Manufacturer CMP and 340B Ceiling Price Rule to Become Effective on January 1, 2019

November 2, 2018Legal Alerts

Today the Health Resources and Services Administration (HRSA) issued a notice of proposed rulemaking (NPRM) that will end HRSA’s delays in implementing a January 5, 2017 final rule concerning 340B drug price calculations and civil monetary penalties (CMPs) against manufacturers who knowingly and intentionally overcharge 340B covered entities for 340B drugs (the Final Rule).  The NPRM marks the end of a lengthy regulatory process which saw HRSA delay the Final Rule five times:

  • On March 6, 2017, HRSA delayed the effective date of the Final Rule from March 6, 2017, to March 21, 2017, after the Trump administration’s January 20, 2017 directive mandating that agencies delay any regulations not finalized within 60 days from the date of the directive;
  • On March 20, 2017, HRSA issued an interim final rule which further delayed the Final Rule until May 22, 2017.
  • On May 19, 2017, HRSA again delayed the Final Rule, pushing implementation back until October 1, 2017.
  • On September 28, 2017, HRSA issued another rule, further delaying the Final Rule until July 1, 2018.
  • On June 1, 2018, HRSA issues a fifth rule delaying implementation of the Final Rule until July 1, 2019, on the basis that implementation of the Final Rule would interfere with the U.S. Health and Human Services Department’s efforts to develop new drug pricing rules.

Dating back to 2010, in response to Office of Inspector General reports documenting instances of drug manufacturers overcharging 340B covered entities, Congress provided HRSA new authority to ensure the accuracy and transparency of 340B ceiling prices, as well as to impose CMPs on manufacturers who overcharge 340B covered entities.  Further, through the Affordable Care Act, Congress required HRSA to develop a system allowing 340B covered entities to access 340B drug pricing information.  Nearly five years after receiving these new authorities, HRSA published the Final Rule, which by its terms intends to:

  • Implement a CMP regime for manufacturers who knowingly and intentionally charge a covered entity more than the ceiling price for a 340B drug;
  • Require that manufacturers calculate the 340B ceiling price quarterly and detail how manufacturers must calculate the 340B ceiling price; and
  • Require that manufacturers charge $0.01 (penny pricing policy) for drugs when the ceiling price calculation equals zero.

However, as previously indicated by HRSA, the pricing information system will not be available until after the Final Rule is fully implemented.

HRSA’s delays of the Final Rule are the subject of an ongoing lawsuit filed by 340B stakeholders and various hospital associations.  Notably, the lawsuit asks the U.S. District Court for the District of Columbia to declare HRSA’s delay in implementing the Final Rule unlawful and to order HRSA to effectuate the Final Rule within 30 days.  However, the new NPRM likely calls the lawsuit’s purpose into question and could render the plaintiff’s arguments moot.  Further, the NPRM could feasibly give HRSA more time to develop and implement the pricing information system by avoiding a possible court order otherwise directing HRSA to implement the Final Rule and the pricing information system.

The Final Rule does not necessarily create complete transparency with respect to 340B drug prices.  Rather, the Final Rule serves as an initial step toward improving 340B drug pricing accuracy and manufacturers’ accountability to covered entity customers.  However, without the ACA-mandated pricing information system, the Final Rule leaves 340B covered entities in the dark as to whether the price they pay for 340B drugs is correctly calculated. Despite this inherent flaw in HRSA’s efforts toward improving 340B program transparency, 340B covered entities are welcoming the NPRM as it improves the overall integrity of the 340B program.

The NPRM invites the public to comment specifically on whether moving the Final Rule’s effective date to January 1, 2019, will create any potential disruptions in implementation of the Final Rule.  Comments must be received by no later than November 23, 2018.

Should you or your organization wish to comment on the Final Rule or with to better understand the Final Rule’s effect on 340B stakeholder interests, please contact your Dinsmore attorney .