[Federal Register Volume 59, Number 107 (Monday, June 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13712]


[[Page Unknown]]

[Federal Register: June 6, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service

 

Notice Regarding Section 602 of the Veterans Health Care Act of 
1992 Inclusion of Outpatient Hospital Facilities

AGENCY: Public Health Service, HHS.

ACTION: Notice.

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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care 
Act of 1992'' (the ``Act''), enacted section 340B of the Public Health 
Service Act (``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 (the ``Agreement'') with the 
Secretary, Department of Health and Human Services, in which the 
manufacturer agrees to charge a price for covered outpatient drugs that 
will not exceed the amount determined under a statutory formula.
    Section 340B(a)(4) lists the entities eligible to receive discount 
outpatient drug pricing (i.e., certain disproportionate share hospitals 
(DSHs) and PHS grantees). The definition of a disproportionate share 
hospital found in section 340B(a)(4)(L) provides criteria to determine 
which such hospitals are eligible to participate in the program. 
However, the definition does not include criteria to determine which 
outpatient facilities (including off-site or satellite clinics) working 
in conjunction with the eligible hospital would be considered part of 
the hospital for purposes of eligibility for section 340B drug 
discounts. The Office of Drug Pricing, which administers this program 
with PHS, is proposing certain procedures to determine which outpatient 
hospital facilities are included as part of an eligible 
disproportionate share hospital.

DATES: The public is invited to submit comments on the proposed 
procedures by July 6, 1994. Subject to consideration of the comments 
submitted, the Department intends to publish a final notice regarding 
these procedures.

ADDRESSES: Submit comments to Ms. Alvarez at the address listed below.

FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Director, 
Office of Drug Pricing, Bureau of Primary Health Care, 4350 East West 
Highway, West Towers, 10th Floor, Bethesda, MD 20814, Tel: (301) 594-
4354.

SUPPLEMENTARY INFORMATION: Section 340B(a)(4) of the PHS Act lists the 
various groups of entities eligible to receive the section 340B 
discount pricing. Section 340B(a)(4)(L)\1\ describes a subset of 
``hospitals'' as defined in section 1886(d)(1)(B) of the Social 
Security Act as eligible to participate in the program. Because section 
1886 addresses Medicare payment for hospital inpatient services only, 
the scope of the term ``hospital'' has been limited to the hospital 
inpatient services. However, section 340B deals exclusively with 
outpatient drugs. Although Congress clearly intended that this narrow 
definition be used to identify Medicare disproportionate share 
hospitals which are eligible for section 340B drug discounts, we do not 
believe it is reasonable to use this same definition to limit where the 
section 340B outpatient drug can be used. Some disproportionate share 
hospitals offer outpatient services in off-site or satellite outpatient 
facilities. Further, the movement of nonprofit hospitals in recent 
years has been to reorganize and offer a variety of services other than 
traditional inpatient hospital services through separate divisions, 
lines of business, or entities. Therefore, for purposes of section 340B 
drug discounts, a more inclusive interpretation of ``hospital'' is 
needed.
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    \1\Section 340B(a)(4)(L) of the PHS Act defines as a covered 
entity--``A subsection (d) hospital (as defined in section 
1886(d)(1)(B) of the Social Security Act) [42 U.S.C. 
1396ww(d)(1)(B)] that--(i) is owned or operated by a unit of State 
or local government, is a public or private non-profit corporation 
which is formally granted governmental powers by a unit of State or 
local government, or is a private non-profit hospital which has a 
contract with a State or local government to provide health care 
services to low income individuals who are not entitled to benefits 
under title XVIII of the Social Security Act [42 U.S.C.A. section 
1395 et seq.] or eligible for assistance under the State plan under 
this title; (ii) for the most recent cost reporting period that 
ended before the calendar quarter involved, had a disproportionate 
share adjustment percentage (as determined under section 
1886(d)(5)(F) of the Social Security Act) [42 U.S.C.A. 
1395ww(d)(5)(F)] greater than 11.75 percent or was described in 
section 1886(d)(5)(F)(i)(II) of such Act [42 U.S.C.A. 1395ww 
(d)(5)(F)(i)(II)]; and (iii) does not obtain covered outpatient 
drugs through a group purchasing organization or other group 
purchasing arrangement.''
    The Health Care Financing Administration (HCFA) submitted to the 
Office of Drug Pricing a list of hospitals that met the first two 
requirements (i.e., 340B(a)(4)(L)(i) and (ii)). HCFA will update 
this list periodically.
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    The Office of Drug Pricing Program is proposing to recognize as 
part of an eligible DSH outpatient facilities (including off-site and 
satellite clinics) which meet the following standard:

    The outpatient facility is considered an integral part of the 
``hospital'' and therefore eligible for section 340B drug discounts 
if it is a reimbursable facility included on the hospital's Medicare 
cost report.

For example, if a hospital with one Medicare provider number meets the 
disproportionate share criteria and this hospital has associated 
outpatient clinics whose costs are listed on the Medicare cost report, 
these clinics would also be eligible for section 340B drug discounts. 
However, free-standing clinics of the hospital that submit their own 
cost reports using a different Medicare number (not under the single 
hospital Medicare provider number) would not be eligible for this 
benefit.
    This test, using the single Medicare provider number, is proposed 
for three reasons. First, Congress referred to section 1886 of the 
Social Security Act, part of the Medicare statute, for the definition 
of a DSH in section 340B(a)(4)(L) of the PHS Act. We believe, 
therefore, that it is reasonable to utilize existing Medicare rules to 
determine eligibility for the drug discount program. The proposed 
Medicare cost report test was developed by Medicare officials and is 
used, in part, to determine whether a facility is part of a hospital. 
If an outpatient facility does not share in the hospital cost report, 
it is properly viewed as an independent, free-standing facility.
    Second, the relative administrative burden of the proposed test 
(i.e., obtaining sufficient documentation to verify the inclusion of 
these off-site facilities) should be minimal. Hospitals seeking 
Medicare reimbursement are required to submit annual cost reports 
including all hospital units (e.g., on site and off-site clinics); 
therefore, the information necessary to determine facility eligibility 
is available and needs no further analysis by the Office of Drug 
Pricing.
    Third, the test incorporates criteria (i.e., the Medicare cost 
report) that form an independent and objective basis upon which to 
determine eligibility. Therefore, this test should provide fair and 
easy administration.
    If DSHs have difficulty accessing PHS pricing for eligible 
outpatient clinics, they should contact the Office of Drug Pricing (not 
HCFA) for assistance. If manufacturers have questions concerning the 
eligibility of certain DSH outpatient clinics, they should also contact 
the Office of Drug Pricing for a determination of eligibility.

    Dated: May 27, 1994.
Ciro V. Sumaya,
Administrator, Health Resources and Services Administration.
[FR Doc. 94-13712 Filed 6-3-94; 8:45 am]
BILLING CODE 4160-15-P