Notice Regarding Section 602 of the Veterans Health Care Act of 1992Rebate Option

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration

Notice Regarding Section 602 of the Veterans Health Care Act of

1992--Rebate Option

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final notice.

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SUMMARY: Section 602 of Pub. L. 102-585, the ``Veterans Health Care Act

of 1992,'' enacted section 340B of the Public Health Service (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

with the Secretary of HHS in which the manufacturer agrees to charge a

price for covered outpatient drugs that will not exceed that amount

determined under a statutory formula.

The purpose of this notice is to inform interested parties of the

final guidelines recognizing a rebate option for State AIDS Drug

Assistance Programs (ADAPs) receiving funds under Title XXVI of the PHS

Act as an optional alternate means of accessing section 340B discount

pricing.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Robert Staley, R. Ph., Senior Program

Manager, Office of Drug Pricing, Bureau of Primary Health Care, Health

Resources and Services Administration, 4350 East-West Highway,

Bethesda, MD 20814, Phone (301) 594-4353; Fax (301) 594-4982.

SUPPLEMENTARY INFORMATION:

(A) Background

The proposed guidelines, recognizing a rebate option for State AIDS

Drug Assistance Programs (ADAPs), were announced in the Federal

Register at 62 FR 45823 on August 29, 1997. A period of 30 days was

established to allow interested parties to submit comments. The

Department received comments from eleven sources including State AIDS

Drug Assistance Programs, pharmaceutical manufacturers, and

organizations representing pharmaceutical manufacturers or covered

entities. Ten commenters supported the proposed guideline. There were

no comments strongly in opposition to the recognition of an ADAP rebate

option. The following section presents a summary of all major comments,

grouped by subject, and a response to each comment. All comments were

considered in developing these final guidelines. The rebate option is

adopted with several modifications based upon these comments.

(B) Comments and Responses

Standardization of Systems

Comment: It is hoped that the guideline will ensure a rebate

process similar to the Medicaid model and voluntary systems currently

utilized by most drug companies in that such standardization will

ensure a more efficient rebate system.

Response: The Federal Register notice requested comments only on

the recognition of a rebate option and did not propose a specific

mechanism for accessing such rebates. State ADAPs and manufacturers are

encouraged to follow standard business practices in designing the

contracts and agreements for such a rebate mechanism. The voluntary

rebate agreements and the Medicaid rebate program may be used as models

for development of the ADAP rebate agreements. The process for claim

submission and payment is expected to be similar. The stipulations

found in 59 FR 25113, May 13, 1994, section XI, entitled

``Manufacturer's Contracts Requiring Entity Compliance'' are also

deemed to be applicable in that a manufacturer may not condition a

rebate contract or agreement upon an entities' compliance with the

provisions of section 340B. Manufacturer stipulated requirements for

participation in the manufacturer designed voluntary rebate agreements,

if predicated on section 340B compliance,

[[Page 35240]]

should be renegotiated for the section 340B rebate agreements.

Comment: Guidelines should allow State ADAPs with negotiated

voluntary rebate agreements to continue to provide utilization data

according to the terms of existing agreements.

Response: Voluntary rebate agreements with covered entities that

provide at least the minimum statutory discount and do not contain

requirements inconsistent with section 340B and published program

guidelines will be considered consistent with the section 340B rebate

program. State ADAPs may not need to negotiate new agreements if these

conditions are met, and the ADAP or the manufacturer does not desire a

new agreement. ADAPs may continue to provide utilization data according

to terms of existing agreements if so desired.

Comment: Unlike the Medicaid rebate program, the proposed rebate

program lacks specificity regarding program provisions and safeguards.

It is critical that standardized contracts that provide for efficient

and accountable procedures, systems, and data reporting formats be

defined and implemented in conjunction with the program. The purpose of

these provisions would be to protect the integrity of the program by

safeguarding against errors, misunderstanding, and the potential for

duplicate discounts and rebates.

Response: This notice only recognizes an ADAP rebate option and

does not provide in-depth implementation strategies. Standard business

practices should be utilized by State ADAPs and manufacturers. The

mechanisms developed and used in the Medicaid rebate program and the

current voluntary rebate programs (consistent with the requirements of

section 340B and program guidelines) are models to be emulated. Of

course, a 340B discount and a Medicaid rebate on the same covered drug

are prohibited by section 340B.

Comment: The HRSA draft guidance does not address the mechanics of

communication between an ADAP and a manufacturer about drugs reimbursed

by the ADAP for which it claims a rebate from a manufacturer. It is

recommended that HRSA consider requiring the ADAPs to use the claim

form that State Medicaid programs use in submitting rebate requests to

manufacturers.

Response: The Federal Register notice did not address the mechanics

of the rebate process. However, ADAPs are encouraged to use Medicaid

claim form HCFA-R-144 as a model for two reasons. First, this form can

be considered a standard business practice model. Second, manufacturers

should find it advantageous to receive rebate claims from State ADAPs

in a similar form and format to that received from the State Medicaid

programs.

Diversion and Duplicate Discounts

Comment: The State ADAP and the manufacturer are able to avoid the

problems of diversion and double discounting if both the ADAP and the

manufacturer have reached an understanding concerning the arrangements

the ADAP has made to meet its statutory obligations (to avoid diversion

and claims resulting in a duplicate discount).

Response: Guidelines have been issued to minimize the potential for

duplicate discounting and covered drug diversion (59 FR 25110, May 13,

1994), and manufacturers have available to them auditing and dispute

resolution remedies if they believe that duplicate discounting or

covered drug diversion has occurred (61 FR 65406, December 12, 1996).

In addition, manufacturers and covered entities are referred to 59 FR

25113 for a reminder that ``a manufacturer may not condition the offer

of statutory discounts upon an entity's assurance of compliance with

section 340B provisions.''

Comment: It would be difficult to administer a rebate program in

which a given State ADAP used both the discount option and the rebate

option. HRSA should clarify the policy that the rebate option is an

``alternate to'' the direct discount mechanism and the choice of a

single mechanism should be made by each State ADAP. We urge that HRSA

clarify that the ADAP rebate is available only for those drugs not

purchased at the PHS (section 340B) discount. Additionally it is

recommended that HRSA maintain a list of which option has been selected

by each ADAP.

Response: The State ADAP 340B rebate option is an alternate method

of accessing 340B pricing developed by HRSA in response to a clear need

by certain State ADAPs which are unable to access such pricing through

the direct discount option. We anticipate that these State ADAPs will

promptly begin accessing 340B pricing using this rebate option.

However, in States which have decentralized drug purchasing, there is

the possibility that some decentralized ADAP components may elect to

access pricing through a rebate mechanism while other ADAP components

may develop systems to access a direct discount. States with

decentralized drug purchasing are encouraged to centralize drug

reimbursement mechanisms, so that from this central location, they can

effectively maintain the necessary records to document appropriate drug

reimbursement activity for the entire State. Using this drug

reimbursement documentation, the central ADAP can then monitor

reimbursement activity and prevent any duplicate rebate/discount on the

same drug. In addition, the centralized ADAP can request appropriate

rebates from the manufacturers in a more efficient and reliable manner.

A State ADAP participating in the State ADAP section 340B rebate

program will be listed as a covered entity, Entity Type ``RWIIR.''

Comment: Under a decentralized system, it may be difficult to

assure that duplicate discounts will not occur on drugs provided to

Medicaid patients. At any rate, coordination between the ADAPs and

State Medicaid agencies will be required.

Response: Section 340B(a)(5)(A) prohibits a covered entity's

request for a discount on a drug subject to an agreement under section

340B if the drug is subject to the payment of a rebate under Medicaid.

This requirement applies whether the State ADAP uses a decentralized

system or a centralized system. The mechanism to prevent a duplicate

discount was published in the Federal Register on May 7, 1993 (58 FR

27293). This mechanism was developed in consultation with HCFA. In

order to avoid a duplicate discount, the State ADAP must refrain from

billing the State Medicaid agency unless the manufacturer's 340B rebate

(either estimated or actually paid) is deducted from the price paid by

the ADAP. This will help ensure that the State ADAP will only bill the

State Medicaid agency at the actual acquisition cost plus a reasonable

dispensing fee established by the State Medicaid agency. If the

manufacturer's rebate is different from the estimated amount, the

amounts billed to the State Medicaid agency will need to be reconciled.

Manufacturer Participation

Comment: All pharmaceutical manufacturers whose products are on any

State ADAP formulary should be mandated to participate in the 340B

rebate program.

Response: Only those manufacturers that have signed the section

340B Pharmaceutical Pricing Agreement (PPA) with HHS must honor

appropriate section 340B rebate requests from covered entities. The

rebate option is a component of the section 340B program specific to

State ADAPs; therefore, manufacturers, receiving an appropriate rebate

claim from a covered entity listed on the Electronic Data Retrieval

System

[[Page 35241]]

(EDRS) as a State ADAP participating in the section 340B rebate

program, are required to provide a rebate that meets or exceeds the

340B discount. Manufacturers who do not provide a rebate will be

considered out of compliance with the PPA.

Technical Comments and Contractual Agreements

Comment: The notice does not detail the way in which State ADAPs

would or should invoice manufacturers for rebates. For example, there

are no statements on determination of actual units utilized during a

specific period of time or a statement as to the time frame in which an

ADAP must submit invoices.

Response: Standard business practices should be utilized. A

manufacturer and a State ADAP are encouraged to specify in a contract

or agreement the units and required time frame for claim data

reporting. Unit definitions for reporting and report periods similar to

those used in the Medicaid agreements and voluntary rebate agreements

and contracts are considered standard business practices and thus

acceptable. A standard State ADAP section 340B rebate claim submission

and processing guideline was not specified so as to allow maximum

flexibility between a State ADAP and manufacturers in the development

of contracts and agreements.

Comment: There is no explicit audit provision in place to assure

that the amount of units claimed for rebates coincides with the actual

units of product dispensed. In addition, there is no specific procedure

referenced for dispute resolution when a manufacturer disagrees with

the amount invoiced from a State ADAP.

Response: Sections 340B(a)(5)(A) and (B) prohibit a 340B discount

and a Medicaid rebate on the same drug and the resale or transfer of a

340B discounted drug to an individual who is not a patient of the

covered entity. The manufacturer audit guidelines and the informal

dispute resolution process guidelines (61 FR 65406-65412, December 12,

1996) allow manufacturers to audit covered entities pursuant to

guidelines and dispute, among other issues, certain covered entity

claims (e.g., rebates for covered drugs given to individuals who are

not patients of the covered entity).

Comment: Manufacturers must have the freedom to enter into

contractual agreements with individual State ADAP programs to address

potential problems.

Response: Manufacturers and State ADAPs are able to enter into

contractual agreements that address potential problems and mutually

acceptable solutions.

Comment: A comprehensive and enforceable contract between the State

ADAP program and the manufacturer should be developed through a public

comment process and implemented prior to the establishment of the

proposed new rebate mechanism. Specific elements that should be

incorporated in any such agreement include: drug National Drug Code

(NDC); prescription number; date reimbursed; quantity; unit type;

amount reimbursed to the pharmacy; and dispensing pharmacy name, city,

and state. Absent these provisions, the guidelines and principles

proposed in the notice are not sufficient to ensure that the rebate

option can operate equitably and efficiently.

Response: Requiring a ``comprehensive and enforceable contract''

would delay State ADAP participation in the 340B rebate program. HRSA

wishes to allow maximum flexibility between each manufacturer and State

ADAP in reaching such agreements.

Pharmacy specific data (prescription number, date of reimbursement,

and similar data elements) are not reported on the initial Medicaid

utilization submission and are not considered the standard for initial

claim submission. HRSA encourages manufacturers to accept aggregate

data (similar to Medicaid form HCFA-R-144) in the initial claim form.

HRSA encourages State ADAPs to consider that the more detailed and

accurate the initial claim data, the less likelihood a claim will be

questioned or disputed.

Comment: We recommend that HRSA establish a specific date, such as

60 days after HRSA issues its guidance in final form, after which drugs

reimbursed by an ADAP would be eligible for a rebate from a

manufacturer with which the ADAP has entered into a rebate agreement.

Response: The effective date for the inception of the State ADAP

340B rebate program will be 30 days after the date of publication of

this final notice. A State ADAP will not be considered a covered entity

participating in the 340B rebate program until it is listed on the ODP

Electronic Data Retrieval System (EDRS). At maximum, a period of one

hundred and twenty days may elapse between publication of this final

guideline and the next quarterly update of the EDRS. State ADAPs listed

on the first quarterly EDRS update after the publication of this final

notice may submit claims for covered drugs that were purchased 30 days

after the date of final notice publication and thereafter. State ADAPs

listed on a later EDRS update may claim rebates only on purchases made

after their effective date of listing on the EDRS. ADAPs may need time

to work closely with their State Medicaid programs to develop

procedures to prevent duplicate discounting. Some ADAPs may find it

necessary to improve record keeping and data tracking systems.

Comment: We recommend that HRSA establish a time period within

which claims may be submitted for a manufacturer rebate. A fixed filing

deadline will help avoid disputes and the Medicaid model may provide an

analogy wherein Medicaid providers have one year in which to submit

claims for reimbursement to state Medicaid programs. The benefit of a

uniform expectation about the finality of payments and disputes for a

given period may outweigh any concerns about HRSA imposing requirements

on ADAPs.

Response: HRSA agrees that a maximum time period for submission of

claims of one year appears to be within the range of standard business

practices. However, a specific guideline for data claim submission and

processing for rebates is not included in this guideline.

Comment: We urge HRSA to adopt requirements that manufacturer

rebates paid to a State ADAP expand the care provided by the ADAP.

Response: Although section 340B does not discuss an appropriate use

for 340B drug purchasing savings, the legislative history provides that

section 340B was enacted to permit scarce Federal dollars to reach more

eligible patients and provide more comprehensive services. See H.R.

Rep. No. 102-348, 102d Cong., 2d Sess., pt 2, at 16 (1992).

Expansion of the Rebate Option to Additional Covered Entities

Comment: The characteristics of State ADAPs and their components

make them more like State-run pharmaceutical benefit programs. The

commitment of the States to assume responsibility for rebate

contracting and administration has been essential to making the

voluntary rebate program manageable. Our (favorable) response to the

recognition of a rebate program for the ADAPs would be different if

HRSA proposed a rebate program for all covered entities. Accordingly,

we urge that the rebate mechanism be an option only for meeting the

unique needs of the State ADAP programs and that HRSA not consider any

further expansion to other categories of entities.

Response: At this time, we agree. This notice only recognizes a

rebate option

[[Page 35242]]

for the State AIDS Drug Assistance Programs that receive assistance

under Title XXVI of the PHS Act.

(C) The State ADAP Section 340B Rebate Option

In light of the comments and responses set forth above, the

guideline for the state ADAP 340B rebate option is as follows: HRSA

recognizes rebates obtained by the State ADAPs or their components that

equal or exceed the 340B discount provided by the statutory ceiling

price as a method of participating in the 340B program, subject to

compliance with other requirements for participation. Standard business

practices, such as those reflected in the Medicaid Rebate Program and

current voluntary manufacturer rebate programs (consistent with the

requirements of section 340B and all program guidance published in the

Federal Register) are appropriate for the development of rebate

contracts and agreements between State ADAPs and manufacturers. State

ADAPs or their components and manufacturers wishing technical

assistance in developing a rebate program and rebate agreements should

contact HRSA's Office of Drug Pricing at (301) 594-4353 or (800) 628-

6297.

State ADAPs or their components determined to be eligible for

participation in the State ADAP 340B rebate program will be listed on

the Office of Drug Pricing (ODP) Electronic Data Retrieval System

(EDRS) on the first quarterly update of the EDRS which occurs 30 days

following the effective date of this Federal Register notice. State

ADAPs or their components listed on this update may submit rebate

claims to participating manufacturers for covered drugs that are

purchased starting 30 days after the date of this final notice

publication. State ADAPs or their components listed on a later EDRS

update may claim rebates only on purchases made after their effective

date of listing on the EDRS.

Section 340B(a)(5)(A) reflects Congressional recognition that there

is a potential for a covered drug purchased by a covered entity at the

340B discount price to be subject to a Medicaid rebate, if the drug is

reimbursed by the Medicaid program. All program guidance regarding the

prevention of such duplicate discounting must be followed by ADAPs

participating in the rebate program as well as those participating in

the discount program. Guidance regarding billing State Medicaid

Agencies at actual acquisition cost plus a dispensing fee (established

by the State Medicaid agency) and the prevention of duplicate

discounting was published in the Federal Register on May 7, 1993 (58 FR

27293) entitled ``Duplicate Discounts and Rebates on Drug Purchases.''

Further guidance was published in the Federal Register on May 13, 1994

(59 FR 25112). State ADAPs may find it necessary to work with State

Medicaid Agencies to adapt these guidelines to meet the unique

circumstances of each individual State, such as provisions permitting

retroactive reimbursement of drug purchases while Medicaid eligibility

was pending.

The HRSA is sensitive to concerns about diversion of covered drugs

to individuals who are not patients of the covered entities. Guidelines

have been issued to minimize this potential, and manufacturers have

available to them specified remedies if they believe diversion has

occurred. These guidelines and remedies will apply fully to drugs

purchased under a rebate option, and we believe that instituting

rebates will not increase the potential for diversion.

Dated: May 22, 1998.

Claude Earl Fox,

Administrator.

[FR Doc. 98-17142 Filed 6-26-98; 8:45 am]

BILLING CODE 4160-15-P