On August 27, the Health Resources and Services Administration (“HRSA”) released its long-awaited proposed guidance for covered entities – a class of providers that includes qualifying hospitals and clinics – contract pharmacies and drug manufacturers that participate in the 340B Program, a federal drug pricing program that helps underserved communities get access to prescription medications. Health care organizations participating in the 340B Program (known as “covered entities”) can purchase outpatient drugs at discounted prices for eligible individuals. Rebounding from a legal challenge last year that narrowed HRSA’s rulemaking authority to administer the 340B Program, HRSA’s proposed guidance, 340B Drug Pricing Program Omnibus Guidance (the “Omnibus Guidance”), offers broad revisions to existing guidance and provides new guidance relating to the 340B Program.

Clarifications to the requirements for establishing 340B Program eligibility represent the bulk of the HRSA’s proposals in the Omnibus Guidance. HRSA proposes to clarify the criteria for both hospital and non-hospital covered entities, including the interpretation of the terms “government owned and operated,” “governmental powers,” “contract with a State or local government,” and “disproportionate share adjustment percentage.” The Omnibus Guidance also proposes exceptions to the statutory requirement limiting the participation in the 340B Program of covered entities that also participate in group purchasing arrangements to obtain outpatient drugs.

Likely to draw the most attention among all of the proposed revisions is HRSA’s proposal to update the definition of an eligible “patient.” A key pillar of 340B Program is that a covered entity may only purchase and dispense eligible drugs to “eligible patients” of the covered entity. Because Congress chose not to define the term, HRSA issued guidance to define eligible patient in 1996. That definition lacked clarity and created confusion for covered entities who adopted broad and narrow interpretations. The chief consequence for covered entities interpreting the definition too narrowly is limiting the benefit of the 340B Program, whereas the consequence for covered entities interpreting the definition too broadly is the potential diversion of 340B drugs to non-eligible individuals. In its testimony to Congress earlier this year, the Government and Accountability Office reported that some covered entities had extended program benefits to individuals seen by providers who are only loosely affiliated with the covered entity.

Aiming to address that ambiguity and stymie the potential for diversion, HRSA proposes a more robust definition than it promulgated in its earlier guidance. Indeed, the proposed definition specifically includes individuals who receive a health care service from a health care provider who is an independent contractor of the covered entity, so long as the covered entity can bill for the services on behalf of the provider. Another noteworthy element of that proposed definition is an explicit clarification that an individual’s receipt of a qualifying drug must be derivative of a received health care service. Equally important, the Omnibus Guidance additionally narrows the application of “eligible patient” to “a prescription-by-prescription or order-by-order basis” – effectively wedding the 340B benefits with a patient’s medical issues being treated by a covered entity.

In addition, the Omnibus Guidance proposes a broad program integrity package. To promote oversight of the program, HRSA proposes a requirement that covered entities, contract pharmacies and drug manufacturers maintain auditable records demonstrating program compliance, which are to be held for no less than five (5) years. The Omnibus Guidance also proposes increased oversight of contract pharmacies, which includes quarterly reviews and annual independent audits of each registered location.

The Omnibus Guidance proposes a major sweep to the current eligibility, registration and oversight guidance for the 340B Program. Covered entities and other stakeholders are invited to comment on the Omnibus Guidance by October 27, 2015, after which time HRSA intends to finalize its proposed guidance to the 340B Program.