# Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Inclusion of Outpatient Hospital Facilities > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-13712 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** June 6, 1994 ## Text 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. ----------------------------------------------------------------------- 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 6, 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., Director, Office of Drug Pricing, Bureau of Primary Health Care, 4350 East West Highway, West Towers, 10th Floor, 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. --------------------------------------------------------------------------- \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. 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. 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. --------------------------------------------------------------------------- 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. 94-13712 Filed 6-3-94; 8:45 am] BILLING CODE 4160-15-P --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-13712. Public record. Not legal advice.