On June 17, 2015, the Health Resources and Services Administration (HRSA) published a Proposed Rule revising regulations governing the 340B Drug Pricing Program (340B Program) found in 42 C.F.R. Part 10. The Proposed Rule applies to all drug manufacturers that are required to make their drugs available to covered entities under the 340B Program. Notably, it sets forth the calculation of the ceiling price and application of civil monetary penalties. The Proposed Rule does not address concerns that have been expressed by manufacturers about the recent expansion of entities able to be covered entities and the expansion of pharmacy outlets serving those patients. These revisions may indicate HRSA’s interest in more stringent compliance by manufacturers of drugs that are eligible for 340B Program pricing. Comments to the Proposed Rule are due August 17, 2015.


The Proposed Rule provides that a manufacturer must calculate the ceiling price for all of its covered outpatient drugs on a quarterly basis. The ceiling price is calculated by subtracting the unit rebate amount (URA) from the average manufacturer price (AMP) for the smallest unit of measure and will be calculated using six decimal places. The number is then multiplied by the drug’s package size and case package.


To address the situation where the URA equals the AMP, resulting in a $0.00 per unit of measure 340B ceiling price, HRSA proposes that a manufacturer charge $0.01 per unit of measure for a drug with a ceiling price below $0.01. For those 340B drugs whose calculated price is less than $0.01, the effective ceiling price will be $0.01 per unit of measure. Prices for 340B products must be based on the immediately preceding calendar quarter pricing data.


The Proposed Rule would codify guidelines published by the Department of Health and Human Services (HHS) in 1995 that described ceiling price calculations for new drugs (60 F.R. 51488 (October 2, 1995)). It would require a manufacturer to continue estimating the 340B ceiling price for the first three quarters a new covered outpatient drug is available for sale. The manufacturer must refund or credit covered entities that purchased the covered outpatient drug above the calculated 340B ceiling price no later than the end of the fourth quarter after the drug is available for sale.


The Proposed Rule would establish civil monetary penalties for drug manufacturers that overcharge safety-net providers under the 340B Program. It sets forth that any manufacturer with a pharmaceutical pricing agreement that knowingly and intentionally charges a covered entity more than the ceiling price for a covered outpatient drug may be subject to a civil monetary penalty not to exceed $5,000 for each instance of overcharging. The HHS Office of Inspector General (OIG) will have the authority to bring 340B CMP actions utilizing standards under 42 C.F.R. Parts 1003 and 1005. An instance of overcharging is any order for a certain covered outpatient drug, by the National Drug Code (NDC), which results in a covered entity paying more than the ceiling price for a covered outpatient drug. Each order for an NDC will constitute a single instance, regardless of the number of units of each NDC in that order. A manufacturer’s failure to provide the 340B ceiling price is not considered an instance of overcharging when a covered entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase. The Proposed Rule applies solely to manufacturers, despite the role other parties, such as wholesalers, serve in ensuring the covered entity receives a 340B drug at or below the ceiling price. Failure of a manufacturer to ensure that covered entities receive the appropriate 340B discount through its distribution arrangement may be grounds for civil monetary penalties under the regulation.


The United States District Court for the District of Columbia recently vacated the 340B Program Regulations related to Orphan Drugs, found at 42 C.F.R. Part 10. PhRMA v. HHS, No. 13-01501 (D.D.C. May 23, 2014). Accordingly, the Proposed Rule would delete 42 C.F.R. §10.21 in its entirety (“Exclusion of orphan drugs for certain covered entities”) as well as 42 C.F.R. §10.20 (“Drugs eligible for purchase under 340B”). The Proposed Rule did not provide related commentary; however, we may see references to orphan drugs in HRSA’s “Mega Guidance” expected later this year.

HRSA is actively soliciting comments on the proposed changes to the 340B Program. For more information, please contact the authors of this post, or your regular Crowell & Moring contact.