[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11643]
[[Page Unknown]]
[Federal Register: May 13, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
Final Notice Regarding Section 602 of the Veterans Health Care
Act of 1992 Entity Guidelines
AGENCY: Public Health Service, HHS.
ACTION: Final notice.
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INFORMATION: Section 602 of Public Law 102-585, the ``Veterans Health
Care Act of 1992,'' enacted section 340B of the Public Health Service
Act, ``Limitation on Prices of Drugs Purchased by Covered Entities.''
Section 340B provides that a manufacturer who sells covered outpatient
drugs to eligible entities must agree to charge a price that will not
exceed the amount determined under a statutory formula. The purpose of
this notice is to inform interested parties of final program guidelines
regarding eligible covered entities.
FOR FURTHER INFORMATION CONTACT:
Marsha Alvarez, R.Ph., Director, Drug Pricing Program, Bureau of
Primary Health Care, Health Resources and Services Administration, East
West Towers rm 10-3A1, Bethesda, Maryland 20814, Phone: (301) 594-4353.
EFFECTIVE DATE: June 13, 1994.
SUPPLEMENTARY INFORMATION:
(A) Background
Proposed entity guidelines were announced in the Federal Register
at 58 FR 68922 on December 29, 1993. A comment period of 30 days was
established to allow interested parties to submit comments. The Office
of Drug Pricing received 7 letters with comments concerning
confidential drug pricing information, retroactive discounts,drug
diversion, audit requirements, entity participation, group purchasing,
purchasing agents, manufacturer contracts, and 4 general comments.
The following section presents a summary of all major comments,
grouped by subject, and a response to each comment. All comments were
considered in developing this final notice. Changes were also made to
increase clarity and readability.
(B) Comments and Responses
Confidential Drug Pricing Information
Comment: Establish specific sanctions for entities which knowingly
make unauthorized disclosures.
Response: No change. The quoted price or the actual price given by
the manufacturer to the covered entity is not confidential. Covered
entities do not have access to confidential drug pricing information
(i.e., average manufacturer price and best price).
Eligibility for Retroactive Discounts
Comment: Do not impose a deadline on requesting retroactive
discounts.
Response: No change. It is a reasonable administrative decision to
establish a time limit for requesting refunds. Manufacturers were given
sufficient time in which to implement the discount program, and
entities were given an adequate opportunity to elect whether to
participate in the program. An entity may preserve its right to
retroactive discounts, after the deadline, by sending each manufacturer
a letter requesting such refunds and providing adequate documentation
of drug purchases.
Comment: Exclude from eligibility for retroactive discounts any
disproportionate share hospital (DSH) which purchased its outpatient
drugs through a group purchasing organization (GPO).
Response: No change. The Office of Drug Pricing considers the
outpatient drug purchases of DSHs bought through a GPO or any group
purchasing arrangement ineligible for retroactive discounts.
Comment: Allow covered entities to request an extension of the
deadline for retroactive discounts for good cause (e.g., offsite DSH
clinics whose eligibility has not yet been determined).
Response: We have amended part 3 of the notice to permit a DSH
outpatient clinic which was not participating in a GPO or any group
purchasing arrangement during the period for which it is requesting
retroactive discounts to preserve its right by sending manufacturers a
letter requesting such refunds and providing adequate documentation of
purchases.
Comment: Extend the deadline for those manufacturers which have
refused to give PHS pricing to the date on which the manufacturer
begins discounting its covered outpatient drugs in accordance with the
law.
Response: No change. At every opportunity, the Office of Drug
Pricing has communicated its willingness to assist entities with
problems of accessing PHS pricing. It has responded to all entity
complaints dealing with manufacturer noncompliance. We believe that one
year is a reasonable time in which to have resolved any difficulty with
pricing access.
Comment: Require manufacturers to respond within 30 days to
requests for retroactive discounts, even if the response is just a
request for additional information, or face possible termination from
the Medicaid program.
Response: No change. Because this issue deals with manufacturer
guidelines, it is beyond the scope of this notice. However, should a
covered entity have difficulty obtaining retroactive discounts, we
encourage the entity to contact the Office of Drug Pricing for
assistance.
Comment: Establish that a DSH, which did not submit its Medicaid
provider number for the period for which it is requesting retroactive
discounts, would be ineligible for the refund.
Response: No change. A DSH which did not submit its Medicaid
provider number may still be eligible for retroactive discounts if it
(1) did not bill Medicaid for the drugs, (2) billed for covered
outpatient drugs using an all-inclusive rate, or (3) has adequate
documentation proving that drugs for which retroactive discounts are
being requested did not generate Medicaid rebates.
Drug Diversion
Comment: Develop and publish a mechanism whereby manufacturers can
report to the Office of Drug Pricing when they suspect an entity of
diversion.
Response: No change. The Office of Drug Pricing has currently
developed a proposed dispute resolution process which will be published
in the Federal Register with a public comment period.
Comment: Require PHS preclearance of all safeguard systems
developed by entities to deter diversion and require this information
to be supplied to the manufacturers upon request.
Response: No change. Guidelines concerning separate purchasing
accounts and dispensing records are quite specific, and procedures in
these areas need no prior approval. If a manufacturer believes that a
covered entity is involved in drug diversion, it has the statutory
authority to audit the entity records that directly relate to drugs of
that manufacturer purchased at PHS pricing. Proposed audit guidelines
have been developed and will be published in the Federal Register with
a public comment period.
Comment: Issue criteria for measuring the adequacy of the
safeguards.
Response: No change. If a manufacturer believes that a covered
entity has established inadequate safeguards and is involved in drug
diversion, then the manufacturer can either audit the entity or file a
complaint with the Office of Drug Pricing.
Comment: Develop a broad definition of ``patient'' to include all
necessary services provided to individuals served by the covered
entities.
Response: No change. The notice does not address the definition of
patient. The Office of Drug Pricing is in the process of developing a
definition of patient, which will be published in the Federal Register.
Public comment will be invited, and this comment will be considered at
that time.
Comment: Do not require separate inventories, as this would place a
hardship on most hospitals.
Response: No change. There is no requirement for separate
inventories.
Comment: Do not permit entities to develop alternate tracking
systems or develop criteria for these systems by March 1, 1994.
Response: No change. It is essential that the Office of Drug
pricing maintain some flexibility during this period of implementation.
Because these alternate tracking systems require prior approval from
the Office of Drug pricing before they can be implemented, sufficient
control is maintained. The Office will develop criteria at a later date
and welcomes all suggestions.
Audit Requirements
Comment: Specify the statutory basis for the Secretary to authorize
manufacturer audit guidelines.
Response: We have amended part 5 of the notice to include a
reference to section 340B(a)(5)(C) of the PHS Act, which gives the
Secretary the authority to establish procedures relating to the number,
duration, and scope of manufacturer audits.
Comment: Move quickly to develop procedures to allow manufacturers
to audit records of entities' purchases of covered outpatient drugs and
of Medicaid claims for reimbursement for such drugs.
Response: No change. The Office of Drug Pricing is developing
proposed audit guidelines which will be published in the Federal
Register with public comment invited. All comments regarding suggested
audit procedures, currently received, will be considered at that time.
Entity Participation
Comment: An entity should be viewed as not participating in the
program (and therefore as ineligible to receive its discounts) if it
has not given its Medicaid provider number of the Office of Drug
Pricing.
Comment: We have amended part 2 of the notice to require entities
to provide one of the following: (1) A pharmacy Medicaid number (the
number which the entity uses to bill Medicaid for medications), or (2)
their all-inclusive Medicaid number (e.q., ``FQ'' number), or (3)
notification that it does not bill Medicaid for all outpatient drugs.
These numbers will be posted on the electronic bulletin board
(Electronic Data Retrieval System or EDRS), maintained by the Office of
Drug Pricing, to indicate which covered entities have elected to
participate in the program. For access to the EDRS call (301) 549-4992.
Comment: All covered entities should be required to notify
manufacturers 30 days before they wish to access PHS pricing.
Response: We have amended part 6 of the notice to provide that
entities will be added to or deleted from the eligibility list on a
quarterly basis only. The Office of Drug Pricing will update the list 2
weeks before each calendar quarter, giving lead time for pricing
changes and appropriate communications with wholesalers, GPOs, and
purchasing agents.
Group Purchasing Arrangements
Comment: Allow eligible DSHs to continue GPO participation for
manufacturers who are not offering PHS pricing and prohibit GPO
participation with respect to all complying manufacturers.
Response: No change. Generally, we have found that entities are
receiving PHS pricing. The Office of Drug Pricing has, at every
opportunity, communicated its willingness to assist entities when there
are problems with accessing PHS pricing. The Office has investigated
all complaints of manufacturer noncompliance immediately and was and is
willing to take appropriate enforcement action if necessary. This is
the proper course for dealing with any manufacturer non-compliance,
rather than attempting to compensate for continued non-compliance by
disregarding the statutory GPO provisions.
Purchasing Agents
Comment: Distinguish clearly between a purchasing agent and a GPO
for purposes of the DSH/GPO prohibition, only.
Response: We have amended part 8 of the notice to distinguish a
purchasing agent from a group purchasing arrangement for purposes of
the DSH/GPO prohibition. A purchasing agent would not be considered
operating as a group purchasing arrangement if the following conditions
are met: (1) the purchasing agent is not associated with a group
purchasing organization; (2) no collective bargaining by a group of
hospitals occurs; (3) the negotiations of PHS pricing are separate
activities for each individual DSH; (4) a separate agreement with each
DSH is executed; (5) as part of the agreement, there will be no sharing
or pricing information; and (6) all final decisions concerning product
and price acceptance will be made by each individual DSH.
Comment: Do not require manufacturers to sell directly to a
purchasing agent, a GPO, or a contract pharmacy, but solely to covered
entities and their wholesalers.
Response: No change. It is a customary business practice for
manufacturers to sell to intermediaries as well as directly to the
entity. Entities often use purchasing agents or contract pharmacies, or
participate in GPOs. By placing such limitations on sales transactions,
manufacturers could be discouraging entities from participating in the
program.
Manufacturers may not single out covered entities from their other
customers for restrictive conditions that would undermine the statutory
objective.
Manufacturer Contracts Which Require Entity Compliance
Comment: Permit a manufacturer to require the covered entities to
sign a contract containing only the manufacturer's normal business
policies (e.g., routine information necessary to set up and maintain an
account) if this is a usual business practice of the manufacturers.
Response: We have amended part 11 of the notice to state that this
prohibition against a contract between a manufacturer and a covered
entity regarding entity compliance with section 340B provisions or the
Office of Drug Pricing program guidelines does not encompass entity/
manufacturer contracts that contain provisions relating to normal
business activities, requests for standard information, or other
appropriate contract provisions.
Comment: Declare null and void provisions in manufacturer contracts
signed by entities pursuant to section 340B which deal with assurances
of entity compliance with section 340B.
Response: No change. While the Office of Drug Pricing has no legal
authority to declare null and void provisions of contracts between
covered entities and manufacturers, it is our position that
manufacturers may not enforce such provisions.
General
Comment: Post Medicaid provider numbers of all eligible DSH
outpatient clinics on the electronic bulletin board.
Response: No change. The Office of Drug Pricing has developed
proposed criteria to determine the eligibility of DSH outpatient
clinics. These criteria will be published in the Federal Register, and
the public will be invited to comment.
Comment: Might certain activity generate a new Medicaid Best Price?
Response: No change. Because the Health Care Financing
Administration (HCFA) Medicaid Rebate Program deals with Best Price
calculations, the Office of the Drug Pricing will refer all Best Price
questions to the agency. For further information in this regard, please
call Al Beachley, Branch Chief, Medicaid Drug Rebate Operations Branch,
HCFA, at (410) 966-3225.
Comment: Establish a procedure whereby manufacturers will be able
to determine which purchasing groups are eligible to purchase on behalf
of covered entities and receive the PHS pricing.
Response: We have amended part 7 of the notice to require any group
which purchases covered outpatient drugs at OHS pricing on behalf of an
eligible covered entity to have written authority from the entity to
purchase its covered outpatient drugs. The purchasing group must
provide documentation of this purchase authority to the manufacturer
upon request. This rule does not supersede the statutory limitations
regarding DSH participation in GPOs or group purchasing arrangements.
Comment: Establish a prime vendor program designating certain
wholesalers to service PHS covered entities similar to programs
established with the Department of Veterans Affairs (VA), Department of
Defense (DOD), and the Bureau of Prisons (BOP).
Response: No change. The Office of Drug Pricing is in the early
stages of developing a pilot prime venter program and has considered,
among others, the various programs of VA, DOD, and BOP.
(C) Revised Entity Guidelines
Set forth below are the final entity guidelines, revised based on
the analysis of the comments described above.
(1) Confidential Drug Pricing Information
``Confidential drug pricing information'' includes both ``best
price'' and ``average manufacturer price.'' The quoted price and the
actual price given by the manufacturer to the covered entity are not
confidential.
(2) Duplicate Discount/Rebate Potential
First, a covered entity billing on a cost basis for drug purchases
must provide the Office of Drug Pricing with a pharmacy Medicaid number
(the number which the entity uses to bill Medicaid for medications).
Second, a covered entity using an all-inclusive rate (either per
encounter or visit) must submit its all-inclusive Medicaid number
(e.g., ``FQ'' number). Third, if a covered entity does not bill
Medicaid for outpatient drugs, then the entity must notify the Office
of this decision. Fourth, a large facility which houses many different
clinics, only several of which are eligible, must obtain a separate
Medicaid provider number for the eligible clinics. For those States
which cannot generate additional Medicaid provider numbers for
entities, covered entities must discuss an alternative arrangement with
the States to accomplish this objective.
This information will be posted on the Electronic Data Retrieval
System (EDRS), maintained by the Office of Drug Pricing, to indicate
which covered entities have elected to participate in the program. For
access to the EDRS call (301) 594-4992.
If a drug is purchased by or on behalf of a Medicaid beneficiary,
the amount billed may not exceed the entity's actual acquisition cost
for the drug, as charged by the manufacturer at a price consistent with
the Veterans Health Care Act of 1992, plus a reasonable dispensing fee
established by the State Medicaid agency.
(3) Eligibility for Retroactive Discounts
Until 30 days after publication of this notice, eligible covered
entities included on the initial eligibility list may request
retroactive discounts (discounts, rebates, or account credit) for
covered outpatient drugs purchased retroactive to December 1, 1992.
Entities added to the eligibility list at a later date may only request
discounts retroactive to the date of their inclusion on the list. Of
the entities listed on the eligibility list, only the following may
request these discounts: The covered entity that--(1) has billed for
covered outpatient drugs using an all-inclusive rate (either per visit
or per encounter), or (2) has not billed Medicaid for covered
outpatient drugs since December 1, 1992, (or since its inclusion on the
eligibility list), or (3) has submitted its Medicaid provider number
and is requesting refunds for subsequent periods, or (4) has adequate
documentation proving that drugs for which a retroactive discount is
being requested have not generated Medicaid rebates.
A DSH is not eligible for retroactive discounts for covered
outpatient drugs purchased through a group purchasing organization
(GPO) or any group purchasing arrangement. Any DSH outpatient clinic
which is or will be eligible for retroactive discounts may preserve its
rights by sending manufacturers a letter requesting such refunds and
providing adequate documentation of purchases.
(4) Entity Guidelines Regarding Drug Diversion
Covered entities are required not to resell or otherwise transfer
outpatient drugs purchased at the statutory discount to an individual
who is not a patient of the entity. There are several common situations
in which this might occur. First, if individuals other than patients of
the covered entity obtain covered outpatient drugs from its
pharmaceutical dispensing facility, the entity must develop and
institute adequate safeguards to prevent the transfer of discounted
outpatient drugs to individuals who are not eligible for the discount
(e.g., separate purchasing accounts and dispensing records). Second, a
larger institution which contains an eligible entity within its
structure is required to establish separate purchasing accounts and
maintain separate dispensing records for the eligible entity. Third,
the covered entity itself may not use the covered outpatient drug in
excluded services (e.g., inpatient services). If an entity offers
services excluded from the drug discount program, the entity must
develop a separate method for purchasing and dispensing drugs for
excluded services.
The covered entity may, at its option, develop an alternative
system, short of tracking each discounted drug through the purchasing
and dispensing process, by which it can prove compliance. If an
alternate system of tracking is proposed to be used, this system must
be approved by the Drug Pricing Program. The Office will develop
criteria for alternative systems at a later date and welcomes all
suggestions.
(5) Audit Requirement
All entities receiving statutory prices are required to maintain
records of purchases of covered outpatient drugs and of any claims for
reimbursement submitted for such drugs under title XIX of the Social
Security Act. The entity must permit HHS and the manufacturer to audit
any record of a covered drug purchase that was subject to the discount,
as provided by section 340B(a)(5)(C) of the PHS Act. Manufacturer
audits will be conducted in accordance with procedures developed by the
Secretary of HHS. The Office of Drug Pricing is developing proposed
audit guidelines which will be published in the Federal Register with
public comment invited. The notice will address only audits related to
purchases as a covered entity; it does not address other audit
requirements related to participation in State Medicaid programs or
receipt of Federal funding.
(6) Entity Participation
Covered entity participation in the section 340B drug discount
program is voluntary. Once an entity has elected to participate in the
program, it must wait to enter or withdraw from the program until the
next official updating of the eligible entity list. The Office of Drug
Pricing will update this list two weeks before each calendar quarter.
The entity must comply with all program guidelines until the date it is
removed from the eligibility list.
(7) Group Purchasing
A DSH may participate in a group purchasing arrangement for
inpatient drug use without affecting its eligibility to purchase
section 340B discounted drugs. If a DSH participates in a GPO or other
group purchasing arrangement for covered outpatient drugs, the DSH will
no longer be an eligible covered entity and cannot purchase covered
outpatient drugs at the section 340B discount prices.
States, or other groups, which purchase drugs for covered entities
(other than disproportionate share hospitals) are not included on the
list of covered entities; however, they are eligible to purchase at the
section 340B discount if the following requirements are met: (1) the
group purchasing arrangement must be comprised of only covered
entities, (2) if group purchasing arrangements contain entities which
are not eligible for the discount, separate purchasing accounts and
dispensing/distribution must be maintained, and (3) the purchasing
group has written authority from the covered entity to purchase covered
outpatient drugs on its behalf.
(8) Purchasing Agents
A covered entity is permitted to use a purchasing agent without
forfeiting its right to the section 340B drug discounts. If a
purchasing agent is used, the arrangement must be in writing and the
terms of the agent's relationship with the entity must be clearly
defined. The entity and the agent should decide whether the agent
simply negotiates the drug purchasing contracts on behalf of the entity
or actually receives drug shipments for distribution to the entity. If
the latter, the transfer of purchased pharmaceuticals from an agent to
the entity would not be viewed as drug diversion.
For purposes of the DSH/GPO prohibition only, a purchasing agent
may be distinguished from and would not be considered operating as a
GPO or other group purchasing arrangement if the following conditions
are met: (1) the purchasing agent is not associated with a GPO or other
purchasing arrangement; (2) no collective bargaining by a group of
hospitals occurs; (3) the negotiations for PHS pricing are separate
activities for each individual DSH; (4) a separate agreement with each
DSH is executed; (5) as part of the agreement, there will be no sharing
of pricing information; and (6) all final decisions concerning product
and price acceptance will be made by each individual DSH.
(9) Definition of Covered Outpatient Drug
Section 1927(k)(2) of the Social Security Act defines ``covered
outpatient drug'' to include most drugs and biologicals which may be
dispensed only by prescription and which require approval by the Food
and Drug Administration or a license under section 351 of the PHS Act.
Section 1927(k)(3) limits the definition of ``covered outpatient drug''
to exclude certain settings (e.g., such services as emergency room,
hospice, dental, physician, nursing facilities, x-ray, lab, and renal
dialysis) in some instances. In these settings, if a covered drug is
included in the per diem rate (i.e., bundled with other payments in an
all-inclusive, per visit, or an encounter rate), it will not be
included in the section 340B discount program. However, if a covered
drug is billed and paid for instead as a separate line item as an
outpatient drug in a cost basis billing system, this drug will be
included in the program.
(10) Dealing Direct or Through a Wholesaler
If a manufacturer has customarily dealt directly with a particular
covered entity, then requiring the manufacturer to continue this form
of purchasing with the covered entity is reasonable. When dealing
directly with a covered entity, manufacturers must offer covered
outpatient drugs at or below the section 340B discount prices. If a
manufacturer customarily uses a wholesaler as a means of distribution,
then requiring the manufacturer to continue this form of purchasing
with covered entities is also reasonable. If the manufacturer's drugs
are available to covered entities through wholesalers, the discount
must be made available through that avenue. Manufacturers may not
single out covered entities from their other customers for restrictive
conditions that would undermine the statutory objective. Manufacturers
must not place limitations on the transactions (e.g., minimum purchase
amounts) which would have the effect of discouraging entities from
participating in the discount program.
(11) Manufacturer's Contracts Requiring Entity Compliance
A manufacturer may not condition the offer of statutory discounts
upon an entity's assurance of compliance with section 340B provisions.
Covered entity assurances regarding the following activities may not be
required: (1) eligibility to participate in the program; (2)
utilization of covered outpatient drugs only in authorized services;
(3) maintaining the confidentiality of the drug pricing information;
(4) permitting the manufacturers to audit purchase, inventory, and
related records prior to the publication of approved PHS guidelines;
and (5) submitting information related to drug acquisition, purchase,
and inventory systems. Entities are not required to sign agreements
assuring manufacturers of their compliance with section 340B
provisions. (If a manufacturer asks a covered entity whether the entity
is in fact participating in the section 340B discount program, the
entity must supply the manufacturer with this information). This
prohibition does not include provisions that address customary business
practice, request standard information, or include other appropriate
contract provisions.
Dated: May 9, 1994.
John H. Kelso,
Acting Administrator, Health Resources and Services Administration.
[FR Doc. 94-11643 Filed 5-12-94; 8:45 am]
BILLING CODE 4160-15-P-M