Compliance Issues Relating to Intersection of Medicaid Rebate and 340B Programs

1
Compliance Issues Relating to Intersection of
Medicaid Rebate and 340B Programs

• by
• Bill von Oehsen
• President and General Counsel
• Safety Net Hospitals for Pharmaceutical Access
• NAMFCU Directors Symposium
• March 24, 2010
• Washington, DC

2
Overview

• 340B background
• Calculating ceiling price
• 340B litigation update
• Medicaid intersection duplicate discounts
• 340B-specific billing and payment options
• Medicaid billing compliance issues
• SNHPA Medicaid billing survey
• Whats next?
• Additional 340B resources and upcoming events

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
3
340B Background

• 340B drug discount program requires
  pharmaceutical manufacturers participating in the
  Medicaid program to provide discounts on covered
  outpatient drugs purchased by federally-funded
  clinics and other safety net providers referred
  to as covered entities
• The rights and obligations of covered entities
  and manufacturers are set forth in Section 340B
  of the Public Health Service Act (PHSA)
• Section 1927 of the Social Security Act (SSA)
  requires manufacturers to enter into a
  pharmaceutical pricing agreement (PPA) with the
  Secretary of HHS as a condition of Medicaid
  covering and paying for the companies outpatient
  drugs
• Under the PPA, a manufacturer agrees to provide
  discounts and otherwise comply with 340B
  requirements

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
4
340B Background (contd)

• Program is administered by the Health Resources
  and Services Administration (HRSA) through the
  Office of Pharmacy Affairs (OPA)
• Because several aspects of the 340B program
  depend on interpretation and application of SSA
  provisions (e.g. average manufacturer price, best
  price, etc.), the Centers for Medicare Medicaid
  Services (CMS) also plays a significant role in
  340B program administration
• Covered entities include high-Medicaid
  disproportionate share hospitals owned by or
  under contract with state or local government
  community health centers ADAPs family planning
  clinics AIDS, TB and STD clinics and other
  grantees under the Public Health Service Act
• Covered entities, manufacturers and other 340B
  participants are listed in the OPA database

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
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340B Background (contd)

• Discounts are calculated using the Medicaid
  rebate formula but 340B pricing is better
  because (1) sales do not involve retail
  pharmacies thereby avoiding retail mark-ups and
  (2) 340B providers regularly negotiate
  sub-ceiling prices
• Use of drugs limited to patients of 340B
  covered entity
• Medicaid billing procedures may need to be
  adjusted to avoid manufacturers giving duplicate
  discounts

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
10
340B Background (contd)
Private Sector Pricing
Best Price 63
42
Source Data derived from Prices for Brand-Name
Drugs Under Selected Federal Programs,
Congressional Budget Office (June 2005)
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
11
340B Background (contd)
82
Private Sector Pricing
71
67
Best Price 66
60
55
53
51
44
42
Source Data derived from Prices for Brand-Name
Drugs Under Selected Federal Programs,
Congressional Budget Office (June 2005)
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
12
Calculating Ceiling Price

• Manufacturers Medicaid drug rebate agreements
  require drug companies to calculate average
  manufacturer price (AMP) and best price as part
  of their obligation to pay rebates to Medicaid
  for covered outpatient drugs
• Medicaid rebate formula also requires
  manufacturers to calculate the average total
  rebate for a drug unit for each dosage and
  strength, often referred to as the unit rebate
  amount (URA)
• 340B ceiling price AMP URA
• Accordingly, if a manufacturer miscalculates AMP,
  best price or URA in a manner that results in the
  underpayment of Medicaid rebates, the
  miscalculation will lead to 340B providers being
  overcharged for the same drug

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
13
Calculating Ceiling Price (contd)
April 1st 30th
May 1st 15th
June 15th
July 1st
Days 1-30 Manufacturer submits AMP and BP data
from Jan-March to CMS
Days 31-45 CMS validates data and calculates the
unit rebate amount and the 340B-ceiling price.
Because in middle of 2nd quarter, price not in
effect until beginning of 3rd quarter, the next
full quarter.
Day 75 Manufacturer sends 340B price to
wholesaler /or entries
Day 90 340B price in effect for 3rd Quarter,
July-September
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
14
Calculating Ceiling Price (contd)

• Special procedures for calculating 340B price for
  new drugs
• Manufacturers must estimate a new drugs 340B
  ceiling price for the first three quarters that
  the drug is on the market
• After three quarters, manufacturers will have AMP
  and best price data to calculate the ceiling
  price
• If the manufacturer overestimates the new drugs
  price during the initial three quarter period, it
  must issue a refund to the covered entity upon
  request
• Penny prices Under HRSA policy, if the 340B
  formula results in a negative price (because the
  inflation-based penalty exceeds AMP minus 15.1
  or best price), then the manufacturers must
  charge a penny for the drug

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
15
340B Litigation Update
Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Settlement Date Settlement Amount
Bayer Kogenate and other Factor/IVIG Products January 1993 August 31, 1999 Sept. 2000 14 Million200K for 340B
TAP Lupron January 1991 October 2001 Oct. 2001 875 Million
Pfizer Lipitor 1st Quarter - 4th Quarter 1999 Oct. 2002 49 Million 567K for 340B
Bayer and GSK Cipro, Adalat CC, Flonase and Paxil Cipro 1st Qtr 96 1st Qtr 01 Adalat CC 4th Qtr 97 1st Qtr 00 Flonase 3rd Qtr 97 3rd Qtr 00 Paxil 1st Qtr 01 April 2003 Bayer Total 257 Million At least 2.5 Million to 340B entities GSK Total 87.6 Million At least 9.4 Million to 340B entities
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
16
340B Litigation Update (contd)
Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Settlement Date Settlement Amount
AstraZeneca Zoladex January 1991 December 31, 2002 June 2003 355 Million
Schering-Plough Claritin January 1998 December 31, 2002 July 2004 Total 345 Million At least 10.6 Million to 340B entities
KING Pharmaceuticals Entire Drug Line January 1994 December 31, 2002 October 31, 2005 124 Million At least 7 Million to 340B entities
Schering-Plough Claritin Redi-Tabs and K-DUR Redi-Tabs 4th Qtr 98 2nd Qtr 02 K-DUR 2nd Qtr 96 2nd Qtr 01 August 29, 2006 255 Million civil settlement (180 Million criminal fines) At least 3.9 million to 340B entities
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
17
340B Litigation Update (contd)
Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Settlement Date Settlement Amount
Bristol-Myers Squibb Serzone 1st Qtr 97 4th Qtr 97 September 28, 2007 515 million 124,000 to 340B entities
Merck Zocor, Vioxx April 1998 March 2006 February 7, 2008 671 million 9 million to 340B entities
Cephalon Inc. Gabitril, Actiq, and Provigil January 2001 through at least 2006 October 2008 Total 425 Million At least 1.8 Million for 340B entities
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
18
340B Litigation Update (contd)
Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Settlement Date Settlement Amount
Eli Lilly Zyprexa September of 1999 - March of 2001 January 2009 Total 1.43 Billion More than 75,000 to 340B entities
Aventis Pharmaceuticals Azmacort, Nasacort, and Nasacort AQ October. 1, 1995 to September 30, 2000 May 28, 2009 95.5 million total 6.5 Million to 340B Entities
Mylan Pharmaceuticals Inc. and UDL Laboratories Inc Various 2000-2004 October 19, 2009 118 Million, 7.3 Million for 340B entities
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
19
Medicaid Intersection Duplicate Discounts

• Covered entities are generally free to bill and
  be reimbursed for 340B drugs without making any
  adjustments to their billing procedures, unless
  Medicaid is the payer
• Covered entities sometimes must bill Medicaid at
  reduced prices for 340B drugs
• The sole reason that covered entities must adjust
  their Medicaid billing practices is to protect
  manufacturers from the duplicate discount problem

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
20
Medicaid Intersection Duplicate Discounts
(contd)
Step 5 Manufacturer pays rebate on 340B drug
Step 1 Manufacturer sells drug at 340B discount
Manufacturer
Step 4 State submits rebate request
Step 3 Covered entity bills Medicaid for 340B
drug
State Medicaid Agency
Covered Entity
Medicaid patient
Step 2 340B drug is dispensed to Medicaid patient
STEPS 1 AND 5 DUPLICATE DISCOUNT
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
21
Medicaid Intersection Duplicate Discounts
(contd)

• Manufacturers are protected from paying a
  Medicaid rebate and giving a 340B discount on the
  same drug. PHSA 340B(a)(5)(A) SSA 1927(a)(5)(C)
• To avoid the duplicate discount problem, the
  Secretary is directed to develop a mechanism that
  340B providers and states can use to ensure
  compliance alternatively covered entities should
  not seek Medicaid reimbursement for 340B drugs
  that are subject to Medicaid rebates. PHSA
  340B(a)(5)(A) SSA 1927(a)(5)(C)

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
22
340B-Specific Billing and Payment Options

• HRSA guidelines allow covered entities to comply
  with the statute in different ways
• 1. Bill Medicaid at acquisition cost plus the
  state-allowable dispensing fee and the state
  does not request a rebate. 58 Fed. Reg. 34,058
  (6/23/93)
• 2. Carve out Medicaid drugs from the 340B
  program and allow the state to collect rebates.
  65 Fed. Reg. 13,983 (3/15/00)
• 3. Follow state guidelines for applicable
  billing limits. 65 Fed. Reg. 13,983 (3/15/00)

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
23

340B-Specific Billing and Payment Options
Options Covered Entity Procedures State Medicaid Procedures
340B Pass-Through Bills state at actual acquisition cost (AAC) and submits pharmacys Medicaid billing number to HRSA for posting on website Excludes from rebate request files any claims paid under billing number posted on HRSA website
Medicaid Carve-Out Purchases its Medicaid outpatient drugs outside 340B program, bills Medicaid at regular non-340B rates and submits N/A for posting on HRSA website Includes covered entitys claims in rebate request files
Shared Savings Same as 340B pass-through option except covered entity and state enter into alternative billing and payment arrangement Pays enhanced dispensing fee or above AAC rates
Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
24
Medicaid Billing Compliance Issues

• Question Has a covered entity overbilled
  Medicaid if it does not bill its state at actual
  acquisition cost (AAC) for 340B drugs?
• Answer Not necessarily
• Explanation There are numerous exceptions to
  the AAC billing restriction, for example
• when billing a managed care organization
• if the drug is not rebatable under Medicaid
• if the state has different billing and
  reimbursement limits

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
25
Medicaid Billing Compliance Issues (contd)

• There are some within the Medicaid program who
  believe that the AAC billing restriction was
  established to save money for Medicaid
• Not true for several reasons
• It is clear in both 340B law and legislative
  history that the sole purpose of AAC billing is
  to compensate states for the loss of their
  rebates that they would otherwise receive but for
  the protection of manufacturers from duplicate
  discounts
• HRSAs 1993 guidance establishing the AAC billing
  standard is an informal, non-binding policy
• HRSA essentially withdrew the policy in March
  2000 when it issued another guidance directing
  covered entities to refer to their respective
  Medicaid state agency drug reimbursement
  guidelines for applicable billing limits

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
26
Medicaid Billing Compliance Issues (contd)

• States allow deviation from AAC billing for
  different reasons
• State utilizes billing system that does not
  accommodate AAC billing
• AAC billing does not affect reimbursement
  (prospective payment for Medicaid services)
• Hospital systems do not accommodate AAC billing ,
  so billing must be by hand and state recognizes
  onerous administrative burden
• Regardless of states perceived billing and
  payment policy for 340B drugs, there may be no
  clear guidance in statute, rules, or providers
  manual or transmittal

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
27
Medicaid Billing Compliance Issues (contd)

• While HRSA clarified in 2000 that AAC is not
  required under federal law, CMS has never issued
  parallel guidance
• Considerable lack of clarity among Medicaid
  programs
• Many (e.g. Medi-Cal) believe that federal law
  requires billing at AAC
• Medicaid auditors in at least three states FL,
  AK, NY have investigated 340B covered entities
  for alleged overbilling
• Federal whistle blower suit against family
  planning clinics in Los Angeles sued for billing
  at other than AAC

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
28
SNHPA Medicaid Billing Survey

• 45 percent of the hospital respondents reported
  that their state Medicaid agency allowed them to
  deviate from AAC billing
• 55 percent indicated that they were not allowed
  to deviate
• 10 states that reportedly allow non-AAC billing
  include Arizona, Georgia, Maine, Maryland,
  Minnesota, New Jersey, Ohio, Oregon, Texas and
  West Virginia.
• 5 states that require AAC billing include
  Idaho, Iowa, Kansas, Rhode Island and South
  Dakota.
• Hospitals in 12 states gave conflicting answers
  Arkansas, California, Florida, Kentucky,
  Louisiana, Massachusetts, Michigan, Missouri, New
  York, North Carolina, Pennsylvania and Washington

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
29
Whats Next?

• 340B Coalition urging CMS and HRSA to work on a
  uniform and coherent policy
• 340B Coalition offering input on law, state
  variations, history
• 340B Coalition keeping pressure on CMS, HRSA to
  produce
• HHS Office of Inspector General reviewing
  Medicaid billing by 340B covered entities
• Time is of the essence
• June 2009 California legislature mandated AAC
  billing, prohibited carve-out
• Medi-Cal results in lose-lose. HRSA and CMS
  have opportunity to educate states on shared
  savings win-win

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
30
Additional 340B Resources

• Safety Net Hospitals for Pharmaceutical Access
• www.snhpa.org
• Bill von Oehsen
• william.vonoehsen_at_snhpa.org or 202-466-6550
• Stuart Gordon
• stuart.gordon_at_snhpa.org or 202-552-5851
• Federal Drug Discount and Compliance Monitor
• www.drugdiscountmonitor.com
• SNHPA/340B Job Site
• www.rxjobsolutions.com

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
31
Additional 340B Resources (contd)

• Office of Pharmacy Affairs
• www.hrsa.gov/opa
• 340B Prime Vendor Program
• www.340Bpvp.com
• Pharmacy Services Support Center
• 1-800-628-6297 or www.pssc.aphanet.org

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org
32
Upcoming Events

• 14th Annual 340B Coalition Conference
• July 19-21, 2010
• Washington, DC
• www.340bconferences.org

Safety Net Hospitals for Pharmaceutical
Access Bill von Oehsen [phone]

william.vonoehsen_at_snhpa.org