[Federal Register Volume 59, Number 111 (Friday, June 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14089]
[[Page Unknown]]
[Federal Register: June 10, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
Notice Regarding Section 602 of the Veterans Health Care Act of
1992; Manufacturer Audit Guidelines and Informal Dispute Resolution
AGENCY: Public Health Service, HHS.
ACTION: Notice.
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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care
Act of 1992'' (the ``Act''), enacted section 340B of the Public Health
Service Act (``PHS 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 sign a
pharmaceutical pricing agreement (the ``Agreement'') with the Secretary
of Health and Human Services (the ``Secretary'') in which the
manufacturer agrees to charge a price for covered outpatient drugs that
will not exceed an amount determined under a statutory formula.
Section 340B(a)(5) of the PHS Act identifies certain requirements
for covered entities concerning potential double price reductions and
drug diversion. A covered entity must permit the manufacturer of a
covered outpatient drug that has signed the Agreement, to audit the
records of the covered entity directly pertaining to the entity's
compliance with the requirements of section 340B(a)(5) (A) and (B) as
to drugs purchased from the manufacturer. These audits must be
conducted in accordance with guidelines established by the Secretary,
as stated in section 340B(a)(5)(C).
Further, the Office of Drug Pricing anticipates that disputes may
arise between covered entities and participating manufacturers
regarding implementation of the provisions of section 340B. To resolve
these disputes in an expeditious manner, the Office of Drug Pricing has
developed a proposed informal dispute resolution process.
The purpose of this notice is to invite public comment on the
proposed manufacturer audit guidelines and the proposed informal
dispute resolution process.
DATES: The public is invited to submit comments on the proposed audit
guidelines and dispute resolution process by July 11, 1994. After
consideration of the comments submitted, PHS will issue the final audit
guidelines and the dispute resolution process.
ADDRESSES: Submit comments to Ms. Alvarez at the address noted below.
FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Director,
Office of Drug Pricing, Bureau of Primary Health Care, 4350 East West
Highway, West Towers, 10th Floor, Bethesda, MD 20814, Tel: (301) 594-
4354.
SUPPLEMENTARY INFORMATION:
Manufacturer Audit Guidelines
Covered entities which choose to participate in the section 340B
drug discount program must comply with the requirements of section
340B(a)(5) of the PHS Act. Section 340B(a)(5)(A) prohibits a covered
entity from accepting a discount for a drug that would also generate a
Medicaid rebate. Further, section 340B(a)(5)(B) prohibits a covered
entity from reselling or otherwise transferring a discounted drug to a
person who is not a patient of the entity. The participating entity
must permit the manufacturer of a covered outpatient drug who has
signed the Agreement with the Secretary to audit its records that
directly pertain to the entity's compliance with section 340B(a)(5) (A)
and (B) requirements with respect to drugs of the manufacturer.
Manufacturer audits must be conducted in accordance with guidelines
developed by the Secretary as required by section 340B(a)(5)(C). This
notice does not include the audit guidelines to be used by Government
auditors where the Government performs the audit of the records of the
covered entity's compliance with the requirements of section 340B(a)(5)
(A) and (B).
The following is the proposed ``Compliance Audit Guide'' concerning
manufacturer audit guidelines as developed by the Secretary pursuant to
section 340B(a)(5)(C):
I. General Guidelines
A manufacturer shall conduct an audit only when the Office of Drug
Pricing determines that there is reasonable cause to believe a
violation of section 340B(a)(5) (A) or (B) has occurred. The
manufacturer must submit a request for an audit of a covered entity to
the Office of Drug Pricing. [See section II for audit steps]. Auditors
have an ethical and legal responsibility to perform quality audits
conducted in accordance with Government Auditing Standards, Current
revision, developed by the Comptroller General of the United States.
Patient confidentiality requirements must also be observed. Audit
reports must be prepared at the completion of the audit. Copies of the
audit report shall be prepared in accordance with the reporting
standards for performance audits in Government Auditing Standards,
Current Revision. The cost of a manufacturer audit will be borne by the
manufacturer, as provided by section 340B(a)(5)(C) of the PHS Act.
(a) Number of Audits
Consistent with Government auditing standards, the organization
performing the audit shall coordinate with other auditors, when
appropriate, to avoid duplicating work already completed or that may be
planned. Only one audit will be permitted at any one time. When
specific allegations involving the drugs of more than one manufacturer
have been made concerning an entity's failure to comply with section
340B(a)(5) (A) and (B), the Office of Drug Pricing will determine
whether an audit should be performed by the (1) Government or (2) the
manufacturer.
(b) Scope of Audits
The manufacturer must submit an audit workplan describing the audit
to the Office of Drug Pricing for review. The workplan will be reviewed
for reasonable purpose and scope. Further, a determination will be made
that only those records of the covered entity that directly pertain to
the potential violation(s) will be accessed including those systems and
processes (e.g., purchasing, distribution, dispensing, and billing)
that would assist in identifying a violation.
(c) Duration of Audits
Audits shall be performed in the minimum time necessary with the
minimum intrusion on the covered entity's operations.
II. Audit Steps
(a) The manufacturer shall notify the covered entity in writing
when it believes the covered entity has violated provisions of section
340B. The manufacturer and the covered entity shall have at least 30
days from the date of notification to attempt in good faith to resolve
the matter.
(b) The manufacturer has the option to proceed to the informal
dispute resolution process described later in the notice without an
audit, if it believes it has sufficient evidence of a violation absent
an audit. If the matter is not resolved and the manufacturer desires to
perform an audit, the manufacturer must file a request for a covered
entity audit with the Office of Drug Pricing. [See section ``For
Further Information'' for address.] The request must set forth a clear
description of the reasonable cause to believe that a violation of
section 340B(a)(5) (A) or (B) has occurred, along with sufficient facts
and evidence in support of the request. In addition, the manufacturer
shall provide copies of any documents supporting its claims.
(c) The Office of Drug Pricing will conduct a preliminary review of
the documentation submitted to determine if reasonable cause exists. If
the Office of Drug Pricing finds that there is reasonable cause to
believe that a violation of section 340B(a)(5) (A) or (B) has occurred,
the audit will be permitted, and the manufacturer will be notified
accordingly. In cases where the Office of Drug Pricing determines that
the audit shall be performed by the Government, the Office of Drug
Pricing will so advise the manufacturer and the covered entity.
(d) The filing of a request for an audit does not affect any
statutory obligations of the parties as defined in section 340B of the
PHS Act. During the audit process, a manufacturer must continue to sell
covered outpatient drugs at or below the section 340B ceiling price to
the covered entity being audited.
(e) Upon approval of the request for a covered entity audit, the
manufacturer shall then submit an audit workplan to the Office of Drug
Pricing for approval. The Office of Drug Pricing, after consultation
with the PHS Office of Cost and Audit Management, will evaluate the
manufacturer's workplan, and approval will be based on criteria set
forth in the Audit Program section, Field Work Standards for
Performance Audits, Government Audit Standards, Current Revision. The
audit workplan shall describe in detail the following:
(1) Audit objectives (what the audit is to accomplish), scope
(type of data to be reviewed, systems and procedures to be examined,
officials of the covered entity to be interviewed, and expected time
frame for the audit), and methodology (processes used to gather and
analyze data and to provide evidence to reach conclusions and
recommendations);
(2) Skill and knowledge of the audit organization's personnel to
staff the assignment, their supervision, and the intended use of
consultants, experts, and specialists;
(3) Tests and procedures to be used to assess the covered
entity's system of internal controls;
(4) Procedures to be used to determine the amounts to be
questioned should violations of section 340B(a)(5) (A) and (B) be
discovered; and
(5) Procedures to be used to protect patient confidentiality.
(f) When the audit workplan has been approved, the Office of Drug
Pricing shall notify the: (1) Manufacturer of the approval of the
audit, and (2) covered entity of a pending manufacturer audit. The
covered entity will have at least 15 days from the date of receipt of
the notice to prepare for the audit.
(g) Suggested audit procedures include the following:
(1) Review the covered entity's policies and procedures
regarding the procurement, inventory, distribution, dispensing, and
billing for covered outpatient drugs.
(2) Assess internal controls applicable to the policies and
procedures identified above (#1) when necessary to satisfy the audit
objectives.
(3) Review the covered entity's policies and procedures to
prevent the resale or transfer of drugs to a person or persons who
are not patients of the covered entity.
(4) Test compliance with the policies and procedures identified
above (#3) when necessary to satisfy the audit objectives.
(5) Review the covered entity's records of drug procurement and
distribution and determine whether the covered entity obtained a
discount only for those programs authorized to receive discounts by
section 340B of the PHS Act.
(6) If a covered entity does not use an all inclusive billing
system (per encounter or visit), but instead bills outpatient drugs
using a cost based billing system, determine whether the covered
entity has provided its Medicaid provider number to the Office of
Drug Pricing and billed Medicaid at the actual acquisition cost.
(h) Where the manufacturer's auditors conclude that there has been
a violation of the requirements of section 340B(a)(5) (A) or (B), the
manufacturer's auditors shall identify (1) the procedures or lack of
adherence to existing procedures which caused the violation, and (2)
the dollar amounts involved.
(i) Following completion of the audit field work, the
manufacturer's auditors shall provide a verbal briefing of the audit
findings to the covered entity to ensure a full understanding of the
facts.
(j) An audit report must be prepared at the completion of the audit
in accordance with reporting standards for performance audits of the
Government Auditing Standards, Current Revision. The manufacturer shall
submit a copy of the audit report to the covered entity. The covered
entity shall provide its response to the manufacturer on the audit
report's findings and recommendations within 60 days from the date of
receipt of the audit report. When the covered entity agrees with the
audit report's findings and recommendations either in full or in part,
the covered entity shall include in its response to the manufacturer a
description of the actions planned or taken to address the audit
findings and recommendations. When the covered entity does not agree
with the audit report's findings and recommendations, the covered
entity shall provide its rationale for the disagreement to the
manufacturer.
(k) Informational copies of the audit report shall also be
submitted to the Office of Drug Pricing (see section For Further
Information Contact for the address), the Office of Inspector General,
Office of Audit Services, PHS Audits Division at room 1-30, Park
Building, 12420 Parklawn Drive, Rockville, MD 20857, and the PHS Cost
and Audit Management Branch, room 17A-50, Parklawn Building, 5600
Fishers Lane, Rockville, MD 20857.
(l) If a dispute concerning the audit findings and recommendations
arises, the parties may file a request for informal dispute resolution
with the Office of Drug Pricing. All dispute resolution procedures
developed by the Office of Drug Pricing shall be followed.
Informal Dispute Resolution
The Office of Drug Pricing is proposing an informal process for the
resolution of certain disputes between manufacturers, covered entities,
and PHS concerning compliance with the provisions of section 340B of
the PHS Act. PHS expects parties to utilize this informal process
before resorting to other remedies which may be available.
I. Types of Disputes Covered
Disputes resolved by these procedures include:
(a) A manufacturer believes a covered entity is in violation of the
prohibition against resale or transfer of a covered outpatient drug
provided in section 340B(a)(5)(B) of the PHS Act, or the prohibition
against duplicate discounts or rebates provided in section
340B(a)(5)(A) of the PHS Act;
(b) A covered entity believes that a manufacturer is charging a
price for a covered outpatient drug that exceeds the ceiling price as
determined by section 340B(a)(1) of the PHS Act;
(c) A manufacturer is conditioning the sale of covered outpatient
drugs to a covered entity on the entity's provision of assurances or
other compliance with the manufacturer's requirements that are based
upon section 340B provisions;
(d) A manufacturer has refused to sell a covered outpatient drug to
a covered entity at or below the ceiling price as determined by section
340B(a)(1) of the PHS Act;
(e) A manufacturer believes that a covered entity is dispensing a
covered outpatient drug in an unauthorized service (e.g., inpatient
services or ineligible clinics within the same health system);
(f) A manufacturer believes that a covered entity has not complied
with the audit requirements under section 340B(a)(5)(C) of the PHS Act,
or the auditors of the manufacturer have not abided by the approved
workplan or audit guidelines.
II. Review Process
Prior to the filing of a request for review with the Office of Drug
Pricing, the parties must attempt, in good faith, to resolve the
dispute. All parties involved in the dispute must maintain written
documentation as evidence of a good faith attempt to resolve the
dispute. Such evidence includes documentation of meetings, letters, or
telephone calls between the disputing parties that concern the dispute.
If the dispute has not been resolved after a good faith attempt, a
party may submit a written request for a review of the dispute to the
Director of the Office of Drug Pricing. [See address in ``For Further
Information Contact'' section].
The party requesting the review may not rely only upon allegations
but is required to set forth specific facts showing that there is a
genuine and substantial issue of material fact in dispute that requires
a review.
The request for review shall include a clear description of the
dispute, shall identify all the issues in the dispute, and shall
contain a full statement of the party's position with respect to such
issue(s) and the pertinent facts and reasons in support of the party's
position. In addition to the required statement, the party shall
provide copies of any documents supporting its claim and evidence that
a good faith effort was made to resolve the dispute. These materials
must be tabbed and organized chronologically and accompanied by an
indexed list identifying each document.
The filing of the dispute does not affect any statutory obligations
of the parties as defined in section 340B of the PHS Act. During the
review process, for example, a manufacturer must continue to sell
covered outpatient drugs at or below the section 340B ceiling price to
all covered entities, including the covered entity involved in the
dispute.
The Director, Bureau of Primary Health Care, shall appoint a
committee to review the documentation submitted by the disputing
parties and to make a proposed determination. A minimum of three
individuals shall be appointed (one of whom shall be designated as a
chairperson) either on an ad hoc, case-by-case basis, or as regular
members of the review committee. The chairperson shall be from the
Office of Drug Pricing and the committee members shall be from other
sections of PHS (e.g., chief pharmacist, auditor).
Upon receipt of a request for a review, the chairperson of the
review committee will send a letter to the party alleged to have
committed a violation. The letter will include (1) the name of the
party making the allegation(s), (2) the allegation(s), (3)
documentation supporting the party's position, and (4) a request for a
response to or rebuttal of the allegations within 30 calendar days of
the receipt of the letter. 7 days from the date of the postmark of the
letter will be allowed for mailing and processing through the
organization.
Upon receipt of the response or rebuttal, the review committee
chairperson will review all documentation. The request and rebuttal
information will be reviewed for (1) evidence that a good faith effort
was made to resolve the dispute, (2) completeness, (3) adequate
documentation supporting the issues, and (4) the reasonableness of the
allegations. If the documentation is adequate, the review committee
will be convened to consider the matter.
The reviewing committee may, at its discretion, invite parties to
discuss the pertinent issues with the committee and to submit such
additional information as the committee deems appropriate.
The reviewing committee will propose to dismiss the dispute, if it
conclusively appears from the data, information, and factual analyses
contained in the request for a review and rebuttal documents that there
is no genuine and substantial issue of fact in dispute. This proposed
finding of the committee will be submitted to the Director of the
Office of Drug Pricing for consideration and approval. A written
decision of dismissal will be sent to each party and will contain the
Director's findings and conclusions in detail and reasons why the
request for a review did not raise a genuine and substantial issue of
fact.
With all other proposed findings, the review committee will prepare
a written document containing the findings and detailed reasons
supporting the proposed decision. The document is to be signed by the
chairperson and each of the other committee members. The chairperson
will submit the proposed findings to the Director of the Office of Drug
Pricing for consideration and approval. The Director's written decision
will be sent with a transmittal letter to both parties.
If the covered entity or the manufacturer does not agree with the
Office of Drug Pricing's determination, the covered entity or the
manufacturer may appeal within 30 days after receiving such a
determination to the Administrator of the Health Resources and Services
Administration who will appoint a review official or committee.
III. Penalties
If the final determination is that a manufacturer has violated the
provisions of section 340B of the PHS Act or the PHS pharmaceutical
pricing agreement, the manufacturer's agreement with PHS could be
terminated or other actions taken as deemed appropriate. If the final
determination is that an entity has violated section 340B prohibitions
against resale or transfer of covered outpatient drugs, the prohibition
against duplicate discounts and rebates (or billing Medicaid more than
the actual acquisition cost of the drug), or other statutory
prohibitions, the entity shall be liable to the manufacturer of the
covered outpatient drug that is the subject of the violation in an
amount equal to the reduction in the price of the drug for the period
of the violation, as provided by section 340B(a)(5)(D) of the PHS Act.
The entity may also be excluded from the drug discount program, if the
conduct warrants such a sanction.
After the dispute is resolved, any disputed amounts plus the rate
of interest must be paid or credited to an account balance no later
than 30 days following a final determination. Interest will begin to
accrue from the time the manufacturer is deemed to have been out of
compliance with section 340B (or provisions of the PHS Pharmaceutical
Pricing Agreement) or the entity is deemed to have violated
prohibitions of section 340B. The interest rate will be based upon an
annual rate established by the Secretary of the Treasury after
considering private consumer rates of interest prevailing at the time
of the violation. This rate, utilized by the Department of Health and
Human Services (HHS) in the collection of debts owed to the United
States, may be revised quarterly by the Secretary of the Treasury and
is published by the HHS Assistant Secretary for Management and Budget
in the Federal Register. See 45 CFR 30.13 Parties will apply the
interest rate for the quarter in which the violation occurred, and this
rate will remain fixed for the duration of the time in which interest
accrues.
(The reporting requirements of this document are subject to Office
of Management and Budget (OMB) clearance under the Paperwork
Reduction Act of 1980, 44 U.S.C. 3501-3520, and will not be
implemented until such clearance has been obtained)
Dated: June 6, 1994.
Ciro V. Sumaya,
Administrator, Health Resources and Services Administration.
[FR Doc. 94-14089 Filed 6-9-94; 8:45 am]
BILLING CODE 4160-15-P