Today, the Health Resources and Services Administration (HRSA) released a Notice of Proposed Rulemaking (NPRM) regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties (CMPs) on manufacturers that knowing and intentionally overcharge 340B covered entities. The Proposed Rule is expected to be published in the Federal Register tomorrow, June 17, with comments due within 60 days, or no later than August 17, 2015.

Background: The Affordable Care Act (ACA) amended the 340B statute in 2010 to require the Secretary to provide for the imposition of CMPs on participating manufacturers that “knowingly and intentionally” charge covered entities a price for the purchase of a drug that exceeds the 340B ceiling price. Such penalties are not to exceed $5,000 for each “instance” of overcharging a covered entity. The ACA amendment specifically provided HRSA with rule-making authority regarding manufacturer CMPs, and also requires HRSA to develop and publish precisely defined standards and methodology for the calculation of the ceiling price. Notably, the statute provides explicit rulemaking authority for CMPs but does not appear to do so for the ceiling price calculation, but HRSA nevertheless has included the ceiling price calculation methodology in this Proposed Rule. The ACA imposed a deadline of 180 days after March 23, 2010 for the issuance of such a regulation. HRSA attempted to comply with that deadline by issuing an Advanced Notice of Proposed Rulemaking (ANPRM) in September 2010, to which multiple stakeholders submitted comments.  

The Ceiling Price Calculation: The Proposed Rule would codify the ceiling price calculation as a drug’s Average Manufacturer Price less its Medicaid Unit Rebate Amount, and would include the following details:

  • Decimal Places: The ceiling price is to be calculated to six decimal places for submission to HRSA, and HRSA will round the number to two decimal places for publication.

  • New Drugs: The ceiling price is to be estimated for the first three quarters a new product is available for sale, with the manufacturer reverting to the standard calculation provided in the regulation starting with the fourth quarter of sales. The Proposed Rule does not provide any details for how to estimate the price. Consistent with the Federal Register Final Notice on this topic from 1995 (60 Fed. Reg. 51,488 (October 2, 1995)), which the Proposed Rule cites as the basis for the regulation, HRSA proposes to require manufacturers to reconcile the estimated ceiling prices to actual ceiling prices for these first three quarters and issue refunds to covered entities as appropriate by the end of the fourth quarter of sales. The Proposed Rule does not reference HRSA’s prior guidance, also in the 1995 Federal Register Notice, which stated that it is the covered entity’s obligation to request such refunds.

  • Penny Pricing: The Proposed Rule would adopt HRSA’s current policy, in Release 2011-2, that any ceiling price that calculates to zero “is not reasonable” and so should be set at $0.01 per unit. HRSA specifically states that alternative approaches would not be permissible. 

CMPs: The Proposed Rule addresses the definition of an “instance” and “overcharge” but does not propose to define “knowing and intentional.”

  • “Instance of Overcharging”: The statute provides that each “instance” of knowing and intentional overcharging is subject to a CMP that shall not exceed $5,000. The Proposed Rule would define an “instance” as any “order” by a covered entity, by NDC-11, that “results in a covered entity paying more than the ceiling price,” as that price is now to be defined by regulation. Each order is a single instance regardless of the number of units ordered, and without regard to whether the order is placed directly with the manufacturer or through a wholesaler, authorized distributor, or agent.
  • Process: CMP actions will be brought by the OIG, pursuant to a delegation of authority, utilizing the standards applied to other CMPs under 42 CFR Parts 1003 and 1005. Those regulations, however, contain a number of provisions that appear unrelated to the 340B Program and the Proposed Rule does not specify which provisions in Parts 1003 and 1005 do and do not apply.
  • Distributor Arrangements: Manufacturers would be obligated to ensure that the 340B price is made available through any distribution arrangements they may have in place.
  • Retroactive “Instance” and AMP/URA Restatements: An instance of overcharging may occur where revised Medicaid pricing data would result in a ceiling price that is lower than the price initially paid by the covered entity, and the manufacturer fails or refuses to issue a refund or credit to the covered entity. This is the Proposed Rule’s only reference to the potential impact of revised Medicaid pricing data on the ceiling price calculation.
  • Offsets Not a Remedy: The Proposed Rule would define an “instance” at the NDC-11 level, and therefore would provide that an overcharge on one NDC-11 may not be offset or otherwise remedied by discounts provided on any other NDC or discounts provided on the same NDC on other transactions, orders, or purchases.
  • Failure to Request Ceiling Price ≠ Overcharge: A manufacturer’s failure to charge the ceiling price would not be an overcharge where the covered entity does not identify itself as a 340B-eligible purchaser.
  • Unavailability of 340B Price: In an apparent reference to limited supply situations, the Proposed Rule would provide that orders by covered entities for non-340B-priced drugs will not be considered instances of overcharging, unless the manufacturer’s refusal to sell or make drugs available at the 340B price resulted in the covered entity purchasing at the non-340B price. The Proposed Rule does not address how this provision interacts with HRSA’s existing policy, in Release 2011-1.1, regarding limited distribution plans.
  • Knowing and Intentional: The Proposed Rule does not address what qualifies as knowing and intentional conduct. Nor do the OIG CMP regulations.

Definitions: The Proposed Rule includes a number of definitions, including “Average Manufacturer Price,” “covered outpatient drug,” “manufacturer,” and “wholesaler,” all by reference to their statutory definitions in Section 1927 of the Social Security Act.

Regulatory Impact Statement: HRSA takes the position that the Proposed Rule is not “economically significant” because it would not have an economic impact of $100 million or more. In support of that position, the agency cites to 340B Prime Vendor Data, which a recent study by the Berkeley Research Group suggests understate the financial impact of the program.