After five delays and a lawsuit by hospital groups, the US Department of Health and Human Services (HHS) late last fall announced that the 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation, published back in January 2017, would become effective January 1, 2019. While the rule has major implications for pharmaceutical manufacturers that participate in the 340B program, the regulation also significantly impacts participating providers.

No retroactivity

In the regulation’s preamble, HHS states that it disagrees with commenters who urged the agency to apply the rule retroactively. According to HHS, doing so would be administratively burdensome and difficult to implement for all stakeholders. Therefore, it does not appear that HHS will enforce the regulation’s pricing requirements or impose civil monetary penalties (CMPs) for purchases prior to January 1, 2019, including those made during the many months the rule’s effective date was delayed.

Possibility of more penny-priced drugs

Consistent with past guidance, the regulation requires manufacturers to charge a penny—$0.01—for a drug when its 340B ceiling price calculation results in an amount less than a penny. Penny pricing occurs when a manufacturer raises the price of a drug substantially more quickly than the rate of inflation.

HHS acknowledges in the rule that some manufacturers had notified the agency that they had not been complying with the penny-pricing policy. Now that the policy has been codified in this regulation and HHS has the ability to impose CMPs for knowing and intentional overcharges, the rate of manufacturer compliance with the policy might increase, which could result in lower prices for some drugs.

Changes to new drug price estimation policy

Consistent with past guidance, the regulation requires manufacturers to estimate a 340B ceiling price for a new drug as of the date the drug is first available for sale. However, the rule also made some significant changes to HHS’s price estimation policy for new drugs:

• The regulation specifies that a manufacturer should calculate an estimate of a new drug’s 340B ceiling price at wholesale acquisition cost minus the applicable rebate percentage (i.e., 23.1 percent for most brand-name drugs, 17.1 percent for blood clotting factors and drugs approved exclusively for pediatric indications and 13 percent for generic and over-the-counter drugs). Previous guidance did not specify how manufacturers should estimate a new drug’s 340B ceiling price.

• The rule requires manufacturers to calculate an actual 340B ceiling price as soon as average manufacturer price data is available, which could occur as early as the second quarter that a drug is on the market. Past guidance directed manufacturers to use an estimated 340B ceiling price for the first three quarters and to calculate an actual 340B ceiling price in the fourth quarter.

• The regulation requires manufacturers to contact covered entities to offer refunds or credit within 120 days of a manufacturer identifying an overcharge. Under previous guidance, providers had to request refunds from manufacturers to initiate the refund process, and manufacturers had to repay covered entities by the end of the fourth quarter.

The rule does not provide an exemption for de minimis refund amounts. Manufacturers must offer refunds to covered entities regardless of the dollar amount involved. In addition, the regulation generally prohibits manufacturers from netting overcharges against any undercharges when calculating refunds. However, a covered entity may decline a refund for a small dollar amount or permit a manufacturer to apply netting.

HHS plan to provide specific procedures for refunds

Commenters asked HHS to clarify whether the regulation’s refund policy for new drugs would apply to all overcharges. The agency responded that the rule’s refund requirements relate to new drugs only. HHS added that specific procedures for refunds are outside the authority of the regulation, but that it would address the issue in future guidance. In the meantime, the agency directed covered entities and manufacturers to work together in good faith to resolve refund issues and to document their efforts.

Ensuring 340B pricing availability regardless of distribution channel

The rule requires manufacturers to ensure the availability of 340B pricing through their distribution arrangements, regardless of the distribution channel. Failure to do so, HHS indicates, could be grounds for the imposition of CMPs. The agency clarifies that distributor fees are not considered part of the 340B ceiling price and, therefore, would not be included when assessing an instance of overcharging. The regulation does not specifically address situations where a covered entity cannot gain admission to a manufacturer’s limited distribution network (LDN) for a particular drug or cannot purchase a drug at any price, including 340B, as part of contract pharmacy arrangement with a pharmacy in a drug maker’s LDN.

Prohibition against conditioning 340B sales due to suspected noncompliance

The regulation prohibits a manufacturer from refusing to sell 340B drugs to a covered entity on the ground that the manufacturer has concerns about or specific evidence of potential noncompliance by the covered entity. HHS instead encourages manufacturers that suspect noncompliance to work in good faith with the covered entity, conduct an audit of the covered entity pursuant to government guidelines, or contact the agency.

To sign up for 340B @ Dentons, please contact Erin Whittaker at erin.whittaker@dentons.com.