Source: https://www.federalregister.gov/documents/2013/07/23/2013-17547/exclusion-of-orphan-drugs-for-certain-covered-entities-under-340b-program
Timestamp: 2019-12-12 02:58:57
Document Index: 25463724

Matched Legal Cases: ['§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910', '§\u200910']

A Rule by the Health and Human Services Department on 07/23/2013
44016-44028 (13 pages)
https://www.federalregister.gov/d/2013-17547 https://www.federalregister.gov/d/2013-17547
The 340B Program was established by section 602 of the Veterans Health Care Act of 1992 (Pub. L. 102-585) and is codified as section 340B of the PHSA. Section 340B instructs HHS to enter into agreements with drug manufacturers of covered outpatient drugs. 42 U.S.C. 256b(a). Pursuant to section 340B(a)(1) of the PHSA, when a manufacturer signs a Pharmaceutical Pricing Agreement (PPA), it agrees that the prices charged for covered outpatient drugs to covered entities (organizations eligible under section 340B to receive 340B discounted pricing) will not exceed defined ceiling prices, which are based on pricing data Start Printed Page 44017reported to the Centers for Medicare & Medicaid Services (CMS). The 340B ceiling price is calculated by taking the Average Manufacturer Price (AMP) and reducing it by the Unit Rebate Amount, which is calculated as indicated in 340B(a)(1) and 340B(a)(2)(A). Drugs purchased by covered entities through the 340B Program may not be sold or transferred to anyone other than the patients of the covered entities.
Section 10.10 of the final rule establishes that entities meeting the requirements of section 340B(a)(5) of the PHSA and listed within section 340B(a)(4) of the PHSA are eligible to purchase covered outpatient drugs under the 340B Program. After the enactment of the Affordable Care Act, section 340B(a)(4) includes the following entity types: (1) A Federally-qualified health center (as defined in section 1905(l)(2)(B) of the Social Security Act (SSA)); (2) An entity receiving a grant under section 340A of the PHSA; (3) A family planning project receiving a grant or contract under section 1001 of the PHSA; (4) An entity receiving a grant under subpart II of part Start Printed Page 44018C of title XXVI of the PHSA (relating to categorical grants for outpatient early intervention services for HIV disease); (5) A state-operated AIDS drug purchasing assistance program receiving financial assistance under title XXVI of the PHSA; (6) A black lung clinic receiving funds under section 427(a) of the Black Lung Benefits Act; (7) A comprehensive hemophilia diagnostic treatment center receiving a grant under section 501(a)(2) of the SSA; (8) A native Hawaiian health center receiving funds under the Native Hawaiian Health Care Act of 1988; (9) An urban Indian organization receiving funds under title V of the Indian Health Care Improvement Act; (10) Any entity receiving assistance under title XXVI of the PHSA (other than a state or unit of local government or an entity described in 340B(a)(4)(D)), but only if the entity is certified by the Secretary pursuant to paragraph 340B(a)(7); (11) An entity receiving funds under section 318 of the PHSA (relating to treatment of sexually transmitted diseases) or section 317(j)(2) (relating to treatment of tuberculosis) through a state or unit of local government, but only if the entity is certified by the Secretary pursuant to paragraph 340B(a)(7); (12) A subsection (d) hospital (as defined in section 1886(d)(1)(B) of the SSA) that—(i) is owned or operated by a unit of state or local government, is a public or private non-profit corporation which is formally granted governmental powers by a unit of state or local government, or is a private non-profit hospital which has a contract with a state or local government to provide health care services to low income individuals who are not entitled to benefits under title XVIII of the SSA or eligible for assistance under the state plan under this title; (ii) for the most recent cost reporting period that ended before the calendar quarter involved, had a disproportionate share adjustment percentage (as determined under section 1886(d)(5)(F) of the SSA) greater than 11.75 percent or was described in section 1886(d)(5)(F)(i)(II) of the SSA; and (iii) does not obtain covered outpatient drugs through a GPO or other group purchasing arrangement; (13) A children's hospital excluded from the Medicare prospective payment system pursuant to section 1886(d)(1)(B)(iii) of the SSA, or a free-standing cancer hospital excluded from the Medicare prospective payment system pursuant to section 1886(d)(1)(B)(v) of the SSA, that would meet the requirements of 340B(a)(4)(L), including the disproportionate share adjustment percentage requirement under clause (ii) of such subparagraph, if the hospital were a subsection (d) hospital as defined by section 1886(d)(1)(B) of the SSA; (14) An entity that is a critical access hospital (as determined under section 1820(c)(2) of the SSA), and that meets the requirements of subparagraph 340B(a)(4)(L)(i); and (15) An entity that is a rural referral center, as defined by section 1886(d)(5)(C)(i) of the SSA, or a sole community hospital, as defined by section 1886(d)(5)(C)(iii) of the SSA, and that both meets the requirements of subparagraph 340B(a)(4)(L)(i) and has a disproportionate share adjustment percentage equal to or greater than 8 percent.
Under § 10.20, covered entities are generally eligible to purchase “covered outpatient drugs” as defined in section 1927(k)(2) of the SSA. Under § 10.21, certain drugs are excluded from the definition of “covered outpatient drugs” in § 10.20 for certain categories of covered entities. These drugs are orphan drugs used for rare diseases or conditions for which the orphan drug was designated under section 526 of the FFDCA.
Section 10.21(a) establishes that, for the covered entities described in § 10.21(b), a covered outpatient drug does not include orphan drugs that are transferred, prescribed, sold, or otherwise used for the rare condition or disease for which that orphan drug was designated under section 526 of the FFDCA.
Under § 10.21(c), a covered entity listed in § 10.21(b) that cannot or does not wish to maintain auditable records Start Printed Page 44019sufficient to demonstrate compliance this rule, must notify HRSA and purchase all orphan drugs outside of the 340B Program regardless of the indication for which the drug is used. Once a hospital is enrolled in 340B, it may change its decision to purchase all orphan drugs outside of the 340B Program on a quarterly basis by notifying HRSA. This documentation will be made public. This information will also be verified during the annual recertification process.
Section 10.21(e) directs manufacturers and covered entities to information and orphan drug lists that will be published on HRSA's public Web site. Because of the need for recordkeeping and tracking by covered entities which are limited in purchasing orphan drugs for rare conditions, the 340B Program will use the FDA's list of drugs on a quarterly basis. HRSA will publish on its public Web site FDA's section 526 list of drugs on the first day of the month prior to the end of the calendar quarter to govern the following quarter's purchases. Manufacturers and covered entities will use HRSA's published orphan drug list to determine whether a drug is designated under section 526 of the FFDCA and, if so, the rare indication for which it is designated. This information, which includes the name of the drug sponsor, can be accessed by the public at http://www.accessdata.fda.gov/​scripts/​opdlisting/​oopd/​index.cfm.
Response: HRSA has sought to make clear that all orphan drugs that meet the definition of covered outpatient drug for these four types of entities are subject to the same requirements applicable to all other 340B covered outpatient drugs. Therefore, orphan drugs used for common conditions are subject to the same general rules and requirements under the 340B Program as all other covered outpatient drugs (e.g., pricing, availability, etc.). Section 340B(e) of the PHSA does not alter a manufacturer's obligation to sell covered outpatient drugs at no greater than the ceiling price to the designated covered entities. A manufacturer may not condition the offer of statutory discounts upon a covered entity's assurance of Start Printed Page 44020compliance with section 340B provisions. At the same time, an affected entity is required to maintain systems that distinguish the use of such drugs for orphan and non-orphan use. If an entity cannot maintain such systems of records, it cannot purchase orphan drugs, regardless of the indication, through the 340B Program. Failure to do so may result in the entity's obligation to repay a manufacturer for the inappropriate purchase and use of 340B orphan drugs for prohibited purposes.
Comment: Nearly all of the comments submitted in support of the proposed rule expressed concern about the potential burdens of maintaining records to demonstrate compliance, as described in proposed § 10.21(c). While many noted it was appropriate that the responsibility for demonstrating compliance remain with the covered entity, most asserted that § 10.21(c) would be challenging for covered entities and asked HRSA to recognize the burdens and allow flexibility regarding the particular approaches covered entities use for compliance. A commenter representing hospitals said its members recognized the challenges but reported they would be able to ensure, on a drug-by-drug basis, compliance with § 10.21(c) of the proposed rule. The commenter asked HRSA to allow hospitals to use alternative compliance systems that do not require separate purchasing accounts. Other commenters asserted that current split-billing software cannot track or provide auditable records regarding patients and their diagnoses.
Response: HRSA recognizes that compliance with this rule may be challenging for the subset of covered entities to which it applies. HRSA's OPA will provide technical assistance to covered entities seeking information concerning the new auditable records requirements. However, to ensure program integrity, the ability of a covered entity to determine which drugs are going to the entity's eligible patients has always been an essential element of covered entity participation. Under this rule, failure to comply with the applicable requirements is treated as violating the prohibition under sections 340B(a)(5)(B) and 340B(a)(5)(C) of the Start Printed Page 44021PHSA. Utilization of the 340B Program is voluntary and covered entities should take into account any burden they may have in ensuring compliance. The covered entity is responsible for ensuring that records that document its compliance are auditable by the government or manufacturers in accordance with section 340B(a)(5)(C) of the PHSA. HRSA has instituted a covered entity audit program, and in these audits HRSA will include a review of covered entities' auditable records that demonstrate compliance with this regulation, when applicable. Additionally, in accordance with section 340B(a)(5) of the PHSA, manufacturers have the right to audit covered entities' compliance with these requirements. As already permitted by this program, the covered entity may also document its compliance by developing an alternative system to tracking each discounted drug through the purchasing and dispensing process. (59 FR 25113 (May 13, 1994)). Alternative tracking systems must be approved and will be considered by HRSA on a case-by-case basis. Under § 10.21(c), affected covered entities that cannot or do not wish to maintain auditable records sufficient to demonstrate compliance with this rule, must purchase all orphan drugs, regardless of indication, outside of the 340B Program.
Comment: While noting it will be burdensome to make necessary adaptations, some commenters stated that their current split-billing software and other systems can be updated to track drug purchases with patient diagnoses to create auditable records that show compliance. One hospital said it will be using ICD-9-CM codes and noted this should be a relatively simple approach that most hospitals should be able to use. The commenter thought this approach would likely be over-inclusive regarding orphan drug transactions, so there would be a low risk of non-compliance. One hospital said it would be difficult, but it would be able to mine data from clinical systems to support an audit trail to comply with the recordkeeping requirements. A few commenters recognized there will be expenses involved in complying with the recordkeeping requirements of § 10.21(c), but believed the costs would be more than offset by realized savings. A few covered entity commenters mentioned they would be ready and willing to respond to government or government-approved manufacturer audit requests, as described under proposed § 10.21(c).
Response: HRSA recognizes that these new requirements will require additional procedures and system capabilities. The affected hospitals will need to determine how they will meet these requirements and the cost of ensuring compliance with this rule. HRSA will continue to work with the covered entities to which this provision applies to provide information and technical assistance to find efficient and effective means of participating in the 340B Program. HRSA guidelines (59 FR 25113 (May 13, 1994)) allow the covered entity discretion to develop an alternative system, short of tracking each discounted drug through the purchasing and dispensing process, to prove compliance. If an alternate system of tracking is proposed, it must be approved by HRSA. Each alternate system of compliance will be reviewed on a case-by-case basis (59 FR 25113 (May 13, 1994)). Under § 10.21(c), affected covered entities that cannot or do not wish to maintain auditable records sufficient to demonstrate compliance with this rule, must purchase all orphan drugs, regardless of indication, outside of the 340B Program.
Comment: One commenter expressed concern about whether covered entities could comply with proposed § 10.21(c), without additional guidance from HRSA. For instance, the commenter noted that FDA's Web site does not include National Drug Codes (NDCs) for orphan products, and said that HRSA should provide guidance regarding whether all drugs appearing on the FDA orphan drug list would be eligible for purchase for off-label uses.
Response: HRSA believes that the rule provides sufficient direction for covered entities to identify drugs that are subject to the orphan drug provision and will provide additional assistance as appropriate. The rule specifies the circumstances under which an orphan drug meets the definition of covered drug for the purposes of the 340B Program. This information can be accessed by the public at http://www.accessdata.fda.gov/​scripts/​opdlisting/​oopd/​index.cfm. Because of the need for recordkeeping and tracking by covered entities which are limited in purchasing orphan drugs for rare conditions, the 340B Program will use the FDA's list of drugs on a quarterly basis. HRSA will publish on its public Web site FDA's section 526 list of drugs on the first day of the month prior to the end of the calendar quarter to govern the following quarter's purchases. Manufacturers and covered entities will use HRSA's published orphan drug list to determine whether a drug is designated under section 526 of the Start Printed Page 44022FFDCA and, if so, the rare indication for which it is designated.
Comment: One wholesaler noted its position in the middle of the supply chain would likely make it necessary to institute additional compliance activities and/or offer additional assistance to covered entities to help them meet their compliance responsibilities under proposed § 10.21(c). The wholesaler noted this could add costs to its daily operations.
Comment: One commenter asserted that the proposed rulemaking represents an impermissible attempt to implement the “must offer” provision of the Affordable Care Act and that the “must offer” provision can only be implemented if it is written into the PPA. Section 340B(a)(1) of the PHSA indicates that the PPA shall require “. . . that the manufacturer offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.” Several other manufacturers commented on the must offer provision and expressed concerns about how that language would be implemented. One commenter argued that section 340B(a)(1) of the PHSA, as amended by the Affordable Care Act to require manufacturers to “offer each covered entity covered drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price,” means that manufacturers “must sell” orphan drugs to covered entities under the terms of Start Printed Page 44023the statute, as interpreted by HRSA in the proposed rule.
Comment: Entities and their stakeholder groups generally supported proposed § 10.21(d), which allows a free-standing cancer hospital that decides not to use 340B for orphan drugs to purchase orphan drugs through a GPO instead. One commenter explained that HRSA has the legal authority to interpret the GPO prohibition provision flexibly to permit a free-standing cancer hospital to use a GPO for all orphan drugs if it decides not to track non-orphan use. The commenters stated that this approach provides cancer hospitals, which use a much higher volume of orphan drugs than other affected covered entities, flexibility as they evaluate their compliance options.
Comment: Some covered entity commenters assert that the orphan drug exclusion, as proposed, follows the spirit of the 340B Program, providing new entities access to the program while preserving financial incentives for manufacturers. According to these comments, the proposed rule is consistent with the FDA's approach of Start Printed Page 44024tying tax credits, market exclusivity, orphan drug research grants, user fee exemptions, and other orphan drug incentives to orphan drug indications. One commenter pointed out that the exclusion of orphan drugs from 340B pricing for certain newly-eligible entities is, in effect, yet another incentive to promote investment in drugs for the diagnosis or treatment of rare diseases or conditions. This commenter believes the incentive is properly limited to orphan drugs when used for a rare disease or condition and is consistent with Congressional intent that the 340B orphan drug exclusion protect those drugs used for orphan diseases and populations.
Comment: One commenter asked HRSA to clarify how the rule would apply to contract pharmacies of affected covered entities. In particular, the commenter asked HRSA to allow covered entities to use a different compliance approach at their main and contract facilities. Under this scenario, the main facility would maintain auditable records to show compliance under § 10.21(c), while a satellite facility using a contract pharmacy would be allowed not to comply with the recordkeeping requirements and purchase all orphan drugs outside the 340B Program.
Response: Covered entities and their contract pharmacies are required to Start Printed Page 44025keep auditable records and provide them upon either HRSA's request or upon a government-approved manufacturer audit request, provided that audit request directly pertains to the covered entity's compliance with section 340B(e) of the PHSA. Contract pharmacies are under the same compliance requirements with this rule as a covered entity. Affected covered entities with contract pharmacies that cannot or do not wish to maintain auditable records sufficient to demonstrate compliance with this rule, must purchase all orphan drugs, regardless of indication, outside the 340B Program. A covered entity that is listed on the 340B database and compliant with the auditable records requirement for orphan drugs purchased under 340B can have an outpatient facility that chooses not to comply with the recordkeeping requirement if the outpatient facility makes all of its orphan drug purchases outside the 340B Program.
This regulation does implement a revision to the preexisting statutory recordkeeping requirement by necessitating that newly covered entities listed in § 10.21(b) be responsible for ensuring that any orphan drugs purchased through the 340B Program are not transferred, prescribed, sold, or otherwise used for the rare condition or disease for which the orphan drugs are designated under section 526 of the FFDCA. A newly covered entity will be required to declare whether it will purchase orphan drugs under 340B in its initial application, annual recertification, or change request. Only when a newly covered entity can maintain and provide auditable records that track the indication for 340B purchases of orphan drugs, will the entity be in compliance with this regulation. Tracking the indication for orphan drugs may increase the administrative burden of utilizing orphan drugs under the 340B Program. HRSA has no data or experience to employ in projecting a burden estimate in these cases.
The final rule provides covered entities with clarity on the meaning of section 340B(e) of the PHSA and Start Printed Page 44026provides flexibility in making purchasing decisions. Under the final rule, covered entities will have the choice to either purchase a drug with an orphan designation under the FFDCA outside of the 340B Program or to purchase such drugs under the 340B Program while maintaining auditable records required under section 340B(a)(5)(C) of the PHSA that show that such drugs are not used for an orphan drug indication. HHS is not able at this time to estimate the costs of showing compliance for those affected entities that choose to purchase orphan drugs under 340B. However, as of April 1, 2013, 967 parent facilities and 2212 outpatient/child sites of the four types of affected entities are enrolled. Affected entities make up 10.3 percent of all covered entity types.
The final rule contains information-collection activities for certain covered entities that voluntarily choose to purchase designated orphan drugs by requiring them to establish internal data systems to ensure compliance with the statute. The information collection Start Printed Page 44027requirements will assist covered entities in maintaining program integrity and compliance with the requirements in Section 340B of the PHSA. The existing information collection activities are based on data collection requirements approved by the Office of Management and Budget (OMB No. 0915-0176 and OMB No. 0915-0327). The new statutory orphan drug requirements will necessitate an additional level of data to include the indication for which the orphan drug was prescribed or used.
Authority: Sec. 340B of the Public Health Service Act (42 U.S.C. 256b), as amended; Sec. 215 of the Public Health Service Act (42 U.S.C. 216), as amended; Sec. 526 of the Federal Food, Drug, and Cosmetic Act, as amended (21 U.S.C. 360bb); Sec. 701(a) of the Federal Food, Drug, and Cosmetic Act, as amended (21 U.S.C. 371(a)); Sec. 1927 of the Social Security Act, as amended (42 U.S.C. 1396r-8).
Section 340B of the PHSA instructs the Secretary of Health and Human Services to enter into agreements with manufacturers of covered drugs under which the amount required to be paid to these manufacturers by certain statutorily-defined entities does not exceed the average manufacturer price for the drug under title XIX of the Social Security Act (SSA) reduced by a rebate percentage which is calculated as indicated in 340B(a)(1) and 340B(a)(2)(A). Manufacturers participating in the 340B Drug Pricing Program (340B Program) are required to provide these discounts on all covered outpatient drugs sold to participating 340B covered entities.
The definition of a covered outpatient drug has the meaning given to such term in section 1927(k)(2) of the SSA except as provided in § 10.21 of this part.
(b) Covered entities to which the orphan drug exclusion applies. (1) The exclusion of orphan drugs when used to treat the rare disease or condition for which the drug was designated under section 526 of the FFDCA from the definition of covered outpatient drugs described in paragraph (a) of this Start Printed Page 44028section shall only apply to the following covered entities: free-standing cancer hospitals qualifying under section 340B(a)(4)(M) of the PHSA, critical access hospitals qualifying under section 340B(a)(4)(N) of the PHSA, and rural referral centers and sole community hospitals qualifying under section 340B(a)(4)(O) of the PHSA. The exclusion does not apply to the remaining covered entities that meet the 340B Program eligibility requirements.