[Federal Register Volume 83, Number 108 (Tuesday, June 5, 2018)]
[Rules and Regulations]
[Pages 25943-25947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12103]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

42 CFR Part 10

RIN 0906-AB18


340B Drug Pricing Program Ceiling Price and Manufacturer Civil 
Monetary Penalties Regulation

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final rule; further delay of effective date.

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SUMMARY: The Health Resources and Services Administration (HRSA) 
administers section 340B of the Public Health Service Act (PHSA), known 
as the ``340B Drug Pricing Program'' or the ``340B Program.'' HRSA 
published a final rule on January 5, 2017, that set forth the 
calculation of the ceiling price and application of civil monetary 
penalties. The final rule applied to all drug manufacturers that are 
required to make their drugs available to covered entities under the 
340B Program. On

[[Page 25944]]

May 7, 2018, HHS solicited comments on further delaying the effective 
date of the January 5, 2017, final rule to July 1, 2019. HHS proposed 
this action to allow a more deliberate process of considering 
alternative and supplemental regulatory provisions and to allow for 
sufficient time for any additional rulemaking. After consideration of 
the comments received on the proposed rule, HHS is delaying the 
effective date of the January 5, 2017, final rule, to July 1, 2019.

DATES: As of July 1, 2018, the effective date of the final rule 
published in the Federal Register on January 5, 2017 at 82 FR 1210, 
delayed March 6, 2017 at 82 FR 12508, March 20, 2017 at 82 FR 14332, 
May 19, 2017 at 82 FR 22893, and September 29, 2017 at 82 FR 45511, is 
further delayed until July 1, 2019.

FOR FURTHER INFORMATION CONTACT: CAPT Krista Pedley, Director, Office 
of Pharmacy Affairs, Healthcare Systems Bureau, HRSA, 5600 Fishers 
Lane, Mail Stop 08W05A, Rockville, MD 20857, or by telephone at 301-
594-4353.

SUPPLEMENTARY INFORMATION:

I. Background

    HHS published a notice of proposed rulemaking (NPRM) on June 17, 
2015, to implement civil monetary penalties (CMPs) for manufacturers 
that knowingly and intentionally charge a covered entity more than the 
ceiling price for a covered outpatient drug; to provide clarity 
regarding the requirement that manufacturers calculate the 340B ceiling 
price on a quarterly basis; and to establish the requirement that a 
manufacturer charge $0.01 (penny pricing) for each unit of a drug when 
the ceiling price calculation equals zero (80 FR 34583, June 17, 2015). 
After review of the comments, HHS reopened the comment period (81 FR 
22960, April 19, 2016) to invite additional comments on the following 
areas of the NPRM: 340B ceiling price calculations that result in a 
ceiling price that equals zero (penny pricing); the methodology that 
manufacturers use when estimating the ceiling price for a new covered 
outpatient drug; and the definition of the ``knowing and intentional'' 
standard to be applied when assessing a CMP for manufacturers that 
overcharge a covered entity.
    On January 5, 2017, HHS published a final rule in the Federal 
Register (82 FR 1210, January 5, 2017); comments from both the original 
comment period established in the NPRM and the reopened comment period 
announced in the April 19, 2016, notice were considered in the 
development of the final rule. The provisions of that final rule were 
to be effective March 6, 2017; however, HHS issued a subsequent final 
rule (82 FR 12508, March 6, 2017) delaying the effective date to March 
21, 2017, in accordance with a January 20, 2017, memorandum from the 
Assistant to the President and Chief of Staff, titled ``Regulatory 
Freeze Pending Review.'' \1\
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    \1\ See: https://www.whitehouse.gov/the-press-office/2017/01/20/memorandum-heads-executive-departments-and-agencies.
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    To provide affected parties sufficient time to make needed changes 
to facilitate compliance, and because questions were raised, HHS issued 
an interim final rule (82 FR 14332, March 20, 2017) to delay the 
effective date of the final rule to May 22, 2017. HHS solicited 
additional comments on whether that date should be further extended to 
October 1, 2017. After careful consideration of the comments received, 
HHS delayed the effective date of the January 5, 2017, final rule to 
October 1, 2017 (82 FR 22893, May 19, 2017). HHS later solicited 
comments on delaying the effective date to July 1, 2018 (82 FR 39553, 
August 21, 2017) and subsequently delayed the January 5, 2017, final 
rule to July 1, 2018 (82 FR 45511, September 29, 2017).
    HHS issued a proposed rule and solicited additional comments to 
further delay the effective date to July 1, 2019, and received a number 
of comments both supporting and opposing the delay (83 FR 20008, May 7, 
2018). After consideration of the comments received, HHS has decided to 
delay the effective date of the January 5, 2017, final rule to July 1, 
2019. As HHS changed the effective date of the final rule to July 1, 
2019, enforcement will be delayed to July 1, 2019. HHS continues to 
believe that the delay of the effective date will provide regulated 
entities with needed time to implement the requirements of the rule, as 
well as allowing a more deliberate process of considering alternative 
and supplemental regulatory provisions, and to allow for sufficient 
time for any additional rulemaking. HHS intends to engage in additional 
or alternative rulemaking on these issues, and believes it would be 
counterproductive to effectuate the final rule prior to issuance of 
additional or alternative rulemaking on these issues. HHS is developing 
new comprehensive policies to address the rising costs of prescription 
drugs. These policies will address drug pricing in government programs, 
such as Medicare Parts B & D, Medicaid, and the 340B Program. Due to 
the development of these comprehensive policies, we are delaying the 
effective date of the January 5, 2017, final rule to July 1, 2019.
    HHS does not believe this delay will adversely affect any of the 
stakeholders in a meaningful way.
    Section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C. 
551 et seq.) requires that Federal agencies provide at least 30 days 
after publication of a final rule in the Federal Register before making 
it effective, unless good cause can be found not to do so or for rules 
that grant or recognize an exemption or relieve a restriction. HHS 
finds good cause for making this final rule effective less than 30 days 
after publication in the Federal Register given that failure to do so 
would result in the final rule published on January 5, 2017, going into 
effect on July 1, 2018, several weeks before the final rule delaying 
the effective date until July 1, 2019, would go into effect. To 
preclude this uncertainty in the marketplace and to ease the burdens of 
stakeholders, HHS believes that a clear effective date is an important 
goal and one that becomes particularly important when it is paired with 
potential civil monetary penalties. The additional time provided to the 
public before the rule takes effect will assist stakeholders to prepare 
for compliance with these new program requirements.

II. Analysis and Responses to Public Comments

    In the proposed rule, HHS solicited comments regarding the impact 
of delaying the effective date of the final rule, published January 5, 
2017, to July 1, 2019, while a more deliberate rulemaking process is 
undertaken. HHS received 29 comments containing a number of issues from 
covered entities, manufacturers, and groups representing these 
stakeholders. In this final rule, we will only respond to comments 
related to whether HHS should delay the January 5, 2017, final rule to 
July 1, 2019. We did not consider and do not address comments that 
raised issues beyond the narrow scope of the proposed rule, including 
comments related to broader policy matters. However, HHS is considering 
further rulemaking on issues covered in the January 5, 2017, final 
rule. We have summarized the relevant comments received and provided 
our responses below.
    Comment: Commenters disagree with HHS that delaying implementation 
of the rule has no adverse effect given that other more significant 
remedies are available to entities who believe that they have been 
overcharged by manufacturers. Commenters request that HHS explain what 
these ``significant

[[Page 25945]]

remedies'' are, as they believe that remedies do not exist. Commenters 
state they cannot audit manufacturers or sue companies in court. In 
addition, manufacturers can decide not to participate in the 340B 
program's current voluntary dispute resolution process, and a proposal 
to make the process mandatory has been withdrawn. Currently, covered 
entities cannot check if they are being charged the right price. Any 
further postponement would prevent Congress' intent that HHS has 
meaningful oversight and enforcement authority.
    Response: HRSA's website describes how it carefully reviews pricing 
discrepancies brought to its attention. In cases in which the 340B 
Program's ceiling price appears to have been violated, covered entities 
are provided the details necessary to settle any discrepancy with the 
manufacturer directly. It is in the manufacturer's best interest to 
ensure that they are appropriately reporting AMP and URA to CMS, as 
well as providing the 340B Program ceiling price to 340B Program 
covered entities. Inaccuracies in any of this pricing information will 
negatively impact other drug pricing programs, such as Medicaid or 
Veterans Affairs programs. Further, misreporting pricing data to CMS 
could lead to State and Federal False Claims Act liability, which has 
the potential to carry triple damages and other significant monetary 
penalties.
    Comment: Some commenters stated that HHS alleges in the proposed 
rule that the delay will not adversely affect stakeholders, which 
ignores the extent of overcharges as documented in OIG reports. HHS 
also stated that ``a small number of manufacturers have informed HHS 
over the last several years that they charge more than $0.01 for a drug 
with a ceiling price below $0.01'' and that it ``believes'' a majority 
of manufacturers follow the ``long-standing HHS policy'' on penny 
pricing. HHS's statement that it merely ``believes'' most manufacturers 
are following the policy demonstrates that HHS has not attempted to 
investigate the extent of noncompliance. The penny pricing policy 
serves as a disincentive for manufacturers to raise drug prices much 
quicker than the rate of inflation and the rule should be implemented 
immediately in order to meet the Administration's goal of lowering drug 
prices. Until penny pricing is codified in a regulation, there is less 
incentive for manufacturers to comply and the final rule should be 
effective immediately.
    Response: HHS has consistently stated that ``A small number of 
manufacturers have informed HRSA over the last several years that they 
charge more than $0.01 for a drug with a ceiling price below $0.01. 
However, this is a long-standing HRSA policy and HRSA believes the 
majority of manufacturers currently follow the practice of charging a 
$0.01. Therefore, this portion of the regulation will not result in a 
significant impact.'' (e.g., 80 FR 34586, June 17, 2015; 82 FR 1227, 
January 5, 2017). The commenter does not provide evidence that a 
majority of manufacturers are not following the practice of charging 
$0.01 for a drug with a ceiling price below $0.01. HRSA's website 
describes how it carefully reviews pricing discrepancies brought to its 
attention. Through these and other mechanisms, HRSA monitors the 
program for noncompliance and maintains its belief that a majority of 
manufacturers follow the long-standing practice of charging $0.01 for a 
drug with a ceiling price below $0.01.
    Comment: Many commenters oppose delaying the effective date to July 
1, 2019. Commenters express concern that until the January 5, 2017, 
final rule is implemented, covered entities remain unprotected from 
overcharges that can further exacerbate the negative effects of high-
cost drugs. They contend that all accountability in the Program is 
placed on covered entities, and manufacturers are not being held 
accountable. They contend that the January 5, 2017, final regulation 
would have provided covered entities with access to a secure database 
to confirm ceiling prices. These commenters explain that without access 
to ceiling price information, covered entities have to rely on HRSA to 
confirm any instances in which the covered entity suspects that it was 
overcharged by a manufacturer, thereby hampering any meaningful 
enforcement against manufacturers. They conclude that continued delay 
of the final rule inhibits the ability of covered entities to verify 
whether or not manufacturers' calculations of ceiling prices are 
correct. The commenters request that HHS should implement the January 
5, 2017, rule immediately.
    Response: HHS does not agree that that we should enforce the final 
rule immediately. We are delaying the effective date of the January 5, 
2017, final rule to July 1, 2019, because the delay will allow HHS to 
consider additional rulemaking. The final rule does not represent the 
only method for HHS to address manufacturer overcharges. In addition to 
the final rule, HHS performs audits of manufacturers, investigates all 
allegations of overcharging, and participates in settlements that have 
returned millions of dollars to covered entities. HHS believes that it 
would be disruptive to require stakeholders to make potentially costly 
changes to pricing systems and business procedures to comply with a 
rule that is under further consideration and for which substantive 
questions have been raised.
    While stakeholders had the opportunity to provide comments on the 
final rule, the 340B Program is a complex program that is affected by 
changes in other areas of health care. HHS has determined that this 
complexity and changing environment warrants further review of the 
final rule and delaying the final rule affords HHS the opportunity to 
consider alternative and supplemental regulatory provisions and to 
allow for sufficient time for any additional rulemaking.
    Comment: The commenters also disagreed that ``a more deliberative 
process is needed'' as HHS has already spent 8 years considering and 
responding to multiple delays and stakeholders were given various 
opportunities to comment. HHS has not complied with the statutory 
deadline to promulgate the regulation and any further delay is 
unreasonable and violates the Administrative Procedure Act. Rather than 
implement the CMP Rule, HHS would reward those manufacturers that are 
flouting ceiling price requirements. Comments assert that the final 
rule would give HHS an effective penalty to impose on manufacturers 
that overcharge covered entities and to deter other manufacturers from 
doing so. In addition, commenters contend that HHS does not have 
authority to replace Congress' judgment with its own and ignore the 
requirements of the law. They urge HHS to immediately implement the 
January 5, 2017, final rule.
    Response: HHS believes it would be counterproductive to effectuate 
the final rule prior to consideration of additional or alternative 
rulemaking as HHS is in the process of developing new comprehensive 
policies to address the rising costs of prescription drugs not limited 
to the 340B Program. As such, HHS is delaying the effective date of the 
January 5, 2017, final rule until July 1, 2019. In addition, HHS 
believes this delay will not adversely impact covered entities and will 
instead save the healthcare sector compliance costs, as discussed in 
the January 5, 2017, final rule. Therefore, the rule is being delayed 
to July 1, 2019.
    Comment: Some commenters supported HHS's proposed delay of the 
effective date of the final rule until not only July 1, 2019, but until 
HHS fulfills its commitment to engage in additional

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rulemaking that cures the substantive legal and practical concerns with 
the final rule. These commenters recommend that HRSA tie the further 
delay of the effective date of the final rule to the completion of such 
rulemaking, as opposed to a certain date.
    Response: HHS decided to delay the effective date to July 1, 2019, 
to provide affected parties sufficient time to make needed changes to 
facilitate compliance and because HHS continues to examine important 
substantive issues arising from the January 5, 2017, final rule. After 
reviewing the comments received from stakeholders regarding objections 
on the timing of the effective date and challenges associated with 
complying with the final rule, HHS has determined that delaying the 
effective date to July 1, 2019, is necessary to consider some of the 
issues raised. HHS believes that delaying the effective date to July 1, 
2019, provides sufficient time to address these issues in junction with 
HHS's stated intention to consider undertaking additional or 
alternative rulemaking on these issues.
    Comment: Some commenters stated that the January 5, 2017, final 
rule contains several policies that are inconsistent with the 340B 
statute and imposes unnecessary costs and needless administrative 
burdens on manufacturers. They believe that manufacturers should not be 
required to make updates to their systems, policies, and business 
practices to comply with the January 5, 2017, final rule if further 
changes or additional rulemaking will be forthcoming. These commenters 
urge HHS to delay the effective date to July 1, 2019, and use the 
additional time to reconsider the policies included in the final rule.
    Responses: HHS intends to engage in further rulemaking and believes 
that this delay will provide HHS with time to consider the public 
comments received. Requiring manufacturers to make targeted and 
potentially costly changes to pricing systems and business procedures 
to comply with a rule that is under further consideration would be 
disruptive. Therefore, HHS is delaying the January 5, 2017, final rule 
to July 1, 2019.
    Comment: Several commenters explained that a delay in the effective 
date of the final rule is also necessary to align with the 
Administration's priorities of analyzing final, but not yet effective 
regulations, and removing or minimizing unwarranted economic and 
regulatory burdens related to the Affordable Care Act, the law that 
added the provisions of the 340B statute that are the subject of the 
final rule.
    Response: HHS agrees with the commenters. Executive Order 13765 
instructs agencies to use discretion to delay the implementation of 
certain provisions of the Patient Protection and Affordable Care Act. 
As previously mentioned, HHS based the January 5, 2017, final rule on 
changes made to the 340B Program by the Patient Protection and 
Affordable Care Act. As such, HHS is complying with Executive Order 
13765 to delay implementation on provisions of the law that ``. . . 
impose a fiscal burden on any State or a cost, fee, tax, penalty, or 
regulatory burden on individuals, families, healthcare providers, 
health insurers, patients, recipients of healthcare services, 
purchasers of health insurance, or makers of medical devices, products, 
or medications.'' The policies finalized in the January 5, 2017, final 
rule will require targeted and potentially costly changes to pricing 
systems and business procedures for manufacturers affected by the rule. 
Thus, HHS is delaying the effective date to July 1, 2019.
    Comment: Some commenters recommend that HHS delay the effective 
date of the final rule until HHS concurrently addresses 340B covered 
entity compliance obligations and penalties under the 340B statute, 
which is necessary to strengthen the integrity of the 340B Program.
    Response: HHS plans to issue separate policy documents related to 
drug pricing in government programs, including the 340B Program, and 
disagrees with the commenters advising HHS to address these issues 
concurrently.
    Comment: Many commenters supported further delaying the effective 
date to July 1, 2019, at a minimum, and urged HHS to take the 
opportunity to refocus the 340B Program on its mission, and issue new 
reforms and new ceiling price and CMP rule as expeditiously as 
possible.
    Response: HHS agrees with the commenters and will delay the 
effective date of the January 5, 2017, final rule to July 1, 2019.

III. Regulatory Impact Analysis

    HHS examined the effects of this final 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 (Pub. L. 96-
354, September 19, 1980), the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), 
the Congressional Review Act, and Executive Order 13771 on Reducing 
Regulation and Controlling Regulatory Costs (January 30, 2017).

Executive Orders 12866, 13563 and 13771

    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, of harmonizing rules, and 
of 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 1 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 (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in any 1 year), and a ``significant'' regulatory action 
is subject to review by the Office of Management and Budget (OMB).
    This final rule will not have economic impacts of $100 million or 
more in any 1 year, and, therefore, has not been designated an 
``economically significant'' rule under section 3(f)(1) of Executive 
Order 12866. The 340B Program as a whole creates significant savings 
for entities purchasing drugs through the program; however, this final 
rule would not have an economically significant impact on the Program.
    When the 2017 Rule was finalized, it was described as not 
economically significant. Therefore, delay of the effective date of the 
2017 Rule is also

[[Page 25947]]

not likely to have an economically significant impact.
    Specifically, the RIA for the 2017 Rule stated that, ``[. . .] 
manufacturers are required to ensure they do not overcharge covered 
entities, and a civil monetary penalty could result from overcharging 
if it met the standards in this final rule. HHS envisions using these 
penalties in rare situations. Since the Program's inception, issues 
related to overcharges have been resolved between a manufacturer and a 
covered entity and any issues have generally been due to technical 
errors in the calculation. For the penalties to be used as defined in 
the statute and in this [2017] rule, the manufacturer overcharge would 
have to be the result of a knowing and intentional act. Based on 
anecdotal information received from covered entities, HHS anticipates 
that this would occur very rarely if at all.'' Since the civil 
penalties envisioned in the 2017 Rule were expected to be rare, delay 
of these civil penalties is unlikely to have an economically 
significant impact.
    Additionally, the 2017 Rule codified the practice of manufacturers 
charging $0.01 for drugs with a ceiling price below $0.01, which the 
2017 Rule RIA described as ``[. . .] a long-standing HRSA policy, and 
HRSA believes the majority of manufacturers currently follow the 
practice of charging $0.01.'' Delay of this rule will delay the 
codification of this practice, but since it is already a longstanding 
policy and widespread practice, the impact of delay is not likely to be 
economically significant.
    Executive Order 13771, titled ``Reducing Regulation and Controlling 
Regulatory Costs,'' was issued on January 30, 2017. This rule is not 
subject to the requirements of E.O. 13771 because this rule results in 
no more than de minimis costs.

The Regulatory Flexibility Act (RFA)

    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, the Secretary 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.
    For purposes of the RFA, HHS considers all health care providers to 
be small entities either by meeting the Small Business Administration 
(SBA) size standard for a small business, or by 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 January 1, 2018, over 12,800 covered 
entities participate in the 340B Program, which represent safety-net 
health care providers across the country.
    In addition, the 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 rule on the industry as a whole, the data necessary to 
project changes for specific 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. HHS has determined, and the Secretary certifies that this 
final rule will not have a significant impact on the operations of a 
substantial number of small manufacturers; therefore, we are not 
preparing an analysis of impact for this RFA. HHS estimates that the 
economic impact on small entities and small manufacturers will be 
minimal.

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 2017, that threshold is approximately 
$148 million. HHS does not expect this rule to exceed the threshold.

Executive Order 13132--Federalism

    HHS has reviewed this final rule in accordance with Executive Order 
13132 regarding federalism, and has determined that it does not have 
``federalism implications.'' This final 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.''

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 final rule is 
projected to have no impact on current reporting and recordkeeping 
burden for manufacturers under the 340B Program. This final rule would 
result in no new reporting burdens.

    Dated: May 30, 2018.
George Sigounas
Administrator, Health Resources and Services Administration.
    Approved: May 31, 2018.
Alex M. Azar II
Secretary, Department of Health and Human Services.
[FR Doc. 2018-12103 Filed 6-1-18; 11:15 am]
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