Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Inclusion of Outpatient Hospital Facilities

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Public Health Service

Notice Regarding Section 602 of the Veterans Health Care Act of

1992 Inclusion of Outpatient Hospital Facilities

AGENCY: Public Health Service, HHS.

ACTION: Notice.

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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care

Act of 1992'' (the ``Act''), enacted section 340B of the Public Health

Service Act (``PHS Act''), ``Limitation on Prices of Drugs Purchased by

Covered Entities.'' Section 340B provides that a manufacturer who sells

covered outpatient drugs to eligible entities must sign a

pharmaceutical pricing agreement (the ``Agreement'') with the

Secretary, Department of Health and Human Services, in which the

manufacturer agrees to charge a price for covered outpatient drugs that

will not exceed the amount determined under a statutory formula.

Section 340B(a)(4) lists the entities eligible to receive discount

outpatient drug pricing (i.e., certain disproportionate share hospitals

(DSHs) and PHS grantees). The definition of a disproportionate share

hospital found in section 340B(a)(4)(L) provides criteria to determine

which such hospitals are eligible to participate in the program.

However, the definition does not include criteria to determine which

outpatient facilities (including off-site or satellite clinics) working

in conjunction with the eligible hospital would be considered part of

the hospital for purposes of eligibility for section 340B drug

discounts. The Office of Drug Pricing, which administers this program

with PHS, is proposing certain procedures to determine which outpatient

hospital facilities are included as part of an eligible

disproportionate share hospital.

DATES: The public is invited to submit comments on the proposed

procedures by July 5, 1994. Subject to consideration of the comments

submitted, the Department intends to publish a final notice regarding

these procedures.

ADDRESSES: Submit comments to Ms. Alvarez at the address listed below.

FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Chief Pharmacy

Officer, Attn: Drug Pricing Program, Bureau of Primary Health Care,

East West Towers rm. 10-3A1, Bethesda, MD 20814, Tel: (301) 594-4354.

SUPPLEMENTARY INFORMATION: Section 340B(a)(4) of the PHS Act lists the

various groups of entities eligible to receive the section 340B

discount pricing. Section 340B(a)(4)(L)1 describes a subset of

``hospitals'' as defined in section 1886(d)(1)(B) of the Social

Security Act as eligible to participate in the program. Because section

1886 addresses Medicare payment for hospital inpatient services only,

the scope of the term ``hospital'' has been limited to the hospital

inpatient services. However, section 340B deals exclusively with

outpatient drugs. Although Congress clearly intended that this narrow

definition be used to identify Medicare disproportionate share

hospitals which are eligible for section 340B drug discounts, we do not

believe it is reasonable to use this same definition to limit where the

section 340B outpatient drug can be used. Some disproportionate share

hospitals offer outpatient services in off-site or satellite outpatient

facilities. Further, the movement of nonprofit hospitals in recent

years has been to reorganize and offer a variety of services other than

traditional inpatient hospital services through separate divisions,

lines of business, or entities. Therefore, for purposes of section 340B

drug discounts, a more inclusive interpretation of ``hospital'' is

needed.

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\1\Section 340B(a)(4)(L) of the PHS Act defines as a covered

entity--

``A subsection (d) hospital (as defined in section 1886(d)(1)(B)

of the Social Security Act) [42 U.S.C. section 1396ww(d)(1)(B)]

that--(i) is owned or operated by a unit of State or local

government, is a public or private non-profit corporation which is

formally granted governmental powers by a unit of State or local

government, or is a private non-profit hospital which has a contract

with a State or local government to provide health care services to

low income individuals who are not entitled to benefits under title

XVIII of the Social Security Act [42 U.S.C.A. section 1395, et seq.]

or eligible for assistance under the State plan under this title;

(ii) for the most recent cost reporting period that ended before the

calendar quarter involved, had a disproportionate share adjustment

percentage (as determined under section 1886(d)(5)(F) of the Social

Security Act) [42 U.S.C.A. section 1395ww(d)(5)(F)] greater than

11.75 percent or was described in section 1886(d)(5)(F)(i)(II) of

such Act [42 U.S.C.A. 1395ww (d)(5)(F)(i)(II)]; and (iii) does not

obtain covered outpatient drugs through a group purchasing

organization or other group purchasing arrangement.''

The Health Care Financing Administration (HCFA) submitted to the

Office of Drug Pricing a list of hospitals that met the first two

requirements (i.e., 340B(a)(4)(L)(i) and (ii)). HCFA will update

this list periodically.

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The Office of Drug Pricing Program is proposing to recognize as

part of an eligible DSH outpatient facilities (including off-site and

satellite clinics) which meet the following standard:

The outpatient facility is considered an integral part of the

``hospital'' and therefore eligible for section 340B drug discounts if

it is a reimbursable facility included on the hospital's Medicare cost

report.

For example, if a hospital with one Medicare provider number meets

the disproportionate share criteria and this hospital has associated

outpatient clinics whose costs are listed on the Medicare cost report,

these clinics would also be eligible for section 340B drug discounts.

However, free-standing clinics of the hospital that submit their own

cost reports using a different Medicare number (not under the single

hospital Medicare provider number) would not be eligible for this

benefit.

This test, using the single Medicare provider number, is proposed

for three reasons. First, Congress referred to section 1886 of the

Social Security Act, part of the Medicare statute, for the definition

of a DSH in section 340B(a)(4)(L) of the PHS Act. We believe,

therefore, that it is reasonable to utilize existing Medicare rules to

determine eligibility for the drug discount program. The proposed

Medicare cost report test was developed by Medicare officials and is

used, in part, to determine whether a facility is part of a hospital.

If an outpatient facility does not share in the hospital cost report,

it is properly viewed as an independent, free-standing facility.

Second, the relative administrative burden of the proposed test

(i.e., obtaining sufficient documentation to verify the inclusion of

these off-site facilities) should be minimal. Hospitals seeking

Medicare reimbursement are required to submit annual cost reports

including all hospital units (e.g., on site and off-site clinics);

therefore, the information necessary to determine facility eligibility

is available and needs no further analysis by the Office of Drug

Pricing.

Third, the test incorporates criteria (i.e., the Medicare cost

report) that form an independent and objective basis upon which to

determine eligibility. Therefore, this test should provide fair and

easy administration.

If DSHs have difficulty accessing PHS pricing for eligible

outpatient clinics, they should contact the Office of Drug Pricing (not

HCFA) for assistance. If manufacturers have questions concerning the

eligibility of certain DSH outpatient clinics, they should also contact

the Office of Drug Pricing for a determination of eligibility.

Dated: May 27, 1994.

Ciro V. Sumaya,

Administrator, Health Resources and Services Administration.

[FR Doc. 94-13463 Filed 6-2-94; 8:45 am]

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