[Federal Register Volume 74, Number 168 (Tuesday, September 1, 2009)]
[Notices]
[Pages 45206-45211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-21109]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding 340B Drug Pricing Program--Children's Hospitals

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final notice.

-----------------------------------------------------------------------

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 certain qualifying 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 
final guidelines regarding the addition of children's hospitals that 
meet certain requirements, specifically: (1) The process for the 
registration of children's hospitals to the 340B Program; and (2) the 
obligation of manufacturers to provide the statutorily mandated 
discount to those children's hospitals.

FOR FURTHER INFORMATION CONTACT: Mr. Jimmy Mitchell, Director, Office 
of Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), Health 
Resources and Services Administration (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.

DATES: Effective Date: September 1, 2009.

SUPPLEMENTARY INFORMATION:

(A) Background

    Proposed guidelines for children's hospitals were announced in the 
Federal Register at 72 FR 37250 on July 9, 2007. A comment period of 60 
days was established to allow interested parties to submit comments. 
HRSA, HSB, acting through the OPA, received 20 comments concerning the 
proposal.
    Section 602 of Public Law 102-585, the Veterans Health Care Act of 
1992, established section 340B of the Public Health Service Act 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 of the Deficit Reduction Act (DRA), Pub. L. 109-171, 
added certain qualifying children's hospitals as covered entities 
eligible to access 340B discounted drugs. Section 6004 did not amend 
section 340B (which contains many of the requirements for covered 
entities), however, the DRA provision 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 of the DRA, 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 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.
    We received several comments in support of the proposal. Supporting 
comments agreed with the proposed guidelines and that section 6004 of 
the DRA brings eligible children's hospitals into the 340B program. 
Several commenters agreed with requiring children's hospitals to 
demonstrate their status as defined by the Social Security Act section 
1886(d)(1)(B)(iii) and to obtain a Medicare provider number in the 3300 
series. Many comments supported obtaining an independent audit to 
certify eligibility requirements and to help ensure program integrity. 
Comments supported HRSA's position that current Pharmaceutical Pricing 
Agreements (PPAs) are already broad enough to include children's 
hospitals as covered entities.
    Additional comments challenged HRSA's legal authority and 
compliance with the Administrative Procedure Act as well as contractual 
authority with existing PPAs. Other comments raised issues of 
retroactive discounts, prevention of duplicate discounts, and 
alternative eligibility criteria such as using disproportionate patient 
percentages and independent audits. All comments discussed the 
potential impacts on covered entities, patients, and manufacturers.
    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 this final notice and changes were made to 
content when appropriate.

(B) Comments and Responses

(1) HRSA's Legal Authority

    Comment: HRSA lacks authority to add children's hospitals to the 
340B program through guidelines.
    Response: HRSA disagrees. The Department publishes guidelines in 
the Federal Register providing a public comment period to obtain input 
into guidance development. Congress did not prescribe the process by 
which children's hospitals would be added into the 340B program. HRSA 
has authority to provide guidelines interpreting the statute and its 
intended administration of the 340B program. The guidelines are not 
subject to the

[[Page 45207]]

Administrative Procedure Act's notice and comment requirements; 
however, the Department chose to solicit and respond to public 
comments. These guidelines help to fulfill the Secretary's obligation 
to provide for the operation of the program under section 340B.
    Comment: It is unclear that Congress has authorized the Secretary 
to enter into PPAs that include children's hospitals. Contractual 
obligations of the PPA are directly tied to section 340B, which has not 
been amended to include children's hospitals as covered entities.
    Response: HRSA acknowledges that section 6004 of the DRA did not 
amend section 340B to include children's hospitals as covered entities. 
However, Congress did add children's hospitals to the 340B program by 
amending section 1927(a) of the Social Security Act which requires that 
manufacturers provide the statutorily mandated discount to covered 
entities. Congress specifically defined the term covered entity as 
including certain qualifying children's hospitals. Considering the 
statutory scheme as a whole, it is clear that the Secretary has been 
authorized to include children's hospitals within the program.
    Comment: Since the appropriate legislative changes were not made, 
it is out of the scope of authority of the Secretary and HRSA to read 
the current PPA as including children's hospitals.
    Response: The existing PPAs do not need to be amended to include 
children's hospitals. The PPAs require manufacturers to extend 340B 
pricing to all covered entities listed by HRSA in its database. The PPA 
also requires that it be interpreted in a manner that best effectuates 
the underlying statutory scheme. As previously discussed, including 
children's hospitals as covered entities for purposes of the PPA best 
effectuates the statutory scheme and therefore children's hospitals are 
covered entities for purposes of the PPA.

(2) Certification of Eligibility

    Comment: Clarify the Social Security Act definition of children's 
hospitals to mean that in any fiscal year or calendar year, no less 
than 80 percent of patient days involve patients under 18 years of age.
    Response: We disagree with a suggestion that HRSA utilize an 80 
percent figure. It is unclear on what basis such a figure would be 
determined. The statute indicates that section 1886(d)(1)(B)(iii) of 
the Social Security Act defines the term children's hospital for 
purposes of 340B eligibility. This section defines a children's 
hospital as ``a hospital whose inpatients are predominantly individuals 
under 18 years of age.'' In using the statutory definition, HRSA has 
taken into account the CMS interpretation of this provision and the 
context of the 340B Drug Pricing Program.
    Comment: The guidelines should require participating children's 
hospitals to demonstrate that the entity is a children's hospital as 
defined by the Social Security Act and obtain a Medicare provider 
number in the 3300 series identifying it as a children's hospital.
    Response: We agree. The statute defines ``children's hospitals'' by 
reference to section 1886(d)(1)(B)(iii) of the Social Security Act. CMS 
has reserved the 3300 series of Medicare Provider Numbers for 
children's hospitals that meet the statutory definition. The guidelines 
have been changed accordingly to make this clearer.
    Comment: Clarify how the disproportionate share adjustment 
percentage eligibility criteria can be applied to children's hospitals 
since children's hospitals do not receive Medicare disproportionate 
share hospital (DSH) payment adjustments. Children's hospitals should 
be permitted to rely on its disproportionate patient percentage (DPP) 
as defined by CMS for purposes of Medicaid. The DPP formula 
demonstrating a percentage of greater than 27.32 percent is just as 
reliable as the required greater than 11.75 percent disproportionate 
share adjustment percentage.
    Response: HRSA agrees with the comment that children's hospitals 
that do not receive Medicare DSH payment adjustments may have 
difficulty in showing their disproportionate share adjustment 
percentage. As an alternative, children's hospitals can show compliance 
with this requirement if they provide independent verification that if 
the disproportionate share adjustment percentage were calculated, it 
would be greater than 11.75 percent. Under current law, one method for 
reaching such a conclusion would be to have a DPP greater than a 
threshold amount that equates to a disproportionate share adjustment 
percentage greater than 11.75 percent. DPP for this purpose is defined 
at 42 CFR 412.106 and is used in the current applicable statutory 
formula to calculate the disproportionate share adjustment percentage 
for DSHs.
    Comment: Many children's hospitals do not file any or full Medicare 
cost reports. If no cost report exists, children's hospitals should be 
permitted to rely on their own independent auditors to confirm their 
DPP.
    Response: If a children's hospital does not file a Medicare cost 
report, HRSA agrees that children's hospitals can confirm eligibility 
through the findings of an independent auditor and certification by the 
covered entity as to the appropriate value of the hospital's 
disproportionate share adjustment percentage, as based upon the DPP.
    Comment: In addition to requiring verification from independent 
auditors from children's hospitals that the entity meets 340B 
eligibility requirements, a comment was made to require this 
verification to OPA annually because the data used in the calculation 
to meet the requirements of section 340B(a)(4)(L)(ii) are subject to 
change.
    Response: HRSA agrees that there is a need for ongoing verification 
as to whether this eligibility requirement continues to be met over 
time. After enrollment, children's hospitals, as do all covered 
entities, have an ongoing responsibility to immediately notify the OPA 
in the event of any change in eligibility for the 340B Drug Pricing 
Program. No less than on an annual basis, children's hospitals will 
need to demonstrate that the children's hospital continues to have the 
required disproportionate share adjustment percentage or DPP. The OPA 
will provide additional guidance as it develops its plans to annually 
certify covered entities. To the extent that the OPA is able to obtain 
periodic documentation of data similar to that provided by CMS with 
respect to DSHs, it may notify the covered entity that information need 
not be provided.

(3) Eligibility for Rebates Back to February 8, 2006

    Comment: The eligibility criteria for receiving retroactive 
discounts are overwhelming and confusing to both manufacturers and 
covered entities. HRSA should remove the ability to receive retroactive 
discounts from the final rule or, at a minimum, clearly define these 
criteria.
    Response: Although the statute can be complex, we disagree that it 
is overwhelming or that unilaterally disallowing any ``retroactive'' 
discounts is appropriate. The parties are in the best position to 
understand and resolve claims over these issues. In this guidance, HRSA 
believes it has provided an appropriate level of detail as to its view 
on how covered entities can qualify for rebates on purchase back to 
February 8, 2006, the date of enactment of the DRA.
    Comment: HRSA should post on its on-line database the date when a 
children's hospital satisfied the 340B eligibility criteria for 
manufacturers to

[[Page 45208]]

verify if and when the children's hospital was entitled to receive 
retroactive discounts.
    Response: HRSA does not currently plan to provide the eligibility 
date on its Web site for purposes of retroactive rebates. HRSA intends 
to follow the current practice of listing the date of eligibility for 
direct purchase under the 340B Drug Pricing Program as is consistent 
with the purpose of that database. The addition of retroactivity dates 
would be outside the established purpose of the database and lead to 
potential confusion. If a covered entity and manufacturer are unable to 
agree on the date that the covered entity complied with program 
requirements or otherwise disagree, HRSA believes that it is most 
appropriate to follow its published dispute procedures that require the 
parties to resolve any disputes in good faith. HRSA's first priority is 
to have eligible children's hospitals register for the 340B Drug 
Pricing Program. HRSA has concluded that this approach is the most 
efficient and that HRSA will assist parties to resolve disputes through 
the published dispute resolution process to the extent resources 
permit.
    Comment: HRSA should clarify ``appropriate'' documentation to 
demonstrate that drugs did not generate Medicaid rebates.
    Response: This is a fact-specific inquiry that may vary from case 
to case and State to State. The children's hospital should demonstrate 
that the covered outpatient drugs for which it seeks retroactive 
discounts were not subject to Medicaid rebates because they were not 
billed to Medicaid or it can otherwise show the State did not seek a 
rebate on the drugs for which a retroactive claim is sought.
    Comment: Children's hospitals lack access to Medicaid drug rebate 
invoices/claims data needed to establish the requirement that covered 
outpatient drugs did not generate Medicaid rebates during retroactive 
periods.
    Response: HRSA believes it appropriate to require that children's 
hospitals seeking refunds provide sufficient factual evidence to 
demonstrate compliance with statutory requirements. Children's 
hospitals seeking retroactive discounts should have access to records 
of which drugs were billed to Medicaid and which drugs were not billed 
to Medicaid. HRSA suggests that children's hospitals consider 
contacting State Medicaid agencies for supporting documentation as is 
appropriate.
    Comment: HRSA should coordinate with CMS to provide guidance 
regarding monthly Average Manufacturer Price (AMP) and quarterly 
Average Sales Price (ASP) calculations already submitted, if 
retroactive discounts are given.
    Response: HRSA will do what it reasonably can to assist in the 
process; however, the issue of resolving whether retroactive discounts 
are appropriate should be resolved to the full extent possible by the 
covered entities and manufacturers. Manufacturers will need to consult 
with CMS with respect to the separate issue on how to handle 
calculations reported to CMS.
    Comment: Children's hospitals should not be penalized for use of 
Group Purchasing Organizations (GPOs) during the long interval that has 
elapsed since enactment of section 6004. Initially, HRSA allowed DSHs 
to use GPOs and to receive 340B retroactive discounts as long as 
discounts were not for drugs obtained through the GPO. Similarly, 
children's hospitals should be eligible to receive retroactive 
discounts for covered outpatient drugs that were not purchased through 
a GPO.
    Response: HRSA disagrees and finds the proposed treatment of 
retroactive rebates to be inconsistent with the applicable standards 
for DSHs. The statute makes clear that children's hospitals must meet 
the same criteria applicable to DSHs. In 1994, final guidance was 
published on the GPO exclusion that expressly provides that any 
participation in a GPO or other group purchasing arrangement for 
covered outpatient drugs by a DSH results in loss of eligibility as a 
covered entity. HRSA believes that under the statute and under current 
guidance it should exclude from eligibility for retroactive rebates any 
purchases while the children's hospital purchased covered outpatient 
drugs through a GPO or other purchasing arrangement.
    The guideline for retroactive rebates published in 1994 (59 FR 
25110) was consistent with the GPO exclusion guideline in place for the 
period of retroactivity. Likewise, this guideline for retroactive 
rebates is consistent with the GPO exclusion guideline in place for the 
period of retroactivity.
    Comment: Retroactive discounts should only apply to children's 
hospitals that comply with statutory prohibition against use of a GPO. 
Furthermore, a comment was received stating that children's hospital 
should not be able to request retroactive rebates on a covered 
outpatient drug that was not purchased under a GPO contract if the 
entity used a GPO contract for other covered outpatient drugs during 
that same time period.
    Response: HRSA agrees and has changed the guidelines to make this 
issue clear.
    Comment: HRSA should be required to establish a process to document 
the eligibility and compliance of these new entities for any time 
period of eligibility, including retroactive periods. HRSA should 
create an audit or certification process to determine the actual date 
that the facility met all requirements. Manufacturers should be allowed 
to audit the processes and documentation before they are obligated to 
provide the retroactive discounts.
    Response: HRSA believes that the process outlined in the guidelines 
provides enough safeguards to ensure program integrity. To the extent 
that a manufacturer has a specific concern about a covered entity's 
status, the manufacturer should bring those concerns to HRSA's 
attention. Manufacturers also have the option of bringing a dispute 
through the dispute resolution process as addressed in previous 
guidance (61 FR 65406). The issue of manufacturer audits has also been 
previously addressed in finalized guidance (61 FR 65406).
    Comment: HRSA should shorten the proposed 120-day period allowed to 
submit requests for retroactive discounts to 30 days, similar to its 
Federal Register notice dated May 13, 1994, following the enactment of 
section 340B in 1992, where HRSA permitted eligible covered entities to 
request retroactive discounts within 30 days of publication of 
guidelines.
    Response: While HRSA understands that after enactment of the 340B 
statute and the implementation of the initial guidances, there was only 
a 30-day retroactivity period, there are materially different 
circumstances between the situations in 1994 and today. HRSA must take 
into account the potential time necessary to obtain sufficient evidence 
to demonstrate eligibility (requirements which did not exist in 1994) 
as well as the delay between the time of application to the 340B Drug 
Pricing Program and listing in the Covered Entity Database at the 
beginning of the quarter. Upon further review, taking into account 
changes to this final guidance, HRSA has determined that in order to 
ensure that all eligible hospitals have reasonable time they should 
have three full calendar quarters after publication during which they 
must get registered and officially listed on the 340B Covered Entity 
Database. To be eligible a children's hospital must register and be 
listed on 340B Covered Entity Database within one year of publication 
of this notice. This amount of time will

[[Page 45209]]

ensure that all eligible children's hospitals will have reasonable time 
to obtain the necessary documentation, enroll, and be listed on the 
340B Drug Pricing Program Database as eligible to purchase under 340B. 
Children's hospitals will need to abide by all applicable deadlines for 
registration and will only be added to the list at the time of standard 
quarterly updates. Once listed on the 340B Drug Pricing Program 
Database, a children's hospital will have 30 days to notify 
manufacturers in writing to preserve their claims.

(4) Eligibility of Off-site Facilities of Children's Hospitals

    Comment: HRSA did not address how off-site locations of children's 
hospitals may participate in 340B. The DSH requirement states that the 
off-site location be an ``integral'' part of the hospital and be 
reimbursable on the Medicare cost report. HRSA should be partially 
guided by Medicare provider-based standards to establish an alternative 
to the cost report for off-site facilities of children's hospitals to 
be eligible for 340B.
    Response: To the extent possible, eligibility for off-site 
locations will be determined through the same method applied for DSHs 
in the 340B Program. Additional clarification on this issue has been 
provided in the final guidance.

(5) Hemophilia Treatment Centers

    Comment: Several commenters asked that HRSA require, as 
prerequisite, that children's hospitals agree to maintain Hemophilia 
Treatment Centers as independent purchasers under 340B.
    Response: HRSA does not find that such a requirement is necessary 
to ensure against duplicate discounts or diversion, and does not find 
sufficient basis to issue such a requirement in this guidance.

(6) Miscellaneous Comments

    Comment: There should be a dispute resolution process if a 
manufacturer has reason to believe that HRSA's determination of 
eligibility period for a children's hospital is incorrect.
    Response: HRSA is not initially making such a determination. HRSA 
does have guidance on its dispute resolution process.
    Comment: HRSA should require explicitly that children's hospitals 
abide by program guidance relating to the patient definition.
    Response: HRSA agrees and finds that the guidance as proposed 
already makes that explicit.

(C) 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 PPAs 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.

(D) 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 update of the 340B covered entity database. 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. The 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. Hospitals that submitted 
documentation seeking recognition as a children's hospital eligible for 
the 340B Drug Pricing Program prior to the publication of the guidance 
should apply again in accordance with the procedures described in this 
guidance.

(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 satisfy the definition of ``children's hospital'' 
contained in section 1886(d)(1)(B)(iii) of the Social Security Act; and 
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 to the children's hospital 
while taking into account the percentage of care provided by the 
hospital to Medicaid patients).
(i) Certify That the Hospital Is a Children's Hospital as Defined by 
Statute
    Given the reliance of section 6004 on Medicare payment provisions 
for the definition of ``children's hospital'' and the requirement that 
a children's hospital must demonstrate that they would meet the same 
requirements as a DSH, if they were eligible for DSH payments, a 
hospital will need to demonstrate that it has been assigned a Medicare 
provider number identifying the hospital as a ``children's hospital'' 
(i.e., a hospital with a 3300 series Medicare provider number).
(ii) Certify That the Hospital Will Abide by All Requirements of 
Section 340B of the Public Health Service Act
    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

[[Page 45210]]

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.
(iii) Certify Compliance With 340B(a)(4)(L) as Modified by Section 6004 
of the DRA
    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) in the following 
manner:
    (A) Meets the requirements of section 340B(a)(4)(L)(i).
    To comply with the requirements of 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 hospital is (1) owned or 
operated by a unit of State or local government; (2) is a public or 
private non-profit corporation which is formally granted governmental 
powers by a unit of State or local government; or (3) is 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.
    (B) Meets the requirements of section 340B(a)(4)(L)(ii).
    To comply with section 340B(a)(4)(L)(ii), as modified by section 
6004, 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.
    Supporting documentation must include a signed statement by an 
appropriate official (e.g., Chief Financial Officer) of the children's 
hospital that he/she is familiar with the requirements under section 
340B(a)(4)(L)(ii), has examined the documentation, and certifies that 
to the best of his/her knowledge that the children's hospital satisfies 
the requirements. In addition, the documentation must include: (1) An 
official document from the Department of Health and Human Services 
(HHS) or a HHS contractor that is authorized to make official 
determinations, showing that the children's hospital meets one or both 
criterion listed above; (2) if the organization files a Medicare cost 
report, the report filed does not contain a disproportionate share 
adjustment percentage, and the report includes sufficient information 
to calculate the disproportionate share adjustment percentage, include 
a copy of those pages of the filed Medicare cost report with the data 
necessary to calculate the disproportionate share adjustment 
percentage; or (3) if the organization does not file a Medicare cost 
report with sufficient information to calculate the disproportionate 
share adjustment percentage, a statement from a qualified independent 
auditor certifying that the auditor performed an audit on the records 
of the children's hospital, that the auditor is familiar with Federal 
rules and regulations relevant to its findings, and found that the 
hospital would meet one or both of the criterion in section 
340B(a)(4)(L)(ii), as modified by section 6004 (described in the 
previous paragraph). The supporting documentation for (1), (2) or (3) 
should identify the basis for that conclusion including the actual 
percentage value upon which the determination is made (e.g., 
disproportionate patient percentage defined at 42 CFR section 412.106), 
a concise description of any mathematical calculations, and the quarter 
for which the determination was made. The children's hospital should 
notify OPA if (1), (2) or (3) result in different conclusions as to 
eligibility of the children's hospital.
    (C) Meets the requirements of section 340B(a)(4)(L)(iii).
    To comply with section 340B(a)(4)(L)(iii), a children's hospital 
will have to certify that it will not participate in a group purchasing 
organization (GPO) or group purchasing arrangement for covered 
outpatient drugs as of the effective date of participation as listed in 
the 340B covered entity database.

(3) Inclusion of Children's Hospitals' Off-Site Outpatient Facilities

    Children's hospitals must meet the applicable requirements for DSHs 
as described in the guidance published in 59 FR 47884 (Sept. 19, 1994).
(i) Children's Hospitals That File Medicare Cost Reports With CMS
    Children's hospitals that file Medicare cost reports will be 
required to utilize the same process to add outpatient facilities as 
DSHs (59 FR 47884). A children's hospital, eligible for the 340B Drug 
Pricing Program, must first request that the OPA include in its covered 
entity database the outpatient facilities that are included as 
reimbursable in its Medicare cost report. A list of these outpatient 
facilities along with Medicare and Medicaid billing status information 
must be included with the request. Second, an appropriate official 
(e.g., Chief Financial Officer) of the children's hospital must sign a 
statement that he/she is familiar with CMS guidelines concerning 
Medicare certification of hospital components as one cost center, has 
examined the list of outpatient facilities, and certifies that the 
facilities are correctly included on the Medicare cost report of the 
children's hospital. When these outpatient facilities are added to the 
master list of eligible and participating covered entities, the off-
site facilities will be able to access 340B Drug Program pricing. 
Outpatient facilities that are not included as reimbursable on the 
Medicare cost report or file independent Medicare cost reports will not 
be eligible for 340B pricing as part of the children's hospital.
(ii) Children's Hospitals That Do Not File Medicare Cost Reports With 
CMS
    Children's hospitals that do not file a Medicare cost report with 
CMS must first request that the OPA include in its covered entity 
database the outpatient facilities that are integral parts of the 
hospital. A list of these outpatient facilities along with Medicaid 
billing status information must be included with the request. Second, 
an appropriate official (e.g., Chief Financial Officer) of the 
children's hospital must sign a statement that he/she is familiar with 
CMS guidelines concerning Medicare certification of hospitals as a cost 
center, has examined the list of outpatient facilities, and certifies 
that each facility is an integral part of the children's hospital whose 
patients are considered patients of the children's hospital, according 
to the most current published guidelines on patient definition, and 
would have been correctly included on the Medicare cost report if the 
hospital filed such a report and that the outpatient facility meets the 
requirements of a provider-based facility within a DSH under 42 CFR 
413.65.

[[Page 45211]]

(E) Annual Re-Certification by Children's Hospitals To Maintain 
Eligibility Status in 340B Drug Pricing Program

    Children's hospitals have an ongoing responsibility to immediately 
notify OPA in the event of any change in eligibility for the 340B Drug 
Pricing Program. No less than on an annual basis, children's hospitals 
will need to demonstrate continued maintenance of the required 
disproportionate share adjustment percentage or disproportionate 
patient percentage. OPA will provide additional guidance as it gains 
experience and develops its plans to annually certify covered entities. 
To the extent that OPA is able to obtain periodic documentation of such 
data similar to that provided by CMS with respect to DSHs, it may 
notify the covered entity that such information need not be provided.

(F) Eligibility for Discounts Back to February 8, 2006

    Section 6004 of the DRA 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.'' 
The DRA provision was enacted on February 8, 2006. Therefore, once 
children's hospitals are admitted to the 340B Program and listed on the 
Covered Entity Database, they are eligible for 340B drug pricing back 
to February 8, 2006. However, a children's hospital will be eligible 
for such 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.
    Children's hospitals may request retroactive discounts (discounts, 
rebates, or account credit) directly from pharmaceutical manufacturers 
for covered outpatient drugs when all the following conditions are 
satisfied:
    (1) The children's hospital is listed on the 340B Covered Entity 
Database as eligible to purchase under 340B within one year of 
publication of this notice.
    (2) The children's hospital sent a request in writing to each 
manufacturer of the drug(s) for which retroactive discounts are sought 
within 30 days of the children's hospital having been listed as 
eligible to purchase under 340B on the 340B Covered Entity Database;
    (3) The covered outpatient drugs must have been purchased on or 
after February 8, 2006;
    (4) The covered outpatient drugs must not have generated Medicaid 
rebates (the children's hospital must have appropriate documentation to 
demonstrate this);
    (5) The covered outpatient drugs must not have been sold or 
transferred to a person who was not a patient of the children's 
hospital; and
    (6) 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 (D) 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. 
Participation in a GPO for any covered outpatient drugs would 
disqualify a children's hospital for retroactive rebates during any 
quarter that the children's hospital purchased any covered outpatient 
drug through a GPO or other group purchasing arrangement. Consistent 
with section 340B(a)(5)(C) of the Public Health Service Act, children's 
hospitals must have auditable records that support claims for 
retroactive discounts and permit the Government or manufacturers to 
audit those records (in accordance with procedures established by the 
Secretary relating to the number scope and duration of such audits (61 
FR 65406)).
    In fulfilling the conditions listed above, any children's hospital 
that believes it is entitled to retroactive discounts may preserve its 
rights by sending manufacturers a letter requesting such refunds, 
explaining how they meet the requirements in this notice, and providing 
adequate documentation of purchases within 30 days being listed on the 
340B Covered Entity Database as eligible. Such children's hospitals 
should engage in good faith efforts to resolve any disputes with 
manufacturers. To the extent they are unable to resolve disputes and 
wish to pursue further involvement with the OPA, they are encouraged to 
follow the guidance on the dispute resolution process as described in 
the Federal Register (61 FR 65406).

    Dated: August 26, 2009.
Mary K. Wakefield,
Administrator.
[FR Doc. E9-21109 Filed 8-31-09; 8:45 am]
BILLING CODE 4165-15-P