[Federal Register Volume 72, Number 8 (Friday, January 12, 2007)]
[Notices]
[Pages 1543-1546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-335]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Definition of ``Patient''

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Notice.

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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care 
Act of 1992,'' enacted Section 340B of the Public Health Service (PHS) 
Act ``Limitation on Prices of Drugs Purchased by Covered Entities.'' 
Section 340B provides that in order to obtain Medicaid reimbursement 
for its covered outpatient drugs, a manufacturer must sign a 
pharmaceutical pricing agreement with the Secretary of Health and Human 
Services in which the manufacturer agrees to charge a price to covered 
entities for outpatient drugs that will not exceed an amount determined 
under a statutory formula. Section 340B is administered as the ``340B 
Drug Pricing Program'' and is commonly referred to as ``the 340B 
Program.''
    Section 340B states that it is illegal for covered entities to sell 
medications purchased under the 340B Program to persons who are not 
considered ``patients'' of the covered entity. The purpose of this 
notice is to inform interested parties of proposed clarifications to 
the definition of ``patient'' for whom the covered entity can purchase 
discounted pharmaceuticals under the 340B Program. This clarification 
is necessary to protect the integrity of the 340B Program and to assist 
covered entities and other participants in their compliance efforts.

DATES: The public is invited to submit comments on the proposed 
guidelines by March 13, 2007. After consideration of the comments 
submitted, the Secretary will issue final guidelines.

ADDRESSES: Address all comments to Mr. Bradford R. Lang, Public Health 
Analyst, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau 
(HSB), 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, 
HSB, 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:

Introduction

    Section 340B(a)(4) of the PHS Act and section 1927(a) of the Social 
Security Act list the various types of organizations eligible to 
participate in and purchase discounted drugs under the 340B Program. 
Eligibility for participation in the 340B Program is strictly limited 
to the specific categories of entities specified in these statutes.
    Section 340B(a)(5)(B) of the PHS Act prohibits entities from 
selling (or otherwise transferring) drugs purchased under the 340B 
Program to anyone who is not a patient of the covered entity. 
Responsibility for ensuring compliance with this provision rests with 
the covered entity. Congress did not define the term ``patient'' in 
Section 340B, and initial HRSA guidelines implementing the 340B Program 
directed covered entities to ``develop and institute adequate 
safeguards to prevent the transfer of discounted outpatient drugs to 
individuals who are not eligible for the discount'' in order to prevent 
diversion. To accomplish this, entities were encouraged to utilize a 
separate purchasing account and separate dispensing records (See 59 FR 
25110).
    As covered entities, manufacturers, and others began to implement 
the 340B Program, it became apparent that additional clarification of 
the patient definition was needed and on October 24, 1996, HRSA issued 
additional guidelines regarding the definition of a covered entity 
``patient'' (61 FR 55156). These guidelines stated that the following 
definition of patient would apply for the purposes of the 340B Program:

    An individual is a ``patient'' of a covered entity (with the 
exception of State-operated or funded AIDS drug purchasing 
assistance programs) only if:
    1. The covered entity has established a relationship with the 
individual, such that the covered entity maintains records of the 
individual's health care; and
    2. The individual receives health care services from a health 
care professional who is either employed by the covered entity or 
provides health care under contractual or other arrangements (e.g., 
referral for consultation) such that responsibility for the care 
provided remains with the covered entity; and
    3. The individual receives a health care service or range of 
services from the covered entity which is consistent with the 
service or

[[Page 1544]]

range of services for which grant funding or Federally-qualified 
health center look-alike status has been provided to the entity. 
Disproportionate share hospitals are exempt from this requirement.
    An individual will not be considered a ``patient'' of the entity 
for purposes of 340B if the only health care service received by the 
individual from the covered entity is the dispensing of a drug or 
drugs for subsequent self administration or administration in the 
home setting.
    An individual registered in a State operated or funded AIDS drug 
purchasing assistance program receiving financial assistance under 
Title XXVI of the PHS Act will be considered a ``patient'' of the 
covered entity for purposes of this definition if so registered as 
eligible by the State program. (61 FR 55157-8).

    The definition of a ``patient'' was developed in order to identify 
those individuals eligible to receive 340B drugs from covered entities. 
Because of the large number of covered entities and the wide diversity 
of eligible groups (e.g., comprehensive hemophilia treatment centers, 
HIV/AIDS programs funded through the Ryan White CARE Act, black lung 
clinics, consolidated health centers, Disproportionate Share Hospitals 
(DSH), and Title X clinics), it was essential that HRSA work closely 
with each Federal program office to develop a definition flexible 
enough to describe accurately each covered entity's patients.
    As of October 1, 2005, participation in the 340B Program has grown 
to more than 12,000 entities. Through covered entity networking, 
contracting, and other arrangements, additional questions about the 
definition of a 340B patient have arisen. HRSA believes that the 
existing patient definition provides sufficient guidance to answer many 
of these questions. However, it is possible that some 340B covered 
entities may have interpreted the definition too broadly, resulting in 
the potential for diversion of medications purchased under the 340B 
Program. Therefore, HRSA finds it necessary to issue this Notice, and 
to include several examples that further illustrate the guidance. While 
similar to the existing patient definition, this clarification provides 
covered entities with more explicit guidance regarding the relationship 
between a covered entity and an individual that makes that individual a 
``patient'' of the covered entity.
    Related to the definition of a ``patient'' is the question of which 
entities are eligible to provide 340B drugs. HRSA has been receiving an 
increasing number of questions specifically related to which entities 
qualify for inclusion in the 340B Program under Section 340B(a)(4)(L) 
of the PHS Act. HRSA invites comments with respect to which elements 
should be required in private non-profit hospitals' contracts with 
State or local governments ``to provide health care services to low 
income individuals who are not entitled to benefits under Title XVIII 
of the Social Security Act or eligible for assistance under the State 
plan * * * '' under Section 340B(a)(4)(L)(i) of the PHS Act. HRSA is 
also seeking comments regarding the different situations where private, 
non-profit hospitals are formally granted government powers under 
Section 340B(a)(4)(L)(i) of the PHS Act.
    Final guidelines will replace all previous 340B Program guidance 
addressing the definition of a patient, including, but not limited to, 
the ``Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Patient and Entity Eligibility,'' 61 FR 55156 and any individual 
correspondence issued by HRSA on the subject.

Definition of a Patient

    Under these proposed guidelines, the criteria determining whether 
an individual is a ``patient'' of a covered entity (with the exception 
of State-operated or funded AIDS drug purchasing assistance programs) 
are:
    1. The covered entity has established responsibility for the 
outpatient health care services it provides to the individual, such 
that the covered entity maintains ownership, control, maintenance, and 
possession of records of the individual's health care, including 
records that appropriately document health care services that result in 
the use of, or prescription for, 340B drugs;
    2. The individual receives outpatient health care services that 
result in the use of, or a prescription for, 340B drugs as part of the 
diagnosis and treatment from a health care provider who is employed by 
the covered entity, or provides health care to patients of the covered 
entity under a valid, binding, and enforceable contract. If the 
individual received health care services from a health care provider 
employed by or under contract with the covered entity, then the 
individual may be referred for followup care for the same condition by 
that health care provider, to an outside health care provider and still 
remain a patient of the covered entity for purposes of this guidance, 
so long as ongoing responsibility for the outpatient health care 
service that results in the use of (or prescription for) 340B drugs, 
remains with the covered entity; and
    3. The outpatient health care services the individual receives from 
the covered entity that result in the use of, or prescription for, 340B 
drugs are:
    a. Part of a health care service or range of services for which 
grant funding or Federally-Qualified Health Center look-alike status 
has been provided to the covered entity; or
    b. Provided by a Disproportionate Share Hospital (DSH) or by a 
location that qualified as a provider-based facility within a DSH under 
42 CFR 413.65. If the individual received care from such DSH or 
qualifying provider-based facility, then the individual may be referred 
for followup care for the same condition by such a health care provider 
to an outside health care provider and still remain a patient of the 
covered entity for purposes of this rule, so long as the covered entity 
(either the DSH or a qualified provider-based facility) retains ongoing 
responsibility for the outpatient health care service that results in 
the use of (or prescription for) 340B drugs. To demonstrate the 
necessary retention of ongoing responsibility for the health care it is 
expected that, at a minimum, the covered entity will provide health 
care to the individual in the DSH or the qualified provider-based 
facility of the DSH within 12 months after the time of referral.
    The individual's health care relationship with the covered entity 
is the most important factor in determining whether an individual 
satisfies the criteria above. For a prescription to qualify under 340B, 
the covered entity must be primarily responsible for the health care 
which results in the use of, or prescription for 340B drugs. An 
individual will not be considered a ``patient'' of the entity for 
purposes of 340B if the only health care service received by the 
individual from the covered entity is the dispensing of a drug or drugs 
for subsequent self administration or administration in the home 
setting. An individual registered in a State operated or funded AIDS 
drug purchasing assistance program receiving financial assistance under 
Title XXVI of the PHS Act will be considered a ``patient'' of the 
covered entity for purposes of this definition if so registered as 
eligible by the State program.
    The first criterion of the patient definition above requires 
covered entities to establish a relationship with each individual such 
that the covered entity maintains records of the individual's health 
care. The covered entity will document in the individual's health care 
records the health care service provided and the drugs

[[Page 1545]]

prescribed or used in the covered entity for this individual. A shared 
electronic record where several parties have access and ability to add/
edit the records from their physical location would satisfy the 
requirements of the 340B Program guidelines, as long as the covered 
entity maintains control, ownership, maintenance, and possession of the 
individual's health care record. Mere contractual right to obtain 
records from a health care provider, without actual control and 
maintenance of the record, would not satisfy the requirements of the 
340B Program.
    The second criterion of the patient definition requires that the 
responsibility for the health care services that result in the use of, 
or prescription for, 340B drugs remains with the covered entity. Where 
a referral is utilized for specialty health care, in order to result in 
a valid 340B prescription, the referral must be for followup care for 
the same condition and must originate from a health care provider who 
is employed by or under a valid, binding, and enforceable contract with 
the covered entity which retains ongoing responsibility for the health 
care and treatment of the individual.
    For the purpose of this guidance, the provision of administrative 
services alone, such as case management services from someone other 
than a health care provider, is not sufficient to demonstrate the 
necessary health care services set forth in the definition above. The 
statute requires that 340B drugs be provided for the patients of the 
covered entity, as opposed to offering other services to individuals 
who are patients of health care providers who are not part of a covered 
entity as defined in the statute. In cases where an individual has 
received health care services from a non-covered entity resulting in a 
prescription, the administrative act of recording such information, 
incorporating it into the health record, and filling the prescription 
does not constitute health care services for the patient's health care 
for purposes of the 340B Program.
    To demonstrate responsibility for the health care that results in 
the use of, or prescription for 340B drugs, health care must be 
provided by the covered entity through health care providers who meet 
the second criterion and who have the capacity and authority to issue 
the 340B prescription. Mere acceptance pro forma or rubberstamping of 
an outside health care provider's diagnosis or medical opinion does not 
demonstrate such responsibility. While the health care providers of the 
covered entity can take into account the diagnosis and prescription of 
other health care providers, they must exercise their own judgment in 
taking responsibility for their own patients.
    The third criterion of the patient definition above requires that 
340B drugs be prescribed only in conjunction with outpatient services. 
Furthermore, subsection (a) clarifies that the provision of 340B drugs 
must fall within the scope of the grant funding or Federally Qualified 
Health Center look-alike status which forms the basis for the 
eligibility of the covered entity to participate in the 340B Program.
    Subsection (b) of the third criterion likewise provides 
clarification for DSHs that the use of, or prescription for, 340B drugs 
must be within the scope of the basis for including such institutions 
in the 340B Program. In order for an outpatient facility of a DSH to be 
eligible for the 340B Program, it must be demonstrated that the 
outpatient facility is an integral part of the DSH. HRSA has chosen to 
rely on the category of provider-based facilities as set forth by the 
Centers for Medicare and Medicaid Services (CMS) under Title XVIII of 
the Social Security Act (Medicare). This decision has been made because 
HRSA believes that the requisite integration of facilities necessary to 
demonstrate that the secondary facility is functioning as part of the 
DSH under 42 CFR 413.65 is appropriate for facilities eligible under 
the 340B Program. Compliance with the rule for provider-based 
facilities would provide clear guidance to DSHs that wish to prescribe 
340B drugs to patients at these outpatient facilities and ensure that 
the individuals are truly patients of the DSH. Ultimately the 
facility's provider-based status must be reflected in the covered 
entity's Medicare Cost Report. The covered entity may provide a copy of 
the attestation provided to its fiscal intermediary pursuant to 42 CFR 
413.65 to demonstrate compliance with this guideline until such time as 
the facility is listed on the DSH's Medicare Cost Report. The DSH shall 
retain the responsibility to promptly notify the OPA in the event that 
the outpatient facility's provider-based status is rejected or 
otherwise called into question.

Examples

    The following examples describe the issues that HRSA has identified 
as problematic and the relationships that do not meet the definition of 
``patient'' for purposes of compliance with the 340B Program 
guidelines.

Example 1: Certain Case Management Constructs

    HRSA has become aware that some covered entities may be using case 
management arrangements that inappropriately expand their ``patient'' 
populations, diverting 340B drugs to individuals who are not eligible 
patients of the 340B covered entity. In some cases, the covered 
entities claim to provide the requisite ``health care services'' 
through a third party that operates through a case management construct 
or call center. Although the covered entity may retain records of the 
encounters, supervise personnel, oversee billing, payment, and other 
administrative tasks in the program, the covered entity is not 
providing the actual outpatient health care services that can be linked 
to the prescriptions written for the individuals in question.
    An individual whose sole relationship with a covered entity is 
through case management services or other administrative measures, not 
accompanied by actual medical services from a health care provider that 
meets criterion 2, would not be considered a patient of the covered 
entity eligible to receive 340B drugs.

Example 2: Loose Affiliation Networks

    Some DSHs have been contracting with health care providers to 
create a loose affiliation model for outpatient health care services. 
The individuals, receiving services from affiliated health care 
providers, have been filling prescriptions written by these health care 
providers with 340B drugs. The ``contracts'' are often simple, one-page 
documents that do not create contractually enforceable duties or 
obligations for either the health care provider or covered entity. 
These affiliation models claim to meet the patient definition by 
specifying that the individual's health care records would be available 
at the covered entity, that ``responsibility for the patient'' would 
also reside with the covered entity, and that in some instances, 
individuals would be seen by a case manager at the covered entity at 
specified intervals.
    Under this model, the services being provided directly by the 
covered entity are often more appropriately characterized as 
administrative services rather than health care services. Ultimately, 
the treatment plan followed is determined by the affiliated health care 
provider and not the covered entity. The ongoing responsibility for the 
individual's health care resides with the affiliated health care 
provider and not the covered entity. The individuals enrolled in these 
programs are treated

[[Page 1546]]

by health care providers too loosely affiliated with the covered entity 
for the ongoing responsibility to rest with the covered entity for the 
patient's health care resulting in the use of, or prescription for, 
340B drugs.
    This model improperly seeks to expand the definition of a patient 
beyond that envisioned by Congress in prohibiting the resale of 340B 
drugs outside the eligible covered entity limits. In particular, HRSA 
is concerned that the affiliation model extends the ability of covered 
entities to purchase 340B drugs for individuals who are not receiving 
healthcare from a health care provider employed by or having a valid, 
binding, and enforceable contract with the covered entity. In the DSH 
context, since such affiliated healthcare providers may have privileges 
without actually being required to provide health care services at the 
DSH, HRSA believes that it is reasonable to require that either the 
prescribing, or the referring, health care provider be employed by or 
have a valid, binding, and enforceable contract with the covered entity 
to provide outpatient medical care to patients of the DSH.

Example 3: Provider-Based Designations

    HRSA is concerned that a number of DSHs may be attempting to expand 
their eligible facilities to include locations that are not integrated 
parts of the qualifying DSH. As noted above, HRSA has chosen to rely on 
a location's status as a provider-based facility as provided under 42 
CFR 413.65 to demonstrate that the secondary facility is functioning as 
part of the DSH. While HRSA is aware of the 35 mile distance exemption 
that exists for certain 340B-DSHs under 42 CFR 413.65(e)(3)(i), these 
DSH provider-based facilities remain subject to the other requirements 
as set forth in 42 CFR 413.65. This requirement also applies to nursing 
home facilities, rehabilitation hospitals, hospice, and home health 
agencies. Please note that even if these facilities qualify as part of 
the DSH, only patients receiving outpatient health care services in 
these facilities would be eligible to receive 340B drugs. In addition, 
if HRSA suspects that these entities are being improperly designated as 
provider-based facilities, HRSA will decline to add the facilities to 
the HRSA 340B database of covered entities until it has received 
portions of the Medicare Cost Report demonstrating provider-based 
status and/or the attestation of provider-based status the covered 
entity provides to its fiscal intermediary pursuant to 42 CFR 413.65. 
Likewise, if HRSA discovers that certain covered entities may have 
improperly listed facilities on the 340B database with the implication 
that they are provider-based, HRSA will request the covered entity to 
provide the relevant portions of the Medicare Cost Report and/or 
attestation within 45 days to verify the facility's provider-based 
status and to verify that such health care services are being provided 
on an outpatient basis. If HRSA does not receive appropriate 
documentation to verify provider-based status within this time period, 
it will remove the facility from the 340B covered entity database. The 
covered entity shall be required to notify HRSA immediately if its 
provider-based status has been rejected or questioned by CMS or its 
fiscal intermediary. In cases where provider-based status has been 
rejected, the facility will be removed from the 340B covered entity 
database immediately.

Example 4: Employees

    HRSA receives many questions about whether employees of a covered 
entity are ``patients'' for purposes of the 340B Program. These 
questions come from covered entities that provide health care coverage 
to employees under their own self-insured health plan, and those whose 
employees have third party health coverage as an employment benefit. 
Employees of a covered entity, regardless of their health care 
coverage, are not considered patients of the covered entity for the 
purpose of the 340B Program unless they receive health care from a 
provider employed by or under contract with the covered entity. The 
fact that the person is an employee of the covered entity, or that they 
receive health care benefits from their covered entity-employer is not 
relevant. The relevant circumstance is that the employee is a patient 
of the covered entity. If an employee is a patient of another provider 
in the community, and is referred to and receives health care from the 
covered entity, they can receive 340B drugs only if the other 
provisions of the patient definition are met. Where a covered entity 
operates a self-insured health plan, the covered entity retains the 
requisite responsibility for the individual as a patient only if the 
individual receives outpatient health care services under the terms of 
this notice. Responsibility for the patient does not extend to cover 
the individual if the covered entity's sole responsibility for the 
individual is as the administrator of its self-insured plan. Meeting 
administrative requirements for maintaining employee health records so 
as to ensure that the employees are compliant with both State and 
Federal health care provider regulations alone, is not sufficient for 
the purpose of establishing patient eligibility for the 340B Program. 
Rather, the covered entity must provide health care to these 
individuals that results in the use of, or prescription for, 340B 
drugs. Furthermore, employees who merely receive required health 
physicals as a condition of their employment by a covered entity with 
no other health care provided are not patients of the covered entity.

Example 5: Indian Tribes and Tribal Organizations

    In the case of Indian tribes or tribal organizations, any attempt 
to serve non-Indian Health Service beneficiaries must receive prior 
formal approval by the Indian Health Service.

Example 6: Grantee Subgrantees and Subcontractors

    In certain circumstances, organizations may be functioning as 
subgrantees to grantees who are eligible to purchase 340B drugs 
(section 340B(a)(4) of the PHS Act). In these situations, subgrantees 
are reminded that they must meet the standards set forth in 45 CFR Part 
74 and 45 CFR Part 92, as applicable. As subgrantees of a covered 
entity's grant, these organizations are eligible to access 340B drugs 
for only those patients to whom they are providing health care services 
under the scope of their subgrant. In these instances, individuals may 
only receive 340B drugs for the pharmaceuticals utilized under the 
scope of the project for which grant funds were received by the 
subgrantee. Subgrantees must register with HRSA in order to participate 
in the 340B Program and must be listed in the HRSA 340B database of 
covered entities to purchase 340B drugs.
    Subgrantees must maintain information systems that permit them to 
segregate the 340B eligible patient population from the rest of their 
patients, and to order 340B drugs only for 340B eligible patients.
    If an entity is a subcontractor of a covered entity, rather than a 
subgrantee, all 340B drugs must be purchased by the covered entity. The 
covered entity, in turn, must maintain records documenting its purchase 
of 340B drugs for its subcontractors. Both the covered entity and the 
subcontractor would be responsible for ensuring the 340B drugs were 
ordered only for the portion of the subcontract which is within the 
scope of a covered entity's grant.

    Dated: December 22, 2006.
Elizabeth M. Duke,
Administrator.
[FR Doc. E7-335 Filed 1-11-07; 8:45 am]
BILLING CODE 4165-15-P