February 16, 2011—The Obama administration’s proposed 0.1 percent user fee for safety-net providers enrolled in the 340B program would be patterned on the Department of Veterans Affairs’ (VA) “industrial funding fee”—a 0.5 percent surcharge on pharmaceuticals and other health care products and services that federal agencies and their authorized contractors buy from the VA’s Federal Supply Schedule (FSS).
Additional details about the proposed 340B user fee, also described as a “cost recovery fee,” emerged late on Feb. 14 in Health Resources and Services Administration (HRSA) budget briefing documents.
Percentage Not Permanently Fixed
HRSA said it was seeking authority to collect $5 million in fees from covered entities in the fiscal year that begins Oct. 1. The fee, it said, would be “initially” set at 0.1 percent (i.e. one penny on every $10) of covered entities’ total 340B drug purchases, which suggests that the percentage might rise or fall in the future.
The $5 million in fee revenues would be in addition to the $5.2 million appropriation that President Obama requested for the Office of Pharmacy Affairs (OPA), raising the office’s total available spending from $2.2 million to $10.2 million if Congress agrees.
User fee revenues, it said in a synopsis of the budget request, “will support increased monitoring of compliance with required price ceilings through manufacturers’ reporting, as the program expands to include authorized activities from the Affordable Care Act.”
Appropriations Might Not Continue
“During the first year of implementation … an appropriation would still be necessary for” OPA’s expanded duties under health care reform until “funds are collected in sufficient manner to operate the program,” HRSA said in another document prepared for congressional appropriators.
That language suggests that HRSA envisions funding the drug discount program entirely from fees at some future point.
In the same document for Congress, HRSA said covered entities were now spending $6 billion on 340B-covered outpatient drugs, which suggests that a 0.1 percent user fee could generate $6 million in revenue. A spokesperson for the agency could not immediately answer why HRSA is seeking authority to collect only $5 million in fees and what would occur if it collected more than that amount.
“A Small Fraction”
OPA Director Krista Pedley said last fall that her office would not implement changes to 340Bmade by health care reform, including new dispute resolution and civil monetary penalty processes, until OPA secured more funding from the government.
“A sustainable funding source is needed to ensure the integrity of the program under the demands of existing growth and the changing marketplace,” HRSA said in the congressional briefing document.
340B entities, it continued, “receive a significant benefit and the cost recovery fee is designed to ensure the cost of administering the program is paid for with a small fraction of the received benefit.”
“Without the cost recovery fee,” HRSA continued, “the funding necessary to administer this program comes exclusively from the taxpayers. The cost recovery fee will create a sustainable funding source to meet the demands of the existing growth of the program, the changing marketplace, and the new statutory program requirements.”
HRSA said it expects that health care reform alone will add 5,000 new sites to the program and that 340B enrollment will continue “normal” growth of between 3 and 4 percent per year. It also noted that the number of 340B contract pharmacies has risen “to over 3,000” since it published guidelines a year ago allowing covered entities to contract with multiple pharmacy partners and that this number will “continue growing at an accelerated rate for the newly covered entities.”
The document says that manufacturers would collect the fees at the time of sale and remit the proceeds to the HHS secretary. It is not clear if the new 0.1 percent fee would be built into the price of pharmaceuticals, as is done in the VA user fee program, or billed separately.
The document also indicates that 340B pharmaceutical pricing agreements between the HHS secretary and manufacturers would have to be rewritten to reflect the drug companies’ new fee collection and remittance responsibilities. It does not address whether manufacturers would be allowed to charge for these extra services.
Click here for the full text of the briefing document HRSA prepared for Congress.