On Monday, April 18th, the Health Resources and Services Administration (“HRSA”) and the Department of Health and Human Services (“HHS”) reopened the comment period for their proposed rule “340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation” (“Proposed Rule”).  Originally issued on June 17, 2015, the Proposed Rule sought to implement the civil monetary penalty (“CMP”) and ceiling price calculation provisions created by the 2010 amendment to Sec. 340B of the Public Health Service Act (“PHSA”) (for additional information on the Proposed Rule, please see our October 2015 webinar materials on the subject).  Comments were due August 17, 2015 and stakeholders vigorously commented on HRSA’s proposed penny policy for the ceiling price calculation, the lack of clarity regarding the new drug estimate calculation, and the liability standard for CMPs.

Subsequent to the Proposed Rule, HRSA issued its draft Omnibus Guidance on August 28, 2015.  The Omnibus Guidance, in addition to proposing a new “patient” definition, also provided additional examples that could lead to manufacturer CMP liability, including the requirement that manufacturers issue refunds and credits to 340B covered entities (for additional information on the Omnibus Guidance, please see our October 2015 webinar materials on the subject).  Many stakeholders noted the piecemeal nature of HRSA’s regulatory activity and called for the reopening of the comment period for the Proposed Rule, particularly since the Omnibus Guidance further elaborated on situations that may lead to CMP liability.

It seems HRSA may have listened to the many concerns raised. In its notice of the reopening of the comment period, HRSA stated it is specifically seeking comment on alternatives to the penny pricing proposal as a limited ceiling price.  HRSA noted that commenters suggested a number of alternatives to penny pricing, including use of the “federal ceiling price, the most recent positive ceiling price from previous quarters, nominal sales price.”  HRSA is “considering whether any of these alternatives or other alternatives not raised by the commenters, alone or in combination, would be more appropriate than the penny pricing policy.”  HRSA is therefore seeking comment on whether HRSA should adopt an alternative policy to penny pricing.

HRSA is also seeking comment on the specific methodology for estimating new covered outpatient drug pricing.  The proposed methodology lacked clarity regarding the standard two-quarter lag for calculation of new drug prices and required manufacturers to recalculate and issue refunds to covered entities at the start of the fourth quarter – a difficult, if not impossible, task.  HRSA noted that they received several alternative methodologies, including setting the price of new covered outpatient drugs as WAC minus the applicable rebate percentage (e.g. 23.1% for most single-source and innovator drugs, 13% for generics and OTCs).  HRSA is seeking comment on the new drug estimate calculation, as well as comments on the proposed quarter in which manufacturers will be required to issue refunds post-recalculation.

Finally, HRSA is seeking comment on the definition of “knowing and intentional” as a standard for manufacturer CMP liability.  Under section 340B(d)(1)(B)(vi) of the PHSA, the Secretary is charged with issuing CMPs for manufacturers who have “knowingly and intentionally” charged a covered entity a price that exceeds the 340B ceiling price.  The Proposed Rule did not define “knowing and intentional,” leading to a number of questions as to the precise point at which CMP liability is imposed.  HRSA is seeking comment on whether “knowing and intentional” should be further defined and provided possible definitions of “(1) [a]ctual knowledge by the manufacturer, its employees, or its agents of the instance of overcharge; (2) willful or purposeful acts by, or on behalf of, the manufacturer that lead to the instance of overcharge; (3) acting consciously and with awareness of the acts leading to the instance of overcharge; and/or (4) acting with a conscious desire or purpose to cause an overcharge or acting in a way practically certain to result in an overcharge.”  Further, HRSA is seeking comment on the circumstances in which the requisite intent “should and should not be inferred.”  HRSA specifically solicited comment on situations in which manufacturers would not be considered to have the requisite intent, such as:

  • The manufacturer made an inadvertent, unintentional, or unrecognized error in calculating the ceiling price;
  • A manufacturer acted on a reasonable interpretation of agency guidance; or
  • When a manufacturer has established alternative allocation procedures where there is an inadequate supply of product to meet market demand, as long as covered entities are able to purchase on the same terms as all other similarly-situated providers.

Comments are due on or before May 18, 2016. We expect to see a great deal of interest on alternatives to the penny pricing policy and the intent element of the “knowing and intentional” standard.   Interested stakeholders should consider taking this opportunity to express their views to HRSA, particularly in light of the new circumstances created by the interplay of the Proposed Rule and the draft Omnibus Guidance.  Considering the rapid growth of the 340B program in the past 10 years, the stakes are high for all interested parties.

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Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions…

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as transactional and legislative issues. Her practice also includes bid protest and contract claims and appeals litigation before GAO, agency boards and the federal courts. Ms. Plitsch has particular expertise in advising clients in the pharmaceutical and biologics industry. She advises a range of pharmaceutical and biologics manufacturers on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as research and development contracts and grants with various federal agencies. She also has significant experience advising on the requirements of various programs under which vaccine products and biodefense medical countermeasures are procured by the Government.

Photo of Paige Jennings Paige Jennings

Paige Jennings is an associate in Covington’s Washington office. She works with the firm’s Federal–State Programs, Health Care, Antitrust, and Litigation practice groups. Ms. Jennings joined the firm after a number of years working on health policy matters in the government and private…

Paige Jennings is an associate in Covington’s Washington office. She works with the firm’s Federal–State Programs, Health Care, Antitrust, and Litigation practice groups. Ms. Jennings joined the firm after a number of years working on health policy matters in the government and private sectors. Prior to earning her law degree and Master of Public Affairs, she worked in the U.S. Senate for over four years, advising Senators John Breaux and Tom Carper on health and social policy matters. Ms. Jennings later handled federal health policy issues at WellPoint, Inc. During law school, she worked with the U.S. Office of Management and Budget during consideration of the Affordable Care Act, and with the Federal Trade Commission for then-Chairman Jon Leibowitz.