compliance issues relating to intersection of medicaid rebate and 340b programs

Compliance Issues Relating to Compliance Issues Relating to Intersection of Medicaid Rebate Intersection of Medicaid Rebate

and 340B Programsand 340B Programs

byby

Bill von OehsenBill von OehsenPresident and General CounselPresident and General Counsel

Safety Net Hospitals for Pharmaceutical AccessSafety Net Hospitals for Pharmaceutical Access

NAMFCU Directors SymposiumNAMFCU Directors Symposium

March 24, 2010March 24, 2010Washington, DCWashington, DC

OverviewOverview

340B background340B background

Calculating ceiling priceCalculating ceiling price

340B litigation update340B litigation update

Medicaid intersection: duplicate discountsMedicaid intersection: duplicate discounts

340B-specific billing and payment options340B-specific billing and payment options

Medicaid billing compliance issuesMedicaid billing compliance issues

SNHPA Medicaid billing surveySNHPA Medicaid billing survey

What’s next?What’s next?

Additional 340B resources and upcoming eventsAdditional 340B resources and upcoming events

Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen(202) 552-5850 [email protected]

340B Background340B Background340B drug discount program requires pharmaceutical manufacturers 340B drug discount program requires pharmaceutical manufacturers participating in the Medicaid program to provide discounts on participating in the Medicaid program to provide discounts on covered outpatient drugs purchased by federally-funded clinics and covered outpatient drugs purchased by federally-funded clinics and other safety net providers referred to as “covered entities”other safety net providers referred to as “covered entities”

The rights and obligations of covered entities and manufacturers are The rights and obligations of covered entities and manufacturers are set forth in Section 340B of the Public Health Service Act (PHSA)set forth in Section 340B of the Public Health Service Act (PHSA)

Section 1927 of the Social Security Act (SSA) requires Section 1927 of the Social Security Act (SSA) requires manufacturers to enter into a pharmaceutical pricing agreement manufacturers to enter into a pharmaceutical pricing agreement (PPA) with the Secretary of HHS as a condition of Medicaid (PPA) with the Secretary of HHS as a condition of Medicaid covering and paying for the companies’ outpatient drugs covering and paying for the companies’ outpatient drugs

Under the PPA, a manufacturer agrees to provide discounts and Under the PPA, a manufacturer agrees to provide discounts and otherwise comply with 340B requirementsotherwise comply with 340B requirements


340B Background (cont’d)340B Background (cont’d)Program is administered by the Health Resources and Services Program is administered by the Health Resources and Services Administration (HRSA) through the Office of Pharmacy Affairs Administration (HRSA) through the Office of Pharmacy Affairs (OPA)(OPA)

Because several aspects of the 340B program depend on Because several aspects of the 340B program depend on interpretation and application of SSA provisions (e.g. average interpretation and application of SSA provisions (e.g. average manufacturer price, best price, etc.), the Centers for Medicare & manufacturer price, best price, etc.), the Centers for Medicare & Medicaid Services (CMS) also plays a significant role in 340B Medicaid Services (CMS) also plays a significant role in 340B program administrationprogram administration

Covered entities include high-Medicaid disproportionate share Covered entities include high-Medicaid disproportionate share hospitals owned by or under contract with state or local hospitals owned by or under contract with state or local government; community health centers; ADAPs; family planning government; community health centers; ADAPs; family planning clinics; AIDS, TB and STD clinics; and other grantees under the clinics; AIDS, TB and STD clinics; and other grantees under the Public Health Service Act Public Health Service Act

Covered entities, manufacturers and other 340B participants are Covered entities, manufacturers and other 340B participants are listed in the OPA databaselisted in the OPA database


340B Background (cont’d)340B Background (cont’d)

Discounts are calculated using the Medicaid rebate Discounts are calculated using the Medicaid rebate formula; but 340B pricing is better because (1) sales do formula; but 340B pricing is better because (1) sales do not involve retail pharmacies thereby avoiding retail not involve retail pharmacies thereby avoiding retail mark-ups and (2) 340B providers regularly negotiate sub-mark-ups and (2) 340B providers regularly negotiate sub-ceiling pricesceiling prices

Use of drugs limited to “patients” of 340B covered entityUse of drugs limited to “patients” of 340B covered entity

Medicaid billing procedures may need to be adjusted to Medicaid billing procedures may need to be adjusted to avoid manufacturers giving duplicate discountsavoid manufacturers giving duplicate discounts


100%

79%

66% 64%

58%53% 51% 49%

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

100%


Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005)

Private Sector Pricing

“Best Price” 63%

42%



Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005)

Private Sector Pricing

“Best Price” 66%

42%


82%

71% 67%

60% 55% 53% 51%44%

Calculating Ceiling PriceCalculating Ceiling Price


Manufacturer’s Medicaid drug rebate agreements require drug Manufacturer’s Medicaid drug rebate agreements require drug companies to calculate average manufacturer price (AMP) and companies to calculate average manufacturer price (AMP) and best price as part of their obligation to pay rebates to Medicaid best price as part of their obligation to pay rebates to Medicaid for covered outpatient drugsfor covered outpatient drugs

Medicaid rebate formula also requires manufacturers to calculate Medicaid rebate formula also requires manufacturers to calculate the average total rebate for a drug unit for each dosage and the average total rebate for a drug unit for each dosage and strength, often referred to as the unit rebate amount (URA)strength, often referred to as the unit rebate amount (URA)

340B ceiling price = AMP – URA340B ceiling price = AMP – URA

Accordingly, if a manufacturer miscalculates AMP, best price or Accordingly, if a manufacturer miscalculates AMP, best price or URA in a manner that results in the underpayment of Medicaid URA in a manner that results in the underpayment of Medicaid rebates, the miscalculation will lead to 340B providers being rebates, the miscalculation will lead to 340B providers being overcharged for the same drugovercharged for the same drug

Calculating Ceiling Price (cont’d)Calculating Ceiling Price (cont’d)

April 1st – 30th

Days 1-30

Manufacturer submits AMP and BP data from Jan-March to

CMS

May 1st – 15th

Days 31-45

CMS validates data and calculates the unit

rebate amount and the 340B-ceiling price. Because in middle of

2nd quarter, price not in effect until beginning of 3rd quarter, the next

full quarter.

June 15th

Day 75

Manufacturer sends 340B price

to wholesaler &/or entries

July 1st

Day 90

340B price in effect for 3rd

Quarter, July-September


Special procedures for calculating 340B price for new drugs:Special procedures for calculating 340B price for new drugs: Manufacturers must estimate a new drug’s 340B ceiling Manufacturers must estimate a new drug’s 340B ceiling

price for the first three quarters that the drug is on the price for the first three quarters that the drug is on the marketmarket

After three quarters, manufacturers will have AMP and After three quarters, manufacturers will have AMP and best price data to calculate the ceiling pricebest price data to calculate the ceiling price

If the manufacturer overestimates the new drug’s price If the manufacturer overestimates the new drug’s price during the initial three quarter period, it must issue a during the initial three quarter period, it must issue a refund to the covered entity upon requestrefund to the covered entity upon request

Penny prices – Under HRSA policy, if the 340B formula Penny prices – Under HRSA policy, if the 340B formula results in a negative price (because the inflation-based results in a negative price (because the inflation-based penalty exceeds AMP minus 15.1% or best price), then the penalty exceeds AMP minus 15.1% or best price), then the manufacturers must charge a penny for the drugmanufacturers must charge a penny for the drug

Calculating Ceiling Price (cont’d)Calculating Ceiling Price (cont’d)


Manufacturer Manufacturer NameName

Drug InvolvedDrug Involved Period/Quarter Covered Period/Quarter Covered by Settlementby Settlement

Settlement Settlement DateDate

Settlement AmountSettlement Amount

BayerBayer Kogenate and Kogenate and other other

Factor/IVIG Factor/IVIG ProductsProducts

January 1993 – August January 1993 – August 31, 199931, 1999

Sept. 2000Sept. 2000 $14 Million$14 Million&&

$200K for 340B $200K for 340B

TAPTAP LupronLupron January 1991 – October January 1991 – October 20012001

Oct. 2001Oct. 2001 $875 Million$875 Million

PfizerPfizer LipitorLipitor 11stst Quarter - 4 Quarter - 4thth Quarter Quarter 19991999

Oct. 2002Oct. 2002 $49 Million & $49 Million & $567K for 340B$567K for 340B

Bayer and GSKBayer and GSK Cipro, Adalat Cipro, Adalat CC, Flonase CC, Flonase

and Paxiland Paxil

Cipro:Cipro:11stst Qtr ’96 – 1 Qtr ’96 – 1stst Qtr ’01 Qtr ’01

Adalat CC:Adalat CC:44thth Qtr ’97 – 1 Qtr ’97 – 1stst Qtr ’00 Qtr ’00

Flonase:Flonase:33rdrd Qtr ’97 – 3 Qtr ’97 – 3rdrd Qtr ’00 Qtr ’00

Paxil:Paxil:11stst Qtr ‘01 Qtr ‘01

April 2003April 2003 Bayer Total:Bayer Total:$257 Million$257 Million

At least $2.5 Million At least $2.5 Million to 340B entitiesto 340B entities

GSK Total:GSK Total:$87.6 Million$87.6 Million

At least $9.4 Million At least $9.4 Million to 340B entitiesto 340B entities

340B Litigation Update340B Litigation Update


340B Litigation Update (cont’d)340B Litigation Update (cont’d)



Drug InvolvedDrug Involved Period/Quarter Covered by Period/Quarter Covered by SettlementSettlement


Settlement AmountSettlement Amount

AstraZenecaAstraZeneca ZoladexZoladexJanuary 1991 – December January 1991 – December

31, 200231, 2002 June 2003June 2003 $355 Million$355 Million

Schering-PloughSchering-Plough ClaritinClaritin January 1998 – December January 1998 – December 31, 200231, 2002

July 2004July 2004 Total: $345 MillionTotal: $345 MillionAt least $10.6 Million At least $10.6 Million

to 340B entitiesto 340B entities

KING KING PharmaceuticalsPharmaceuticals

Entire Drug LineEntire Drug Line January 1994 – December January 1994 – December 31, 200231, 2002

October 31, October 31, 20052005

$124 Million$124 MillionAt least $7 Million to At least $7 Million to

340B entities340B entities

Schering-PloughSchering-Plough Claritin Redi-Claritin Redi-Tabs Tabs

and K-DURand K-DUR

Redi-Tabs:Redi-Tabs:44thth Qtr ’98 – 2 Qtr ’98 – 2ndnd Qtr ’02 Qtr ’02

K-DUR:K-DUR:22ndnd Qtr ’96 – 2 Qtr ’96 – 2ndnd Qtr ’01 Qtr ’01

August 29, August 29, 20062006

$255 Million civil $255 Million civil settlement settlement

($180 Million criminal ($180 Million criminal fines)fines)

At least $3.9 million to At least $3.9 million to 340B entities340B entities



Drug Drug InvolvedInvolved

Period/Quarter Period/Quarter Covered by Covered by SettlementSettlement


Settlement Settlement AmountAmount

Bristol-Myers Bristol-Myers SquibbSquibb

SerzoneSerzone 11stst Qtr ’97 – 4 Qtr ’97 – 4thth Qtr ‘97 Qtr ‘97 September 28, September 28, 20072007

$515 million$515 million$124,000 to 340B $124,000 to 340B

entitiesentities

MerckMerck Zocor, VioxxZocor, Vioxx April 1998 – March April 1998 – March 20062006

February 7, February 7, 20082008

$671 million$671 million$9 million to 340B $9 million to 340B

entitiesentities

Cephalon Inc.Cephalon Inc. Gabitril, Gabitril, Actiq, and Actiq, and Provigil Provigil

January 2001 through January 2001 through at least 2006at least 2006

October 2008October 2008 Total: $425 Total: $425 Million Million

At least $1.8 At least $1.8 Million for 340B Million for 340B

entities entities

340B Litigation Update (cont’d)



Drug Drug InvolvedInvolved

Period/Quarter Period/Quarter Covered by Covered by SettlementSettlement

Settlement DateSettlement Date Settlement AmountSettlement Amount

Eli LillyEli Lilly ZyprexaZyprexa September of 1999 September of 1999 - March of 2001- March of 2001

January 2009January 2009 Total: $1.43 BillionTotal: $1.43 BillionMore than $75,000 to More than $75,000 to

340B entities340B entities

Aventis Aventis Pharmaceuticals Pharmaceuticals

Azmacort, Azmacort, Nasacort, Nasacort,

and Nasacort and Nasacort AQ AQ

October. 1, 1995 to October. 1, 1995 to September 30, 2000September 30, 2000

May 28, 2009May 28, 2009 $95.5 million total$95.5 million total$6.5 Million to 340B $6.5 Million to 340B

EntitiesEntities

Mylan Mylan Pharmaceuticals Pharmaceuticals

Inc. and UDL Inc. and UDL Laboratories IncLaboratories Inc

VariousVarious2000-20042000-2004 October 19, 2009October 19, 2009 $118 Million,$118 Million,

$7.3 Million for 340B $7.3 Million for 340B entitiesentities

340B Litigation Update (cont’d)340B Litigation Update (cont’d)

Medicaid Intersection: Duplicate DiscountsMedicaid Intersection: Duplicate Discounts

Covered entities are generally free to bill and be Covered entities are generally free to bill and be reimbursed for 340B drugs without making any reimbursed for 340B drugs without making any adjustments to their billing procedures, unless adjustments to their billing procedures, unless Medicaid is the payerMedicaid is the payerCovered entities sometimes must bill Medicaid at Covered entities sometimes must bill Medicaid at reduced prices for 340B drugs reduced prices for 340B drugs The sole reason that covered entities must adjust their The sole reason that covered entities must adjust their Medicaid billing practices is to protect manufacturers Medicaid billing practices is to protect manufacturers from the duplicate discount problemfrom the duplicate discount problem


Manufacturer

State MedicaidAgency

CoveredEntity

Step 5: Manufacturer pays rebate on 340B drug

Step 4: State submits rebate request

Step 3: Covered entity bills Medicaid for 340B drug

Medicaid patientStep 2: 340B drug is dispensed to Medicaid patient

Step 1: Manufacturer sells drug at 340B discount

Medicaid Intersection: Duplicate Discounts (cont’d)Medicaid Intersection: Duplicate Discounts (cont’d)

STEPS 1 AND 5 = DUPLICATE DISCOUNT


Medicaid Intersection: Duplicate Medicaid Intersection: Duplicate Discounts (cont’d)Discounts (cont’d)

Manufacturers are protected from paying a Medicaid Manufacturers are protected from paying a Medicaid rebate and giving a 340B discount on the same drug. rebate and giving a 340B discount on the same drug. PHSA 340B(a)(5)(A); SSA 1927(a)(5)(C)PHSA 340B(a)(5)(A); SSA 1927(a)(5)(C)

To avoid the duplicate discount problem, the Secretary To avoid the duplicate discount problem, the Secretary is directed to develop a mechanism that 340B providers is directed to develop a mechanism that 340B providers and states can use to ensure compliance; alternatively and states can use to ensure compliance; alternatively covered entities should not seek Medicaid covered entities should not seek Medicaid reimbursement for 340B drugs that are subject to reimbursement for 340B drugs that are subject to Medicaid rebates. PHSA 340B(a)(5)(A); SSA 1927(a)Medicaid rebates. PHSA 340B(a)(5)(A); SSA 1927(a)(5)(C)(5)(C)


340B-Specific Billing and Payment Options340B-Specific Billing and Payment Options

HRSA guidelines allow covered entities to comply HRSA guidelines allow covered entities to comply with the statute in different ways:with the statute in different ways:1.1. Bill Medicaid at “acquisition cost” plus the Bill Medicaid at “acquisition cost” plus the

state-allowable dispensing fee and the state state-allowable dispensing fee and the state does does not request a rebate. 58 Fed. Reg. 34,058 not request a rebate. 58 Fed. Reg. 34,058 (6/23/93) (6/23/93) 2. “Carve out” Medicaid drugs from the 340B 2. “Carve out” Medicaid drugs from the 340B program and allow the state to collect rebates. 65 program and allow the state to collect rebates. 65 Fed. Reg. 13,983 (3/15/00)Fed. Reg. 13,983 (3/15/00)3.3. Follow state guidelines for applicable billing Follow state guidelines for applicable billing

limits. 65 Fed. Reg. 13,983 (3/15/00)limits. 65 Fed. Reg. 13,983 (3/15/00)


Options Covered Entity Procedures

State Medicaid Procedures

340B Pass-Through

Bills state at actual acquisition cost (AAC) and submits pharmacy’s Medicaid billing number to HRSA for posting on website

Excludes from rebate request files any claims paid under billing number posted on HRSA website

Medicaid Carve-Out

Purchases its Medicaid outpatient drugs outside 340B program, bills Medicaid at regular non-340B rates and submits “N/A” for posting on HRSA website

Includes covered entity’s claims in rebate request files

Shared Savings Same as 340B pass-through option except covered entity and state enter into alternative billing and payment arrangement

Pays enhanced dispensing fee or above AAC rates

340B-Specific Billing and Payment Options340B-Specific Billing and Payment Options


Medicaid Billing Compliance IssuesMedicaid Billing Compliance Issues

Question: Has a covered entity overbilled Medicaid if it Question: Has a covered entity overbilled Medicaid if it does not bill its state at actual acquisition cost (AAC) for does not bill its state at actual acquisition cost (AAC) for 340B drugs?340B drugs?

Answer: Not necessarilyAnswer: Not necessarily

Explanation: There are numerous exceptions to the AAC Explanation: There are numerous exceptions to the AAC billing restriction, for example:billing restriction, for example:

– when billing a managed care organizationwhen billing a managed care organization

– if the drug is not rebatable under Medicaidif the drug is not rebatable under Medicaid

– if the state has different billing and reimbursement if the state has different billing and reimbursement limitslimits


Medicaid Billing Compliance Issues Medicaid Billing Compliance Issues (cont’d)(cont’d)

There are some within the Medicaid program who believe that the AAC There are some within the Medicaid program who believe that the AAC billing restriction was established to save money for Medicaidbilling restriction was established to save money for Medicaid

Not true for several reasons:Not true for several reasons:

1.1. It is clear in both 340B law and legislative history that the sole It is clear in both 340B law and legislative history that the sole purpose of AAC billing is to compensate states for the loss of their purpose of AAC billing is to compensate states for the loss of their rebates that they would otherwise receive but for the protection of rebates that they would otherwise receive but for the protection of manufacturers from duplicate discountsmanufacturers from duplicate discounts

2.2. HRSA’s 1993 guidance establishing the AAC billing standard is an HRSA’s 1993 guidance establishing the AAC billing standard is an informal, non-binding policyinformal, non-binding policy

3.3. HRSA essentially withdrew the policy in March 2000 when it issued HRSA essentially withdrew the policy in March 2000 when it issued another guidance directing covered entities to “refer to their respective another guidance directing covered entities to “refer to their respective Medicaid state agency drug reimbursement guidelines for applicable Medicaid state agency drug reimbursement guidelines for applicable billing limits”billing limits”



States allow deviation from AAC billing for different reasons:States allow deviation from AAC billing for different reasons:

– State utilizes billing system that does not accommodate State utilizes billing system that does not accommodate AAC billingAAC billing

– AAC billing does not affect reimbursement (prospective AAC billing does not affect reimbursement (prospective payment for Medicaid services)payment for Medicaid services)

– Hospital systems do not accommodate AAC billing , so Hospital systems do not accommodate AAC billing , so billing must be by hand and state recognizes onerous billing must be by hand and state recognizes onerous administrative burdenadministrative burden

– Regardless of state’s perceived billing and payment policy Regardless of state’s perceived billing and payment policy for 340B drugs, there may be no clear guidance in statute, for 340B drugs, there may be no clear guidance in statute, rules, or provider’s manual or transmittalrules, or provider’s manual or transmittal



While HRSA clarified in 2000 that AAC is not required While HRSA clarified in 2000 that AAC is not required under federal law, CMS has never issued parallel guidanceunder federal law, CMS has never issued parallel guidance

Considerable lack of clarity among Medicaid programsConsiderable lack of clarity among Medicaid programs– Many (e.g. Medi-Cal) believe that federal law requires Many (e.g. Medi-Cal) believe that federal law requires

billing at AACbilling at AAC– Medicaid auditors in at least three states – FL, AK, NY – Medicaid auditors in at least three states – FL, AK, NY –

have investigated 340B covered entities for alleged have investigated 340B covered entities for alleged overbillingoverbilling

– Federal whistle blower suit against family planning Federal whistle blower suit against family planning clinics in Los Angeles sued for billing at other than AACclinics in Los Angeles sued for billing at other than AAC


SNHPA Medicaid Billing SurveySNHPA Medicaid Billing Survey


45 percent of the hospital respondents reported that their state Medicaid agency allowed them to deviate from AAC billing

55 percent indicated that they were not allowed to deviate

10 states that reportedly allow non-AAC billing include: Arizona, Georgia, Maine, Maryland, Minnesota, New Jersey, Ohio, Oregon, Texas and West Virginia.

5 states that require AAC billing include: Idaho, Iowa, Kansas, Rhode Island and South Dakota.

Hospitals in 12 states gave conflicting answers: Arkansas, California, Florida, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New York, North Carolina, Pennsylvania and Washington

What’s Next?What’s Next?

340B Coalition urging CMS and HRSA to work on a uniform and coherent policy

– 340B Coalition offering input on law, state variations, history

– 340B Coalition keeping pressure on CMS, HRSA to produce

HHS Office of Inspector General reviewing Medicaid billing by 340B covered entities

Time is of the essence:

– June 2009: California legislature mandated AAC billing, prohibited carve-out

– Medi-Cal results in “lose-lose”. HRSA and CMS have opportunity to educate states on shared savings “win-win”


Additional 340B ResourcesAdditional 340B Resources Safety Net Hospitals for Pharmaceutical AccessSafety Net Hospitals for Pharmaceutical Access◦ www.snhpa.orgwww.snhpa.org

◦ Bill von OehsenBill von Oehsen [email protected] or [email protected] or 202-466-6550

◦ Stuart GordonStuart Gordon [email protected] or [email protected] or 202-552-5851

Federal Drug Discount and Compliance MonitorFederal Drug Discount and Compliance Monitor◦ www.drugdiscountmonitor.com www.drugdiscountmonitor.com

SNHPA/340B Job SiteSNHPA/340B Job Site◦ www.rxjobsolutions.comwww.rxjobsolutions.com


Additional 340B Resources (cont’d)Additional 340B Resources (cont’d)

Office of Pharmacy AffairsOffice of Pharmacy Affairs◦ www.hrsa.gov/opawww.hrsa.gov/opa

340B Prime Vendor Program340B Prime Vendor Program◦ www.340Bpvp.com www.340Bpvp.com

Pharmacy Services Support CenterPharmacy Services Support Center◦ 1-800-628-6297 or www.pssc.aphanet.org 1-800-628-6297 or www.pssc.aphanet.org


Upcoming EventsUpcoming Events

1414thth Annual 340B Coalition Conference Annual 340B Coalition ConferenceJuly 19-21, 2010July 19-21, 2010Washington, DCWashington, DC

www.340bconferences.orgwww.340bconferences.org


compliance issues relating to intersection of medicaid rebate and 340b programs

Documents

pharmaceutical manufacturers

b providers

b resources

b pricing

pharmaceutical access

b programsbybill

b participants

medicaid program