[Federal Register Volume 63, Number 124 (Monday, June 29, 1998)]
[Notices]
[Pages 35239-35242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17142]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding Section 602 of the Veterans Health Care Act of 
1992--Rebate Option

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final notice.

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SUMMARY: Section 602 of Pub. L. 102-585, the ``Veterans Health Care Act 
of 1992,'' enacted section 340B of the Public Health Service (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 
with the Secretary of HHS in which the manufacturer agrees to charge a 
price for covered outpatient drugs that will not exceed that amount 
determined under a statutory formula.
    The purpose of this notice is to inform interested parties of the 
final guidelines recognizing a rebate option for State AIDS Drug 
Assistance Programs (ADAPs) receiving funds under Title XXVI of the PHS 
Act as an optional alternate means of accessing section 340B discount 
pricing.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Robert Staley, R. Ph., Senior Program 
Manager, Office of Drug Pricing, Bureau of Primary Health Care, Health 
Resources and Services Administration, 4350 East-West Highway, 
Bethesda, MD 20814, Phone (301) 594-4353; Fax (301) 594-4982.

SUPPLEMENTARY INFORMATION:

(A) Background

    The proposed guidelines, recognizing a rebate option for State AIDS 
Drug Assistance Programs (ADAPs), were announced in the Federal 
Register at 62 FR 45823 on August 29, 1997. A period of 30 days was 
established to allow interested parties to submit comments. The 
Department received comments from eleven sources including State AIDS 
Drug Assistance Programs, pharmaceutical manufacturers, and 
organizations representing pharmaceutical manufacturers or covered 
entities. Ten commenters supported the proposed guideline. There were 
no comments strongly in opposition to the recognition of an ADAP rebate 
option. The following section presents a summary of all major comments, 
grouped by subject, and a response to each comment. All comments were 
considered in developing these final guidelines. The rebate option is 
adopted with several modifications based upon these comments.

(B) Comments and Responses

Standardization of Systems

    Comment: It is hoped that the guideline will ensure a rebate 
process similar to the Medicaid model and voluntary systems currently 
utilized by most drug companies in that such standardization will 
ensure a more efficient rebate system.
    Response: The Federal Register notice requested comments only on 
the recognition of a rebate option and did not propose a specific 
mechanism for accessing such rebates. State ADAPs and manufacturers are 
encouraged to follow standard business practices in designing the 
contracts and agreements for such a rebate mechanism. The voluntary 
rebate agreements and the Medicaid rebate program may be used as models 
for development of the ADAP rebate agreements. The process for claim 
submission and payment is expected to be similar. The stipulations 
found in 59 FR 25113, May 13, 1994, section XI, entitled 
``Manufacturer's Contracts Requiring Entity Compliance'' are also 
deemed to be applicable in that a manufacturer may not condition a 
rebate contract or agreement upon an entities' compliance with the 
provisions of section 340B. Manufacturer stipulated requirements for 
participation in the manufacturer designed voluntary rebate agreements, 
if predicated on section 340B compliance,

[[Page 35240]]

should be renegotiated for the section 340B rebate agreements.
    Comment: Guidelines should allow State ADAPs with negotiated 
voluntary rebate agreements to continue to provide utilization data 
according to the terms of existing agreements.
    Response: Voluntary rebate agreements with covered entities that 
provide at least the minimum statutory discount and do not contain 
requirements inconsistent with section 340B and published program 
guidelines will be considered consistent with the section 340B rebate 
program. State ADAPs may not need to negotiate new agreements if these 
conditions are met, and the ADAP or the manufacturer does not desire a 
new agreement. ADAPs may continue to provide utilization data according 
to terms of existing agreements if so desired.
    Comment: Unlike the Medicaid rebate program, the proposed rebate 
program lacks specificity regarding program provisions and safeguards. 
It is critical that standardized contracts that provide for efficient 
and accountable procedures, systems, and data reporting formats be 
defined and implemented in conjunction with the program. The purpose of 
these provisions would be to protect the integrity of the program by 
safeguarding against errors, misunderstanding, and the potential for 
duplicate discounts and rebates.
    Response: This notice only recognizes an ADAP rebate option and 
does not provide in-depth implementation strategies. Standard business 
practices should be utilized by State ADAPs and manufacturers. The 
mechanisms developed and used in the Medicaid rebate program and the 
current voluntary rebate programs (consistent with the requirements of 
section 340B and program guidelines) are models to be emulated. Of 
course, a 340B discount and a Medicaid rebate on the same covered drug 
are prohibited by section 340B.
    Comment: The HRSA draft guidance does not address the mechanics of 
communication between an ADAP and a manufacturer about drugs reimbursed 
by the ADAP for which it claims a rebate from a manufacturer. It is 
recommended that HRSA consider requiring the ADAPs to use the claim 
form that State Medicaid programs use in submitting rebate requests to 
manufacturers.
    Response: The Federal Register notice did not address the mechanics 
of the rebate process. However, ADAPs are encouraged to use Medicaid 
claim form HCFA-R-144 as a model for two reasons. First, this form can 
be considered a standard business practice model. Second, manufacturers 
should find it advantageous to receive rebate claims from State ADAPs 
in a similar form and format to that received from the State Medicaid 
programs.

Diversion and Duplicate Discounts

    Comment: The State ADAP and the manufacturer are able to avoid the 
problems of diversion and double discounting if both the ADAP and the 
manufacturer have reached an understanding concerning the arrangements 
the ADAP has made to meet its statutory obligations (to avoid diversion 
and claims resulting in a duplicate discount).
    Response: Guidelines have been issued to minimize the potential for 
duplicate discounting and covered drug diversion (59 FR 25110, May 13, 
1994), and manufacturers have available to them auditing and dispute 
resolution remedies if they believe that duplicate discounting or 
covered drug diversion has occurred (61 FR 65406, December 12, 1996). 
In addition, manufacturers and covered entities are referred to 59 FR 
25113 for a reminder that ``a manufacturer may not condition the offer 
of statutory discounts upon an entity's assurance of compliance with 
section 340B provisions.''
    Comment: It would be difficult to administer a rebate program in 
which a given State ADAP used both the discount option and the rebate 
option. HRSA should clarify the policy that the rebate option is an 
``alternate to'' the direct discount mechanism and the choice of a 
single mechanism should be made by each State ADAP. We urge that HRSA 
clarify that the ADAP rebate is available only for those drugs not 
purchased at the PHS (section 340B) discount. Additionally it is 
recommended that HRSA maintain a list of which option has been selected 
by each ADAP.
    Response: The State ADAP 340B rebate option is an alternate method 
of accessing 340B pricing developed by HRSA in response to a clear need 
by certain State ADAPs which are unable to access such pricing through 
the direct discount option. We anticipate that these State ADAPs will 
promptly begin accessing 340B pricing using this rebate option. 
However, in States which have decentralized drug purchasing, there is 
the possibility that some decentralized ADAP components may elect to 
access pricing through a rebate mechanism while other ADAP components 
may develop systems to access a direct discount. States with 
decentralized drug purchasing are encouraged to centralize drug 
reimbursement mechanisms, so that from this central location, they can 
effectively maintain the necessary records to document appropriate drug 
reimbursement activity for the entire State. Using this drug 
reimbursement documentation, the central ADAP can then monitor 
reimbursement activity and prevent any duplicate rebate/discount on the 
same drug. In addition, the centralized ADAP can request appropriate 
rebates from the manufacturers in a more efficient and reliable manner. 
A State ADAP participating in the State ADAP section 340B rebate 
program will be listed as a covered entity, Entity Type ``RWIIR.''
    Comment: Under a decentralized system, it may be difficult to 
assure that duplicate discounts will not occur on drugs provided to 
Medicaid patients. At any rate, coordination between the ADAPs and 
State Medicaid agencies will be required.
    Response: Section 340B(a)(5)(A) prohibits a covered entity's 
request for a discount on a drug subject to an agreement under section 
340B if the drug is subject to the payment of a rebate under Medicaid. 
This requirement applies whether the State ADAP uses a decentralized 
system or a centralized system. The mechanism to prevent a duplicate 
discount was published in the Federal Register on May 7, 1993 (58 FR 
27293). This mechanism was developed in consultation with HCFA. In 
order to avoid a duplicate discount, the State ADAP must refrain from 
billing the State Medicaid agency unless the manufacturer's 340B rebate 
(either estimated or actually paid) is deducted from the price paid by 
the ADAP. This will help ensure that the State ADAP will only bill the 
State Medicaid agency at the actual acquisition cost plus a reasonable 
dispensing fee established by the State Medicaid agency. If the 
manufacturer's rebate is different from the estimated amount, the 
amounts billed to the State Medicaid agency will need to be reconciled.

Manufacturer Participation

    Comment: All pharmaceutical manufacturers whose products are on any 
State ADAP formulary should be mandated to participate in the 340B 
rebate program.
    Response: Only those manufacturers that have signed the section 
340B Pharmaceutical Pricing Agreement (PPA) with HHS must honor 
appropriate section 340B rebate requests from covered entities. The 
rebate option is a component of the section 340B program specific to 
State ADAPs; therefore, manufacturers, receiving an appropriate rebate 
claim from a covered entity listed on the Electronic Data Retrieval 
System

[[Page 35241]]

(EDRS) as a State ADAP participating in the section 340B rebate 
program, are required to provide a rebate that meets or exceeds the 
340B discount. Manufacturers who do not provide a rebate will be 
considered out of compliance with the PPA.

Technical Comments and Contractual Agreements

    Comment: The notice does not detail the way in which State ADAPs 
would or should invoice manufacturers for rebates. For example, there 
are no statements on determination of actual units utilized during a 
specific period of time or a statement as to the time frame in which an 
ADAP must submit invoices.
    Response: Standard business practices should be utilized. A 
manufacturer and a State ADAP are encouraged to specify in a contract 
or agreement the units and required time frame for claim data 
reporting. Unit definitions for reporting and report periods similar to 
those used in the Medicaid agreements and voluntary rebate agreements 
and contracts are considered standard business practices and thus 
acceptable. A standard State ADAP section 340B rebate claim submission 
and processing guideline was not specified so as to allow maximum 
flexibility between a State ADAP and manufacturers in the development 
of contracts and agreements.
    Comment: There is no explicit audit provision in place to assure 
that the amount of units claimed for rebates coincides with the actual 
units of product dispensed. In addition, there is no specific procedure 
referenced for dispute resolution when a manufacturer disagrees with 
the amount invoiced from a State ADAP.
    Response: Sections 340B(a)(5)(A) and (B) prohibit a 340B discount 
and a Medicaid rebate on the same drug and the resale or transfer of a 
340B discounted drug to an individual who is not a patient of the 
covered entity. The manufacturer audit guidelines and the informal 
dispute resolution process guidelines (61 FR 65406-65412, December 12, 
1996) allow manufacturers to audit covered entities pursuant to 
guidelines and dispute, among other issues, certain covered entity 
claims (e.g., rebates for covered drugs given to individuals who are 
not patients of the covered entity).
    Comment: Manufacturers must have the freedom to enter into 
contractual agreements with individual State ADAP programs to address 
potential problems.
    Response: Manufacturers and State ADAPs are able to enter into 
contractual agreements that address potential problems and mutually 
acceptable solutions.
    Comment: A comprehensive and enforceable contract between the State 
ADAP program and the manufacturer should be developed through a public 
comment process and implemented prior to the establishment of the 
proposed new rebate mechanism. Specific elements that should be 
incorporated in any such agreement include: drug National Drug Code 
(NDC); prescription number; date reimbursed; quantity; unit type; 
amount reimbursed to the pharmacy; and dispensing pharmacy name, city, 
and state. Absent these provisions, the guidelines and principles 
proposed in the notice are not sufficient to ensure that the rebate 
option can operate equitably and efficiently.
    Response: Requiring a ``comprehensive and enforceable contract'' 
would delay State ADAP participation in the 340B rebate program. HRSA 
wishes to allow maximum flexibility between each manufacturer and State 
ADAP in reaching such agreements.
    Pharmacy specific data (prescription number, date of reimbursement, 
and similar data elements) are not reported on the initial Medicaid 
utilization submission and are not considered the standard for initial 
claim submission. HRSA encourages manufacturers to accept aggregate 
data (similar to Medicaid form HCFA-R-144) in the initial claim form. 
HRSA encourages State ADAPs to consider that the more detailed and 
accurate the initial claim data, the less likelihood a claim will be 
questioned or disputed.
    Comment: We recommend that HRSA establish a specific date, such as 
60 days after HRSA issues its guidance in final form, after which drugs 
reimbursed by an ADAP would be eligible for a rebate from a 
manufacturer with which the ADAP has entered into a rebate agreement.
    Response: The effective date for the inception of the State ADAP 
340B rebate program will be 30 days after the date of publication of 
this final notice. A State ADAP will not be considered a covered entity 
participating in the 340B rebate program until it is listed on the ODP 
Electronic Data Retrieval System (EDRS). At maximum, a period of one 
hundred and twenty days may elapse between publication of this final 
guideline and the next quarterly update of the EDRS. State ADAPs listed 
on the first quarterly EDRS update after the publication of this final 
notice may submit claims for covered drugs that were purchased 30 days 
after the date of final notice publication and thereafter. State ADAPs 
listed on a later EDRS update may claim rebates only on purchases made 
after their effective date of listing on the EDRS. ADAPs may need time 
to work closely with their State Medicaid programs to develop 
procedures to prevent duplicate discounting. Some ADAPs may find it 
necessary to improve record keeping and data tracking systems.
    Comment: We recommend that HRSA establish a time period within 
which claims may be submitted for a manufacturer rebate. A fixed filing 
deadline will help avoid disputes and the Medicaid model may provide an 
analogy wherein Medicaid providers have one year in which to submit 
claims for reimbursement to state Medicaid programs. The benefit of a 
uniform expectation about the finality of payments and disputes for a 
given period may outweigh any concerns about HRSA imposing requirements 
on ADAPs.
    Response: HRSA agrees that a maximum time period for submission of 
claims of one year appears to be within the range of standard business 
practices. However, a specific guideline for data claim submission and 
processing for rebates is not included in this guideline.
    Comment: We urge HRSA to adopt requirements that manufacturer 
rebates paid to a State ADAP expand the care provided by the ADAP.
    Response: Although section 340B does not discuss an appropriate use 
for 340B drug purchasing savings, the legislative history provides that 
section 340B was enacted to permit scarce Federal dollars to reach more 
eligible patients and provide more comprehensive services. See H.R. 
Rep. No. 102-348, 102d Cong., 2d Sess., pt 2, at 16 (1992).

Expansion of the Rebate Option to Additional Covered Entities

    Comment: The characteristics of State ADAPs and their components 
make them more like State-run pharmaceutical benefit programs. The 
commitment of the States to assume responsibility for rebate 
contracting and administration has been essential to making the 
voluntary rebate program manageable. Our (favorable) response to the 
recognition of a rebate program for the ADAPs would be different if 
HRSA proposed a rebate program for all covered entities. Accordingly, 
we urge that the rebate mechanism be an option only for meeting the 
unique needs of the State ADAP programs and that HRSA not consider any 
further expansion to other categories of entities.
    Response: At this time, we agree. This notice only recognizes a 
rebate option

[[Page 35242]]

for the State AIDS Drug Assistance Programs that receive assistance 
under Title XXVI of the PHS Act.

(C) The State ADAP Section 340B Rebate Option

    In light of the comments and responses set forth above, the 
guideline for the state ADAP 340B rebate option is as follows: HRSA 
recognizes rebates obtained by the State ADAPs or their components that 
equal or exceed the 340B discount provided by the statutory ceiling 
price as a method of participating in the 340B program, subject to 
compliance with other requirements for participation. Standard business 
practices, such as those reflected in the Medicaid Rebate Program and 
current voluntary manufacturer rebate programs (consistent with the 
requirements of section 340B and all program guidance published in the 
Federal Register) are appropriate for the development of rebate 
contracts and agreements between State ADAPs and manufacturers. State 
ADAPs or their components and manufacturers wishing technical 
assistance in developing a rebate program and rebate agreements should 
contact HRSA's Office of Drug Pricing at (301) 594-4353 or (800) 628-
6297.
    State ADAPs or their components determined to be eligible for 
participation in the State ADAP 340B rebate program will be listed on 
the Office of Drug Pricing (ODP) Electronic Data Retrieval System 
(EDRS) on the first quarterly update of the EDRS which occurs 30 days 
following the effective date of this Federal Register notice. State 
ADAPs or their components listed on this update may submit rebate 
claims to participating manufacturers for covered drugs that are 
purchased starting 30 days after the date of this final notice 
publication. State ADAPs or their components listed on a later EDRS 
update may claim rebates only on purchases made after their effective 
date of listing on the EDRS.
    Section 340B(a)(5)(A) reflects Congressional recognition that there 
is a potential for a covered drug purchased by a covered entity at the 
340B discount price to be subject to a Medicaid rebate, if the drug is 
reimbursed by the Medicaid program. All program guidance regarding the 
prevention of such duplicate discounting must be followed by ADAPs 
participating in the rebate program as well as those participating in 
the discount program. Guidance regarding billing State Medicaid 
Agencies at actual acquisition cost plus a dispensing fee (established 
by the State Medicaid agency) and the prevention of duplicate 
discounting was published in the Federal Register on May 7, 1993 (58 FR 
27293) entitled ``Duplicate Discounts and Rebates on Drug Purchases.'' 
Further guidance was published in the Federal Register on May 13, 1994 
(59 FR 25112). State ADAPs may find it necessary to work with State 
Medicaid Agencies to adapt these guidelines to meet the unique 
circumstances of each individual State, such as provisions permitting 
retroactive reimbursement of drug purchases while Medicaid eligibility 
was pending.
    The HRSA is sensitive to concerns about diversion of covered drugs 
to individuals who are not patients of the covered entities. Guidelines 
have been issued to minimize this potential, and manufacturers have 
available to them specified remedies if they believe diversion has 
occurred. These guidelines and remedies will apply fully to drugs 
purchased under a rebate option, and we believe that instituting 
rebates will not increase the potential for diversion.

    Dated: May 22, 1998.
Claude Earl Fox,
Administrator.
[FR Doc. 98-17142 Filed 6-26-98; 8:45 am]
BILLING CODE 4160-15-P