[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Proposed Rules]
[Pages 53381-53388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18969]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

42 CFR Part 10

RIN 0906-AA90


340B Drug Pricing Program; Administrative Dispute Resolution

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Health Resources and Services Administration (HRSA) 
implements section 340B of the Public Health Service Act (PHSA), which 
is referred to as the ``340B Drug Pricing Program'' or the ``340B 
Program.'' This proposed rule will apply to all drug manufacturers and 
covered entities that participate in the 340B Program. The proposed 
rule sets forth the requirements and procedures for the 340B Program's 
administrative dispute resolution process.

DATES: Submit written comments on or before October 11, 2016.

ADDRESSES: You may submit comments, identified by the Regulatory 
Information Number (RIN) 0906-AA90, by any of the following methods. 
Please submit your comments in only one of these ways to minimize the 
receipt of duplicate submissions.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments. This is the preferred 
method for the submission of comments.
     Email: [email protected]. Include 0906-AA90 in the 
subject line of the message.
     Regular, express, or overnight mail: CAPT Krista Pedley, 
Director, Office of Pharmacy Affairs (OPA), Healthcare Systems Bureau 
(HSB), HRSA, 5600 Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857. 
Please allow sufficient time for mailed comments to be received before 
the close of the comment period.
    All submitted comments will be available to the public in their 
entirety. All comments received may be posted without change to http://www.regulations.gov, including any personally identifiable or 
confidential business information that is included in a comment.

FOR FURTHER INFORMATION CONTACT: CAPT Krista Pedley, Director, OPA, HSB 
HRSA, 5600 Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857, or by 
telephone at 301-594-4353.

SUPPLEMENTARY INFORMATION: The President encourages Federal agencies 
through Executive Order 13563 to develop balanced regulations by 
encouraging broad public participation in the regulatory process and an 
open exchange of ideas. Accordingly, the Department of Health and Human 
Services (HHS or the Department) urges all interested parties to 
examine this regulatory proposal carefully and to share your views with 
us, including any data to support your positions. If you have questions 
before submitting comments, please see the FOR FURTHER INFORMATION 
CONTACT field above for the name and contact information of the 
subject-matter expert involved in the development of this proposal. We 
will consider all written comments received during the comment period 
before issuing a final rule.
    If you are a person with a disability and/or a user of assistive 
technology who has difficulty accessing this document, please contact 
HRSA's Regulations Officer at: Room 13N82, 5600 Fishers Lane, 
Rockville, MD 20857; or by telephone at 301-443-1785, to obtain this 
information in an accessible format. This is not a toll free telephone 
number.
    Please visit http://www.HHS.gov/regulations for more information on 
HHS rulemaking and opportunities to comment on proposed and existing 
rules.

I. Background

    Section 602 of Public Law 102-585, the ``Veterans Health Care Act 
of 1992,'' enacted section 340B of the PHSA entitled ``Limitation on 
Prices of Drugs Purchased by Covered Entities,'' which was codified at 
42 U.S.C. 256b. The 340B Program permits covered entities ``to stretch 
scarce Federal resources as far as possible, reaching more eligible 
patients and providing more comprehensive services.'' H.R. REP. No. 
102-384(II), at 12 (1992). The Secretary of the HHS delegated the 
authority to operate section 340B of the PHSA to the Administrator of 
HRSA. Pursuant to this delegation of authority, HRSA established and 
administers the 340B Program. Operationally, the 340B Program is housed 
within HRSA's Healthcare Systems Bureau (HSB), Office of Pharmacy 
Affairs (OPA). Eligible covered entity types are defined in section 
340B(a)(4) of the PHSA, as amended. Section 340B of the PHSA instructs 
HHS to enter into pharmaceutical pricing agreements (PPA) with 
manufacturers of covered outpatient drugs. Manufacturers are required 
by section 1927(a)(5)(A) of the Social Security Act to enter into 
agreements with the Secretary of HHS that comply with section 340B of 
the PHSA if they participate in the Medicaid Drug Rebate Program. When 
a drug manufacturer signs a PPA, it agrees that the prices charged for 
covered outpatient drugs to covered entities will not exceed defined 
340B ceiling prices, which are based on quarterly pricing data reported 
by manufacturers to the Centers for Medicare & Medicaid Services (CMS).
    Section 7102 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended by section 2302 of the Health Care and 
Education Reconciliation Act (Pub. L. 111-152), hereinafter referred to 
as the ``Affordable Care Act,'' added section 340B(d)(3) of the PHSA, 
which requires the Secretary of HHS (or the Secretary) to promulgate a 
regulation establishing

[[Page 53382]]

and implementing a binding administrative dispute resolution (ADR) 
process for certain disputes arising under the 340B Program. The 
purpose of the ADR process is to resolve (1) claims by covered entities 
that they have been overcharged for covered outpatient drugs by 
manufacturers; and (2) claims by manufacturers, after a manufacturer 
has conducted an audit as authorized by section 340B(a)(5)(C) of the 
PHSA, that a covered entity has violated the prohibition on diversion 
to ineligible patients or duplicate discounts. The 340B ADR process is 
not intended to be a trial-like proceeding governed by formal review of 
evidence and procedure. Rather, it is an administrative process that is 
designed to assist covered entities and manufacturers in resolving 
disputes regarding overcharging, duplicate discounts, or diversion. 
Historically, HHS has encouraged manufacturers and covered entities to 
work with each other to attempt to resolve disputes in good faith. The 
ADR process as proposed in this rule is not intended to replace these 
good faith efforts, but should be considered as a last resort in the 
event good faith efforts to resolve disputes have not been successful. 
In addition, covered entities and manufacturers should carefully 
evaluate whether the ADR process is appropriate for de minimis claims 
given the investment of the time and resources required of the parties 
involved.
    In 2010, HHS issued an advanced notice of proposed rulemaking 
(ANPRM) that requested comments on the development of an ADR process 
(75 FR 57233, September 20, 2010). The ANPRM specifically requested 
comments on: (1) Administrative procedures, (2) existing models, (3) 
threshold requirements, (4) hearings, (5) decision-making officials or 
bodies, (6) appropriate appeals procedures, (7) deadlines, (8) 
discovery procedures, (9) manufacturer audits, (10) consolidation of 
manufacturer claims, (11) covered entity consolidation of claims; (12) 
claims by organizations representing covered entities, and (13) 
integration of dispute resolution with other 340B requirements added by 
the Affordable Care Act. HHS received 14 comments on the ANPRM. The 
comments received were considered in the development of this proposed 
rule.
    HHS encourages all stakeholders to provide written comments on this 
NPRM. This proposed regulation, when finalized, will replace the 340B 
Program's guidelines on the informal dispute resolution process 
developed to resolve disputes between covered entities and 
manufacturers, which was published on December 12, 1996 (61 FR 65406).

II. Summary of the Proposed Regulations

    The proposed revisions to 42 CFR part 10 are described according to 
the applicable section of the regulations. The United States District 
Court for the District of Columbia vacated the 340B Program Regulations 
at 42 CFR part 10 relating to Orphan Drugs (subpart C). (PhRMA v. HHS, 
No. 13-01501 (D.D.C. May 23, 2014). This NPRM proposes to add new 
definitions to Sec.  10.3 and retitle and replace the language in 
subpart C as set forth below.


Sec.  10.3  Definitions.

    HHS is proposing to add the following definitions: ``Administrative 
Dispute Resolution Process,'' ``Administrative Dispute Resolution Panel 
(340B ADR Panel),'' ``claim,'' and ``consolidated claim.''

Subpart C--Administrative Dispute Resolution

Sec.  10.20 340B Administrative Dispute Resolution Panel
    (a) Members of the 340B ADR Panel.
    As required by section 340B(d)(3)(B)(i), regulations promulgated by 
the Secretary shall designate or establish a decision-making official 
or body within HHS to review and make a binding decision for claims 
filed by covered entities and manufacturers. HHS proposes to establish 
a decision-making body (referred to as the ``340B ADR Panel'' or 
``Panel'') to review and resolve such claims.
    The proposed 340B ADR Panel will ensure an unbiased and fair review 
of the claims, and reduce the individual burden associated with having 
a single decision-making official who is solely responsible for 
reviewing and resolving claims. The proposed 340B ADR Panel will 
include three members, chosen from a roster of eligible individuals 
alternating from claim to claim, and one ex-officio, non-voting member 
chosen from the staff of OPA to facilitate the review and resolution of 
claims within a reasonable time frame. The proposed roster of eligible 
individuals will be comprised of Federal employees (e.g., employees of 
CMS or the U.S. Department of Veterans Affairs) with demonstrated 
expertise or familiarity with the 340B Program. The ADR panel will not 
be compensated.
    HHS proposes that for each filed claim that is reviewed, HSB will 
review the qualifications of individuals on the 340B ADR Panel roster 
and select those with expertise or familiarity with the appropriate 
aspects of the 340B Program. HHS also proposes that individuals serving 
on a 340B ADR Panel may be removed for cause. For example, if it is 
determined prior to or during the course of a Panel member's review of 
a claim that there is a conflict of interest, as described in 
subsection (b), with respect to that claim, the Panel member will be 
removed from the Panel and replaced by another individual from the 340B 
ADR Panel roster.
    HHS is soliciting specific comments on the proposed size and 
composition of the 340B ADR Panel, in particular whether the 340B ADR 
Panel should be comprised of a set number of voting members to maintain 
consistency and transparency across each claim that is reviewed, 
whether HHS should retain the flexibility to appoint a requisite number 
of voting members based on the complexity of the claim and other 
factors, and whether the 340B ADR Panel should include at least one OPA 
staff member as a voting member or whether the inclusion of an OPA 
staff member as an ex-officio, non-voting member is sufficient to 
ensure adherence to 340B policies and procedures.
    (b) Conflicts of interest.
    To ensure fairness and objectiveness, HHS proposes that each 340B 
ADR Panel member be screened prior to reviewing a claim and not allowed 
to conduct a review if any conflicts of interest exist. For example, 
the individual would not review a claim if he or she has a conflict of 
interest with respect to the parties involved in the claim or the 
subject matter of the claim. HHS proposes that individuals be screened 
for conflicts of interest in accordance with U.S. Office of Government 
Ethics policies and procedures applicable to Federal employees. 
Conflicts of interest may include the following: (1) Financial 
interest; (2) family or close relation to a party involved; and (3) 
current or former business or employment relation to a party. The 
specific procedures for screening members of the panel prior to their 
service on the 340B ADR Panel will be detailed in future guidance.
    (c) Duties of the 340B ADR Panel.
    In subsection (c), HHS proposes that once the 340B ADR Panel 
receives the claim, the 340B ADR Panel will consider all documentation 
provided by the parties and may request additional information or 
clarification from any party involved with the claim. HHS also proposes 
that the 340B ADR Panel review claims in a session closed to the 
parties involved, including any associations or organizations, or legal 
counsel representing the parties.

[[Page 53383]]

    In this subsection, HHS also proposes that the 340B ADR Panel may 
consult with subject matter experts within OPA regarding 340B program 
requirements while reviewing a claim. The 340B ADR Panel will provide a 
final decision only with respect to the claim. HHS proposes that the 
340B ADR Panel's final decision must represent the decision of a 
majority of the Panel members but need not be unanimous.
Sec.  10.21 Claims
    (a) Claims permitted.
    Section 7102 of the Affordable Care Act added section 340B(d)(3) of 
the PHSA, which instructs the Secretary to establish and implement a 
binding ADR process to resolve certain 340B Program statutory 
violations. Section 340B(d)(3)(A) of the PHSA specifies that the ADR 
process is to be used to resolve: (1) Claims by covered entities that 
they have been overcharged by manufacturers for drugs purchased under 
this section and (2) claims by manufacturers, after a manufacturer has 
conducted an audit of a covered entity, as authorized by section 
340B(a)(5)(C) of the PHSA, that a covered entity has violated the 
prohibitions against duplicate discounts and diversion (sections 
340B(a)(5)(A) and (B) of the PHSA).
    (b) Requirements for filing a claim.
    In subsection (b), HHS proposes that the covered entity and the 
manufacturer meet certain requirements for filing a claim. These 
proposed requirements will ensure that a claim of the type specified in 
section 340B(d)(3)(A) of the PHSA is the subject of the dispute.
    The Department is proposing that covered entities and manufacturers 
file a written claim, based on the facts available, to HSB within 3 
years of the date of the sale (or payment) at issue in the alleged 
violation and that any claim not filed within 3 years shall be time 
barred. The proposed requirement that a claim be filed within 3 years 
is consistent with the record retention expectations for the 340B 
Program and will ensure that covered entities and manufacturers have 
access to relevant records needed to review and respond to claims. This 
proposal ensures documents must be submitted with each claim to verify 
that the alleged violation is not time barred. This proposed 
requirement will prevent a party from asserting a claim that is stale. 
HHS requests public comment concerning the 3 year limitation on claims 
submission.
    HHS is also proposing that once a claim is submitted and the 
opposing party has been notified of the claim, any file, document, or 
record associated with a claim be maintained by the covered entity and/
or manufacturer until the 340B ADR Panel's final agency decision is 
issued.

Covered Entity Claims

    In section 10.21(b)(2), HHS proposes that to be eligible for the 
ADR process, each claim filed by a covered entity must include 
documents sufficient to demonstrate a covered entity's claim that it 
has been overcharged by a manufacturer, along with any such 
documentation as may be requested by HSB to evaluate the veracity of 
the claim. Such documentation may include: (1) A 340B purchasing 
account invoice which shows the purchase price by national drug code 
(NDC), less any taxes and fees; (2) the 340B ceiling price for the drug 
during the quarter(s) corresponding to the time period(s) of the claim; 
and (3) documentation of the attempts made to purchase the drug via a 
340B account at the ceiling price, which resulted in the instance of 
overcharging. HHS believes that these documents are readily available 
to a covered entity through the usual course of business and should not 
be overly burdensome to produce, however HHS requests public comment on 
the feasibility or producing the documentation as proposed. HHS may 
also request that the covered entity provide it with a written summary 
of attempts to work in good faith to resolve the instance of 
overcharging with the manufacturer at issue.
    Pursuant to section 340B(d)(1)(B) of the PHSA, HHS is developing a 
system to verify the ceiling price of a 340B drug and allow covered 
entities to access and verify the ceiling price. Until such system is 
developed, HHS has access to ceiling price data and will ensure that 
the 340B ADR panel will also have access as they evaluate any 
particular claim. Covered entities will be able to access ceiling price 
information through this system, which may lessen the burden in 
submitting the information accompanying a claim.

Manufacturer Claims

    In section 10.21(b)(3), HHS proposes that to be eligible for the 
340B ADR process, each claim filed by a manufacturer must include 
documents sufficient to demonstrate a manufacturer's claim that a 
covered entity has violated the prohibition on diversion and/or 
duplicate discount, along with any such documentation as may be 
requested by HSB to evaluate the veracity of the claim. Such 
documentation may include: (1) A final audit report which indicates 
that the manufacturer audited the covered entity for compliance with 
the prohibition on diversion (section 340B(a)(5)(B) of the PHSA) and/or 
duplicate discounts (section 340B(a)(5)(A) of the PHSA) and (2) the 
covered entity's written response to the manufacturer's audit 
finding(s). HHS may also request that the manufacturer submit a written 
summary of attempts to work in good faith to resolve the claim with the 
covered entity.
    (c) Consolidation of claims.
    In subsection (c), HHS proposes that, if requested, covered 
entities or manufacturers may be permitted to consolidate their 
individual claims. Section 340B(d)(3)(B)(vi) of the PHSA permits 
``multiple covered entities to jointly assert claims of overcharges by 
the same manufacturer for the same drug or drugs in one administrative 
proceeding. . . .'' HHS proposes that for consolidated claims, the 
claim must list each covered entity and include documentation and/or 
information from each covered entity demonstrating that the covered 
entity meets all of the requirements for filing a claim with HHS and 
that a letter requesting consolidation of claims must also accompany 
the claim and must document that each covered entity consents to the 
consolidation of the claim.
    Pursuant to section 340B(d)(3)(B)(vi) of the PHSA, consolidated 
claims are also permitted on behalf of covered entities by associations 
or organizations representing their interests. Therefore, HHS proposes 
that the covered entities must be members of the association or the 
organization representing them and that each covered entity must meet 
the requirements listed in subsection (b) for filing a claim with HSB. 
The proposed consolidated claim must assert overcharging by the same 
manufacturer for the same drug(s), and the organization or association 
will be responsible for filing the claim. HHS also proposes requiring 
that a letter requesting consolidation of claims must accompany the 
claim and must document that each covered entity consents to the 
organization or association asserting a claim on its behalf.
    Similarly, at the request of two or more manufacturers, section 
340B(d)(3)(B)(v) of the PHSA permits the consolidation of claims 
brought by more than one manufacturer against the same covered entity 
if consolidation is consistent with the statutory goals of fairness and 
economy of resources. This NPRM proposes that the claim must list each 
manufacturer and include documentation and/or information from each 
manufacturer demonstrating that the manufacturer meets the

[[Page 53384]]

requirements listed in subsection (b) for filing a claim with HSB. HHS 
also proposes that a letter requesting consolidation of claims must be 
submitted with the claim and must document that each manufacturer 
consents to the consolidation of the claims. The statutory authority 
for implementing the 340B ADR process does not permit consolidated 
claims on behalf of manufacturers by associations or organizations 
representing their interests. Therefore, HHS is not proposing this 
option in this NPRM.
    With regard to the consolidation of claims by manufacturers against 
a covered entity, HHS is seeking specific comment on the grounds under 
which consolidation would be consistent with the statutory goals of 
fairness and economy of resources, as required by section 
340B(d)(3)(B)(v) of the PHSA. In addition, while HHS is proposing, as 
required by the 340B statute, an ADR process that allows manufacturers 
to consolidate claims against a covered entity, we recognize the 
operational challenges presented by the statutory requirement for a 
manufacturer to first audit the covered entity. HHS is, therefore, 
seeking comment on how manufacturers requesting a consolidated claim 
against a covered entity can satisfy the audit requirement.
    (d) Deadlines and procedures for filing a claim.
    In subsection (d), HHS proposes that covered entities and 
manufacturers file a claim with HSB demonstrating that they satisfy the 
requirements described in subsection (b) and that the party filing a 
claim must send written notice to the opposing party regarding the 
claim within 3 business days of submitting the claim and the party must 
submit confirmation of the opposing party's receipt or acknowledgement 
of receipt within 3 business days. HHS also proposes that the written 
notice to the opposing party must include a summary of the documents 
submitted as part of the claim.
    HHS proposes that HSB will review the information submitted as part 
of the claim to verify that the requirements for filing a claim have 
been met. HSB would contact the initiating party once the claim has 
been received and may request additional information before accepting a 
claim for review by the 340B ADR Panel. If additional information is 
requested, the party filing the claim will have 20 business days of 
receipt of the request to respond. Claims will not move forward for 
review by the 340B ADR Panel if the initiating party does not respond 
to the request for additional information or if a party files a claim 
for any purpose other than those specified in the statute (i.e., 
overcharging, duplicate discount, or diversion), or if the alleged 
violation occurred more than 3 years before the date of filing the 
claim.
    HHS proposes that HSB will make a determination as to whether all 
requirements are met and provide written notice to all parties within 
20 business days after receiving the claim and any subsequently 
requested information, which will be transmitted via both hard copy and 
email. If HSB determines the claim includes all necessary documentation 
and meets the requirements for filing a claim, the claim will be 
forwarded to the 340B ADR Panel for review. HSB would provide 
additional information on the 340B ADR process to all parties at that 
time, including contact information for requested follow-up 
communications and an approximate timeframe for the 340B ADR Panel's 
review.
    HHS proposes that if the claim does not move forward for review by 
the ADR Panel, written notice will be sent by HSB to the parties 
involved that includes the basis for the decision and will advise the 
party that they may revise and refile the claim if the party has new 
information to support the alleged statutory violation.
    (e) Responding to a submitted claim.
    In subsection (e), HHS proposes that once the parties have been 
notified by HSB that the claim has met the requirements in subsection 
(b) and will move forward for review by the 340B ADR Panel, the 
opposing party will have 20 business days to submit a written response 
to the allegation to the 340B ADR Panel and the party who filed the 
claim. Subsequent requests for information regarding the claim would be 
made by the 340B ADR Panel as needed, and the 340B ADR Panel will 
consider any additional information that was provided by the parties 
involved. However, if an opposing party does not respond to a request 
for information from HSB or the 340B ADR Panel or otherwise elects not 
to participate in the 340B ADR process, the 340B ADR Panel will make a 
decision on the claim based on the information submitted in the claim.


Sec.  10.22  Covered entity information requests.

    Pursuant to section 340B(d)(3)(B)(iii) of the PHSA, regulations 
promulgated by the Secretary for the 340B ADR process will establish 
procedures by which a covered entity may discover or obtain information 
and documents from manufacturers and third parties relevant to a claim 
that the covered entity has been overcharged by the manufacturer. This 
NPRM proposes that such covered entity information requests be 
facilitated by the 340B ADR Panel. HHS proposes that a covered entity 
must submit a written request for information to the 340B ADR Panel no 
later than 20 business days after the entity was notified by HSB that 
the claim would move forward for the ADR Panel's review. The 340B ADR 
Panel will review the information/document request to ensure that it is 
reasonable and within the scope of the asserted claim. The 340B ADR 
Panel will notify the covered entity in writing if any request is 
deemed reasonable and within the scope of the asserted claim and permit 
the covered entity to submit a revised information/document request, if 
it is not.
    In this section, HHS proposes that the 340B ADR Panel will consider 
relevant factors, such as the scope of the information/document 
request, whether there are consolidated claims, or the involvement of 
one or more third parties in distributing drugs on behalf of the 
manufacturer and that once reviewed, the 340B ADR Panel will submit the 
information/document request to the manufacturer, which must respond 
within 20 business days.
    HHS also proposes that the manufacturer must fully respond in 
writing to the information request and submit its response to the 340B 
ADR Panel by the stated deadline and that the manufacturer is 
responsible for obtaining relevant information/documents from 
wholesalers or other third parties that may facilitate sales or 
distribution of its drugs to covered entities. HHS proposes that if a 
manufacturer anticipates it will not be able to fully respond by the 
deadline, the manufacturer may request one extension in writing within 
15 business days. The extension request that is submitted to the 340B 
ADR Panel must include any available information, the reason why the 
deadline is not feasible, and outline a proposed timeline for fully 
responding to the information request. The 340B ADR Panel will review 
the extension request and notify both the manufacturer and the covered 
entity in writing as to whether the request for an extension is granted 
and the date of the new deadline. If a manufacturer does not respond to 
a request for information from HSB or the 340B ADR Panel, HHS proposes 
that the 340B ADR Panel will make a decision on the claim based on the 
information submitted in the claim package that moved forward for 
review.

[[Page 53385]]

Sec.  10.23 Final agency decision
    In Sec.  10.23, HHS proposes that the 340B ADR Panel review the 
documents submitted by the parties and determine if there is adequate 
support to conclude that a violation as described in subsection (a)(1) 
or (2) of Sec.  10.21 has occurred. The 340B ADR Panel will prepare a 
draft agency decision letter, which includes the 340B ADR Panel's 
findings and conclusions regarding the alleged violation. HHS is 
proposing a process whereby the 340B ADR Panel's draft agency decision 
letter will be sent to all parties, and the parties involved will have 
20 business days to respond to the 340 ADR Panel. HHS is seeking 
specific comments on this process and whether this proposed process 
will facilitate or hinder the fair, efficient, and timely resolution of 
claims.
    HHS also proposes that once the parties have reviewed and submitted 
comments to the draft agency decision letter, the 340B ADR Panel will 
prepare and submit its final agency decision letter to all parties in 
the dispute, which may incorporate rebuttals from the parties that were 
considered by the 340B ADR Panel to help inform the final agency 
decision. The final agency decision made by 340B ADR Panel will 
conclude the administrative resolution process; however, HHS proposes 
that the final agency decision letter also be submitted to HSB to take 
enforcement action or apply sanctions, as appropriate. For example, if 
the 340B ADR Panel makes a decision that a covered entity has violated 
the prohibition against diversion, HSB may require, as a sanction, that 
the covered entity repay the affected manufacturer. If the 340B ADR 
Panel makes a decision that a manufacturer overcharged a covered 
entity, HSB may require, as a sanction, that the manufacturer refund or 
issue a credit to the affected covered entity. In both cases, HSB will 
work with the party in violation on any remedy and corrective action.
    HHS proposes that the 340B ADR Panel's final agency decision letter 
will be binding upon the parties involved, unless invalidated by an 
order of a court of competent jurisdiction in accordance with section 
340B(d)(3)(C) of the PHSA. HHS may, at its sole discretion, publish a 
summary of the claims that have gone through the 340B ADR process on 
the HRSA Web site, including the names of the parties and the nature of 
the 340B ADR Panel's findings (e.g., overcharging, duplicate discount, 
or diversion). HHS will consider issuing future subregulatory guidance 
on this topic as necessary.

III. Regulatory Impact Analysis

    HHS has examined the effects of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 8, 2011), the Regulatory Flexibility Act (September 19, 
1980, Pub. L. 96-354), the Unfunded Mandates Reform Act of 1995 (Pub. 
L. 104-4), and Executive Order 13132 on Federalism (August 4, 1999).

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 is supplemental to and reaffirms the principles, 
structures, and definitions governing regulatory review as established 
in Executive Order 12866, emphasizing the importance of quantifying 
both costs and benefits, of reducing costs, harmonizing rules, and 
promoting flexibility. Section 3(f) of Executive Order 12866 defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule: (1) Having an annual effect on the economy of $100 million 
or more in any one year, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local, or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating a serious inconsistency or otherwise interfering with an 
action taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. A 
regulatory impact analysis must be prepared for major rules with 
economically significant effects ($100 million or more in any one 
year), and a ``significant'' regulatory action is subject to review by 
the Office of Management and Budget (OMB).
    This proposed rule is not likely to have economic impacts of $100 
million or more in any one year; therefore, it has not been designated 
an ``economically significant'' rule under section 3(f)(1) of Executive 
Order 12866. This proposed rule creates a framework for the Department 
to resolve certain disputed claims regarding manufacturers overcharging 
covered entities and disputed claims of diversion and duplicate 
discounts by covered entities audited by manufacturers under the 340B 
Program. HHS does not anticipate the introduction of an administrative 
dispute resolution process to result in significant economic impacts.

The Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) and the 
Small Business Regulatory Enforcement and Fairness Act of 1996, which 
amended the RFA, require HHS to analyze options for regulatory relief 
of small businesses. If a rule has a significant economic effect on a 
substantial number of small entities, HHS must specifically consider 
the economic effect of the rule on small entities and analyze 
regulatory options that could lessen the impact of the rule. HHS will 
use an RFA threshold of at least a 3 percent impact on at least 5 
percent of small entities.
    The proposed rule would affect drug manufacturers (North American 
Industry Classification System code 325412: Pharmaceutical Preparation 
Manufacturing). The small business size standard for drug manufacturers 
is 750 employees. Approximately 600 drug manufacturers participate in 
the 340B Program. While it is possible to estimate the impact of the 
proposed rule on the industry as a whole, the data necessary to project 
changes for specific manufacturers or groups of manufacturers is not 
available, as HRSA does not collect the information necessary to assess 
the size of an individual manufacturer that participates in the 340B 
Program. The proposed rule would also affect health care providers. For 
purposes of the RFA, HHS considers all health care providers to be 
small entities either by virtue of meeting the Small Business 
Administration (SBA) size standard for a small business, or for being a 
nonprofit organization that is not dominant in its market. The current 
SBA size standard for health care providers ranges from annual receipts 
of $7 million to $35.5 million. As of July 1, 2016, over 12,000 covered 
entities participate in the 340B Program, which represent safety-net 
healthcare providers across the country.
    The proposed rule introduces an administrative mechanism to review 
claims by manufacturers that covered entities have violated certain 
statutory obligations and claims by covered entities that have been 
overcharged for

[[Page 53386]]

covered outpatient drugs by manufacturers. The documentation required 
as part of this administrative process are documents that manufacturers 
and covered entities are already required to maintain as part of their 
participation in the 340B Program. HHS expects that this documentation 
would be sufficiently available prior to submitting a claim. Therefore, 
the collection of this information would not result in an economic 
impact or create additional administrative burden on these businesses.
    HHS believes the proposed administrative dispute resolution process 
will provide a cost-efficient option for resolving claims that would 
otherwise remain unresolved or require litigation. The proposed rule 
provides an option to consolidate claims by similar situated entities, 
and covered entities may have claims asserted on their behalf by 
associations or organizations which could reduce costs. HHS has 
determined, and the Secretary certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
health care providers or a significant impact on the operations of a 
substantial number of small manufacturers; therefore we are not 
preparing an analysis of impact for the purposes of the RFA. HHS 
estimates that the economic impact on small entities and small 
manufacturers will be minimal and less than 3 percent. HHS welcomes 
comments concerning the impact of this proposed rule on small 
manufacturers and small health care providers.

Unfunded Mandates Reform Act

    Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before proposing ``any rule that 
includes any Federal mandate that may result in the expenditure by 
State, local, and Tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year.'' In 2014, that threshold level was 
approximately $155 million. HHS does not expect this proposed rule to 
exceed the threshold.

Executive Order 13132--Federalism

    HHS has reviewed this proposed rule in accordance with Executive 
Order 13132 regarding federalism, and has determined that it does not 
have ``federalism implications.'' This proposed rule would not ``have 
substantial direct effects on the States, or on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government.'' 
The proposals in this notice of proposed rulemaking, if implemented, 
would not adversely affect the following family elements: family 
safety, family stability, marital commitment; parental rights in the 
education, nurture, and supervision of their children; family 
functioning, disposable income, or poverty; or the behavior and 
personal responsibility of youth, as determined under section 654(c) of 
the Treasury and General Government Appropriations Act of 1999. HHS 
invites additional comments on the impact of this proposed rule from 
affected stakeholders.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires 
that OMB approve all collections of information by a Federal agency 
from the public before they can be implemented. This proposed rule will 
not have a significant impact on the current reporting and 
recordkeeping burden for manufacturers or covered entities under the 
340B Program. Based on current experience with the informal ADR process 
offered by the 340B Program, there have only been four requests for 
informal dispute resolution since the inception of the Program. Of the 
four dispute resolution requests, two were terminated by HRSA due to 
non-participation by one of the parties, another was dismissed due to 
lack of sufficient evidence, and the last was terminated because the 
parties disputed the existence of any attempt of good faith resolution. 
The relatively small number is attributed to the success of parties' 
attempts to resolve issues in good faith. Due to this very small number 
of informal dispute resolution requests, there has been very limited 
experience to date with dispute resolution record keeping. Changes 
proposed in this rulemaking would not result in significant reporting 
or recordkeeping burden. Comments are welcome on the accuracy of this 
statement.

    Dated: May 24, 2016.
James Macrae,
Acting Administrator, Health Resources and Services Administration.
    Approved: June 7, 2016.
Sylvia M. Burwell,
Secretary. Department of Health and Human Services.

List of Subjects in 42 CFR Part 10

    Biologics, Business and industry, Diseases, Drugs, Health, Health 
care, Health facilities, Hospitals, 340B drug pricing program.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 42 CFR part 10 as follows:

PART 10--340B DRUG PRICING PROGRAM

0
1. The authority citation for part 10 is revised to read as follows:

    Authority: Sec. 340B of the Public Health Service Act (42 U.S.C. 
256b), as amended.

0
2. Amend Sec.  10.3 by adding definitions for ``Administrative Dispute 
Resolution (ADR) process'','' Administrative Dispute Resolution Panel 
(340B ADR Panel)'', ``Claim'', and ``Consolidated claim'' to read as 
follows:


Sec.  10.3  Definitions.

* * * * *
    Administrative Dispute Resolution (ADR) process means a process 
used to resolve claims by covered entities that may have been 
overcharged for 340B drugs purchased by manufacturers, and claims by 
manufacturers of 340B drugs, after a manufacturer has conducted an 
audit of a covered entity, that a covered entity may have violated the 
prohibitions against duplicate discounts or diversion.
    Administrative Dispute Resolution Panel (340B ADR Panel) means a 
decision-making body within the Department that reviews and makes a 
binding decision for claims brought under the ADR Process.
* * * * *
    Claim means an allegation made by or on behalf of a covered entity 
or by a manufacturer for purposes of the ADR Process.
    Consolidated claim means the submittal of joint claims by covered 
entities (or their membership organization or association) or 
manufacturers to the 340B ADR Panel asserting the same allegation 
against the same party.
* * * * *
0
3. Revise subpart C to read as follows:

Subpart C--Administrative Dispute Resolution

Sec.
10.20 Administrative Dispute Resolution Panel.
10.21 Claims.
10.22 Covered entity information requests.
10.23 Final agency decision.


Sec.  10.20  Administrative Dispute Resolution Panel.

    The Secretary shall establish a decision-making body known as the 
Administrative Dispute Resolution Panel (340B ADR Panel) to review and 
make a binding final agency decision

[[Page 53387]]

regarding claims filed by covered entities and manufacturers.
    (a) Members of the 340B ADR Panel. (1) The Health Resources and 
Services Administration (HRSA) shall:
    (A) Select three voting members of the 340B ADR Panel from a roster 
of eligible individuals and one ex-officio, non-voting member from the 
staff of HRSA's Office of Pharmacy Affairs (OPA);
    (B) Alternate the individuals on the 340B ADR Panel for each claim;
    (C) Remove an individual from the 340B ADR Panel for cause; and
    (D) Appoint replacement members should an individual be unable to 
complete his or her duties.
    (2) No member of the 340B ADR Panel may have a conflict of 
interest, as defined in subsection (b) of this section.
    (b) Conflicts of interest. All members of the 340B ADR Panel will 
be screened for conflicts of interest prior to reviewing a claim. 
Conflicts of interest may include:
    (1) Financial interest in a party involved, a subsidiary of a party 
involved, or in the claim before the 340B ADR Panel;
    (2) Family or close relation to a party involved; and
    (3) Current or former business or employment relation to a party.
    (c) Duties of the 340B ADR Panel. The 340B ADR Panel will:
    (1) Review and evaluate documents or information submitted by 
covered entities and manufacturers;
    (2) Request additional information or clarification of an issue 
from any or all parties to make a final decision;
    (3) Evaluate a claim in a separate session from the parties 
involved;
    (4) Consult with OPA regarding any inquiries or concerns while 
reviewing a claim; and
    (5) Make a final agency decision on each claim that will be 
communicated to HRSA for appropriate enforcement.


Sec.  10.21  Claims.

    (a) Claims permitted. The ADR process is limited to the following:
    (1) Claims by a covered entity that it has been overcharged, as 
defined in Sec.  10.11(b), by a manufacturer for a covered outpatient 
drug; and
    (2) Claims by a manufacturer, after it has conducted an audit of a 
covered entity pursuant to section 340B(a)(5)(C) of the PHSA, that the 
covered entity has violated section 340B(a)(5)(A) of the PHSA, 
regarding the prohibition of duplicate discounts, or section 
340B(a)(5)(B) of the PHSA, regarding the prohibition of the resale or 
transfer of covered outpatient drugs to a person who is not a patient 
of the covered entity.
    (b) Requirements for filing a claim. (1) A covered entity or 
manufacturer must file a claim for administrative dispute resolution in 
writing to HRSA within 3 years of the date of the alleged violation. 
Any file, document, or record associated with the claim that is the 
subject of a dispute must be maintained by the covered entity and 
manufacturer until the final agency decision letter is issued by the 
340B ADR Panel.
    (2) A covered entity filing a claim described in paragraph (a)(1) 
of this section must provide documents sufficient to demonstrate its 
claim that it has been overcharged by a manufacturer, along with any 
such other documentation as may be requested by HRSA.
    (3) A manufacturer filing a claim under paragraph (a)(2) of this 
section must provide documents sufficient to demonstrate its claim that 
a covered entity has violated the prohibition on diversion and/or 
duplicate discount, along with any such documentation as may be 
requested by HRSA.
    (c) Consolidation of claims. (1) Two or more covered entities may 
jointly file claims of overcharges by the same manufacturer for the 
same drug or drugs if each covered entity that could file a claim 
against the manufacturer consents to the jointly filed claim, and meets 
the minimum requirements, including submission of the required 
documentation, described in paragraph (b) of this section.
    (2) An association or organization may file claims of overcharges 
by the same manufacturer for the same drug or drugs on behalf of 
multiple covered entities if each covered entity represented could file 
a claim against the manufacturer, is a member of the association or 
organization, meets the requirements described in paragraph (b) of this 
section, including submission of the required documentation, and each 
covered entity has agreed to representation by the association or 
organization on its behalf.
    (3) A manufacturer or manufacturers may request to consolidate 
claims brought by more than one manufacturer against the same covered 
entity if each manufacturer could individually file a claim against the 
covered entity, consents to the jointly filed claim, meets the 
requirements described in paragraph (b) of this section for that claim, 
and the 340B ADR Panel determines that such consolidation is 
appropriate and consistent with the goals of fairness and economy of 
resources. The 340B ADR Panel will not permit joint claims filed on 
behalf of manufacturers by associations or organizations representing 
their interests.
    (d) Deadlines and procedures for filing a claim. (1) Covered 
entities and manufacturers must file claims in writing to HRSA. A claim 
must include all of the requirements in paragraph (b) of this section. 
Additional information to substantiate a claim may be submitted.
    (2) The party filing the claim must notify the opposing party in 
writing within 3 business days of the date the claim was filed and must 
provide documentation of such notification to HRSA. The written notice 
to the opposing party must include a summary of the documents submitted 
as part of the claim.
    (3) HRSA will review all information submitted by the party filing 
the claim and will make a determination as to whether all requirements 
are met and provide written notice to all parties within 20 business 
days after receiving the claim and any subsequently requested 
information.
    (A) Claims that move forward for review. If HRSA finds that the 
party filing the claim submitted all required documentation and thereby 
meets the requirements described in paragraph (b) of this section, 
written notification will be sent to both the manufacturer and covered 
entity advising that the claim will be forwarded to the 340B ADR Panel 
for review.
    (B) Claims that do not move forward for review. If HRSA finds that 
the claim does not meet the requirements described in paragraph (b) of 
this section, written notification will be sent to both the 
manufacturer and covered entity detailing the reasons that the claim 
did not move forward. A claim will not move forward for review by the 
340B ADR Panel if the claim does not meet the requirements in paragraph 
(b) of this section. That same claim may only be resubmitted if new 
information is presented to support the alleged statutory violation.
    (e) Responding to a submitted claim. Upon receipt of notification 
that a claim will move forward to the 340B ADR Panel for review, the 
party in alleged violation will have 20 business days to submit a 
written response to the 340B ADR Panel. If an opposing party does not 
respond to a request for information from HRSA or the 340B ADR Panel, 
or elects not to participate in the 340B ADR process, the 340B ADR 
Panel will make a decision on the claim based on the information 
submitted in the claim. The 340B ADR Panel will consider any additional 
information that was provided by the parties involved.

[[Page 53388]]

Sec.  10.22  Covered entity information requests.

    (a) A covered entity must submit a written request for additional 
information necessary to support its claim to the 340B ADR Panel within 
20 business days of the claim acceptance date. The 340B ADR Panel will 
review the information request and notify the covered entity if the 
information request is beyond the scope of the claim and will permit 
the covered entity to resubmit a revised information request if 
necessary.
    (b) The 340B ADR Panel will submit the covered entity's information 
request to the manufacturer who must respond to the request within 20 
business days.
    (c) The manufacturer must fully respond, in writing, to an 
information request from the 340B ADR Panel by the response deadline.
    (1) A manufacturer is responsible for obtaining relevant 
information from any wholesaler or other third party that may 
facilitate the sale or distribution of its drugs to covered entities.
    (2) If a manufacturer anticipates that it will not be able to 
respond to the information request by the deadline, it can request one 
extension by notifying the 340B ADR Panel in writing within 15 business 
days of receipt of the request.
    (3) A request to extend the deadline must include the reason why 
the current deadline is not feasible and must outline the proposed 
timeline for fully responding to the information request.
    (4) The 340B ADR Panel may approve or disapprove the request for an 
extension of time and will notify all parties in writing of its 
decision.


Sec.  10.23  Final agency decision.

    (a) The 340B ADR Panel will review documents submitted by the 
parties and determine if there is adequate support to conclude that a 
violation as described in paragraph (a)(1) or (2) of Sec.  10.21 has 
occurred.
    (1) The 340B ADR Panel will prepare a draft agency decision letter 
based on its review and evaluation of all documents submitted by the 
parties, including documents provided as required in paragraph (b) of 
Sec.  10.21, information requests in support of a claim, and responses 
to a claim.
    (2) The draft agency decision letter will be sent to all parties 
and will include the 340B ADR Panel's preliminary findings regarding 
the alleged violation.
    (3) All parties will have 20 business days to respond to the 340B 
ADR Panel's draft agency decision letter.
    (b) The 340B ADR Panel will review the responses of all parties in 
producing the final agency decision letter.
    (1) The final agency decision letter will represent the decision of 
a majority of the 340B ADR Panel's findings regarding the claim and 
discuss the findings supporting the decision.
    (2) The 340B ADR Panel will submit the binding final agency 
decision letter to all parties, and to HRSA, as necessary, for 
appropriate enforcement action.

[FR Doc. 2016-18969 Filed 8-11-16; 8:45 am]
 BILLING CODE 4165-15-P