[Federal Register Volume 72, Number 8 (Friday, January 12, 2007)]
[Notices]
[Pages 1540-1543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-334]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding 340B Drug Pricing Program-Contract Pharmacy 
Services

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Notice.

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SUMMARY: Section 340B of the Public Health Service Act implements a 
drug pricing program in which manufacturers who sell covered outpatient 
drugs to covered entities must agree to charge a price that will not 
exceed an amount determined under a statutory formula. The purpose of 
this notice is to inform interested parties of proposed guidelines 
regarding contract pharmacy services that will allow covered entities 
to utilize contract pharmacy services arrangements previously limited 
to the Alternative Methods Demonstration Project program.

DATES: The public is invited to comment on the proposed guidelines by 
March 13, 2007. After consideration of the submitted comments, the 
Health Resources and Services Administration (HRSA) will issue the 
final guidelines.

ADDRESSES: Address all comments to Mr. Bradford R. Lang, Public Health 
Analyst, Office of Pharmacy Affairs (OPA), Health Resources and 
Services Administration (HRSA), 5600 Fishers Lane, Parklawn Building, 
Room 10C-03, Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Mr. Jimmy Mitchell, Director, OPA, 
HRSA, 5600 Fishers Lane, Parklawn Building, Room 10C-03, Rockville, MD 
20857, or by telephone through the Pharmacy Services Support Center at 
1-800-628-6297.

SUPPLEMENTARY INFORMATION:

A. Background

    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. Previous guidelines 
pertaining to contract pharmacy services for the 340B drug pricing 
program (61 FR 43549, Aug. 23, 1996) stated that a covered entity could 
contract with only one pharmacy to provide all pharmacy services for 
any particular site of the covered entity. Furthermore, if the contract 
pharmacy had multiple locations, the covered entity site had to choose 
one, and only one, contract pharmacy location for provision of these 
services.
    In 2001, HRSA established Alternative Methods Demonstration 
Projects (AMDPs) which allowed covered entities that applied and were 
approved by HRSA to pursue alternatives to contracting with a single 
pharmacy. These alternative models included the following: (1) The use 
of multiple contract pharmacy service sites, (2) the utilization of a 
contract pharmacy to supplement in-house pharmacy services, and/or (3) 
the development of a network of 340B covered entities. The intent was 
to allow community health centers and other 340B safety-net providers 
to develop new ways to improve access to 340B prescription drugs for 
their patients. From the time of the program's inception until the end 
of April 2006, a total of 18 AMDPs were approved. Of those, 11 utilize 
a multiple contract pharmacies model, four establish a network of 340B 
covered entities, one is a combination of the network model and the 
multiple contract pharmacies model, one utilizes a contract pharmacy to 
supplement an in-house pharmacy, and one utilizes multiple contract 
pharmacies to supplement an in-house pharmacy. All but one of the 
projects is currently ongoing. A condition of AMDP approval is the 
requirement that the approved demonstration project be audited annually 
by an independent, outside auditor for drug diversion and duplicative 
discounts under Medicaid. The results of the audits are required to be 
reported to the Office of Pharmacy Affairs (OPA). To date, there has 
been no evidence of drug diversion or duplicate manufacturer's 
discounts on 340B drugs in the AMDP program.
    HRSA, acting through OPA, is proposing new guidelines that would 
allow covered entities to utilize multiple contract pharmacy service 
sites and the utilization of a contract pharmacy to supplement in-house 
pharmacy services that were previously limited to approved AMDPs. This 
proposed change is due to the success of the AMDPs, and the urging of 
safety net providers who wish to utilize alternatives to the single 
entity site/single pharmacy location contractor model to provide 
broader access to 340B discounted drugs to eligible patient 
populations. Other than permitting these specified models, HRSA is not 
proposing other substantive changes to the contract pharmacy 
guidelines. The AMDP process will continue for those covered entities 
wishing to develop 340B networks of covered entities. OPA will continue 
to review the utilization of network demonstration projects and 
consider adapting the rules to include them in the future. Of 
particular importance is the continued requirement that appropriate 
procedures be in place to prevent diversion of 340B drugs or a 
duplicative 340B drug discount and a Medicaid rebate on the same drug, 
which are prohibited under the statute.
    These proposed guidelines replace all sections of previous 340B 
Program guidance documents addressing non-network contract pharmacy 
services, including, but not limited to, the ``Notice Regarding Section 
602 of the Veterans Health Care Act of 1992; Contract Pharmacy 
Services,'' 61 FR

[[Page 1541]]

43549 and any individual correspondence issued by HRSA on the subject. 
Demonstration projects previously approved under the multiple contract 
pharmacy model, the supplement to in-house pharmacy model, or a 
combination of the two models when this Federal guidance goes into 
effect, would be governed by this guidance and would no longer be 
subject to expiration of AMDPs, interim reporting or annual audits 
currently mandatory for all demonstration projects (this guidance only 
applies to audits required under the AMDP and leaves unchanged audit 
requirements under any other authority or program). While annual audits 
will no longer be required to be provided to OPA annually, covered 
entities are required to maintain fully auditable records and OPA 
expects covered entities to include appropriate sampling of multiple 
contract pharmacy arrangements in the course of routine annual audits. 
Demonstration projects previously approved to utilize the network model 
would continue to be subject to all program requirements and conditions 
set up under the AMDP. Any covered entity wishing to utilize a network 
model would still be required to seek approval under the AMDP and may 
not do so without formal approval.

B. Contract Pharmacy Services Mechanism

(1) Basic Requirements for Utilization of Contract Pharmacy 
Arrangements

    Covered entities that wish to utilize contract pharmacy services to 
dispense section 340B outpatient drugs must have a written contract in 
place between themselves and a pharmacy. This mechanism is designed to 
facilitate program participation for those covered entities that do not 
have access to available or appropriate ``in-house'' pharmacy services, 
those covered entities who have access to ``in-house'' pharmacy 
services but who wish to supplement these ``in-house'' services, and 
covered entities that wish to utilize multiple contract pharmacies to 
increase patient access to 340B drugs. The covered entity has the 
responsibility to: ensure against illegal diversion and duplicate 
discounts, maintain readily auditable records, and meet all other 340B 
Drug Pricing Program requirements. OPA has provided a model agreement 
format below as guidance for the type of contractual provisions 
expected in such agreements as well as suggested contract provisions in 
the Appendix. All covered entities utilizing a contract pharmacy must 
comply with the certification requirements described in (4) below.

(2) Potential Alternatives to Single Location, Single Pharmacy Model

    In addition to contracting with a single pharmacy for each clinical 
site, covered entities may pursue more complex arrangements that 
include multiple pharmacies only if: (a) There is a written agreement 
and procedures meeting the basic requirements outlined in (1) above 
between the covered entity and each pharmacy; (b) the operation 
continues to meet all 340B Drug Pricing Program requirements and does 
not create unlawful diversion or duplicate discounts; and (c) the 
arrangements are one of the two following models individually or in 
combination: (i) The use of multiple contract pharmacy service sites, 
and/or (ii) the utilization of a contract pharmacy (ies) to supplement 
in-house pharmacy services. The use of multiple contract pharmacy 
service sites refers to any arrangement wherein a covered entity site 
seeks to provide drugs at 340B discounted prices for its patients at 
more than one pharmacy location. Supplementing in-house pharmacy 
services with a contract pharmacy refers to any arrangement wherein a 
covered entity site seeks to purchase drugs at 340B discounted prices 
for its patients at both an in-house pharmacy and at least one 
additional contract pharmacy location.

(3) Model Agreement Provisions

    The following are suggested provisions for a model agreement:
    (a) The covered entity will purchase the drug, maintain title to 
the drug and assume responsibility for establishing its price, pursuant 
to the terms of a HHS grant (if applicable) and any applicable state 
and local laws and consumer protection laws.
    A ``ship to, bill to'' procedure is used in which the covered 
entity purchases the drug; the manufacturer/wholesaler must bill the 
covered entity for the drug that it purchased, but ships the drug 
directly to the contract pharmacy (Section 1 of Appendix.) In cases 
where a covered entity has more than one site, it may choose between 
having each site billed individually or designating a single covered 
entity billing address for all 340B drug purchases.
    (b) The contract pharmacy will provide comprehensive pharmacy 
services (e.g., dispensing, recordkeeping, drug utilization review, 
formulary maintenance, patient profile, patient counseling, and 
medication therapy management services). Each covered entity which 
purchases its covered outpatient drugs has the option of individually 
contracting for pharmacy services with a pharmacy(ies) of its choice.
    (c) The covered entity health care provider will inform the patient 
of his or her freedom to choose a pharmacy provider. If the patient 
does not elect to use the contracted service, the patient may obtain 
the prescription from the covered entity and then obtain the drug(s) 
from the pharmacy provider of his or her choice.
    When a patient obtains a drug from a retail pharmacy other than a 
covered entity's contract pharmacy, the manufacturer is not required to 
offer this drug at the 340B price.
    (d) The contract pharmacy may provide other services to the covered 
entity at the option of the covered entity (e.g., home care, delivery, 
reimbursement services). Regardless of the services provided by the 
contract pharmacy, access to 340B pricing will always be restricted to 
only patients of the covered entity.
    (e) The contract pharmacy and the covered entity will adhere to all 
Federal, State, and local laws and requirements. Additionally, all HHS 
grantees, disproportionate share hospitals and FQHC Look-Alikes will 
adhere to all rules and regulations that apply to them as grantees or 
otherwise eligible entities.
    Both the covered entity and the contract pharmacy are aware of the 
potential for civil or criminal penalties if the covered entity and/or 
the contract pharmacy violate Federal or State law. [The Department 
reserves the right to take such action as may be appropriate if it 
determines that such a violation has occurred.]
    (f) The contract pharmacy will provide the covered entity with 
reports consistent with customary business practices (e.g., quarterly 
billing statements, status reports of collections and receiving and 
dispensing records). See Section 2 of Appendix.
    (g) The contract pharmacy, with the assistance of the covered 
entity, will establish and maintain a tracking system suitable to 
prevent diversion of section 340B drugs to individuals who are not 
patients of the covered entity. Customary business records may be used 
for this purpose. The covered entity will establish a process for a 
periodic comparison of its prescribing records with the contract 
pharmacy's dispensing records to detect potential irregularities. See 
Section 3 of Appendix.
    (h) The covered entity and the contract pharmacy will develop a 
system to verify patient eligibility, as defined by HRSA guidelines.

[[Page 1542]]

    Both parties agree that they will not resell or transfer a drug 
purchased at section 340B prices to an individual who is not a patient 
of the covered entity. See 42 U.S.C. 256a(a)(5)(B). The covered entity 
understands that it can be removed from the list of covered entities 
because of its participation in drug diversion and no longer be 
eligible for 340B pricing. See Section 4 of Appendix.
    (i) Neither party will use drugs purchased under section 340B to 
dispense Medicaid prescriptions, unless the covered entity, the 
contract pharmacy and the State Medicaid agency have established an 
arrangement to prevent duplicate discounts. Any such arrangement shall 
be reported to the Office of Pharmacy Affairs by the covered entity.
    (j) Both parties understand that they are subject to audits (by the 
Department and participating manufacturers) of records that directly 
pertain to the entity's compliance with the drug resale or transfer 
prohibition and the prohibition against duplicate discounts. See 42 
U.S.C Sec.  256a(a)(5).
    The contract pharmacy will assure that all pertinent reimbursement 
accounts and dispensing records, maintained by the pharmacy, will be 
accessible separately from the pharmacy's own operations and will be 
made available to the covered entity, the Department, and the 
manufacturer in the case of an audit.
    (k) Upon written request to the covered entity, a copy of this 
contract pharmacy service agreement will be provided to a participating 
manufacturer which sells covered outpatient drugs to the covered 
entity. All confidential or proprietary information may be deleted from 
the document.

(4) Certification

    Under section 340B, if a covered entity using contract pharmacy 
services requests to purchase a covered outpatient drug from a 
participating manufacturer, the statute directs the manufacturer to 
sell the drug at a price not to exceed the statutory 340B discount 
price. If the entity directs the drug shipment to its contract 
pharmacy(ies), we see no basis on which to conclude that section 340B 
precludes this type of transaction or otherwise exempts the 
manufacturer from statutory compliance. However, the entity must 
comply, under any distribution mechanism, with the statutory 
prohibition on drug diversion and duplicate discounting.
    To provide OPA and manufacturers with assurance that the covered 
entity has acted in a manner which limits the potential for drug 
diversion, the covered entity is required to submit to OPA a 
certification that it has signed and has in effect an agreement with 
the contract pharmacy(ies) containing the aforementioned provisions 
(see 3 above). However, if a covered entity wishes to utilize an 
agreement with provisions different from those listed above that it 
believes meets 340B requirements; OPA will review the proposed 
agreement provisions for sufficiency. The names of those covered 
entities which submit a certification, or an alternate mechanism 
approved by OPA, will be listed on the OPA Web site for the convenience 
of participating drug manufacturers and wholesaler distributors.
    In addition, any covered entity that has opted to utilize any 
pharmacy arrangement described in (2) must specify which arrangement or 
combination of arrangements it is utilizing, the names and 340B 
identification numbers of all covered entities participating, and the 
names of any pharmacies participating.

(5) Anti-Kickback Statute

    Contract pharmacies and covered entities should be aware of the 
potential for civil or criminal penalties if the contract pharmacy 
violates Federal or State law. In negotiating and executing a contract 
pharmacy service agreement pursuant to these guidelines, contract 
pharmacies and covered entities should be aware of and take into 
consideration the provisions of the Medicare and Medicaid anti-kickback 
statute, 42 U.S.C. 1320a-7b(b). This statute makes it a felony for a 
person or entity to knowingly and willfully offer, pay, solicit, or 
receive remuneration with the intent to induce, or in return for the 
referral of, Medicare or a State health care program business. State 
health care programs are Medicaid, the Maternal and Child Health Block 
Grant program, and the Social Services Block Grant program. Apart from 
the criminal penalties, a person or entity is also subject to exclusion 
from participation in the Medicare and State health care programs for a 
knowing and willful violation of the statute pursuant to 42 U.S.C. 
1320a-7(b)(7).
    The anti-kickback statute is very broad. Prohibited conduct covers 
not only remuneration intended to induce referrals of patients, but 
also includes remuneration intended to induce the purchasing, leasing, 
ordering, or arranging for any good, facility, service, or item paid 
for by Medicare or a State health care program. The statute 
specifically identifies kickbacks, bribes, and rebates as illegal 
remuneration, but also covers the transferring of anything of value in 
any form or manner whatsoever. This illegal remuneration may be 
furnished directly or indirectly, overtly or covertly, in cash or in 
kind and covers situations where there is no direct payment at all, but 
merely a discount or other reduction in price or the offering of a free 
good(s).
    Arrangements between contract pharmacies and covered entities that 
could violate the anti-kickback statute would include any situation 
where the covered entity agrees to refer patients to the contract 
pharmacy in return for the contract pharmacy or an entity owned or 
controlled by the contract pharmacy agreeing to undertake or furnish 
certain activities or services to the covered entity at no charge or at 
a reduced or below cost charge. These activities or services would 
include the provision of contract pharmacy services, home care 
services, money or grants for staff or service support, or medical 
equipment or supplies, or the remodeling of the covered entity's 
premises. For example, if a contract pharmacy agreed to furnish covered 
outpatient drugs in return for the covered entity referring its 
Medicaid patients to the contract pharmacy to have their prescriptions 
filled, the arrangement would violate the anti-kickback statute. 
Similarly, if the contract pharmacy agreed to provide billing services 
for the covered entity at no charge in return for the covered entity 
referring its patients to the contract pharmacy for home or durable 
medical equipment, the statute would be violated.
    Pursuant to the authority in 42 U.S.C. 1320a-7b(b)(3), the 
Secretary of HHS has published regulations setting forth certain 
exceptions to the anti-kickback statute, commonly referred to as ``safe 
harbors.'' These regulations are codified at 42 CFR 1001.952. Each of 
the safe harbors sets forth various requirements which must be met in 
order for a person or entity to be immune from prosecution or exclusion 
under the safe harbors.

C. Appendix--Suggested Contract Provisions

    (1) ``The covered entity owns covered drugs and arranges to be 
billed directly for such drugs. The pharmacy will compare all shipments 
received to the orders and inform the covered entity of any discrepancy 
within five (5) business days of receipt. The covered entity will make 
timely payments for such drugs delivered to the (pharmacy).''
    (2) ``The covered entity will verify, using the contract pharmacy's 
(readily retrievable) customary business records, that a tracking 
system exists which will

[[Page 1543]]

ensure that drugs purchased under the 340B Drug Pricing Program are not 
diverted to individuals who are not patients of the covered entity. 
Such records can include: prescription files, velocity reports, and 
records of ordering and receipt. These records will be maintained for 
the period of time required by State law and regulations.''
    (3) ``Prior to the contract pharmacy providing pharmacy services 
pursuant to this agreement, the covered entity will have the 
opportunity, upon reasonable notice and during business hours, to 
examine the tracking system. For example, such a tracking system may 
include quarterly sample comparisons of eligible patient prescriptions 
to the dispensing records and a six (6) month comparison of 340B drug 
purchasing and dispensing records as is routinely done in other 
reconciliation procedures. The contract pharmacy will permit the 
covered entity or its duly authorized representatives to have 
reasonable access to contract pharmacy's facilities and records during 
the term of this agreement in order to make periodic checks regarding 
the efficacy of such tracking systems. The contract pharmacy agrees to 
make any and all adjustments to the tracking system which the covered 
entity advises are reasonably necessary to prevent diversion of covered 
drugs to individuals who are not patients of the covered entity.''
    (4) ``The pharmacy will dispense covered drugs only in the 
following circumstances: (a) Upon presentation of a prescription 
bearing the covered entity's name, the eligible patient's name, a 
designation that the patient is an eligible patient of the covered 
entity, and the signature of a legally qualified health care provider 
affiliated with the covered entity; or (b) receipt of a prescription 
ordered by telephone or other means of electronic transmission that is 
permitted by State or local law on behalf of an eligible patient by a 
legally qualified health care provider affiliated with the covered 
entity who states that the prescription is for an eligible patient. The 
covered entity will furnish a list to the pharmacy of all such 
qualified health care providers and will update the list of providers 
to reflect any changes. If a contract pharmacy is found to have 
violated the drug diversion prohibition, the contract pharmacy will pay 
the covered entity the amount of the discount in question so that the 
covered entity can reimburse the manufacturer.''

    Dated: December 22, 2006.
Elizabeth M. Duke,
Administrator.
 [FR Doc. E7-334 Filed 1-11-07; 8:45 am]
BILLING CODE 4165-15-P