[Federal Register Volume 75, Number 181 (Monday, September 20, 2010)]
[Proposed Rules]
[Pages 57230-57232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23461]



42 CFR Chapter I

340B Drug Pricing Program Manufacturer Civil Monetary Penalties

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Advance notice of proposed rulemaking and request for comments.


SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care 

[[Page 57231]]

of 1992'' enacted Section 340B of the Public Health Service Act (PHSA). 
Section 340B implements a drug pricing program by which manufacturers 
enter into an agreement to sell covered outpatient drugs to particular 
covered entities at a price not exceeding the amount determined under a 
statutory formula. Manufacturers are required by section 1927(a) of the 
Social Security Act to enter in agreements with the Secretary that 
comply with section 340B if they participate in the Medicaid Drug 
Rebate Program. Section 7102(a) of the Patient Protection and 
Affordable Care Act (Affordable Care Act) (Pub. L. 111-148) requires 
the Secretary of HHS to develop and issue regulations for the 340B Drug 
Pricing Program (340B Program) establishing standards for the 
imposition of sanctions in the form of civil monetary penalties for 
manufacturers that knowingly and intentionally overcharge a covered 
entity for a 340B drug. As HHS never has had civil monetary penalty 
authority that addresses manufacturing overcharging of the 340B 
Program, these regulations present a number of issues that have the 
potential to impact stakeholders. Accordingly, the Health Resources and 
Services Administration (HRSA) is issuing this advance notice of 
proposed rulemaking (ANPRM) to solicit public comment on multiple 
issues regarding the implementation of this requirement. These comments 
will be used to help draft a proposed rule that will be published in 
the Federal Register for public comments.

DATES: Submit electronic or written comments by November 19, 2010.

ADDRESSES: Comments in response to this ANPRM should be marked 
``Comments on the Civil Monetary Penalties'' and sent to Mr. Bradford 
R. Lang, Public Health Analyst, Office of Pharmacy Affairs (OPA), 
Health Systems Bureau (HSB), Health Resources and Services 
Administration (HRSA), 5600 Fishers Lane, Parklawn Building, Room 10C-
03, Rockville, MD 20857. Comments may also be e-mailed to: 
[email protected].

FOR FURTHER INFORMATION CONTACT: CDR Krista Pedley, Director, Office of 
Pharmacy Affairs (OPA), Healthcare Services Bureau (HSB), Health 
Resources Services Administration (HRSA), 5600 Fishers Lane, Parklawn 
Building, Room 10C-03, Rockville, MD 20857.


I. Background

    The Affordable Care Act introduces a number of changes to the 340B 
Program. The Affordable Care Act creates several new categories of 
eligibility for program participation and provides a number of tools 
for improving program compliance by manufacturers and covered entities. 
As one of the many changes created by the Affordable Care Act, section 
7102(a) amends section 340B(d) of the PHSA to require the Secretary of 
HHS to provide for the imposition of civil monetary penalties against 
manufacturers. As amended by the Affordable Care Act, section 
340B(d)(1)(B)(vi) of the PHSA provides for:
    (vi) The imposition of sanctions in the form of civil monetary 
penalties, which--
    (I) Shall be assessed according to standards established in 
regulations to be promulgated by the Secretary not later than 180 days 
after the date of enactment of the Patient Protection and Affordable 
Care Act;
    (II) Shall not exceed $5,000 for each instance of overcharging a 
covered entity that may have occurred; and
    (III) Shall apply to any manufacturer with an agreement under this 
section that knowingly and intentionally charges a covered entity a 
price for purchase of a drug that exceeds the maximum applicable price 
under subsection (a)(1).
    Section 7102(a) of the Affordable Care Act requires the Secretary 
of HHS to use funds appropriated under section 340B(d)(4) of the PHSA 
to provide for improvements in compliance by manufacturers and covered 
entities. The Affordable Care Act also includes provisions to improve 
covered entity compliance and the imposition of sanctions. These 
provisions addressing sanctions for covered entities will be addressed 
    The 340B Program creates complex relationships, not only between 
drug manufacturers and covered entities, but also involves, among 
others, wholesalers, group purchasing organizations, pharmacies, and 
state Medicaid agencies. Changes to the 340B Program have the potential 
to alter these complex relationships. Prior to enactment of the 
Affordable Care Act, HRSA did not have civil monetary penalty authority 
for the 340B Program. This ANPRM is being issued to gather comments to 
consider in the development of these regulations.

II. Request for Comments

    The purpose of this document is to obtain information and public 
comment on how to efficiently and effectively implement the civil 
monetary penalties authorized Section 7102(a) of the Affordable Care 
Act. Although HRSA has identified several issues and areas where HRSA 
believes comment would be particularly helpful, comments may be 
submitted on any issues directly relevant to the implementation of the 
specified requirements.
    Areas for which HRSA is expressly seeking comment include: (1) 
Existing Models; (2) Threshold Determination; (3) Administrative 
Process Elements; (4) Hearing; (5) Appeals Process; (6) Definitions; 
(7) Penalty Computation; (8) Payment of Penalty; and (9) Integration of 
Civil Monetary Penalties with Other Provisions in the Affordable Care 
    Commenters are requested to specify as clearly as possible which 
statutory provision they are commenting on and provide a rationale for 
their proposals.

1. Existing Models

    HRSA is seeking comments regarding any aspects of other existing 
models for civil monetary penalties that can be adapted to the 340B 
Program. While the 340B Program has not had civil monetary penalty 
authority in the past, HHS has experience with creating and 
implementing civil monetary penalties in a number of other contexts. 
Certain portions of these other civil monetary penalty authorities can 
provide useful insight as HRSA implements the 340B Program civil 
monetary penalty authority.
    HRSA is currently reviewing the civil monetary penalty authority 
exercised by the OIG, Federal Aviation Administration, Treasury, Food 
and Drug Administration, United States Department of Agriculture, 
Federal Deposit Insurance Corporation, and CMS to determine what 
portions of these authorities may be adapted for the 340B Program. 
Specifically, HRSA is reviewing the October 2005 DHHS Office of 
Inspector General report ``Deficiencies in Oversight of the 340B Drug 
Pricing Program'' (OEI-05-02-00072) which recommended that HRSA 
consider as a model the Centers for Medicare and Medicaid Services' 
(CMS) statutory authority to enforce the Medicaid rebate program, 
pursuant to section 1927(b)(3)(C)(i) of the Social Security Act, and 
seek similar authorities with respect to enforcement of the 340B 
Program. HRSA is also contemplating the use and adaptation of the 
procedures codified at 42 CFR part 1003, which includes procedures for 
the imposition of civil monetary penalties by the OIG. As such, please 
comment on the extent to which provisions similar to 42 CFR part 1003 
should be applied in civil monetary penalty regulations applicable to 
manufacturers. HRSA is seeking information on other existing 
regulations or procedures on civil monetary penalties that may provide 
additional guidance specifically relating

[[Page 57232]]

to manufacturers and civil monetary penalties.

2. Threshold Determination

    HRSA welcomes comments on when the civil monetary penalty provision 
should be applied. HRSA is contemplating an oversight process 
incorporating a variety of elements to gather and consider grounds for 
applying the penalty provision. These include, but are not limited to, 
the amount of the overcharge, the frequency of the overcharge, the 
compliance history of the manufacturer in question, and the number of 
covered entities affected. The Affordable Care Act provides HRSA with a 
range of new compliance tools. HRSA may use this information to 
determine when it is most appropriate to utilize its civil monetary 
penalty authority and when it is more appropriate to utilize its other 
available compliance mechanisms.

3. Administrative Process Elements

    HRSA is seeking comments on the administrative processes that would 
best administer civil monetary penalties tailored to meet the unique 
context of the 340B Program. Systems must be created to address how 
civil monetary penalty claims will be processed, what type of notice 
should be required for proposed determinations, what involvement should 
be available to overcharged covered entities, and what type of notice 
should be given to third parties and the public, etc. HRSA invites 
comments on the applicability of the particular administrative 
procedures in 42 CFR part 1003 and the appropriateness of additional 
procedural elements.

4. Hearing

    Civil monetary penalty systems typically offer the opportunity for 
a hearing. HRSA is inviting comments on the manner in which such a 
hearing would be structured. HRSA is considering a large number of 
issues involved in creating a fair and efficient hearing process, 
including, but not limited to: Decision-making individual or make-up of 
the decision making body; ex parte contacts; prehearing conferences; 
discovery; subpoenas; fees; form, filing, and service of papers; 
motions; sanctions; burden of proof; evidence; and post-hearing briefs.

5. Appeals Process

    HRSA is considering under what circumstances (if any) exist with 
respect to establishing an appeal review process and who should hear 
such an appeal. HRSA is also considering which types of matters may be 
appealed. HRSA also invites comments on how the civil monetary process 
should interact with the administrative dispute resolution process 
required by section 340B(d)(3).

6. Definitions

    There are a number of key terms needing a clearly established 
definition in administering this provision in a fair and efficient 
    a. ``Instance''--HRSA believes that ``instance'' in this context 
could potentially be defined either as a per unit of drug and/or per 
commercial transaction. If an entity purchases 100 units of a 
particular drug in a single transaction, should this constitute 100 
instances or a single instance? HRSA also contemplates including 
instances of refusing to sell a covered outpatient drug in violation of 
the pharmaceutical pricing agreement to be subject to a penalty where a 
covered entity has purchased the drug outside the 340B Program at a 
price greater than the ceiling price.
    b. ``Knowing and intentional''--HRSA contemplates a standard 
whereby knowing and intentional can be inferred from the circumstances. 
For example, the knowledge and intent of employees or agents of a 
manufacturer may be attributed to the company as a whole. In cases 
where the ceiling price is known by the manufacturer, the manufacturer 
knows that a purchaser is a covered entity, and the covered entity is 
knowingly charged a price in excess of the ceiling price, a finder of 
fact would be able to infer intentionality of the violation even in 
cases where no single individual had knowledge of all of these 
elements. HRSA anticipates there may be circumstances where repeated 
violations could be considered to be knowingly and intentional if, for 
example, a manufacturer repeatedly miscalculates a ceiling price or 
otherwise establishes a system where overcharges are a highly probable 

7. Penalty Computation

    In cases where there is a finding that a manufacturer has knowingly 
and intentionally charged a covered entity an amount in excess of the 
ceiling price, HRSA contemplates application of variable penalties 
under the statute. HRSA proposes the following criteria for 
consideration: (i) Previous record of overcharging; (ii) timeliness of 
response; (iii) cooperation and good faith; (iv) number of covered 
entities impacted by the overcharges; (v) impact on patient access; 
(vi) economic loss to covered entities; (vi) economic gain to the 
manufacturer; and (vii) relative economic impact on manufacturer as to 
sufficiency to deter. In determining the penalty, discretion would be 
given to the deciding official or body. Furthermore, HRSA contemplates 
that there may be circumstances under which a penalty may be waived for 
reasons of equity or other good cause.

8. Payment of Penalty

    Once a penalty is assessed there are a number of methods for 
transferring the penalty to the government. HRSA expects to have the 
application of interest from the date of the overcharge. HRSA also 
contemplates the ability to adjust the amount of the penalty. To the 
extent that a penalty payment or an assessment is not paid in a timely 
manner, a civil action could be pursued by the government.

9. Integration of Civil Monetary Penalties With Other Provisions in 
Affordable Care Act

    In addition to the compliance tools already available to HRSA, such 
as audits and alternative dispute resolution, the Affordable Care Act 
provides HRSA with many additional tools to monitor compliance. These 
additional tools include establishing procedures to verify the accuracy 
of ceiling prices, creating processes for manufacturers to refund 
overcharges, selective auditing of manufacturers, and providing access 
to ceiling price information. To ensure its most effective use, the new 
civil monetary penalty authority must be used in conjunction with these 
other compliance tools. HRSA anticipates that information gathered from 
these other compliance tools will be useful in civil monetary penalty 
actions and also that information gathered in civil monetary penalty 
actions will be useful in implementing these other compliance tools. 
HRSA invites comments concerning the relationship between civil 
monetary penalties and other oversight mechanisms, such as dispute 
resolution, spot audits, and others.
    While these nine areas were identified for comment, we welcome 
comments on any other issues that stakeholders believe are relevant to 
implementing an effective process for civil money penalties.

    Dated: September 14, 2010.
Mary K. Wakefield,
[FR Doc. 2010-23461 Filed 9-17-10; 8:45 am]