2020 final price reporting developments: stimulus legislation, 340B contract pharmacy Advisory Opinion

Hogan Lovells

As we begin the new year, we wanted to highlight two final developments from December 2020:

  • First, on Dec. 27, 2020, the stimulus legislation H.R. 133, the Consolidated Appropriations Act of 2021 (link), Pub. L. 116‑260 (Act), was signed into law. The Act includes several changes relevant to government price reporting. Some of the provisions were first introduced as part of S. 2543, the Prescription Drug Pricing Reduction Act of 2019 (link) (PDPRA) – the bipartisan drug pricing bill that was passed by the Senate Finance Committee in September 2019, but that was never voted upon by the Senate.
  • Second, on Dec. 30, 2020, the Office of the General Counsel (OGC) within the U.S. Department of Health and Human Services (HHS) published “Advisory Opinion 20-06 on Contract Pharmacies Under the 340B Program” (link, accompanied by a press release). This non-binding, interpretive opinion claims that Section 340B of the Public Health Service Act requires manufacturers in the 340B program to offer 340B discounts for their covered outpatient drugs that are ordered by a covered entity through a contract pharmacy arrangement.

Government pricing provisions in recent stimulus legislation

The Act includes certain provisions related to government price reporting under the Medicaid Drug Rebate Program (MDRP) and the Medicare Part B program. We review key price reporting provisions below.

Expansion of ASP reporting obligation to manufacturers without Medicaid drug rebate agreements, and to additional products. Section 401 of the Act amends Section 1847A of the Social Security Act to require manufacturers that do not have in effect a Medicaid drug rebate agreement with the Secretary of HHS (Secretary) to comply with Medicare Part B reporting requirements, including the reporting of Average Sales Price (ASP). This expansion of price reporting to manufacturers without rebate agreements was proposed in Section 101 of PDPRA. In addition, the ASP reporting obligation appears to be expanded to apply to certain drugs or biologicals “payable” under Medicare Part B, though nothing in the law requires the Secretary to publish a Medicare payment rate for such products. These changes become effective for calendar quarters beginning on or after Jan. 1, 2022.

  • Scope of manufacturers: Medicare Part B price reporting requirements will now apply to manufacturers that have not entered into a Medicaid rebate agreement. The Secretary will have discretion to exclude repackagers for this purpose.

  • Scope of products: The Act states the ASP reporting requirement by providing that a drug or biological will include “items, services, supplies, and products” that are “payable” under Medicare Part B as a drug or biological. This seemingly expands the scope of what is subject to the mandatory ASP reporting requirement.

  • Auditing: The information reported by a manufacturer without a rebate agreement is subject audit by the Office of Inspector General (OIG) within HHS.

  • Verification: The Secretary may survey manufacturers and wholesalers that directly distribute these products, when necessary, to verify manufacturer prices and ASP, including wholesale acquisition cost (WAC), if required to make payment.

  • Confidentiality: Information disclosed under this provision, other than WAC, is confidential. The Secretary cannot disclose the information in a form that discloses the identity of a specific manufacturer or wholesaler, or prices charged for drugs or biologicals by the manufacturer or wholesaler, except under the following circumstances:

    • As the Secretary determines to be “necessary” to carry out this provision, including determination and implementation of payment amount, or to carry out competitive acquisition of drugs or biologicals under Section 1847B of the Social Security Act; or

    • To permit the Comptroller General of the United States, the Director of the Congressional Budget Office, the Medicare Payment Advisory Commission (MedPAC), or the Medicaid and CHIP Payment and Access Commission (MACPAC) to review the information.

  • Civil Monetary Penalties (survey information): The Secretary may impose civil monetary penalties (CMPs) not to exceed $100,000 on a manufacturer, wholesaler, or direct seller that refuses a request for information or knowingly provides false information about charges or prices in connection with a survey conducted by the Secretary.

  • Civil Monetary Penalties (price reporting): The Secretary may impose CMPs of $10,000 per day for a manufacturer without a rebate agreement that fails to provide timely information in Medicare Part B reporting, and $100,000 per day for such a manufacturer that provides false information in such reporting. (Similar penalty provisions already are in effect for manufacturers with a rebate agreement.)

  • OIG report to Congress: No later than Jan. 1, 2023, OIG must assess and submit to Congress a report on the accuracy of ASP information submitted by manufacturers, including the extent to which they provide false information, misclassify drug products, or misreport information. The OIG report must include any recommendations on how to improve the accuracy of reported information.

Payment adjustment for certain drugs with self-administered presentations. Section 405 of the Act amends Section 1847A of the Social Security Act to provide for an adjustment of Part B payment amounts where the Healthcare Common Procedure Coding System (HCPCS) code includes a self-administered version of the drug. OIG identified this issue in a Nov. 2017 report and a July 2020 final follow-up report, explaining that the prices of self-administered versions of certain Part B drugs were being reflected in the Part B payment amounts for the corresponding HCPCS code, although the self-administered versions of these drugs were not covered by Part B. As amended, Section 1847A now requires OIG to conduct periodic studies to identify instances where this is the case (using the same or similar methodologies as in the 2017 and 2020 reports), and to identify self‑administered drugs that should be excluded from the determination of the payment amount under Section 1847A.

If OIG identifies such a drug, OIG must inform the Secretary, and the Secretary must (to the extent the Secretary deems appropriate) apply a “lesser of” payment amount for the HCPCS code, as follows: (A) the amount of payment that would result if the self-administered drug were excluded from the determination of the payment amount, or (B) the amount of payment determined without that exclusion. This “lesser of” methodology will now apply to the HCPCS codes with drugs identified in the 2020 OIG final follow-up report.

Disclosure of price reporting data to MedPAC and MACPAC. Section 112(b) of the Act amends Section 1927 of the Social Security Act to allow the Secretary to share with the executive directors of MedPAC and MACPAC, respectively, certain Medicare and Medicaid pricing information reported by manufacturers that have rebate agreements in place under the MDRP. (MedPAC and MACPAC are non‑partisan legislative branch agencies tasked with providing analysis and policy advice on Medicare and on Medicaid and CHIP, respectively.) The information may not be disclosed by MedPAC or MACPAC, including to their individual commissioners, in a form that discloses the identity of a specific manufacturer or wholesaler, or prices charged for drugs by the manufacturer or wholesaler. This provision is identical to Section 122(b) of PDPRA.

The HHS Office of the General Counsel Advisory Opinion on 340B contract pharmacies

The HHS OGC Advisory Opinion published on Dec. 30, 2020 (AO) responds to recent developments in the 340B program. Beginning this past summer, a number of pharmaceutical manufacturers implemented policies that, while varying in form, generally limit the ability of 340B covered entities to use contract pharmacies to access 340B discounts for the manufacturers’ covered outpatient drugs. While HRSA publicly stated that its contract pharmacy guidance is not enforceable, various 340B stakeholders responded by asserting, among other things, that the manufacturer policies violated the 340B statute, but did not enunciate a legal basis for that assertion. The AO now claims that the 340B statute itself requires a participating manufacturer to honor contract pharmacy arrangements, and offers legal arguments in support of that conclusion.

The AO generally acknowledges the recent history of manufacturer contract pharmacy policies, explaining that “certain manufacturers participating in the 340B Program are declining to distribute covered outpatient drugs through contract pharmacies at the ceiling price.” It also states that OGC “has received numerous requests from both manufacturers and covered entities to address whether it is proper for a drug manufacturer participating in the 340B Program to refuse to provide covered outpatient drugs at the 340B ceiling price to a covered entity for drugs distributed to the entity’s contract pharmacies.”

In its legal argument, the AO asserts that the plain meaning of the 340B statute requires honoring contract pharmacy orders, explaining that “the core requirement of the 340B statute, as also reflected in the [Pharmaceutical Pricing Agreement] and Addendum, is that manufacturers must ‘offer’ covered outpatient drugs at or below the ceiling price for [sic] ‘purchased by’ covered entities.” The AO focuses on the “purchased by” language, noting that it is the covered entity, not the contract pharmacy, that is purchasing the drugs at the 340B price, and further explains: “This fundamental requirement is not qualified, restricted, or dependent on how the covered entity chooses to distribute the covered outpatient drugs. All that is required is that the discounted drug be ‘purchased by’ a covered entity. In this setting, neither the agency nor a private actor is authorized by section 340B to add requirements to the statute.” In reaching this conclusion, the AO relies on OGC’s understanding of the 340B statute’s term “purchased by,” stating that “[i]t is difficult to envision a less ambiguous phrase and no amount of linguistic gymnastics can ordain otherwise,” and that, accordingly, “[t]he situs of delivery, be it the lunar surface, low‑earth orbit, or a neighborhood pharmacy, is irrelevant.”

The AO further states that, while the lack of ambiguity in the statutory text is “dispositive,” the “straightforward textual interpretation” is also supported by the statute’s “purpose and history,” claiming that:

  • Contract pharmacies have been an “integral part” of the 340B program “since its outset”
  • Congress intended to permit contract pharmacies
  • HHS’s “longstanding interpretation” of the 340B statute “reflects the plain language of the section by recognizing the use of contract pharmacies”
  • The rationale cited by manufacturers with these newly implemented policies is “not supported by the language of the statute and leads to absurd results”

Importantly, the AO makes clear that it is not a final agency action or a final order, and does not have the force or effect of law. At the same time, it sets forth the “current views” of the OGC and marks a departure from the government’s approach to date to remain silent as to whether the 340B statute requires honoring contract pharmacy arrangements. Despite its purportedly non-binding nature, the AO and the “current views” it reflects may have greater significance in light of the newly established 340B ADR process, which will become effective January 13, 2021 (the related HL client alert is available here).

As always, it is important that you carefully review these developments in light of considerations that may be relevant to your organization and specific drugs. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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