Recent 340B Reform Legislation and Its Implications for States

1. Recent 340B Reform Legislation and Its Implications for States Bill von Oehsen President and General Counsel Safety Net Hospitals for Pharmaceutical Access National Legislative Association on Prescription Drug Prices Washington, DC January 21, 2011

2. Overview • 340B background • Affordable Care Act • Partnership arrangements • Implications of health reform • 340B contract pharmacies • Medicaid opportunities • Opportunities for prisons, mental health, ADAPs, etc. • Definition of patient • Pharmacy delivery models • State 340B legislation • Upcoming events Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

3. 340B Background • 340B drug discount program requires pharmaceutical manufacturers participating in the Medicaid program to provide discounts on covered outpatient drugs purchased by federally-funded clinics and other safety net providers referred to as “covered entities” • The rights and obligations of both covered entities and drug manufacturers are set forth in section 340B of the Public Health Service Act • Section 1927 of the Social Security Act requires manufacturers to enter into a pharmaceutical pricing agreements (PPA) with the Secretary of HHS as a condition of Medicaid covering and paying for the companies’ outpatient drugs; under the PPA, a manufacturer agrees to provide discounts and otherwise comply with 340B requirements Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

4. 340B Background (cont’d) • Covered entities include high Medicaid disproportionate share hospitals owned by or under contract with state or local government; community health centers; ADAPs; family planning clinics; AIDS, TB and STD clinics; and other grantees under the Public Health Service Act (PHSA) • Discounts are calculated using the Medicaid rebate formula; but 340B pricing is better because (1) sales do not involve retail pharmacies thereby avoiding retail mark-ups and (2) 340B providers regularly negotiate sub-ceiling prices • Use of drugs limited to “patients” of 340B covered entity • Medicaid billing procedures may need to be adjusted to avoid manufacturers giving duplicate discounts Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

5. 340B Price Comparisons Private Sector Pricing “Best Price” 63% 42% Source: Data derived from Prices for Brand-Name Drugs Under Selected Federal Programs, Congressional Budget Office (June 2005) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

6. Affordable Care Act: Victories for 340B Providers • Program expanded to three categories of rural hospitals: critical access hospitals, sole community hospitals and rural referral centers • Expanded to cancer and children’s hospitals • Increase in 340B discount • Exemption of 340B drugs from expansion of Medicaid rebate program to managed care drugs • Tougher enforcement of drug industry • Improved price verification methods • Mandatory inclusion of covered entities in health exchanges Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

7. Affordable Care Act: 340B Setbacks • Extension of the program to inpatient drugs was stripped out of the legislation • Exclusion of “orphan drugs” with respect to the newly eligible hospitals • Orphan drugs are designated by the Food and Drug Administration for use in treating rare diseases or conditions • Between 500 and 600 drugs are excluded under this new exemption, many of which are very expensive and used for other conditions than rare diseases • GAO study to examine whether program is hindering access, is being used consistent with program objectives and is needed if more Americans are insured as a result of health reform Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

8. Partnership Arrangements: Concept • States and local governments pay significantly higher prices than 340B providers for outpatient drugs, so if government-funded populations (e.g. Medicaid, prisoners, mental health, indigent, nursing home) become “patients” of the 340B covered entity, pharmaceuticals for those patients can be billed to states at lower prices Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

9. Implications of Health Reform for 340B Partnerships • 340B partnership arrangements should be even more attractive to states as a result of the Affordable Care Act (ACA) • there are more covered entities with which to partner • the discounts are deeper • Health exchanges can use partnerships to lower drug costs • Expansion of the 340B contract pharmacy program allows partnerships to capture more patients, more drugs and more savings Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

10. 340B Contract Pharmacy Arrangements • Covered entities are permitted to contract with retail community pharmacies through which they can dispense 340B drugs • Using a “ship to/bill to” arrangement, the drugs are purchased by the covered entity but delivered to the contract pharmacy • The contract pharmacy typically also serves as the billing agent for the 340B provider • The revenue collected by the contract pharmacy belongs to the 340B provider, not the pharmacy Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

11. 340B Contract Pharmacy Arrangements (cont’d) • Until last year, covered entities were limited to one contract pharmacy per entity site and only if that site lacked an in-house pharmacy • Because patients have the freedom to choose where they fill their prescriptions, this limitation resulted in covered entities being able to use a contract pharmacy to capture only a small percent of their outpatient prescription drug business • Under new guidelines, entities can significantly increase their capture rate since they can contract with many more pharmacies in their service area Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

12. 340B Partnership Examples Medicaid: North Carolina, Pennsylvania, Massachusetts, Utah Corrections: UTMB, Truman, Jackson Memorial, VCU, Arrowhead Mental health: UTMB, Arrowhead, Santa Clara HIV/AIDS: Oregon Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

13. 340B Partnership Opportunities:Medicaid • 340B program reduces Medicaid reimbursement for outpatient drugs because 340B providers are required to bill Medicaid substantially below state reimbursement rates for pharmacy-dispensed drugs • The Medicaid and CHIP Payment and Access Commission (MACPAC) – which advises Congress on Medicaid access and payment issues – recently endorsed the 340B partnership concept Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

14. 340B Partnership Opportunities:Medicaid (cont’d) • Several strategies available to states • Encourage eligible entities to enroll • Encourage broader use of 340B drugs through multiple contract pharmacy arrangements • Promote disease management programs involving 340B providers and their pharmacies • Partnerships must seek a “win-win” for states and 340B providers Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

15. Successful 340B/Medicaid Partnerships • Utah Medicaid program has a sole source contract with a 340B hospital for providing factor products and case management services to hemophilia population statewide • The parties are exploring expansion of program to other disease groups • Massachusetts, Florida, West Virginia, Louisiana, Oregon and other states pay an enhanced dispensing fee to covered entities • Pennsylvania Medicaid managed care organization has contracted with a community health center to manage a high-cost chronically ill enrollee population and to provide pharmacy services at lower prices Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

16. Problematic 340B/Medicaid Partnerships • California passed legislation last year requiring covered entities to buy all their Medi-Cal drugs through 340B and to bill such drugs at actual acquisition cost • no enhanced dispensing fee or other shared savings mechanism • most children’s hospitals have not enrolled in 340B because of the anticipated loss of Medi-Cal revenue • Arizona issued an RFP seeking to outsource to 340B pharmacies the delivery of specialty drugs to state-contracted health plans – the pharmacies would be required to bill at their 340B costs and the state would pay lower capitation rates to the plans Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

17. 340B Partnership Opportunities:Extension to Prisons, Mental Health, etc. • States and counties may contract with 340B providers to provide health care services, including pharmacy services, to correctional populations • Prisoners must be “patients” of the 340B provider to be eligible to receive discounted drugs • Texas implemented this approach as a result of legislation passed in 2001 (S.B. 347) • This partnership strategy is being pursued by state and local governments for prisoners, mental health patients, long term care residents and other government-funded populations Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

18. 340B Partnership Opportunities:ADAPs • AIDS drug assistance programs (ADAPs) are eligible to participate in the 340B program as either a direct purchaser of discounted drugs or by receiving rebates from manufacturers (similar to Medicaid drug rebate program) • Direct purchase ADAPs receive better pricing – about 15-20 percent better – than rebate model ADAPs • With new opportunity to contract with multiple contract pharmacies, direct purchase ADAPs can have the same large pharmacy networks as rebate model ADAPs and create new state savings Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

19. Implementation Two challenges: • The target population must be “patients” of the covered entity within the meaning of the 340B patient definition guidelines • The covered entity must purchase the discounted drugs and provide them to the target population through an in-house pharmacy and/or one or more contract pharmacies Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

20. Patient Definition: Requirements • “A covered entity shall not resell or otherwise transfer the [340B-discounted] drug to a person who is not a patient of the entity.” PHSA 340B(a)(5)(B) • HRSA has established a test for evaluating whether an individual falls within the definition of a “patient.” 61 Fed. Reg. 55,156 (10/24/96) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

21. HRSA’s Patient Definition Test 1) The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s health care; and 2) The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and 3) The individual receives a range of healthcare services which are consistent with the services for which grant funding or FQHC look-a-like status has been provided to the covered entity. Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

22. Patient Definition: Proposed Restrictions • HRSA in 2007 proposed significant restrictions to the patient definition test • Requirement that covered entities “own, possess, and control” records of healthcare services • A more stringent professional care requirement • A more limiting test of when a covered entity can use the 340B program to fill prescriptions written by outside providers Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

23. Partnership Options • Satellite model – establish covered entity site at partner facility • Visiting professional model – provide on-site professional care at partner facility • Follow-up care model – limit dispensing to covered entity visits and follow-up care Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

24. Pharmacy Delivery Models • 340B providers can use (1) in-house pharmacies, (2) mail order program and/or (3) contracted retail pharmacies to deliver 340B-discounted drugs to eligible patients • Option to contract with multiple outside pharmacies is particularly helpful in increasing patient access to 340B pharmacy services for rural hospitals, especially those lacking outpatient pharmacies • By including community pharmacies in the program, it reduces the perceived threat that 340B program harms retail pharmacy business Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

25. State 340B Legislation • Examples: • fund 340B pharmacy services • encourage or expand use of 340B program • systematically evaluate 340B opportunities • provide loans to FQHCs for pharmacies, etc. • Model legislation at www.progressivestates.org/sync/pdfs/MultiStateAgendaSiteDocuments/RxCostsModelLegislation2010 Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

26. Recent 340B Legislation • Vermont H. 792 (enacted 2010) • Supporting state collaboration with community health centers, critical access hospitals and sole community hospitals to care for individuals with disabilities, mental health needs and substance abuse issues • Supporting 340B participation for newly eligible hospitals • Connecticut H.B. 5545 (enacted 2010) • Requiring community health centers participating in state general assistance program to enroll in 340B and provide pharmacy services via in-house or contract pharmacies • Kansas S.B. 572 (enacted 2010) • Subsidizing the cost of pharmaceuticals purchased by community health centers through 340B and dispensed to low income patients using sliding scales Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

27. Upcoming Events 7th Annual 340B Coalition Winter Conference Co-hosted by Apexus February 9-11, 2011 San Diego, CA www.340bwinterconference.org Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

28. Upcoming Events (cont’d) 15th Annual 340B Coalition Conference July 11-13, 2011 Omni Shoreham Hotel Washington, D.C. www.340bconferences.org SNHPA Lobby Day July 14, 2011 Contact Jeff Davis at Jeff.davis@snhpa.org or (202) 552-5867 Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

29. SNHPA Resources SNHPA 1501 M Street, NW, 7th Floor Washington, DC 20005 Phone: 202-552-5850 Fax: 202-552-5868www.snhpa.org SNHPA Newsletter Drug Discount Monitor www.drugdiscountmonitor.com (free for members) Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org

30. Bill von Oehsen President/General Counsel (202) 872-6765 william.vonoehsen@ snhpa.org Ted Slafsky Executive Director (202) 552-5860 ted.slafsky@snhpa.org Rita Baskett Director, Pharmacy and Educational Services (202) 552-5857 rita.baskett@snhpa.org Anna Mangum Director, Programs and Membership (202) 552-5863 Anna.mangum@snhpa.org SNHPA Contacts Safety Net Hospitals for Pharmaceutical Access Bill von Oehsen (202) 466-6550 william.vonoehsen@snhpa.org