purchase discount to a state Medicaid agency after FFS Medicaid pays the covered entity for the drug and submits a rebate request to the manufacturer under the MDRP. Both the 340B and Medicaid rebate laws protect manufacturers from duplicate discounts. Under federal law, a covered entity must comply with the prohibition against FFS Medicaid duplicate discounts in one of two ways: (1) “carve out” Medicaid drugs from its 340B purchases or (2) submit to OPA the numbers that it uses to bill 340B drugs to FFS Medicaid, so that states can exclude claims billed under those numbers from their rebate requests. In 2009 and 2012, respectively, the California legislature and Illinois legislature prohibited 340B covered entities from utilizing the Medicaid carve out.

For most of the history of the MDRP, states could only collect rebates on Medicaid FFS drugs. The ACA expanded the MDRP to include managed care drugs but excluded 340B drugs from the expansion. In December 2014, HRSA issued a policy notice clarifying that the purpose of the Medicaid Exclusion File is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care. HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid MCO patients. In April 2016, CMS issued a Medicaid managed care regulation requiring, among other things, that states direct MCOs to identify and exclude 340B claims from the utilization reports they provide to states for Medicaid rebate collection purposes, or instead require covered entities to submit 340B claims data directly to the state or the state’s claims processor before the state submits invoices for Medicaid rebates to manufacturers. If a state chooses the former option, the state should specify in its contracts with MCOs which tools MCOs can use to exclude 340B claims. The agency noted several potential tools that could be used by MCOs, including requiring covered entities to submit identifiers for 340B claims and assigning a unique BIN/PCN/Group number to the MCO’s Medicaid line of business and requiring providers to bill 340B claims to that BIN/PCN/ Group. The Medicaid managed care rule can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-05-06/pdf/2016-09581.pdf.

Federal Ceiling Price (FCP): The maximum price manufacturers can charge the Big 4 for FSS-listed brand-name drugs, even if the FSS price is higher. The Big 4 are the four largest purchasers of FSS drugs: the Department of Veterans Affairs, the Department of Defense, the Public Health Service, and the Coast Guard. FCP must be at least 24 percent below the non-federal AMP. FCP prices are not publicly available. According to a 2005 Congressional Budget Office (CBO) report, FCP prices available to the Big 4 are on average 49 percent of average wholesale price.

Federal Supply Schedule (FSS): The collection of multiple award contracts used by federal agencies, U.S. territories, Indian tribes, and other specified entities to purchase supplies and services from outside vendors. FSS prices for the pharmaceutical schedule are negotiated by the Department of Veterans Affairs and are based on the prices that manufacturers charge their “most-favored” non-federal customers under comparable terms and conditions. Because terms and conditions can vary by drug and vendor, the most-favored customer price may not be the lowest price in the market. FSS prices are publicly available. The CBO reports that FSS prices are on average 53 percent of average wholesale price.

Federally Qualified Health Center (FQHC): One of the categories of non-hospital covered entities that participate in the 340B program. FQHCs are community-based health care providers that receive funds from the HRSA Bureau of Primary Health Care to provide primary care services in underserved areas. They must meet a stringent set of requirements, including (1) offering a comprehensive package of primary care benefits, (2) providing care on a sliding-fee scale based on the FQHC patient’s ability to pay, and (3) operating under a governing board that includes patients. FQHCs include Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Health Centers for Residents of Public Housing. The defining legislation for FQHCs (under the Consolidated Health Center Program) is section 1905(l)(2)(B) of the Social Security Act (codified at 42 U.S.C. § 1396d(1)(2)(B)).

Federally Qualified Health Center Look-Alike (FQHC Look-Alike): One of the categories of non-hospital covered entities that participate in the 340B program. FQHC look-alikes are community-based health care providers that meet requirements as an FQHC but do not receive FQHC funding. Like FQHCs, they provide primary care services in underserved areas, provide care on a sliding-fee scale based on ability to pay and operate under a governing board that includes patients. The defining legislation for FQHC look-alikes (under the Consolidated Health Center Program) is section 1905(l)(2)(B) of the Social Security Act (codified at 42 U.S.C. § 1396d(1)(2)(B)).

Free-Standing Cancer Hospitals: Independent, nonprofit hospitals that are not parts of larger institutions and that are designated by federal statute as exempt from Medicare’s inpatient prospective payment system. A hospital not currently designated by the Medicare program as a cancer hospital can become so only through legislative action. (42 C.F.R. §412.23(f)). Eleven hospitals are currently recognized as cancer hospitals nationwide. To qualify for 340B, a free‐standing cancer hospital must (1) be owned or operated by or be under contract with state or local government, (2) certify that it will not purchase CODs through a GPO, and (3) have a payer mix that would result in a Medicare DSH adjustment percentage greater than 11.75 percent if it were a DSH hospital.

Formulary: A list of preferred drug products that typically limits the number of drugs available within a therapeutic class for purposes of drug purchasing, dispensing, and/or reimbursement. A government body, third-party insurer, health plan, or provider may establish and use a formulary. Some institutions or health plans develop closed (i.e., restricted) formularies where only those drug products listed can be dispensed in that institution or reimbursed by the health plan. Other formularies may have no restrictions (open formularies) or may have certain restrictions such as higher patient cost-sharing requirements or prior authorization procedures for off-formulary drugs. Formularies are used extensively by MCOs, PBMs, hospitals, and Part D prescription drug plans. Almost all Medicaid programs have preferred drug lists that operate like formularies except that a state may not prohibit use of drugs excluded from its preferred drug list. Rather, the state may set prior authorization procedures that must be exhausted before non-preferred drug list medications can be prescribed.

Government Accountability Office (GAO): An independent, nonpartisan federal agency – often called the "Congressional watchdog" – that works for Congress and investigates how the federal government spends taxpayer dollars. The GAO has released multiple reports on the 340B program.

Group Purchasing Organization (GPO): An organization through which multiple hospitals, clinics, and other institutions purchase drugs at discounted prices. Outside the 340B program, nonprofit institutions have access to discounted drugs under the Nonprofit Institutions Act, which allows certain nonprofit institutions, including hospitals, to purchase supplies for their “own use” at prices lower than those charged to for-profit and retail purchasers (without running afoul of the Robinson-Patman Act’s anti-discrimination standards). This law creates an opportunity for nonprofit hospitals to negotiate significant drug discounts. To maximize these savings, most nonprofit hospitals pool their purchasing power by joining GPOs. Under the 340B law, however, DSHs, free-standing children’s hospitals, and free-standing cancer hospitals are required to limit their use of GPOs as a condition of participation. In particular, they are prohibited from purchasing CODs from a GPO or any other group purchasing arrangement. This requirement is often referred to as the GPO prohibition. Sole community hospitals, rural referral centers, CAHs, and non-hospital covered entities are not subject to the GPO prohibition.

GPO Prohibition: An eligibility requirement that DSHs, free-standing children’s hospitals, and free-standing cancer hospitals must meet to participate in the 340B program. To qualify for 340B, these hospitals may not “obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.” They may use GPOs for purchasing inpatient drugs and non-drug items like medical and surgical supplies. The GPO prohibition does not apply to rural referral centers, sole community hospitals, CAHs, and non-hospital covered entities HRSA most recently published guidance on the GPO prohibition in February 2013, available at: http://www.hrsa.gov/opa/programrequirements/policyreleases/prohibitionongpoparticipation020713.pdf.

Health Resources and Services Administration (HRSA): The agency within HHS that is charged with improving access to health services for people who are poor and uninsured or live in areas where health care resources are scarce. Working in partnership with many state and community organizations, HRSA also supports programs that help to ensure the health of mothers and children, increase the number and diversity of health care professionals in underserved communities, and provide supportive services for people fighting HIV/AIDS through the Ryan White Care Act. The 340B program is administered by HRSA through OPA.

HHS Office of Inspector General (OIG): The office at HHS charged with improving HHS programs by protecting them against waste, fraud, and abuse. The four offices within OIG – Office of Audit Services, Office of Evaluation and Inspections, Office of Investigations, and Office of Counsel to the Inspector General – carry out their duties by conducting audits, evaluations, and investigations and by reporting their findings to HHS agencies, Congress, and the public. The OIG has published multiple reports on the 340B program and assisted in negotiating and implementing settlements with manufacturers that have involved payment of refunds to 340B covered entities.

HRSA 340B Program Audits: Audits conducted by HRSA to review covered entities’ compliance with 340B program requirements, including compliance with the GPO exclusion (as applicable), 340B patient definition, the duplicate discount prohibition, and accuracy of OPA database information for the covered entity. The number of covered entity audits conducted by HRSA has increased over the years, with 51 audits in fiscal year 2012, 94 audits in fiscal year 2013, 99 audits  in fiscal year  2014, and approximately 200 audits for each fiscal year thereafter. Covered entity audits previously were performed by HRSA’s Office of Regional Operations but, starting in October 2017, are now performed by a HRSA contractor called the Bizzell Group. HRSA is also authorized to audit drug manufacturers.  As of December, 2017, HRSA has published the results of eleven manufacturer audits. Background information on HRSA’s audit program and a summary of 340B audit results can be found on HRSA’s website: http://www.hrsa.gov/opa/programintegrity/index.html.

In-House Pharmacy: A pharmacy that is owned by, and a legal part of, the 340B entity. Per guidance published on the OPA website in 2012, if an in-house pharmacy is located within an offsite outpatient facility that also provides health care services and provides 340B drugs to its patients, the outpatient facility must be registered as a child site and the pharmacy must be listed as a shipping address of that outpatient facility. Pharmacies that support multiple outpatient facilities should be listed as shipping addresses under the parent entity. In-house pharmacies located inside the four walls of the parent entity are not required to be listed as shipping addresses. For more details, go to: http://www.hrsa.gov/opa/faqs/index.html.

Innovator Multiple Source Drugs: A multiple source drug that was originally marketed under an original new drug application approved by the FDA, including an authorized generic drug. The term also includes a drug product marketed by any cross-licensed producers, labelers, or distributors operating under the new drug application and a COD approved under a biologics license application, product license application, establishment license application, or antibiotic drug application. Compared to a drug's AMP, covered entities receive a minimum discount under the 340B program of 23.1 percent of AMP for innovator multiple source drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP). Innovator multiple source drugs may be subject to an additional discount if a manufacturer’s best price for a drug is lower than AMP minus 23.1 percent or if the price of the drug has increased more quickly than the rate of inflation. Further details regarding innovator multiple source drugs and the rebates applicable to them can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf.

Institutional Patient Assistance Program (IPAP): A type of patient assistance program in which a manufacturer donates free drugs to a hospital, clinic, or other health care institution rather than to a patient. Typically, the drugs are donated to replace stock used by the institution for low-income individuals who meet the eligibility criteria set forth in an agreement between the manufacturer and institution. IPAP agreements also usually establish inventory control procedures and give manufacturer sponsors audit rights.

Managed Care Organizations (MCOs): Companies that contract with payers to provide comprehensive health care services to enrollees in exchange for a monthly payment, typically a capitation payment made on a per member, per month basis. Many states have chosen to outsource delivery of health care services for their Medicaid populations to MCOs because it shifts the risk of over-utilization of services and cost overruns from the states to the MCOs. Many 340B providers participate in Medicaid MCOs.

Manufacturer: For purposes of the 340B program, a “manufacturer” is defined to include any entity engaged in (1) the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis, or (2) the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products. Such term does not include a wholesale distributor of drugs or a retail pharmacy licensed under state law. The definition of manufacturer can be found in section 1927(k)(5) of the Social Security Act (codified at 42 U.S.C. § 1396r‐8(k)(5)). "Manufacturer" also includes an entity, described in (1) or (2) above, that sells outpatient drugs to covered entities, whether or not the manufacturer participates in the MDRP. (www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf, last visited December 17, 2017).

Maximum Allowable Cost (MAC): The maximum payment that a state or private payer will make to a pharmacy for certain multiple-source drugs. State Medicaid programs and private payers with MAC programs typically publish their own lists of drugs containing the maximum price at which the program will reimburse for those drugs. Most state Medicaid agencies currently administer MAC programs for one or more CODs. MAC prices for multiple source drugs in the aggregate may not exceed the federal upper limits in aggregate.

Medicaid Best Price: For a single source drug or innovator multiple source drug of a manufacturer, the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization (HMO), nonprofit entity, or government entity in the U.S. in any pricing structure, in the same quarter for which the AMP is computed. Best price is a variable used in the statutory formula for calculating manufacturer rebates owed to state Medicaid agencies and to determine discounts for 340B covered entities. Best price takes into account applicable discounts, rebates, or other transactions that adjust prices. Best price excludes certain prices, including but not limited to, prices charged to the Department of Veterans Affairs, Department of Defense, Indian Health Service, FSS, state pharmacy assistance programs, Medicaid, 340B covered entities, and Medicare Part D. CMS clarified in the COD rule released February 1, 2016 that manufacturers must exclude from their best price calculations any price charged to a covered entity, not just drugs sold at a 340B price. Best price data is not publicly available, but the CBO estimates that, best price is on average 63 percent of average wholesale price.

Medicaid Exclusion File: A database created and maintained by OPA to ensure that manufacturers do not pay a rebate and a 340B discount on the same drug given to a FFS Medicaid patient. Upon enrolling in 340B, a covered entity must inform OPA whether it will administer or dispense drugs purchased at a 340B price to FFS Medicaid beneficiaries. If a covered entity decides to use 340B drugs for FFS Medicaid beneficiaries, the entity must submit to OPA the numbers that it uses to bill such drugs, which the agency will list in the Medicaid Exclusion File. State Medicaid agencies may use that information to identify which claims to exclude from rebate requests to manufacturers.

The Medicaid Exclusion File was initially created to address Medicaid FFS claims only, as Medicaid managed care drugs were not then subject to rebates until recently. In 2010, states were given the authority to claim rebates on managed care drugs billed to Medicaid, though 340B drugs are exempt from those rebates. In December 2014, HRSA issued a policy notice clarifying that the purpose of the Medicaid exclusion file is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care (See Clarification on Use of the Medicaid Exclusion File,  Release No. 2014-1, Dec 12, 2014 at https://www.hrsa.gov/sites/default/files/opa/programrequirements/policyreleases/clarification-medicaid-exclusion.pdf.  HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid MCO patients. In April 2016, CMS issued its Medicaid MCO regulation mandating that states require MCOs to identify and exclude 340B claims from the utilizations reports they provide to states for Medicaid rebate collection purposes, or instead require covered entities to submit 340B claims data directly to the state or the state’s claims processor before the state submits invoices for Medicaid rebates to manufacturers. If a state chooses the former option, CMS said the state should specify in its contracts with MCOs which tools MCOs can use to exclude 340B claims. The agency noted several potential tools that could be used by MCOs, including requiring covered entities to submit identifiers for 340B claims and assigning a unique BIN/PCN/Group number to the MCO’s Medicaid line of business and requiring providers to bill 340B claims to that BIN/PCN/ Group. The Medicaid Exclusion File is available at: https://340bopais.hrsa.gov/medicaidexclusionfiles.

Medicaid Fee-for-Service (FFS): A delivery system for Medicaid recipients whose health care providers are paid for each service they deliver (e.g., office visit, test, or procedure).

Medicaid Managed Care: Medicaid managed care provides for the delivery of Medicaid health benefits and additional services through the contracted arrangements between state Medicaid agencies and MCOs that accept a set per member per month (i.e., capitation) payment for these services.

Medicaid Rebate Net Price: The effective price paid for CODs by state Medicaid programs taking into account the MDRP rebates received by states. The basic rebate for most brand-name drugs is the greater of 23.1 percent of the AMP or the difference between the AMP and the Medicaid best price. The basic rebate for brand-name pediatric drugs and blood clotting factor is 17.1 percent or the difference between the AMP and the best price. Rebates for generic and over-the-counter drugs are 13 percent of the AMP, with no consideration of best price. Manufacturers must pay an additional rebate on brand-name and generic drugs for which the AMP increases more quickly than the rate of inflation based on the consumer price index for urban consumers. According to a 2005 CBO report, the average Medicaid rebate net price is 64 percent of average wholesale price.

Medicare Cost Report Test: The test used by OPA to determine whether the 340B eligibility of a hospital extends to outpatient facilities that are affiliated with that hospital. Under the Medicare cost report test, a hospital-affiliated outpatient facility is part of the hospital and is, therefore, 340B-eligible if the facility’s costs and charges are listed on a reimbursable outpatient or ancillary line of the hospital’s Medicare cost report. OPA takes the position that, to be 340B-eligible, an outpatient facility’s costs must appear on a reimbursable line of a hospital’s most recently filed cost report.

Medicare DSH Adjustment Percentage: A term used in the Medicare prospective payment system for reimbursing hospitals. In particular, the Medicare DSH adjustment percentage is used in the calculation of a hospital’s Medicare DSH adjustment, which is an add‐on to Medicare PPS payments, available only to hospitals that serve a disproportionate number of Medicaid and low-income Medicare patients. In the context of eligibility for the 340B program, the Medicare DSH adjustment percentage serves as a proxy of how many indigent or low-income patients are served by the hospital. DSH hospitals must have a Medicare DSH adjustment percentage that exceeds 11.75 percent to qualify for 340B, while rural referral centers and sole community hospitals must have DSH adjustment percentages of 8 percent or greater to participate in 340B. Although free‐standing children’s and cancer hospitals do not receive DSH payments because they are exempt from the PPS program, they must have a patient mix that would result in a DSH adjustment percentage greater than 11.75 percent if they were DSH hospitals participating in the program. CAHs are also exempt from PPS and do not receive DSH payments. However, in contrast to children’s and cancer hospitals, CAHs, which also are exempt from PPS, are not subject to minimum DSH adjustment percentages to qualify for 340B.

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA): Legislation passed by Congress in 2003 that introduced the most sweeping amendments to the Medicare program since the start of the program. The MMA included the creation of a new outpatient drug benefit called Medicare Part D, revitalization of the Medicare managed care program, payment methodology changes for virtually every Medicare provider, contracting and appeals reform, and establishment of health savings accounts. The MMA increased the DSH payment percentage for small urban hospitals (<100 beds) and rural hospitals (<500 beds). As a result, more hospitals have a DSH adjustment percentage that qualifies them for the 340B program. The MMA also amended the best price exclusion to allow manufacturers to exclude from best price voluntary inpatient sales to DSH hospitals.

Medication Therapy Management (MTM) Program: A program of professional services aimed at (1) optimizing therapeutic outcomes through improved medication use and (2) decreasing adverse drug interactions. Under the Part D benefit, each prescription drug plan must include an MTM program that is available to certain targeted beneficiaries with multiple chronic diseases (e.g., diabetes, congestive heart failure, and hypertension), who are taking multiple Part D drugs, and who could incur annual costs in excess of targeted levels. MTM services may include medication consultations and other services traditionally offered by pharmacists, but MMA regulations permit MTM services to be offered by qualified providers other than pharmacists.

Mixed-Use Setting: A hospital area that serves both outpatients and inpatients. Examples of mixed-use settings include surgery centers and cardiac catheterization labs.

National Council for Prescription Drug Programs (NCPDP): A not-for-profit, accredited, standards development organization for the pharmacy services industry. The current version of NCPDP’s standards for electronic pharmacy claim transactions is version D.0. D.0 standards for retail pharmacy claims submission allow a pharmacy to indicate that a claim is for a 340B drug and that the submitted ingredient cost of the drug is the drug’s 340B price. See “20 Modifier” and “08 Modifier” for more information.

National Drug Code (NDC): The NDC is the unique identifier assigned by the FDA to every brand-name and generic drug sold in the U.S. The NDC specifies drug identity, package size, and manufacturer. NDCs can be reported in 9‐digit or 10-digit format, which represents a weighted average of all package sizes for a particular drug, or 11‐digit format, which is package‐size‐specific. (When the FDA first issued NDC codes in 1969, there were only 9 digits, but these were increased in the 1970s to 10 digits to avoid running out of manufacturer labeler codes, which were originally 3 digits but were increased to 4.) NDCs are used by Medicaid programs to identify specific drugs on which rebates and supplemental rebates are due.

National Provider Identifier (NPI): The Health Insurance Portability and Accountability Act of 1996 (HIPAA) mandated the adoption of a standard unique identifier for health care providers. To accomplish this, the National Plan and Provider Enumeration System assigns each health care provider a unique, 10‐digit NPI. Health care providers covered by HIPAA, as well as all health plans and health care clearinghouses, must use the NPIs in the administrative and financial transactions adopted under HIPAA. OPA requires covered entities that carve in their Medicaid drugs to submit their NPIs and Medicaid billing numbers for inclusion in OPA’s Medicaid Exclusion File to help prevent duplicate discounts, which occurs when a manufacturer pays both a 340B discount and rebate on the same drug given to a FFS Medicaid patient. State Medicaid programs and manufacturers use the information in the file, including NPIs, to identify which covered entities’ claims should be excluded from states’ rebate requests to manufacturers.

Native Hawaiian Health Centers: One of the categories of non-hospital covered entities that participate in the 340B program. The centers receive Native Hawaiian Health Care Systems Program funding (through the HRSA Health Center Program appropriation) to provide medical and enabling services to Native Hawaiians. The centers improve the health status of Native Hawaiians by providing access to health education, health promotion, and disease prevention services. Services provided include nutrition programs, screening and control of hypertension and diabetes, immunizations, and basic primary care services. The program is authorized by the Native Hawaiian Health Care Act of 1988, codified at 42 U.S.C. § 11701.

Nominal Prices: The price of any drug sold by a manufacturer for less than 10 percent of the drug’s AMP in the same quarter for which the AMP is computed. Traditionally, nominally priced drugs have been excluded from best price and AMP for purposes of calculating Medicaid rebates and 340B discounts. Nominal prices are also excluded from ASP. However, pursuant to the DRA, only sales of nominally priced drugs to 340B covered entities and certain other safety net providers specified in the DRA are excluded from best price, AMP, and ASP. The DRA authorized the Secretary of HHS to add other kinds of safety net institutions to the list of entities eligible for nominal price protection, but the Secretary declined to do so. Two additional categories of eligible institutions were added by Congress as part of the 2009 appropriations law, including (1) nonprofit or state-owned or -operated entities that would qualify as 340B covered entities were they to receive federal funds, and (2) public or nonprofit entities or university health care clinics that provide a family planning service. CMS codified the addition of these two new entities to the list of entities that are eligible for manufacturers to sell drugs at nominal prices and have those sales excluded from best price in the COD rule released on February 1, 2016.

Non-Federal Average Manufacturer Price (Non-FAMP): The average price paid to a manufacturer by wholesalers for drugs distributed to non-federal purchasers. The Big 4 are entitled under federal law to discounts on brand-name drugs of at least 24 percent off of non-FAMP. Non-FAMP pricing is not publicly available.

Noninnovator Multiple Source Drugs: CMS defines noninnovator multiple source drug as (1) a multiple source drug that is not an innovator multiple source drug or a single source drug; (2) a multiple source drug that is marketed under a generic drug application; (3) a COD that entered the market before 1962 that was not originally marketed under a new drug application; or (4) any drug that has not gone through the FDA approval process, but otherwise meets the definition of COD. If any drug products listed above subsequently receive FDA approval as a brand name or generic drug, the product’s drug category changes to correlate with the new product application type. Details regarding noninnovator multiple source drugs and the rebates applicable to them can be found at https://www.gpo.gov/Checked fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf. Compared to a drug's AMP, covered entities receive a discount under the 340B program of 13 percent of AMP for noninnovator multiple source drugs. Manufacturers must offer greater discounts on noninnovator multiple source drugs if the price of such a drug increases more quickly than the rate of inflation.

Office of Pharmacy Affairs (OPA): The office within HRSA that administers the 340B drug discount program. OPA is located within HRSA’s Healthcare Systems Bureau and is located at HRSA headquarters in Rockville, MD.
Offsite: For purposes of the 340B program, a location with a separate physical address than the hospital parent site and is not within the four walls of the main hospital. OPA requires that a covered entity register as child sites all offsite clinics/departments/services where 340B drugs are purchased or used, regardless of whether those clinics/departments/services are in the same offsite building or space. Note that an “offsite” clinic for 340B purposes may be on the hospital’s campus for Medicare provider-based purposes.

Orphan Drugs: A designation granted by the FDA for drugs that are being or will be investigated to treat diseases and conditions that (1) affect fewer than 200,000 patients in the U.S., or (2) if the disease or condition affects more than 200,000 patients in the U.S., will produce sales that fail to cover the costs of the drug’s development and production.  Orphan drug designation by the FDA is for a particular “indication” – a condition or illness which the FDA determines the drug could be used to treat. Manufacturers of orphan drugs are granted seven years of market exclusivity upon receiving approval from the FDA to market an orphan drug for the rare disease or condition for which it received its orphan designation. Pursuant to a provision included in the ACA, manufacturers are not required to give 340B discounts on a drug given an orphan drug designation by the FDA under section 526 of the Federal Food, Drug, and Cosmetic Act  when purchased by free-standing cancer hospitals, sole community hospitals, rural referral centers, and CAHs. This “orphan drug exclusion” does not apply to any other category of 340B covered entities. An orphan drug designation list can be found on the OPA website: http://www.hrsa.gov/opa/programrequirements/orphandrugexclusion/index.html#about.

On July 23, 2013, HRSA published a final regulation stating that the exclusion applies only when an orphan drug is used to treat the rare condition or disease for which the drug received its orphan designation, but not when that orphan drug is used to treat other indications. The regulation went into effect October 1, 2013, and the Pharmaceutical Research and Manufacturers of America (PhRMA) filed a lawsuit in federal district court to prevent the regulation from going into effect. The court issued an opinion in May 2014 vacating the regulation on the grounds that HHS did not have rulemaking authority to issue the regulation. HRSA re-issued its policy as an interpretive rule on July 23, 2014. On October 9, 2014, PhRMA filed a second complaint against HHS again challenging the agency’s interpretation of the orphan drug exclusion. The U.S. District Court for the District of Columbia issued an opinion on October 14, 2015, vacating the interpretive rule on the grounds that it was contrary to the plain language of the 340B statute and, therefore, the interpretation was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. The federal government did not appeal the court’s decision. OPA has not issued new guidance regarding the orphan drug exclusion, but the agency did clarify on its website that manufacturers may voluntarily offer discounts on orphan drugs to covered entities subject to the orphan drug exclusion.

Outpatient Prospective Payment System (OPPS):  The Medicare reimbursement methodology for reimbursing most hospitals for items and services furnished to hospital outpatients.  Medicare historically reimbursed all hospitals under the OPPS for separately payable drugs at ASP+6%.  On November 1, 2017, CMS published a  final  OPPS rule with an effective date of January 1, 2018 changing reimbursement for most separately payable drugs from ASP plus 6% to ASP minus 22.5% if the hospital purchased the drug through the 340B or PVP programs. The reimbursement cut does not apply to rural sole community hospitals, critical access hospitals, children’s hospitals, and cancer hospitals participating in the 340B program.  As of December 2017, a lawsuit had been filed to challenge the rule, and bipartisan legislative efforts were being pursued to reverse or delay the change. In late December, the lawsuit was dismissed on procedural grounds and the regulation went into effect on January 1, 2018. On January 9 2018, the hospital groups that filed the lawsuit appealed the court’s decision to dismiss the case. Bipartisan legislative efforts to reverse the change continue to be pursued.

Parent Entity: The main facility of the covered entity that becomes eligible to use 340B drugs by virtue of the entity’s enrollment in the 340B program. In contrast, outpatient clinics/departments/services that have a different street address than the entity’s main facility and are located outside the four walls of the main hospital must be separately registered as “child sites” with OPA before they can begin using 340B drugs.

Patient Protection and Affordable Care Act (PPACA): In 2010, Congress passed two important pieces of health legislation – PPACA, sometimes referred to as the ACA, and the Health Care and Education Reconciliation Act. PPACA was enacted with the goals of increasing the quality and affordability of health insurance, reducing the number of uninsured Americans and controlling health care costs. PPACA also made extensive changes to the 340B program. PPACA added free-standing cancer hospitals, rural referral centers, sole community hospitals, and CAHs as covered entities, while also conferring formal 340B status to free-standing children’s hospitals. PPACA also added a number of program integrity provisions designed to ensure that 340B program requirements are appropriately enforced for both covered entities and manufacturers. Among the integrity provisions established under PPACA are: requiring covered entities to annually recertify their eligibility to participate in the 340B program, giving covered entities access to 340B ceiling price information, authorizing HRSA to impose fines on manufacturers, and making HRSA’s informal dispute resolution process formal and mandatory for all parties. In addition, PPACA increased the minimum rebate percentages for both the Medicaid rebate and 340B programs and modified the way that average manufacturer price is to be calculated in determining reimbursement, Medicaid rebates, and 340B discounts.

Part D: The portion of the Medicare statute that Congress added under the MMA of 2003 establishing an outpatient prescription drug benefit for Medicare beneficiaries. Under Part D, Medicare beneficiaries can choose from multiple drug benefit plans sponsored by either Medicare Advantage plans or by approved prescription drug plans. Part D sponsors include insurance companies, HMOs, and Program of All-inclusive Care for the Elderly (PACE) organizations. Although plans must contract with any pharmacy willing to agree to reasonable and relevant standard terms and conditions, they are permitted to set up preferred pharmacies with lower patient co-payments within their pharmacy networks

Patient Assistance Program (PAP): Programs offered by drug manufacturers to low-income individuals in which free drugs and/or other forms of assistance are donated to individuals who lack drug coverage, fall below designated income levels, and meet other eligibility requirements. Receipt of free drugs from a PAP typically occurs after a patient submits an application, the PAP approves the application, and the free drugs are delivered to a licensed pharmacy or physician for dispensing or administration to the patient.

Penny Pricing: A HRSA policy regarding the 340B ceiling price calculation in circumstances when a manufacturer increases the AMP of a brand-name drug more quickly than the rate of inflation to such a degree that it causes the 340B ceiling price calculation to result in a price of $0.00. In such situations, HRSA directs manufacturers to charge 340B covered entities $0.01 per unit of measure for the drug. The penny pricing policy is a result of a MDRP rule under which a manufacturer must pay an additional rebate amount when the manufacturer increases a brand-name drug’s AMP more quickly than the rate of inflation, resulting in an increased Medicaid unit rebate amount. Because the 340B ceiling price is a drug’s AMP minus the unit rebate amount and a drug’s unit rebate amount is capped at 100 percent of a drug’s AMP, the 340B ceiling price calculation could result in a price of $0.00 depending on the extent to which the unit rebate amount has increased. HRSA has asked manufacturers to inform the agency if a penny price would result in supply challenges. If so, manufacturers are permitted to limit 340B sales based on a limited distribution allocation plan submitted to HRSA. Effective January 1, 2017, manufacturers must offer greater discounts on generic drugs if the price of a generic drug increases more quickly than the rate of inflation, which could result in penny prices for some generic drugs. HRSA included its longstanding penny pricing policy in the final civil monetary penalties rule published January 5, 2017, but the rule’s effective date has been delayed four times and is now set for July 1, 2018.

Pharmaceutical Pricing Agreement (PPA): Under the 340B and Medicaid statutes, a manufacturer is required to enter into a PPA with the HHS Secretary as a condition of Medicaid and Medicare Part B paying for the manufacturer’s CODs. An executed PPA obligates the manufacturer to comply with the terms of the 340B program which include, for example, providing a 340B discount on CODs. HRSA recently published an addendum to the PPA to incorporate two 340B program integrity provisions that were mandated by the ACA: (1) a manufacturer must provide the 340B ceiling prices of its CODs to the Secretary of HHS on a quarterly basis, and (2) a manufacturer must offer a covered entity a COD for purchase at or below the 340B ceiling price if the drug is made available to any other purchaser at any price. A copy of a PPA can be found at: http://www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf, and a copy of the addendum can be found at https://www.hrsa.gov/opa/manufacturers/ppa_addendum.pdf.

Pharmacy Benefit Manager (PBM): An organization that provides administrative and other services in processing and analyzing prescription drugs claims for insurance plans and other payers that offer pharmacy benefits. PBM services can include: contracting with a network of pharmacies; establishing payment levels for provider pharmacies; negotiating rebate arrangements with drug manufacturers; developing and managing formularies, preferred drug lists, and prior authorization programs; maintaining patient compliance programs; performing drug utilization review; and operating medication therapy management programs. Many PBMs also operate mail-order pharmacies or have arrangements to make prescription drugs available through mail-order pharmacies. PBMs play a key role in managing drug plans in the Part D drug program.

Physician-Administered Drugs: Drugs or drug ingredients that must be injected, infused, or otherwise administered or dispensed by a physician or a non-physician professional under the supervision of a physician. Physician-administered drugs are subject to discounts under the 340B program. Pursuant to the DRA, state Medicaid agencies are required to collect NDCs for physician-administered drugs to facilitate states requesting rebates from manufacturers for those drugs under the MDRP. In implementing the reporting requirements, CMS has mandated that NDCs be collected both for drugs administered in physicians’ offices and drugs administered in hospital outpatient settings. However, as a result of litigation brought by 340B hospitals and a settlement reached with CMS, the agency issued an October 2009 transmittal to state Medicaid programs acknowledging that hospitals billing Medicaid for physician-administered drugs at their “purchasing costs as determined under the state plan” cannot be mandated under federal law to submit NDCs.

Preferred Drug List (PDL): Medicaid prohibits states from utilizing formularies that would otherwise allow states to exclude listed non-formulary drugs from Medicaid coverage. Instead, the Medicaid law permits states to use PDLs. These are lists of drugs for which prior authorization and step-therapy restrictions can be applied. Such procedures do not bar the use of non-preferred drugs, but discourage doctors from writing prescriptions for those drugs because of the administrative burden imposed. The use of non-preferred drugs also is discouraged through the imposition of higher levels of patient cost-sharing.

Program Income: Program income is the income earned by federal grantees and sub-grantees due to a supported activity or as a direct result of the programs operated under their grant and sub-grants. If a grantee or sub-grantee participates in the 340B program and receives revenue as a result of billing and collecting payment on 340B drugs, such revenue is considered program income because it is generally considered to have been earned as a direct result of the grant. 340B grantees therefore must follow federal grant rules and regulations requiring that program income be used to reduce the amount of federal funding the grantee draws down or, if the specific program or award so specifies, to supplement the grant funds in order to further program objectives.

Prompt Pay Discounts: CMS defines a customary prompt pay discount as any discount off the purchase price of a drug routinely offered by the manufacturer to a wholesaler for prompt payment of purchased drugs within a specified timeframe and consistent with customary business practices for payment. The DRA redefined the definition of AMP to exclude prompt pay discounts that drug manufacturers extend to wholesalers. CMS codified the exclusion of the customary prompt pay discounts extended to wholesalers from the AMP calculation in the COD rule released February 1, 2016.

Provider-Based Regulations: Federal regulations that set forth criteria that must be met for a site to be deemed provider-based for Medicare payment purposes. “Main providers” – such as hospitals, nursing homes and other institutions – may own and operate other departments, facilities, or remote locations and may want to include the cost or revenue of these sites as part of the main provider for Medicare reimbursement purposes. For a site to be considered part of the provider, it must be provider-based. Its relationship with the main provider must meet the following eight criteria: (1) joint licensure; (2) integration of clinical services, including main provider oversight and administration of (and responsibility for) the clinical services rendered at the provider-based site; (3) integration of medical records; (4) integration of financial operations; (5) holding the provider-based site out to the public as part of the main provider; (6) compliance by the provider-based site with rules and regulations applicable to the main provider; (7) billing of services rendered at the provider-based site to Medicare patients as hospital services; and (8) integration of administrative and managerial functions. Additional requirements apply for provider-based sites located off of the main provider’s campus. Under HRSA guidance, a hospital offsite clinic/department/service is eligible to participate in the 340B program if it is an integral part of a hospital that participates in the 340B program, as evidenced by the fact that it is reimbursable on the hospital’s Medicare cost report. To appear on a reimbursable line of the hospital’s Medicare cost report, the clinic/department/service must meet the provider-based rules.

Provider Dispensing: The dispensing of drugs by providers rather than by pharmacies. Regulation of provider dispensing varies by state. States may require licensure of providers that dispense, may limit the provider’s dispensing activities to state-licensed “dispensaries,” may license the dispensary, may require a pharmacist consultant to be on record for the provider, or may rely on a combination of these requirements.
Recertification: The annual process by which providers participating in the 340B program review and update their information in a database maintained by HRSA. The process also includes several certification statements related to 340B program compliance. Under the original 340B law, only certain categories of covered entities were subject to recertification, but the ACA required HRSA to extend recertification to all types of covered entities.

Rural Referral Center (RRC): A rural, high‐volume hospital that meets one of three sets of conditions: (1) it has 275 or more beds available for use; (2) (i) at least 50 percent of its Medicare patients are referred from other hospitals or from physicians not on the hospital’s staff; (ii) at least 60 percent of its Medicare patients live more than 25 miles away; and (iii) at least 60 percent of all services it furnishes to Medicare beneficiaries go to those living more than 25 miles away; or (3) (i) either more than 50 percent of its active medical staff are specialists or at least 60 percent of its discharges are inpatients who live more than 25 miles away or 40 percent or more of inpatients are referred from other hospitals or physicians not on the hospital’s staff and (ii) it meets certain case mix standards set by CMS and discharge standards set by statute and CMS. The RRC eligibility criteria can be found at 42 C.F.R. § 412.96. To be 340B eligible, an RRC must have a Medicare DSH adjustment percentage of 8 percent or greater and either be publicly owned or be a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid, low-income patients.

Ryan White Program Grantees: One of the categories of non-hospital covered entities that participate in the 340B program. Ryan White HIV/AIDS Program grantees receive federal funding to provide HIV/AIDS treatment and related services to people living with HIV/AIDS who are uninsured or under-insured. Part B State AIDS Drug Assistance Program grantees and Part C Early Intervention Services grantees are specifically eligible. Grantees receiving Ryan White funding through other Parts may be eligible if they are certified by the HHS Secretary. The defining legislation for the Ryan White HIV/AIDS Program is Title XXVI of the Public Health Service Act. 340B eligibility extends to both Ryan White grantees and sub-grantees.
Section 602 of the Veterans Health Care Act: Section 340B of the Public Health Service Act was established under Section 602 of the Veterans Health Care Act of 1992. As a result, the terms “Section 340B” and “Section 602” are used interchangeably. The law is codified at 42 U.S.C. § 256b.

Sexually Transmitted Disease Clinic (STD Clinic):One of the categories of non-hospital covered entities that participate in the 340B program. STD clinics diagnose and treat sexually transmitted diseases and receive funding or in-kind supplier or services from their state and local health departments through the Sexually Transmitted Disease Control Program administered by the Centers for Disease Control and Prevention. STD clinics must apply for the 340B program through their state program director. The program is authorized by Section 318 of the Public Health Service Act (codified at 42 U.S.C. § 247c).

Ship-To Address or Shipping Address: A “ship-to” or “shipping” address is an address authorized to receive 340B drugs on behalf of a covered entity parent or child site and registered as such on the OPA website. Because pharmacies are not permitted to be registered as covered entity sites, they may be listed as shipping addresses of the parent entity or a registered outpatient child site, depending on the locations served by the pharmacy. When registering a new covered entity or a new outpatient facility online, the entity has a choice of listing shipping addresses under either the main entity’s registration or the offsite facility’s registration. Listing shipping addresses permits all parties to know where 340B drugs may be delivered by the manufacturer and wholesaler. Per guidance published on the OPA website in 2012, if a pharmacy is located within an offsite outpatient facility that also provides health care services and provides 340B drugs to its patients, the outpatient facility must be registered as a child site and the pharmacy must be listed as a shipping address of that outpatient facility. Pharmacies that support multiple outpatient facilities should be listed as shipping addresses under the parent entity. (For more details, go to: http://www.hrsa.gov/opa/faqs/index.html).

Single Source Drugs:

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