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Compliance Issues Relating to Intersection of Medicaid Rebate and 340 B Programs by Bill Compliance Issues Relating to Intersection of Medicaid Rebate and 340 B Programs by Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access NAMFCU Directors Symposium March 24, 2010 Washington, DC

Overview 340 B background Calculating ceiling price 340 B litigation update Medicaid intersection: duplicate Overview 340 B background Calculating ceiling price 340 B litigation update Medicaid intersection: duplicate discounts 340 B-specific billing and payment options Medicaid billing compliance issues SNHPA Medicaid billing survey What’s next? Additional 340 B resources and upcoming events Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Background 340 B drug discount program requires pharmaceutical manufacturers participating in the 340 B Background 340 B drug discount program requires pharmaceutical manufacturers participating in the Medicaid program to provide discounts on covered outpatient drugs purchased by federally-funded clinics and other safety net providers referred to as “covered entities” The rights and obligations of covered entities and manufacturers are set forth in Section 340 B of the Public Health Service Act (PHSA) Section 1927 of the Social Security Act (SSA) requires manufacturers to enter into a pharmaceutical pricing agreement (PPA) with the Secretary of HHS as a condition of Medicaid covering and paying for the companies’ outpatient drugs Under the PPA, a manufacturer agrees to provide discounts and otherwise comply with 340 B requirements Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Background (cont’d) Program is administered by the Health Resources and Services Administration 340 B Background (cont’d) Program is administered by the Health Resources and Services Administration (HRSA) through the Office of Pharmacy Affairs (OPA) Because several aspects of the 340 B program depend on interpretation and application of SSA provisions (e. g. average manufacturer price, best price, etc. ), the Centers for Medicare & Medicaid Services (CMS) also plays a significant role in 340 B program administration Covered entities include high-Medicaid disproportionate share hospitals owned by or under contract with state or local government; community health centers; ADAPs; family planning clinics; AIDS, TB and STD clinics; and other grantees under the Public Health Service Act Covered entities, manufacturers and other 340 B participants are listed in the OPA database Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Background (cont’d) Discounts are calculated using the Medicaid rebate formula; but 340 340 B Background (cont’d) Discounts are calculated using the Medicaid rebate formula; but 340 B pricing is better because (1) sales do not involve retail pharmacies thereby avoiding retail mark -ups and (2) 340 B providers regularly negotiate subceiling prices Use of drugs limited to “patients” of 340 B covered entity Medicaid billing procedures may need to be adjusted to avoid manufacturers giving duplicate discounts Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Background (cont’d) Private Sector Pricing “Best Price” 63% 42% Source: Data derived 340 B Background (cont’d) Private Sector Pricing “Best Price” 63% 42% Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs , Congressional Budget Office (June 2005) Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Background (cont’d) 82% 71% Private Sector Pricing 67% 60% “Best Price” 66% 340 B Background (cont’d) 82% 71% Private Sector Pricing 67% 60% “Best Price” 66% 55% 53% 51% 44% 42% Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs , Congressional Budget Office (June 2005) Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Calculating Ceiling Price Manufacturer’s Medicaid drug rebate agreements require drug companies to calculate average Calculating Ceiling Price Manufacturer’s Medicaid drug rebate agreements require drug companies to calculate average manufacturer price (AMP) and best price as part of their obligation to pay rebates to Medicaid for covered outpatient drugs Medicaid rebate formula also requires manufacturers to calculate the average total rebate for a drug unit for each dosage and strength, often referred to as the unit rebate amount (URA) 340 B ceiling price = AMP – URA Accordingly, if a manufacturer miscalculates AMP, best price or URA in a manner that results in the underpayment of Medicaid rebates, the miscalculation will lead to 340 B providers being overcharged for the same drug Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Calculating Ceiling Price (cont’d) April 1 st – 30 th May 1 st – Calculating Ceiling Price (cont’d) April 1 st – 30 th May 1 st – 15 th June 15 th July 1 st Days 1 -30 Days 31 -45 Day 75 Day 90 Manufacturer submits AMP and BP data from Jan-March to CMS validates data and calculates the unit rebate amount and the 340 B-ceiling price. Because in middle of 2 nd quarter, price not in effect until beginning of 3 rd quarter, the next full quarter. Manufacturer sends 340 B price to wholesaler &/or entries 340 B price in effect for 3 rd Quarter, July. September Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Calculating Ceiling Price (cont’d) Special procedures for calculating 340 B price for new drugs: Calculating Ceiling Price (cont’d) Special procedures for calculating 340 B price for new drugs: § Manufacturers must estimate a new drug’s 340 B ceiling price for the first three quarters that the drug is on the market § After three quarters, manufacturers will have AMP and best price data to calculate the ceiling price § If the manufacturer overestimates the new drug’s price during the initial three quarter period, it must issue a refund to the covered entity upon request Penny prices – Under HRSA policy, if the 340 B formula results in a negative price (because the inflation-based penalty exceeds AMP minus 15. 1% or best price), then the manufacturers must charge a penny for the drug Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Litigation Update Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date Settlement 340 B Litigation Update Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date Settlement Amount Bayer Kogenate and other Factor/IVIG Products January 1993 – August 31, 1999 Sept. 2000 $14 Million & $200 K for 340 B TAP Lupron January 1991 – October 2001 Oct. 2001 $875 Million Pfizer Lipitor 1 st Quarter - 4 th Quarter 1999 Oct. 2002 $49 Million & $567 K for 340 B Bayer and GSK Cipro, Adalat CC, Flonase and Paxil Cipro: 1 st Qtr ’ 96 – 1 st Qtr ’ 01 Adalat CC: 4 th Qtr ’ 97 – 1 st Qtr ’ 00 Flonase: rd Qtr ’ 97 – 3 rd Qtr ’ 00 3 Paxil: 1 st Qtr ‘ 01 April 2003 Bayer Total: $257 Million At least $2. 5 Million to 340 B entities Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 GSK Total: $87. 6 Million At least $9. 4 Million to 340 B entities Bill von Oehsen william. [email protected] org

340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date 340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date Settlement Amount January 1991 – December 31, 2002 June 2003 $355 Million Astra. Zeneca Zoladex Schering-Plough Claritin January 1998 – December 31, 2002 July 2004 Total: $345 Million At least $10. 6 Million to 340 B entities KING Pharmaceuticals Entire Drug Line January 1994 – December 31, 2002 October 31, 2005 $124 Million At least $7 Million to 340 B entities Schering-Plough Claritin Redi. Tabs and K-DUR August 29, 2006 $255 Million civil settlement ($180 Million criminal fines) At least $3. 9 million to 340 B entities Redi-Tabs: Qtr ’ 98 – 2 nd Qtr ’ 02 2 nd Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 4 th K-DUR: Qtr ’ 96 – 2 nd Qtr ’ 01 Bill von Oehsen william. [email protected] org

340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date 340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date Settlement Amount Bristol-Myers Squibb Serzone 1 st Qtr ’ 97 – 4 th Qtr ‘ 97 September 28, 2007 $515 million $124, 000 to 340 B entities Merck Zocor, Vioxx April 1998 – March 2006 February 7, 2008 $671 million $9 million to 340 B entities Cephalon Inc. Gabitril, Actiq, and Provigil January 2001 through at least 2006 October 2008 Total: $425 Million At least $1. 8 Million for 340 B entities Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date 340 B Litigation Update (cont’d) Manufacturer Name Drug Involved Period/Quarter Covered by Settlement Date Settlement Amount Eli Lilly Zyprexa September of 1999 - March of 2001 January 2009 Total: $1. 43 Billion More than $75, 000 to 340 B entities Aventis Azmacort, October. 1, 1995 to Pharmaceuticals Nasacort, and September 30, 2000 Nasacort AQ May 28, 2009 $95. 5 million total $6. 5 Million to 340 B Entities October 19, 2009 Various $118 Million, $7. 3 Million for 340 B entities Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org Mylan Pharmaceuticals Inc. and UDL Laboratories Inc 2000 -2004

Medicaid Intersection: Duplicate Discounts Covered entities are generally free to bill and be reimbursed Medicaid Intersection: Duplicate Discounts Covered entities are generally free to bill and be reimbursed for 340 B drugs without making any adjustments to their billing procedures, unless Medicaid is the payer Covered entities sometimes must bill Medicaid at reduced prices for 340 B drugs The sole reason that covered entities must adjust their Medicaid billing practices is to protect manufacturers from the duplicate discount problem Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Medicaid Intersection: Duplicate Discounts (cont’d) Step 1: Manufacturer sells drug at 340 B discount Medicaid Intersection: Duplicate Discounts (cont’d) Step 1: Manufacturer sells drug at 340 B discount Covered Entity Manufacturer Step 5: Manufacturer pays rebate on 340 B drug Step 4: State submits rebate request Step 3: Covered entity bills Medicaid for 340 B drug State Medicaid Agency Medicaid patient Step 2: 340 B drug is dispensed to Medicaid patient Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 STEPS 1 AND 5 = DUPLICATE DISCOUNT Bill von Oehsen william. [email protected] org

Medicaid Intersection: Duplicate Discounts (cont’d) Manufacturers are protected from paying a Medicaid rebate and Medicaid Intersection: Duplicate Discounts (cont’d) Manufacturers are protected from paying a Medicaid rebate and giving a 340 B discount on the same drug. PHSA 340 B(a)(5)(A); SSA 1927(a)(5)(C) To avoid the duplicate discount problem, the Secretary is directed to develop a mechanism that 340 B providers and states can use to ensure compliance; alternatively covered entities should not seek Medicaid reimbursement for 340 B drugs that are subject to Medicaid rebates. PHSA 340 B(a)(5)(A); SSA 1927(a)(5)(C) Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B-Specific Billing and Payment Options HRSA guidelines allow covered entities to comply with 340 B-Specific Billing and Payment Options HRSA guidelines allow covered entities to comply with the statute in different ways: 1. Bill Medicaid at “acquisition cost” plus the state-allowable dispensing fee and the state does not request a rebate. 58 Fed. Reg. 34, 058 (6/23/93) 2. “Carve out” Medicaid drugs from the 340 B program and allow the state to collect rebates. 65 Fed. Reg. 13, 983 (3/15/00) 3. Follow state guidelines for applicable billing limits. 65 Fed. Reg. 13, 983 (3/15/00) Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

340 B-Specific Billing and Payment Options Covered Entity Procedures State Medicaid Procedures 340 B 340 B-Specific Billing and Payment Options Covered Entity Procedures State Medicaid Procedures 340 B Pass. Through Bills state at actual acquisition cost (AAC) and submits pharmacy’s Medicaid billing number to HRSA for posting on website Excludes from rebate request files any claims paid under billing number posted on HRSA website Medicaid Carve. Out Purchases its Medicaid outpatient Includes covered entity’s claims drugs outside 340 B program, in rebate request files bills Medicaid at regular non 340 B rates and submits “N/A” for posting on HRSA website Shared Savings Same as 340 B pass-through option except covered entity and state enter into alternative billing and payment arrangement Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Pays enhanced dispensing fee or above AAC rates Bill von Oehsen william. [email protected] org

Medicaid Billing Compliance Issues Question: Has a covered entity overbilled Medicaid if it does Medicaid Billing Compliance Issues Question: Has a covered entity overbilled Medicaid if it does not bill its state at actual acquisition cost (AAC) for 340 B drugs? Answer: Not necessarily Explanation: There are numerous exceptions to the AAC billing restriction, for example: – when billing a managed care organization – if the drug is not rebatable under Medicaid – if the state has different billing and reimbursement limits Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Medicaid Billing Compliance Issues (cont’d) There are some within the Medicaid program who believe Medicaid Billing Compliance Issues (cont’d) There are some within the Medicaid program who believe that the AAC billing restriction was established to save money for Medicaid Not true for several reasons: 1. It is clear in both 340 B law and legislative history that the sole purpose of AAC billing is to compensate states for the loss of their rebates that they would otherwise receive but for the protection of manufacturers from duplicate discounts 2. HRSA’s 1993 guidance establishing the AAC billing standard is an informal, non-binding policy 3. HRSA essentially withdrew the policy in March 2000 when it issued another guidance directing covered entities to “refer to their respective Medicaid state agency drug reimbursement guidelines for applicable billing limits” Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Medicaid Billing Compliance Issues (cont’d) States allow deviation from AAC billing for different reasons: Medicaid Billing Compliance Issues (cont’d) States allow deviation from AAC billing for different reasons: – State utilizes billing system that does not accommodate AAC billing – AAC billing does not affect reimbursement (prospective payment for Medicaid services) – Hospital systems do not accommodate AAC billing , so billing must be by hand state recognizes onerous administrative burden – Regardless of state’s perceived billing and payment policy for 340 B drugs, there may be no clear guidance in statute, rules, or provider’s manual or transmittal Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Medicaid Billing Compliance Issues (cont’d) While HRSA clarified in 2000 that AAC is not Medicaid Billing Compliance Issues (cont’d) While HRSA clarified in 2000 that AAC is not required under federal law, CMS has never issued parallel guidance Considerable lack of clarity among Medicaid programs – Many (e. g. Medi-Cal) believe that federal law requires billing at AAC – Medicaid auditors in at least three states – FL, AK, NY – have investigated 340 B covered entities for alleged overbilling – Federal whistle blower suit against family planning clinics in Los Angeles sued for billing at other than AAC Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

SNHPA Medicaid Billing Survey 45 percent of the hospital respondents reported that their state SNHPA Medicaid Billing Survey 45 percent of the hospital respondents reported that their state Medicaid agency allowed them to deviate from AAC billing 55 percent indicated that they were not allowed to deviate 10 states that reportedly allow non-AAC billing include: Arizona, Georgia, Maine, Maryland, Minnesota, New Jersey, Ohio, Oregon, Texas and West Virginia. 5 states that require AAC billing include: Idaho, Iowa, Kansas, Rhode Island South Dakota. Hospitals in 12 states gave conflicting answers: Arkansas, California, Florida, Kentucky, Louisiana, Massachusetts, Michigan, Missouri, New York, North Carolina, Pennsylvania and Washington Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

What’s Next? 340 B Coalition urging CMS and HRSA to work on a uniform What’s Next? 340 B Coalition urging CMS and HRSA to work on a uniform and coherent policy – 340 B Coalition offering input on law, state variations, history – 340 B Coalition keeping pressure on CMS, HRSA to produce HHS Office of Inspector General reviewing Medicaid billing by 340 B covered entities Time is of the essence: – June 2009: California legislature mandated AAC billing, prohibited carve-out – Medi-Cal results in “lose-lose”. HRSA and CMS have opportunity to educate states on shared savings “win-win” Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Additional 340 B Resources Safety Net Hospitals for Pharmaceutical Access ◦ www. snhpa. org Additional 340 B Resources Safety Net Hospitals for Pharmaceutical Access ◦ www. snhpa. org ◦ Bill von Oehsen william. [email protected] org or 202 -466 -6550 ◦ Stuart Gordon stuart. [email protected] org or 202 -552 -5851 Federal Drug Discount and Compliance Monitor ◦ www. drugdiscountmonitor. com SNHPA/340 B Job Site ◦ www. rxjobsolutions. com Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Additional 340 B Resources (cont’d) Office of Pharmacy Affairs ◦ www. hrsa. gov/opa 340 Additional 340 B Resources (cont’d) Office of Pharmacy Affairs ◦ www. hrsa. gov/opa 340 B Prime Vendor Program ◦ www. 340 bpvp. com Pharmacy Services Support Center ◦ 1 -800 -628 -6297 or www. pssc. aphanet. org Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org

Upcoming Events 14 th Annual 340 B Coalition Conference July 19 -21, 2010 Washington, Upcoming Events 14 th Annual 340 B Coalition Conference July 19 -21, 2010 Washington, DC www. 340 bconferences. org Safety Net Hospitals for Pharmaceutical Access (202) 552 -5850 Bill von Oehsen william. [email protected] org