The U.S. Department of Health and Human Services (“HHS”) recently published a final rule on the 340B Drug Pricing Program (“340B Program”), moving the effective date for changes to the program up to January 1, 2019.  Making the rule effective next month is welcome news for eligible hospitals, clinics, and health centers that serve vulnerable populations ("Covered Entities") because it establishes the methodologies for pharmaceutical manufacturers’ 340B ceiling prices as well as establishes civil monetary penalties (“CMPs”) for manufacturers that knowingly and intentionally charge Covered Entities more than the designated ceiling price.  HHS is also planning on launching a website where Covered Entities may easily verify manufacturer pricing data to ensure that they are not being overcharged.  The website is expected to open during the first quarter of 2019.

Background

The 340B Program requires drug manufacturers who want to participate in Medicaid to provide outpatient drugs at a 20%-50% discount to Covered Entities.  In January 2017, HHS published a final rule (“2017 Rule”) in the Federal Register in which it set forth the calculation of the 340B ceiling prices, created the penny pricing policy, and established CMPs.  Now after eight years and five delays, each Covered Entity will be able to ensure that manufacturers are observing the drug price ceilings and HHS will be able to enforce them.

The 2017 Rule will apply to all drug manufacturers that are required to make their drugs available to Covered Entities under the 340B Program.  Since Covered Entities get reimbursed from the government at a higher rate than what they are charged, the 340B Program plays an integral role in helping providers provide high-quality and low-cost care to patients that otherwise would not have the ability to pay for their care.  Below, we highlight some of the key provisions from the 2017 Rule.

Ceiling Price

HHS receives both the average manufacturer price and unit rebate amount quarterly data from the Centers for Medicare & Medicaid Services to calculate the 340B ceiling price.  Unfortunately, the Office of the Inspector General (“OIG”) has found that drug manufacturers oftentimes do not accurately provide the required discounts to Covered Entities. 
Created to discourage drug manufactures from raising prices faster than inflation, the penny pricing policy mandates a manufacturer to charge Covered Entities $0.01 per unit if the 340B ceiling price equals zero.  An OIG report discovered drug manufacturers commonly overcharging Covered Entities for drugs that would be covered under the penny pricing policy.  These Covered Entities paid an excess from $1.65 to $1,931 over the ceiling price.

Manufacturer CMPs

Drug manufacturers that knowingly and intentionally charge Covered Entities a price for a 340B drug that exceeds the price ceiling will face CMPs.  The 2017 Rule directs drug manufacturers participating in the 340B Program to disclose the maximum per unit ceiling price that can be charged to 340B Covered Entities.  Enforcement will be maintained through a closed website available to 340B participating providers.  Federal regulators will post drug pricing information on the site.

Covered Entities Should be Vigilant

HHS has indicated that the ceiling price website will be launching soon.  Hospitals and other Covered Entities are encouraged to follow the development of the online access and verify the ceiling prices they are charged by drug manufacturers to ensure that they are not being overcharged.  Verrill Dana will continue to monitor and bring you updates on this matter.