Veterans Health Care Act: Limitations on prices of drugs purchased by covered entities— 340B drug pricing program, participation,


[Federal Register: October 22, 1998 (Volume 63, Number 204)]


[Page 56656-56658]

From the Federal Register Online via GPO Access []



Notice Regarding HRSA Grant Requirement--Participation in the 340B Drug Pricing Program

AGENCY: Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).

ACTION: Notice.

SUMMARY: Section 602 of Public Law 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 request comments on a proposed grant award requirement in which all entities, except those entities which fall within excepted categories, that receive HRSA grants listed in section 340B(a)(4) and that purchase or reimburse for covered outpatient drugs must participate in the 340B Drug Pricing Program, or demonstrate good cause for nonparticipation.

When the Prime Vendor program is operational, HRSA intends to publish a second Federal Register notice proposing an expansion of the grant award requirement to include participation in the Prime Vendor Program.

DATES: The public is invited to submit comments on the proposed grant requirement by December 21, 1998. After consideration of comments submitted, HRSA will determine whether to issue a final notice imposing the grant requirement.

ADDRESSES: Comments should be submitted to: Director, Division of Grants and Procurement Management,

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Health Resources and Services Administration, Room 13A03, 5600 Fishers Lane, Rockville, Md 20857; Phone (301) 443-1433; FAX (301) 443-6830. All comments will be available for public inspection at this address during normal business hours.

FOR FURTHER INFORMATION CONTACT: See above section, ADDRESSES for contact information.

SUPPLEMENTARY INFORMATION: Section 340B requires manufacturers, as a condition for the receipt of Medicaid matching funds with respect to their covered outpatient drugs, to charge eligible entities (i.e., ``covered entities'' as defined in section 340B(a)(4)) no more for such drugs than a specified ceiling price. The ceiling price is determined by a formula provided in section 340B(a)(1) & (2), and ``covered outpatient drug'' is defined in section 340B(b). HRSA has established the Drug Pricing Program to implement this statutory mandate.

Section 340B covered entities include certain HHS grantees, as specified in section 340B(a)(4). This proposed grant requirement will apply only to the following covered entities (HRSA grantees): health centers receiving grants under section 330 of the PHS Act, 42 U.S.C. Sec. 254b; black lung clinics receiving assistance under section 427(a) of the Black Lung Benefits Act, 30 U.S.C. Sec. 937(a); comprehensive hemophilia diagnostic treatment centers receiving a grant under section 501(a)(2) of the Social Security Act, 42 U.S.C. Sec. 701(a)(2); Native Hawaiian Health Centers receiving funds under the Native Hawaiian Health Care Act of 1988, 42 U.S.C. Sec. 11701 et seq.; an entity receiving a categorical grant for early intervention services for HIV disease under section 2651 of the PHS Act, 42 U.S.C. Sec. 300ff-51, a State-operated AIDS drugs assistance program (ADAP) receiving financial assistance under title XXVI of the PHS Act, 42 U.S.C. Sec. 300ff et seq.; and all other entities (other than States and units of local government) receiving assistance under title XXVI of the PHS Act, 42 U.S.C. Sec. 300ff et seq. It also should be noted that entities seeking to qualify as ``Federally-Qualified Health Centers'' (FQHCs) as ``lookalikes''--i.e., entities which meet all the requirements for receiving a grant under section 330 of the PHS Act but which do not receive such a grant--will also have to satisfy the grant requirement specified below in order to qualify as a FQHC. Further, please note that eligibility to access 340B discount pricing is not contingent upon purchasing drugs with Federal grant funds. A covered entity ``may use any revenues or funds available to it to procure drugs.'' See H.R. Rep. No. 102-384, 102d Cong., 2d Sess. pt. 2, at 16 (1992).

It is the policy of the Department that funds which are utilized by grantees for the acquisition of drugs must be expended in the most economical manner feasible. See 42 C.F.R. Part 50, Subpart E. In addition, allowable costs under a grant award, among other criteria, must be reasonable for the performance of the grant. ``Reasonable cost'' is defined as one that is ordinary and ``does not exceed that which would be incurred by a prudent person'' using sound business practices and arms length bargaining. See OMB Circular A-122, ``Cost Principles for Nonprofit Organizations.'' See also OMB Circular A-87, ``Cost Principles for State, Local and Indian Tribal Governments.'' Consequently, HRSA covered entity grantees must utilize an economical and reasonable method of purchasing their outpatient drugs, and section 340B was enacted to provide an effective means of lowering drug prices for covered entities.

Under the proposed policy, HRSA would require all entities that receive HRSA grants listed in section 340B(a)(4) and that purchase or reimburse for covered outpatient drugs to participate in the 340B Drug Pricing Program, unless such requirement is waived by HRSA for good cause. A good cause waiver would be granted if the covered entity submits adequate drug purchasing or reimbursement records that demonstrate that it is accessing drug prices as good as, or better than, the current 340B ceiling price, or for other good causes, as determined by HRSA.

HRSA recognizes that some covered entities will be excepted from the grant requirement or parts of it. Those covered entities which purchase covered outpatient drugs at or below a total cost of $30,000 a year will not be required to participate in the 340B program. However, such entities are not precluded from participation and are welcome to access the benefits of such a program. The $30,000 amount does not include covered drugs purchased at nominal prices--10% of the average manufacturer price, as defined in section I(s) of the Health Care Financing Administration's Manufacturer Rebate Agreement and in section 1927(k)(1) of the Social Security Act. Please note that the $30,000 amount is subject to adjustment by HRSA, as appropriate. HRSA established this amount after consultation with a number of national professional organizations, including the National Association of Community Health Centers, the Pharmaceutical Manufacturers and Research Association, the American Pharmaceutical Association and the National Association of Retail Druggists.

Covered entities, which do not fall within an excepted category or have not been granted a good cause waiver, must purchase all outpatient drugs through participation in the Drug Pricing Program. However, to the extent that a covered outpatient drug is not available at the 340B ceiling price and the quality of patient care will be impacted, the covered entity may purchase the drug at market prices. In such situations, the covered entity will be required to provide HRSA with documentation of the unavailability of the drug. When appropriate, HRSA will refer such information to the appropriate authorities for a complete investigation.

Currently, HRSA grantees must incur only reasonable costs and use only sound business practices and arms length bargaining when purchasing or reimbursing for covered outpatient drugs. Consistent with these principles, HRSA proposes to make this new grant requirement (which will use the 340B ceiling price as a reasonable standard) effective for each of the HRSA programs listed in section 340B(a)(4) at the beginning of the first grant cycle for that program which begins at least 30 days after the date of publication in the Federal Register of the final notice formally adopting this policy. At that time, all such HRSA grantees must certify in their grant requests that they participate in the section 340B program, are exempted or have received a good cause waiver. Existing contracts or agreements with manufacturers, prime vendors and other members of the drug distribution network concerning covered drug purchasing and distribution will not be considered a basis for a good cause waiver, unless they provide for pricing at or below the 340B ceiling prices. Section 340B waivers will be effective for the approved project period or other specified time periods, as deemed appropriate by HRSA.

To assist covered entities not only in accessing the section 340B manufacturer drug price reductions, but also in obtaining competitive pricing for wholesaler drug distribution, section 340B(a)(8) mandates the Secretary to establish a prime vendor program for covered entities. To increase the overall benefit of such a prime vendor program, the service of the prime vendor will include price negotiation as well as drug distribution services. HRSA is in the process of developing this program and will notify covered entities when the

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prime vendor is selected and service is available. At a later date, after the HRSA Prime Vendor begins operations, HRSA will issue a new Federal Register notice soliciting comments on a proposal to require covered entities subject to the grant requirement proposed in this notice to purchase their covered outpatient drugs from the HRSA Prime Vendor. Those AIDS Drug Assistance Projects (ADAPs), which participate in 340B through rebates, would not be subject to this additional grant requirement or eligible to participate in the Prime Vendor Program.

Dated: October 16, 1998. Claude Earl Fox, Administrator.

[FR Doc. 98-28275Filed10-21-98; 8:45 am]