House Panel Examines 340B Legislative Reforms


House Panel Examines 340B Legislative Reforms

On Wednesday, July 11, 2018, House lawmakers again signaled their intent to reform the US Department of Health and Human Services (HHS), Health Resources and Services Administration’s (HRSA) 340B Drug Pricing Program (340B) during an Energy and Commerce (E&C) Subcommittee on Health hearing.

Since 2015, both E&C and the Senate Health, Education, Labor, and Pensions Committee (HELP) have conducted hearings to examine 340B. Additionally, E&C issued a January 2018 report that details potential congressional and agency actions to improve 340B administration.

The federal program, which permits covered entities that serve a certain threshold of low-income patients to purchase discounted outpatient drugs, still enjoys broad bipartisan support despite calls by some members of Congress and the Trump Administration to implement additional oversight. Covered entities include certain hospitals, as well as federally supported health centers and specialized clinics that meet defined criteria. Established in 1992, 340B has expanded to comprise nearly half of America’s hospitals, many of which joined after the Affordable Care Act broadened eligibility.

Bipartisan consensus generally exists around refining 340B’s intent, instituting well-defined eligibility rules for covered entities, and closing loopholes that may allow duplicate discounts through Medicaid’s drug rebate program. However, Republicans tend to support measures that would slow or halt the enrollment of new covered entities in the program, as well as impose strict reporting requirements on how savings are spent for current participants.

During the hearing, lawmakers received feedback from 340B stakeholders on 15 bills, including eight discussion drafts. Additionally, they considered a recently released US Government Accountability Office (GAO) report that was requested by E&C and makes recommendations to ensure contract pharmacies are compliant with 340B regulations. A second E&C hearing to examine the reform proposals is slated for September. It remains unclear if HELP will propose similar reform legislation.

The following measures, as described by an E&C Majority memorandum, were discussed:

H.R. 2889, Closing Loopholes for Orphan Drugs Act, authored by Reps. Welch (D-VT) and Harper (R-MS) – The bill amends the Public Health Service Act to revise 340B, which currently requires drug manufacturers to discount orphan drugs (drugs for rare conditions) for certain entities covered by the program. The bill discounts orphan drugs that are not being used to treat rare conditions for all entities covered by the program.

H.R. 4392, To provide that the provision of the Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs final regulation relating to changes in the payment amount for certain drugs and biologicals purchased under the 340B drug discount program shall have no force or effect, and for other purposes, authored by Reps. McKinley (R-WV), Thompson (D-CA), Johnson (R-OH), Kustoff (R-TN), Courtney (D-CT) and Castor (D-FL) – The bill nullifies the CY 2018 Medicare hospital outpatient reimbursement change that was finalized by HHS in a November 13, 2017 regulation. That final rule decreased reimbursement for outpatient drugs under Medicare that certain hospitals purchased under 340B – reducing the reimbursement from the average sales price (ASP) plus 6% to ASP minus 22.5%.

H.R. 4710, 340B PAUSE Act, authored by Reps. Bucshon (R-IN) and Peters (D-CA) – The bill prohibits the registration of any new 340B covered entities into the program for two years, effective upon enactment. This moratorium includes Disproportionate Share Hospital (DSH) facilities and their potentially new child sites. To improve transparency, 14 months after the enactment of the bill covered entities shall begin to report on:

  1. Number and percentage of individuals dispensed 340B drugs
  2. Total cost incurred at each site
  3. Total charity care as defined by line S-10 on the Medicare cost report
  4. Aggregate amount of gross reimbursement
  5. Name of all 340B vendors who have entered into contractual arrangements with child sites (this information is already collected by HRSA on parent sites)

The bill also calls for a series of reports by the GAO, the HHS Office of Inspector General (OIG), and the Comptroller General about the level of charity care, an analysis of contracts between covered entities (parent and child sites) and vendors, and a comparison of 340B reimbursements to costs.

H.R. 5598, 340B Optimization Act, authored by Reps. Carter (R-GA) and Collins (R-NY) – The bill requires certain DSH covered entities under 340B to submit reports to the Secretary of HHS on the low-income utilization rates of outpatient hospital services furnished by such entities, including both parent and child sites.

H.R. 6071, Strengthening Entity Resources for Vulnerable Communities Act (SERV Act), authored by Rep. Matsui (D-CA) – The bill seeks to codify the 340B definition of a patient as described in the 1996 Federal Register. Under the bill, covered entities may not discriminate against a patient’s choice of drugs received and pharmacies may not discriminate against covered entities in the reimbursement for drugs. The bill directs HHS to publish 340B ceiling prices – no later than 90 days from enactment – so that covered entities can verify that they are being charged the correct amount. If there is a discrepancy between the price paid by the covered entity and the 340B published ceiling price, then HRSA shall enforce civil monetary penalties on manufacturers in the amount of US$5,000 or 200% of the overcharged amount. The bill also requires parity in HRSA’s audits of hospitals and pharmaceutical manufacturers, formalizes penny pricing and prevents HHS from making the Medicare hospital outpatient payment change as described in the November 2017 HHS regulation. Within one year of enactment, the bill requires GAO to report on HRSA’s progress toward enacting these changes.

H.R. 6240, Drug Discount Accountability Act, authored by Reps. Carter (R-GA) and Collins (R-NY) – The bill directs HRSA to assess and collect user fees from covered entities. The Secretary of HHS will have 180 days to determine the fee amount and the amount shall not exceed 0.1% of the total paid during the previous year by a covered entity to manufacturers. User fees shall be used to finance the administration and oversight of the program. The Secretary of HHS is given direct authority to hire, at a minimum, 10 more full-time equivalent employees. Fees shall be collected upon certification or re-certification as appropriate. The bill also directs OIG to submit a report to Congress on the enactment and implementation of user fees.

H.R. 6273, To amend the Public Health Service Act to ensure appropriate care by certain 340B covered entities for victims of sexual assault, and for other purposes, authored by Reps. Walters (R-CA) and Walden (R-OR) – The bill applies only to 340B DSH hospitals that have an emergency department. Within one year of enactment, such hospitals must enact a plan to transfer victims of sexual assault to the nearest SAFE (Sexual Assault Forensic Examiner)-certified facility using official hospital transportation at no charge to the victim. Within two years of enactment, such hospitals must become SAFE-certified, meaning the entity employs or contracts with a SANE (Sexual Assault Nurse Examiner) program such that a SANE is available or on call 24 hours a day. HHS will publish a list of 340B SAFE-certified entities on the HHS website, and update such list annually.

H.R. ____, To amend the Public Health Service Act to require under the 340B drug discount program reports by covered entities regarding certain information on savings to covered entities from discounted prices under the program and the relationship between such savings and charity care expenditures of such covered entities, authored by Rep. Bucshon (R-IN) – The discussion draft requires covered entities to report to HRSA every 12 months on 340B total savings, total amount of revenue generated from the sale of 340B outpatient drugs, payer mix and total uncompensated costs (including charity care, net loss or income, bad debt and unreimbursed costs).

H.R. ____, To amend the Public Health Service Act to allow the Secretary of Health and Human Services to prescribe regulations as necessary or appropriate to carry out the 340B drug discount program, and for other purposes, authored by Rep. Mullin (R-OK) – The discussion draft gives HRSA the authority to enforce specific regulations regarding all aspects of the 340B program.

H.R. ____, Protecting Safety-Net 340B Hospitals Act, authored by Rep. Barton (R-TX) – The discussion draft increases the required DSH percentage from 11.75% to 18%. It also increases the 340B discount for all covered entity types, other than DSH hospitals and critical access hospitals, by 5%.

H.R. ____, Bettering Operations and Oversight through Senate-Process Transparency (BOOST) 340B Act, authored by Rep. Hudson (R-NC) – The discussion draft requires the administrator of 340B to be an Assistant Secretary and Senate-confirmed, with the goal of increasing the oversight of the program and accountability of the administrator.

H.R. ____, To amend the Public Health Service Act to define the term patient for purposes of the 340B drug discount program, authored by Rep. Collins (R-NY) – The discussion draft establishes a new definition of a patient for purposes of 340B. The draft requires HRSA to promulgate rulemaking on the new patient definition within 180 days.

H.R. ____, To amend the Public Health Service Act to require the Secretary of Health and Human Services to conduct audits under the 340B drug discount program in accordance with generally accepted government auditing standards, and for other purposes, authored by Rep. Burgess (R-TX) – The discussion draft requires HRSA to perform audits utilizing auditing standards recognized by the Comptroller General of the US.

H.R. ____, To amend the Public Health Service Act to require certain covered entities under the 340B drug discount program to establish certain fee amounts charged to certain low-income patients for 340B drugs, authored by Rep. Burgess (R-TX) – The discussion draft prohibits 340B covered entities from charging low-income and uninsured patients the full price for 340B drugs. The discussion draft does not mandate a specific discount for covered entities for such patients, but states that certain covered entities must pass on a discount (at or below the 340B ceiling price) and that covered entities have documentation of this process.

H.R. ____, To require the Secretary of Health and Human Services to implement the Government Accountability Office recommendations for the Health Resources and Services Administration relating to 340B contract pharmacies, authored by Rep. Burgess (R-TX) – The discussion draft would mandate the Secretary of HHS to implement GAO recommendations for HRSA relating to 340B contract pharmacies.

Recent Guidance by ONC and SAMHSA Sheds Light on Compliance Requirements for 42 CFR Part 2

In the face of the ongoing opioid crisis in the United States, the Office of the National Coordinator for Health Information Technology (“ONC”) and the Substance Abuse and Mental Health Services Administration (“SAMHSA”) recently released two fact sheets to clarify how the requirements of 42 CFR Part 2 apply in different provider contexts, including via electronic health information exchange (“HIE”). The Part 2 regulations were initially promulgated in 1975 to ensure the confidential treatment of records relating to the identity, diagnosis, prognosis or treatment of patients in federally assisted programs for substance use disorders (“SUD”). SAMHSA attempted to modernize the regulations in 2017, in part to account for the many advances in healthcare technology and care delivery models that impact how patient records are transmitted and maintained. However, many stakeholders continue to call for further changes, and a number of bills have been introduced in the House and Senate to further align the Part 2 regulations with HIPAA for the purposes of healthcare treatment, payment and operations.

The new Fact Sheets are intended to help remove barriers to choosing or providing appropriate SUD treatment and to guide stakeholders on how to access and securely share SUD-related health information with the patient’s consent. They are the first guidance documents that SAMHSA has issued since the Part 2 regulations were amended last year. Although they largely restate material in the Preamble of the Final Rule, they contain a series of useful fact patterns that illustrate when and how patient consent should be obtained, including by clarifying how a general designation in a patient consent form works in practice. The key takeaways and insights from the Fact Sheets, which are particularly helpful for stakeholders in mixed-use facilities, integrated care settings, or utilizing HIEs, are summarized below. Continue Reading

CMS “Regulatory Sprint to Coordinate Care” Seeks Input to Lessen the Regulatory Burden of the Stark Law

Late last month, the Centers for Medicare & Medicaid Services (“CMS”) issued a request for information (“RFI”) seeking input regarding the Medicare physician self-referral law and its implementing regulations (“Stark Law”) and how it may prevent or inhibit care coordination amongst healthcare providers. As part of CMS’s broader “Regulatory Sprint to Coordinated Care” initiative, the RFI’s goals are, in part, to help identify the Stark Law’s regulatory requirements or prohibitions that may impede coordinated care, and to help CMS assess the necessity of these obstacles. To be assured of consideration, comments must be received by CMS no later than 5:00 p.m., August 24, 2018. Continue Reading

DC Circuit Rejects HHS Rule Barring Hospital Medicare Appeals Challenging Longstanding Erroneous “Predicate Facts”

On June 29, 2018, the DC Circuit ruled that HHS could not apply in PRRB appeals a 2013 “reopening” regulation, which purports to bar the adjudication of “predicate facts” beyond 3 years after the facts had been determined. St. Francis Medical Center v. Azar (D.C. Cir. June 29, 2018). The court held that the agency’s reopening regulation, although stating that such predicate facts could not be considered outside the 3-year window, applies only where agency decision makers revisit their own determinations and does not apply in appeals from one level of the agency to another. A concurrence by Judge Kavanaugh found further that “it would seem to be the very definition of arbitrary and capricious for HHS to knowingly use false facts when calculating hospital reimbursements. That is particularly so when those erroneous facts cost hospitals hundreds of millions of dollars. That is real money.” This DC Circuit decision applies nationwide to restore hospital procedural rights to seek correction of baseline errors that may repeatedly cause underpayments years down the line. Continue Reading

DOL Issues Final Rule Expanding Access to Association Health Plans

On June 21, 2018, the US Department of Labor (DOL or the Department) published its final rule, amending the definition of “employer” under section 3(5) of the Employee Retirement Income Security Act (ERISA) to allow for the establishment of group or association health plans (AHPs) (Final Rule). Similar to a corresponding proposed rule issued earlier this year (the Proposed Rule,), the Final Rule broadens the criteria under ERISA for determining when and how employers may form associations to offer group health plans to multiple employers and self-employed individuals.

According to the DOL, the Final Rule is intended to expand access to group health coverage by permitting businesses, sole proprietors and self-employed to form associations to sponsor AHPs based on common geography, industry or trade, if certain criteria are met.

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How To Avoid Paying $2,000 A Day To Encrypt ePHI

Let’s hope you don’t pay that much to encrypt electronic Protected Health Information (ePHI). How about a total of $4.3 million over two years? Well, that’s the total penalty for encryption violations assessed by Health and Human Services (HHS). An Administrative Law Judge found the penalty could have been much worse. The facts are sobering. The message is clear.

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Squire Patton Boggs Attorneys Publish Practical Law Practice Note on State Legalized Marijuana Businesses and Access to the Bankruptcy Code

The June 13, 2018 publication of Practical Law features a Practice Note co-written by Squire Patton Boggs attorneys Mark A. Salzberg, Elliot M. Smith, John E. Wyand and Sarah H. Stec titled “State Legalized Marijuana Businesses and Access to the Bankruptcy Code”. The Practice Note discusses the federal statutory scheme governing marijuana, its tension with state laws governing marijuana businesses, and the ability or inability of marijuana related businesses to access the relief provided under federal bankruptcy law.




Majority Of Federal Communications Commission (FCC) Supports 40%+ Annual Increase In Rural Health Care Program Funding – Following on a proposal to review annual funding for the FCC’s Rural Health Care Program (RHCP), which currently provides $400 million in annual subsidies for telecommunications and broadband services to eligible rural healthcare providers (HCP), a majority of the Commission now support a proposed 40+% increase to $571 million per year.

RHCP Components – The telecommunications component of the RHCP, established in 1997, allows eligible providers to obtain rates on telecommunications services in rural areas that are reasonably comparable to rates charged for similar services in corresponding urban areas. The broadband component, established in 2012 and known as the Healthcare Connect Fund (HCF), provides a flat 65% discount on services such as Internet access, dark fiber, business data and private carriage services. Both components include a competitive bidding process.

Need For Increased Program Funding Levels – During the last two funding years, the Program has been oversubscribed at the $400 million level, requiring proration of support available. To address that development, the FCC authorized carry forward of unused funds from prior funding years to ameliorate these cutbacks for funding year 2017. In addition, in December, the FCC sought comment on increasing the current $400 million cap. Thereafter, the Schools, Health and Libraries Broadband Coalition sought emergency relief because of the potential funding cuts affecting health care providers as a result of oversubscription.

FCC Chairman Reacts – Faced with creating continued uncertainty for patients, health care providers and communications companies, the Chairman has proposed adding $171 million to the fund annually and applying the additional funding to the current funding year “to immediately address a critical funding crisis and enable rural health care providers to continue offering telemedicine services.” The proposal also would adjust the $571 million cap annually for inflation and allow unused funds from prior years to be carried forward to future years. That could mean even more resources available.

Majority Support and Next StepsSince releasing the proposal, Commissioners Carr and O’Rielly have joined in voting for the initiative, which means it will ultimately be formally approved. Congressional and other reaction has been highly positive. The Executive Vice President of the American Hospital Association noted that the increase was “critical to improve the lives or rural Americans…since innovations in health care demand connectivity for telehealth, remote monitoring, patient engagement and daily operations.”

The increase in funding resources should offer additional opportunities for eligible entities who would seek RHCP support to “help health care providers get the connectivity they need to better serve patients throughout rural America.”

Entities interested in in taking advantage of the enhanced Rural Health Care Program should follow these and other developments that the FCC is considering closely so that they are fully informed as to their options.

Right to Try Investigational Drugs Signed Into Law

Right to Try Investigational Drugs Signed Into Law

On May 30, 2018, S. 204, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 (Pub. L. No. 115-176, “Right to Try Act”) was signed into law. The Right to Try Act amends the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) to establish national standards and rules by which certain investigational drugs may be provided to terminally ill patients. Under the Right to Try Act, a patient diagnosed with a life-threatening disease or condition, who has exhausted approved treatment options and is unable to participate in clinical trials involving certain investigational drugs, may seek the opportunity to drug treatments that are not approved by the U.S. Food & Drug Administration (FDA).

The Right to Try Act exempts the provision of eligible investigational drugs to eligible patients from a number of requirements and restrictions under the FD&C Act and other laws. The manufacturer or sponsor of an eligible investigational drug must report annually to the FDA on any use of drugs dispensed under the Right to Try Act. The FDA will post an annual summary report of such use on its website.

The Right to Try Act incorporates the regulatory definitions of “life-threatening” diseases that are: (1) a disease or condition where the likelihood of death is high unless the course of the disease is interrupted, and (2) a disease or condition with potentially fatal outcomes, where the end of clinical trial analysis is survival.

Under the new law, a sponsor or drug manufacturer may only recover the direct costs of making its investigational drug available. Direct costs are costs that can be specifically and exclusively attributed to providing the drug for the investigational use under the Right to Try Act. Direct costs include costs per unit to manufacture the drug (e.g., raw materials, labor, and non-reusable supplies and equipment used to manufacture the quantity of drug needed for the use for which charging is authorized) or costs to acquire the drug from another manufacturing source, and direct costs to ship and handle (e.g., store) the drug. Direct costs exclude costs incurred primarily to produce the drug for commercial sale (e.g., costs for facilities and equipment used to manufacture the supply of investigational drug, but that are primarily intended to produce large quantities of drug for eventual commercial sale) and research and development, administrative, labor, or other costs that would be incurred even if the clinical trial or treatment use for which charging is authorized did not occur.

The FDA announced that it stands “ready to implement this legislation in a way that achieves Congress’ intent to promote access and protect patients. The FDA is dedicated to achieving the goals that Congress set forth in this legislation, so that patients facing terminal conditions have an additional avenue to access promising investigational medicines.”