On June 16, 2015, the U.S. Department of Health and Human Resources (HHS) and the Health Resources and Services Administration (HRSA) issued a notice of proposed rulemaking (Notice) related to the 340B Drug Pricing Program (340B Program). Specifically, the Notice: (i) sets forth a system for calculating so-called “ceiling prices” for 340B-eligible drugs; and (ii) implements civil monetary penalties for drug manufacturers that overcharge hospitals and other entities participating in the 340B Program (Covered Entities). The Notice is scheduled to be published in the Federal Register on June 17, 2015, and HRSA will be accepting public comments to the Notice thereafter.

Ceiling Price Calculation and Availability

As a condition of participation in the Medicaid program, a drug manufacturer must sign a pharmaceutical pricing agreement with HHS, whereby the manufacturer agrees to limit the amounts it charges Covered Entities for 340B-eligible drugs. Manufacturers are required to calculate the maximum price, or ceiling price, for each drug on a quarterly basis. Under the proposed rules, the ceiling price of a 340B drug would be calculated by subtracting a drug’s “Unit Rebate Amount” from the “Average Manufacturer Price” for such drug. The ceiling price will be calculated at the smallest unit of measure to six decimal places and then multiplied by the drug’s package size and case package size. Where the calculated ceiling price for a given drug is less than $0.00, the proposed rule would require a manufacturer to charge $0.01 per unit for such drug. Further, when a new 340B drug is first made available, the manufacturer of such drug must estimate the ceiling price of the drug for the first three quarters in which it is available for sale. Beginning with the fourth quarter, the manufacturer will calculate the ceiling price as described above. According to the Notice, HRSA would be required to publish all 340B ceiling prices.  Published ceiling prices will be rounded to two decimal places.

Civil Monetary Penalties

As set forth in the Notice, HRSA proposes to implement civil monetary penalties on manufacturers who knowingly and intentionally charge Covered Entities an amount greater than the ceiling price. Such civil monetary penalties would not exceed $5,000 for each instance of overcharging. The proposed rules provide that each order for a drug will constitute a single instance of overcharging, regardless of the number of units ordered. In addition to these civil monetary penalties, manufacturers will continue to be subject to repayment to covered entities for any amounts overcharged. Manufacturers would not be penalized for failing to provide a drug at the 340B price if the covered entity does not identify the purchase as 340B-eligible at the time of purchase.

The scope of the Notice is noteworthy in light of a U.S. Federal District Court decision pertaining to HRSA’s authority to issue formal rules on the 340B Program. Specifically, in such decision, the court held that HRSA’s rulemaking authority was limited to certain narrow topics (including both the calculation of ceiling prices and civil monetary penalties for manufacturers). The Notice references, but does not address, another of these narrow areas identified by the court—the creation of an administrative dispute resolution—but states that future HRSA rulemakings will address this issue. HRSA had also, prior to the issuance of the court’s decision, intended to release formal rules on a wide array of key 340B topics including the definition of patient and contract pharmacy regulations. In light of the court’s holding, HRSA has now drafted a “Mega-Guidance” on these topics, which is expected to be issued later this year.