March 18, 2014—The Obama administration proposes to audit and survey drugmakers more often to ensure they are fulfilling their Medicaid drug rebate obligations and to increase penalties for those that knowingly report false information for the calculation of rebates. [ms-protect-content id=”2799″]
The administration outlined the legislative proposals in its recent fiscal 2015 budget request for the Centers for Medicare and Medicaid Services. Heightened scrutiny of drug manufacturers’ Medicaid rebate obligations could have ripple effects for the 340B drug discount program. In general, a drug’s 340B ceiling price is (a) its average manufacturer price (AMP) minus its Medicaid unit rebate amount or (b) its best price, whichever is lower, multiplied by the drug package size. If the government finds that a manufacturer misreported its drug prices to CMS, 340B covered entities might have been overcharged for the same drugs and could be owed refunds.
The Health Resources and Services Administration, which administers the 340B program, also is ramping up its oversight of drug manufacturers. It recently launched its first audit of a drugmaker and said it will publish a regulation to fine manufacturers that overcharge 340B covered entities knowingly and intentionally.
HRSA’s Office of Pharmacy Affairs said it is devoting part of its $6 million in additional funding this fiscal year toward “reconstituting [its] pricing database to allow manufacturer price reporting, price validation, and covered entity access to pricing.” Earlier this month, OPA Director Cmdr. Krista Pedley emailed a “Dear Colleague” letter to 340B stakeholders (also posted on the OPA website) describing OPA’s current manufacturer oversight activities. “Moving forward, we are continuing to look at ways to enhance compliance oversight of manufacturers,” the letter concludes. “We are in the process of considering new elements to add to those already existing to strengthen our efforts.”
The administration noted in its budget request to Congress that CMS already has authority to survey drug manufacturers and that the Health and Human Services Office of Inspector General has the power to audit them regarding their compliance with Medicaid rebate requirements. Its proposed legislation would “allow more regular audits and surveys of drug manufacturers to ensure compliance” and to “increase penalties collected from drug manufacturers that knowingly report false information under their drug rebate agreements.”
The CMS budget request includes other legislative proposals with potential pricing implications for the 340B program. Among them:
Apply Medicaid rebate inflation adjustment to generic drugs. Drugmakers are required to pay additional Medicaid rebates for brand-name drugs when the AMP for such drugs increases more than a specified inflation factor. Likewise, 340B covered entities may be entitled to an increased drug discount if the brand name drug’s price has outpaced inflation. The administration proposes to extend the inflation adjustment to generic drugs for Medicaid rebates. Under HRSA’s “penny pricing” policy, when application of the inflation factor would cause a brand name drug’s 340B ceiling price to drop to zero, the manufacturer should set the 340B price at $0.01 per unit. If Congress enacts the administration’s proposal, it is unclear whether HRSA would extend its penny-price policy to generics.
Coverage of prescribed prenatal vitamins and fluorides. The administration is asking Congress to clarify that prenatal vitamins and fluoride preparations, when prescribed by a physician, should be classified as covered outpatient drugs and thus subject to Medicaid rebates. The 340B program uses the Medicaid rebate program’s definition of covered outpatient drug to determine whether a medication qualifies for 340B pricing.
Certain OTC drugs. The administration proposes to clarify that over-the-counter drugs that are FDA-approved under a new drug application are to be considered brand-name drugs for Medicaid rebate purposes. Classifying a drug as a brand-name product would change how its 340B price is calculated. [/ms-protect-content]