[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56656-56658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28275]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES


Notice Regarding HRSA Grant Requirement--Participation in the 
340B Drug Pricing Program

AGENCY: Health Resources and Services Administration (HRSA), Department 
of Health and Human Services (HHS).

ACTION: Notice.

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SUMMARY: Section 602 of Public Law 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 request comments on a proposed 
grant award requirement in which all entities, except those entities 
which fall within excepted categories, that receive HRSA grants listed 
in section 340B(a)(4) and that purchase or reimburse for covered 
outpatient drugs must participate in the 340B Drug Pricing Program, or 
demonstrate good cause for nonparticipation.
    When the Prime Vendor program is operational, HRSA intends to 
publish a second Federal Register notice proposing an expansion of the 
grant award requirement to include participation in the Prime Vendor 
Program.

DATES: The public is invited to submit comments on the proposed grant 
requirement by December 21, 1998. After consideration of comments 
submitted, HRSA will determine whether to issue a final notice imposing 
the grant requirement.

ADDRESSES: Comments should be submitted to: Director, Division of 
Grants and Procurement Management,

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Health Resources and Services Administration, Room 13A03, 5600 Fishers 
Lane, Rockville, Md 20857; Phone (301) 443-1433; FAX (301) 443-6830. 
All comments will be available for public inspection at this address 
during normal business hours.

FOR FURTHER INFORMATION CONTACT: See above section, ADDRESSES for 
contact information.

SUPPLEMENTARY INFORMATION: Section 340B requires manufacturers, as a 
condition for the receipt of Medicaid matching funds with respect to 
their covered outpatient drugs, to charge eligible entities (i.e., 
``covered entities'' as defined in section 340B(a)(4)) no more for such 
drugs than a specified ceiling price. The ceiling price is determined 
by a formula provided in section 340B(a)(1) & (2), and ``covered 
outpatient drug'' is defined in section 340B(b). HRSA has established 
the Drug Pricing Program to implement this statutory mandate.
    Section 340B covered entities include certain HHS grantees, as 
specified in section 340B(a)(4). This proposed grant requirement will 
apply only to the following covered entities (HRSA grantees): health 
centers receiving grants under section 330 of the PHS Act, 42 U.S.C. 
Sec. 254b; black lung clinics receiving assistance under section 427(a) 
of the Black Lung Benefits Act, 30 U.S.C. Sec. 937(a); comprehensive 
hemophilia diagnostic treatment centers receiving a grant under section 
501(a)(2) of the Social Security Act, 42 U.S.C. Sec. 701(a)(2); Native 
Hawaiian Health Centers receiving funds under the Native Hawaiian 
Health Care Act of 1988, 42 U.S.C. Sec. 11701 et seq.; an entity 
receiving a categorical grant for early intervention services for HIV 
disease under section 2651 of the PHS Act, 42 U.S.C. Sec. 300ff-51, a 
State-operated AIDS drugs assistance program (ADAP) receiving financial 
assistance under title XXVI of the PHS Act, 42 U.S.C. Sec. 300ff et 
seq.; and all other entities (other than States and units of local 
government) receiving assistance under title XXVI of the PHS Act, 42 
U.S.C. Sec. 300ff et seq. It also should be noted that entities seeking 
to qualify as ``Federally-Qualified Health Centers'' (FQHCs) as 
``lookalikes''--i.e., entities which meet all the requirements for 
receiving a grant under section 330 of the PHS Act but which do not 
receive such a grant--will also have to satisfy the grant requirement 
specified below in order to qualify as a FQHC. Further, please note 
that eligibility to access 340B discount pricing is not contingent upon 
purchasing drugs with Federal grant funds. A covered entity ``may use 
any revenues or funds available to it to procure drugs.'' See H.R. Rep. 
No. 102-384, 102d Cong., 2d Sess. pt. 2, at 16 (1992).
    It is the policy of the Department that funds which are utilized by 
grantees for the acquisition of drugs must be expended in the most 
economical manner feasible. See 42 C.F.R. Part 50, Subpart E. In 
addition, allowable costs under a grant award, among other criteria, 
must be reasonable for the performance of the grant. ``Reasonable 
cost'' is defined as one that is ordinary and ``does not exceed that 
which would be incurred by a prudent person'' using sound business 
practices and arms length bargaining. See OMB Circular A-122, ``Cost 
Principles for Nonprofit Organizations.'' See also OMB Circular A-87, 
``Cost Principles for State, Local and Indian Tribal Governments.'' 
Consequently, HRSA covered entity grantees must utilize an economical 
and reasonable method of purchasing their outpatient drugs, and section 
340B was enacted to provide an effective means of lowering drug prices 
for covered entities.
    Under the proposed policy, HRSA would require all entities that 
receive HRSA grants listed in section 340B(a)(4) and that purchase or 
reimburse for covered outpatient drugs to participate in the 340B Drug 
Pricing Program, unless such requirement is waived by HRSA for good 
cause. A good cause waiver would be granted if the covered entity 
submits adequate drug purchasing or reimbursement records that 
demonstrate that it is accessing drug prices as good as, or better 
than, the current 340B ceiling price, or for other good causes, as 
determined by HRSA.
    HRSA recognizes that some covered entities will be excepted from 
the grant requirement or parts of it. Those covered entities which 
purchase covered outpatient drugs at or below a total cost of $30,000 a 
year will not be required to participate in the 340B program. However, 
such entities are not precluded from participation and are welcome to 
access the benefits of such a program. The $30,000 amount does not 
include covered drugs purchased at nominal prices--10% of the average 
manufacturer price, as defined in section I(s) of the Health Care 
Financing Administration's Manufacturer Rebate Agreement and in section 
1927(k)(1) of the Social Security Act. Please note that the $30,000 
amount is subject to adjustment by HRSA, as appropriate. HRSA 
established this amount after consultation with a number of national 
professional organizations, including the National Association of 
Community Health Centers, the Pharmaceutical Manufacturers and Research 
Association, the American Pharmaceutical Association and the National 
Association of Retail Druggists.
    Covered entities, which do not fall within an excepted category or 
have not been granted a good cause waiver, must purchase all outpatient 
drugs through participation in the Drug Pricing Program. However, to 
the extent that a covered outpatient drug is not available at the 340B 
ceiling price and the quality of patient care will be impacted, the 
covered entity may purchase the drug at market prices. In such 
situations, the covered entity will be required to provide HRSA with 
documentation of the unavailability of the drug. When appropriate, HRSA 
will refer such information to the appropriate authorities for a 
complete investigation.
    Currently, HRSA grantees must incur only reasonable costs and use 
only sound business practices and arms length bargaining when 
purchasing or reimbursing for covered outpatient drugs. Consistent with 
these principles, HRSA proposes to make this new grant requirement 
(which will use the 340B ceiling price as a reasonable standard) 
effective for each of the HRSA programs listed in section 340B(a)(4) at 
the beginning of the first grant cycle for that program which begins at 
least 30 days after the date of publication in the Federal Register of 
the final notice formally adopting this policy. At that time, all such 
HRSA grantees must certify in their grant requests that they 
participate in the section 340B program, are exempted or have received 
a good cause waiver. Existing contracts or agreements with 
manufacturers, prime vendors and other members of the drug distribution 
network concerning covered drug purchasing and distribution will not be 
considered a basis for a good cause waiver, unless they provide for 
pricing at or below the 340B ceiling prices. Section 340B waivers will 
be effective for the approved project period or other specified time 
periods, as deemed appropriate by HRSA.
    To assist covered entities not only in accessing the section 340B 
manufacturer drug price reductions, but also in obtaining competitive 
pricing for wholesaler drug distribution, section 340B(a)(8) mandates 
the Secretary to establish a prime vendor program for covered entities. 
To increase the overall benefit of such a prime vendor program, the 
service of the prime vendor will include price negotiation as well as 
drug distribution services. HRSA is in the process of developing this 
program and will notify covered entities when the

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prime vendor is selected and service is available. At a later date, 
after the HRSA Prime Vendor begins operations, HRSA will issue a new 
Federal Register notice soliciting comments on a proposal to require 
covered entities subject to the grant requirement proposed in this 
notice to purchase their covered outpatient drugs from the HRSA Prime 
Vendor. Those AIDS Drug Assistance Projects (ADAPs), which participate 
in 340B through rebates, would not be subject to this additional grant 
requirement or eligible to participate in the Prime Vendor Program.

    Dated: October 16, 1998.
Claude Earl Fox,
Administrator.
[FR Doc. 98-28275 Filed 10-21-98; 8:45 am]
BILLING CODE 4160-15-P