On August 12, 2016, the Health Resources and Services Administration published a proposed rule setting forth the requirements and procedures of the administrative dispute resolution process applicable to all covered entities and drug manufacturers participating in the 340B Drug Pricing Program. Comments on the Proposed Rule are due on or before October 11, 2016.

The Proposed Rule represents a first step in the implementation of Section 7102 of the Patient Protection and Affordable Care Act, as amended by Section 2302 of the Health Care and Education Reconciliation Act (the Affordable Care Act), which mandates the development of a binding administrative dispute resolution process for the 340B Program, but still leaves many questions unanswered that will have practical implications on the covered entities and manufacturers involved. This summary of the Proposed Rule briefly explain the ADR process as proposed, and highlights areas where industry stakeholders should consider submitting comments to the agency.

As a threshold matter, HRSA makes clear that the ADR process should be considered a “last resort” and that manufacturers and covered entities are still expected to try to resolve any pricing or eligibility issues informally and in good faith. Manufacturers are solely responsible for obtaining any information needed from wholesalers and distributors to file claims or respond to allegations from covered entities set forth in disputes.

The proposed ADR process is broken into three stages: (1) the covered entity or manufacturer wishing to utilize the ADR process must file a written claim with HRSA’s Healthcare Systems Bureau (HSB) within 3 years of the date of the sale or payment at issue; (2) then, HSB will review the claim to verify that all filing requirements have been met; and (3) if all requirements have been met, HSB will forward the claim to a special panel for review and adjudication.

The ADR process will only be available to resolve specific categories of claims. For covered entities, the ADR process can be used to resolve allegations that a manufacturer has overcharged the covered entity for their purchase of 340B drugs; specifically that the covered entity paid more than the applicable 340B Ceiling Price for the drug in question. With respect to manufacturers, the ADR process can be used to resolve post-audit allegations that the covered entity violated the 340B Program prohibitions against duplicate discounts and diversion to ineligible patients. Both covered entities and manufacturers will be allowed to “consolidate” claims, but this is an area that could present operational and organizational complexities, and is worthy of comment. Multiple covered entities would be able to consolidate multiple claims that the same manufacturer overcharged them for the same drug, which arguably could lead to efficient resolution of many issues faced by covered entities. However, since manufacturers can only file a claim under the ADR process after they have conducted their own formal audit of a covered entity (a cumbersome process in and of itself), it remains to be seen how efficient consolidation of claims by manufacturers will be. Another interesting twist in the Proposed Rule allows “associations or organizations representing [the] interests” of covered entities to file consolidated claims on their behalf, but explicitly denies the same right to manufacturers. The preamble to the Proposed Rule states that “the statutory authority for implementing the 340B ADR process does not permit consolidated claims on behalf of manufacturers by associations or organizations representing their interests.” This issue raises another area upon which stakeholders may wish to comment, particularly given that systemic violations of 340B Program requirements, like the Group Purchasing Organization (GPO) prohibition for certain hospital participants, could pose the same issue for a myriad of manufacturers.

In addition, the party filing a claim must submit documents “sufficient to demonstrate” a violation by the other party. Not only must applicable invoices, receipts, audit reports, and the like be submitted, but HSB has the right to request that the party filing the claim “submit a written summary of attempts to work in good faith to resolve the claim.”

Once a valid claim has been filed and accepted by the HSB, the claim is forwarded to a special panel for adjudication. Each panel member will be screened for conflicts of interest prior to reviewing any individual claim, however it is not clear how the parties to a dispute are allowed to protest or otherwise object to the inclusion of a member of the panel reviewing their applicable claim. The proposed panel will consist of three members “chosen from a roster of eligible individuals alternating from claim to claim” and a fourth non-voting member of the HRSA Office of Pharmacy Affairs staff. The Proposed Rule states that the “roster” will be comprised of Federal employees with “demonstrated expertise or familiarity with the 340B Program,” but no other specific requirements or capabilities are enumerated in the Proposed Rule. Again, this is an area ripe for comment; given the unique issues that 340B participating entities face (for both covered entities and manufacturers), it is in the best interests of all parties involved that members of the panel have significant exposure to and experience with the 340B Program.

The job of the panel is to review all documentation provided by the parties related to each claim, request any additional information, and review claims in “a session closed to the parties involved, including any associations or organizations, or legal counsel” representing the parties. The final decision of the panel must represent a majority decision, but need not be unanimous.

The time frames and deadlines in the Proposed Rule may appear to be rather short, and should be considered closely by the industry. First of all, there is a general three year “statute of limitations,” in which a claim must be filed from the date of the alleged price, discount, or diversion violation. Once filed, the submitting party must notify the opposing party within three business days of filing the claim with the HSB, and then the filing party must submit proof of the opposing party’s receipt or acknowledgement of the claim within three business days. The Proposed Rule makes clear that, if requested for additional information, the party will have twenty days to respond, and that the HSB has twenty business days from receipt of the claim and any subsequently requested information to determine whether the claim proceeds to the special panel. However, there is no suggested time frame in which the special panel must respond with its final decision regarding adjudication of the claim.

Other areas of the Proposed Rule that may warrant further consideration and comment are:

  1. Whether the ADR panel can impose or recommend civil monetary penalties (CMPs) on manufacturers for failure to offer the appropriate 340B price to covered entities as part of the ADR process. 
  2. While the Proposed Rule suggests that covered entities have the ability to know the 340B price to validate their claims against the price invoiced, that is not necessarily true today. HRSA is in the process of creating a 340 pricing database so that covered entities can access pricing information in the future, but what options are available to a covered entity prior to availability of the database?

Lastly, it’s important to keep in mind that while the 3 year time frame sets forth how long a covered entity or manufacturer has to file a dispute, it is not a statute of limitations. Manufacturers can still face legal exposure for failing to offer the 340B Ceiling Price to covered entities outside of the 3-year period, potentially in the form of CMPs imposed by HRSA and under the federal False Claims Act.