[Federal Register Volume 72, Number 130 (Monday, July 9, 2007)]
[Notices]
[Pages 37250-37252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13239]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding the 340B Drug Pricing Program; Children's 
Hospitals

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Notice.

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SUMMARY: Section 340B of the Public Health Service Act (section 340B) 
and section 1927(a) of the Social Security Act (section 1927(a)) 
implement a drug pricing program in which manufacturers who sell 
covered outpatient drugs to covered entities must agree to charge a 
price that will not exceed an amount determined under a statutory 
formula. Section 6004 of the Deficit Reduction Act of 2005 (Pub. L. 
109-171) (section 6004) added children's hospitals to the list of 
covered entities eligible to access 340B discounted drugs. The purpose 
of this notice is to inform interested parties of proposed guidelines 
regarding the addition of children's hospitals that meet certain 
requirements, specifically: (1) The process for the addition of 
children's hospitals to the 340B Program; and (2) the obligation of 
manufacturers to provide the statutorily mandated discount to 
children's hospitals. These proposed guidelines will not take effect 
until final guidelines are issued.

DATES: The public is invited to comment on the proposed guidelines by 
September 7, 2007. After consideration of the submitted comments, the 
Health Resources and Services Administration (HRSA) will issue the 
final guidelines.

ADDRESSES: Address all comments to Mr. Bradford R. Lang, Public Health 
Analyst, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau 
(HSB), HRSA, 5600 Fishers Lane, Parklawn Building, Room 10C-03, 
Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Mr. Jimmy Mitchell, Director, OPA, 
HSB, HRSA, 5600 Fishers Lane, Parklawn Building, Room 10C-03, 
Rockville, MD 20857, or by telephone through the Pharmacy Services 
Support Center at 1-800-628-6297.

SUPPLEMENTARY INFORMATION:

(A) Background

    Section 602 of Public Law 102-585, the Veterans Health Care Act of 
1992, enacted section 340B, Limitation on Prices of Drugs Purchased by 
Covered Entities and added certain implementation provisions for the 
340B Program to section 1927(a) of the Social Security Act. Section 
340B contains the majority of the requirements for covered entities 
participating in the 340B Program, while the relevant provisions of 
section 1927(a) of the Social Security Act provide primarily for the 
requirement that manufacturers provide the statutorily mandated 
discount to covered entities.
    Section 340B contains a list of covered entities that are eligible 
to receive discounts through the 340B Program. The list includes 
entities such as Federally Qualified Health Centers, State-operated 
AIDS drug purchasing assistance programs, and certain disproportionate 
share hospitals. Children's hospitals were not included as covered 
entities under section 340B in the Veterans Health Care Act of 1992 as 
enacted.
    Section 6004 added children's hospitals as covered entities 
eligible to access 340B discounted drugs. To accomplish this, section 
6004 did not amend section 340B (which contains many of the 
requirements for covered entities). Section 6004 amended section 
1927(a) of the Social Security Act (which primarily contains 
requirements for manufacturers' participation) to add children's 
hospitals to the 340B Program.
    To be eligible for the 340B Drug Pricing Program, section 1927(a), 
as amended by section 6004, requires children's hospitals to meet the 
requirements of clauses (i) and (iii) of section 340B(a)(4)(L) of the 
Public Health Service Act, which contain

[[Page 37251]]

provisions for State or local government affiliations and non-
participation in group purchasing organizations. In addition, 
children's hospitals must meet the requirements of clause (ii) of such 
section, which contains requirements for the provision of indigent 
care, if such section ``were applied by taking into account the 
percentage of care provided by the hospital to patients eligible for 
medical assistance'' under Medicaid.

(B) Obligation of Manufacturers To Provide 340B Discounts to Children's 
Hospitals

    Section 1927(a)(5)(A) of the Social Security Act requires 
manufacturers to enter into agreements with the Secretary that meet the 
requirements of section 340B with respect to covered outpatient drugs 
purchased by a covered entity. Section 1927(a)(5)(B), as amended by 
section 6004, defines covered entities for purposes of section 
1927(a)(5) as those covered entities listed in the Public Health 
Service Act and certain children's hospitals. As section 1927(a)(5)(A) 
requires manufacturers to enter into agreements ``with respect to 
covered outpatient drugs purchased by a covered entity,'' and covered 
entity is defined as including children's hospitals for purposes of 
section 1927, manufacturers are required to extend 340B pricing to 
eligible children's hospitals.
    The Pharmaceutical Pricing Agreements (PPA) between the Secretary 
and each manufacturer require manufacturers to provide 340B discounted 
covered outpatient drugs to covered entities. Given the clear 
congressional intent in Section 6004 to expand the category of covered 
entities, the PPAs currently in place effectively require manufacturers 
to provide 340B discounts to children's hospitals without need for 
further amendment to currently existing PPAs.

(C) Process for Admission of Children's Hospitals to the 340B Program

(1) Children's Hospitals Participation

    Children's hospitals participation in the 340B Drug Pricing Program 
is voluntary. Consistent with the participation of other covered 
entities, once a children's hospital has elected to participate in the 
program, it must wait to enter or withdraw from the program until the 
next official updating of the 340B covered entity database. OPA will 
update this list two weeks before the beginning of each calendar 
quarter. Participating children's hospitals must comply with all 
program guidelines for covered entities until the date they are removed 
from the 340B covered entity database. OPA will accept applications 
from children's hospitals for entry into the 340B Program as of the 
date of publication of the final notice of these guidelines.

(2) Certification by Children's Hospitals Prior to 340B Drug Pricing 
Program Entry

    As with other covered entities, prior to entry into the 340B Drug 
Pricing Program, children's hospitals will be required to provide OPA 
with a certification regarding several different program requirements.
    As a threshold matter, a hospital wishing to qualify for the 340B 
Program as a children's hospital must demonstrate that the hospital is 
a ``children's hospital'' as defined by section 6004. Section 6004 
requires that a hospital wishing to qualify as a children's hospital 
covered entity must (1) satisfy the definition of ``children's 
hospital'' contained in section 1886(d)(1)(B)(iii) of the Social 
Security Act; and (2) meet minimum requirements for the receipt of an 
additional payment under Medicare pursuant to section 1886(d)(5)(F)(i) 
of the Social Security Act (if such clause were applied by taking into 
account the percentage of care provided by the hospital to Medicaid 
patients). Given the reliance of section 6004 on Medicare payment 
provisions for the definition of ``children's hospital,'' a hospital 
will need to demonstrate that it has been provided a Medicare provider 
number identifying the hospital as a ``children's hospital'' (i.e., a 
hospital with a 3300 series Medicare provider number).
    Prior to entry into the 340B Program, a children's hospital must 
certify that it will abide by all the requirements of section 340B that 
all other covered entities abide by (e.g., prohibition on resale of 
covered outpatient drugs; prohibition on duplicate discounts or 
rebates). While children's hospitals are not explicitly mentioned in 
section 340B, it is implicit in section 1927(a) of the Social Security 
Act that children's hospitals abide by the requirements of section 
340B. Section 1927(a) provides that manufacturers must have entered 
into agreements with the Secretary that meet the requirements of 
section 340B and several of the provisions contained in these 
agreements concern covered entities' compliance with provisions of 
section 340B. Furthermore, it is within the Secretary's authority under 
section 340B to create guidelines necessary for the implementation of 
the program. Unless children's hospitals are subject to all of the same 
rules as other covered entities, the inclusion of children's hospitals 
in the 340B Program would be difficult, if not impossible.
    Prior to entry into the 340B Program a children's hospital must 
certify compliance (along with the date of compliance) with clauses 
(i), (ii), and (iii) of section 340B(a)(4)(L) (in accordance with 
section 1927(a)(5)(B) of the Social Security Act). To comply with 
section 340B(a)(4)(L)(i), a children's hospital will have to certify 
(and include such supporting documentation as requested by OPA) that 
the children's hospital is:
    (1) Owned or operated by a unit of State or local government;
    (2) a public or private non-profit corporation which is formally 
granted governmental powers by a unit of State or local government; or
    (3) A private non-profit hospital under contract with State or 
local government to provide health care services to low income 
individuals who are not eligible for Medicare or Medicaid.
    To comply with section 340B(a)(4)(L)(ii), a children's hospital 
will have to certify (and include such supporting documentation as 
requested by OPA) that the children's hospital:
    (1) Is located in an urban area, has 100 or more beds, and can 
demonstrate that its net inpatient care revenues (excluding any of such 
revenues attributable to Medicare), during the cost reporting period in 
which the discharges occur, for indigent care from State and local 
government sources and Medicaid exceed 30 percent of its total of such 
net inpatient care revenues during the period; or
    (2) 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) greater than 11.75 percent.
    To comply with section 340B(a)(4)(L)(iii), a children's hospital 
will have to certify that the children's hospital will not participate 
in a group purchasing organization or group purchasing arrangement for 
covered outpatient drugs as of the effective date in the 340B covered 
entity database.
    Prior to entry into the 340B Program, OPA requires certification of 
a children's hospital's compliance with section 340B(a)(4)(L)(ii). In 
addition to having a 3300 series Medicare provider identification 
number, initially, OPA will seek verification of compliance based on 
the Medicare cost report submitted by the children's hospital to the 
Centers for Medicare and Medicaid Services (CMS). Given that children's 
hospitals are not eligible for the

[[Page 37252]]

prospective payment system, the materials submitted by any particular 
children's hospital may not provide the required verification. To the 
extent that OPA is unable to obtain independent verification, a 
children's hospital will be expected to verify that the children's 
hospital meets the requirements of section 340B(a)(4)(L)(ii) if 
requested by OPA.
    OPA is considering whether it would be appropriate to require a 
statement from an independent auditor certifying that a children's 
hospital meets the requirements of section 340B(a)(4)(L)(ii) in those 
cases where there is no established method of verification analogous to 
that utilized to annually certify DSH eligibility in the 340B Drug 
Pricing Program. OPA invites comments from stakeholders on the 
feasibility of an independent auditor to verify eligibility of 
children's hospitals. OPA also seeks comments from children's hospitals 
as to the relative burden that an independent auditor statement may 
entail and welcomes alternate proposals as to how to best ensure the 
integrity of the 340B Drug Pricing Program while minimizing costs.

(3) Eligibility for Retroactive Discounts

    Section 6004 indicates that the amendment authorizing entry of 
children's hospitals into the 340B Program ``shall apply to drugs 
purchased on or after the date of the enactment of this Act.'' Section 
6004 was enacted on February 8, 2006. Therefore, once they are admitted 
to the 340B Program, children's hospitals are eligible for 340B drug 
pricing retroactive to February 8, 2006. However, a children's hospital 
will be eligible for retroactive discounts only to the extent that it 
has satisfied all requirements for participation in the 340B program 
back to the date discounts are requested.
    Similar to when the 340B Program was first started, children's 
hospitals that participate in the program will be eligible for 
retroactive discounts. Until 120 days after publication of the final 
notice, children's hospitals which have been included in OPA's database 
of covered entities may request retroactive discounts (discounts, 
rebates, or account credit) from pharmaceutical manufacturers for 
covered outpatient drugs that satisfy all the following conditions:
    (1) The covered outpatient drugs must have been purchased on or 
after February 8, 2006;
    (2) The covered outpatient drugs must not have generated Medicaid 
rebates (the children's hospital must have appropriate documentation to 
demonstrate this); and
    (3) The covered outpatient drugs must have been purchased on or 
after the date on which the children's hospital satisfied all 
requirements for participation in the 340B Program as outlined in 
section (C)(2) of this notice.
    In order to satisfy the last condition listed above, a children's 
hospital must be able to demonstrate, at a minimum, that as required by 
section 340B(a)(4)(L)(iii) of the Public Health Service Act the 
children's hospital did not have a group purchasing agreement for 
covered outpatient drugs and satisfied the requirements of section 
340B(a)(4)(L)(i) and 340B(a)(4)(L)(ii) at the time the covered 
outpatient drugs for which rebates are requested were purchased.

    Dated: June 29, 2007.
Elizabeth M. Duke,
Administrator.
 [FR Doc. E7-13239 Filed 7-6-07; 8:45 am]
BILLING CODE 4165-15-P