March 22, 2010 – The U.S. House of Representatives passed a sweeping health care reform plan on March 21 that expands and improves the 340B drug discount program but fails to extend it to the inpatient setting.
The Monitor’s sources on Capitol Hill say the 340B inpatient extension was removed from the Senate-approved bill at the 11th hour as a concession to the drug industry, which opposed 340B’s expansion and whose support was considered critical to the bill’s passage. In contrast to prior health care reform attempts, congressional Democrats won the drug industry’s support this time and it appears removing the 340B inpatient extension was the price. The industry provided significant concessions to the federal government to help finance the legislation and paid for a national television ad campaign advocating the Democratic health care plan’s passage.
During debate leading up to the bill’s passage, several members of Congress sought assurances from Democratic leaders that the 340B inpatient legislation would be considered in the near future as either a stand-alone bill or as part of a larger initiative. Rep. Bobby Rush (D-Ill.), lead sponsor of the freestanding 340B reform bill H.R. 444, announced late last week that he was reconsidering his support for the health reform bill in protest of the inpatient provision’s removal. His move carried great weight because it was very unclear at the time whether House Democratic leaders would get the 216 votes they needed for the bill’s final approval.
Rush, who ultimately voted in favor of the bill, spoke personally to President Obama and top Democratic congressional leaders about the importance of extending 340B discounts to the inpatient setting.
On Tuesday, President Obama will sign the first of the two related health care reform bills that the House passed on March 21. The second, a budget reconciliation bill, still requires Senate approval. Senate Democratic leaders say they aim to pass it by week’s end with no amendments.
Aside from the omission of the inpatient provision, the health care reform bill contains numerous 340B provisions, including:
New 340B covered entities. The bill expands 340B eligibility to a number of different categories of hospitals. Rural hospitals including critical access, sole community and rural referral centers will now be eligible. Sole community hospitals and rural referral centers will have to meet a Medicare disproportionate share (DSH) adjustment percentage of 8 percent or greater. Critical access hospitals do not have to meet this criterion because they do not receive DSH payments. Other DSH hospitals will have to continue to meet the current 11.75 percent threshold.
Free-standing children’s hospitals and free-standing cancer hospitals will now also be eligible for discounts in the outpatient setting. While children’s hospitals were recently added to the program under a new federal guideline, this legislation adds the children’s hospitals and the other facilities to the list of covered entities under the Public Health Service Act, which entitles them all to benefits such as access to nominally priced drugs and voluntary inpatient discounts. However, certain “orphan drugs” will be ineligible for 340B discounts for these new covered entities. Drug manufacturers must continue to provide 340B discounts for orphan drugs for existing covered entities such as DSH hospitals.
Likely increase in 340B discounts. The legislation increases the mandatory Medicaid drug rebate percentage on brand name drugs from 15 percent to 23 percent. This might result in a significant increase in the 340B discount percentage since the 340B price is tied to the Medicaid rebate. The average manufacturer price (AMP) is also expected to increase, however, due to a change in its formula.
Protects 340B providers when billing Medicaid managed care. Manufacturers are protected under federal law from having to give both 340B discounts and Medicaid rebates on the same drugs under the Medicaid fee-for-service program. A provision of the bill extends Medicaid rebates to drugs prescribed through Medicaid managed care health plans, and 340B provider groups worked hard to ensure that covered entities were protected from any duplicate discount prohibition under this new provision. They were successful. The legislation protects 340B providers from being required to bill Medicaid managed care plans at acquisition cost. Without this protection, 340B providers would have been stripped of their pharmaceutical savings in this setting.
Helps seniors in the Medicare Part D donut hole. The reconciliation bill helps Part D prescription drug plan beneficiaries in the coverage “donut hole” by increasing the 50 percent discount for brand-name drugs that manufacturers had already agreed to pay under an agreement with the White House to 75 percent for both brand-name and generic drugs. The remaining 25 percent of drug costs in the donut hole would be picked up by the beneficiaries.
New integrity provisions for manufacturers and covered entities:
- Availability of 340B prices. The bill would require that 340B covered entities have access through the Office of Pharmacy Affairs (OPA) Web site to the actual 340B ceiling prices verified by the Secretary of Health and Human Services (HHS).
- New integrity provisions for manufacturers and covered entities. HHS is required to develop a system to ensure accurate pricing by manufacturers under the program. The government is also required to perform spot checks of manufacturer sales transactions and inquire into the cause of pricing discrepancies, and ensure corrective action. As to covered entities, they will be required to annually update their contact information on the OPA Web site. In addition, the Secretary is required to develop more detailed guidance on billing Medicaid. Covered entities will be subject to fines if they have engaged in knowing and intentional violations such as drug diversion.
- Mandatory credit or refund process. The bill requires the HHS Secretary to establish procedures for manufacturers to issue refunds to covered entities and to oversee those refunds when there is an overcharge. Manufacturers would be required to explain to the Secretary why and how the overcharge occurred and how refunds are calculated and will be issued.
The Monitor will continue to follow the action in the Senate and will take a closer look at the legislation in coming days.