House and Senate Bills Call For 340B Reform · House and Senate Bills Call For 340B Reform ... Affordability Act,” the bill is the first piece of legislation introduced in Congress

House and Senate Bills Call For 340B Reform Proposed Legislation Addresses Inpatient Discounts and Program Integrity IN THIS ISSUE

HRSA and CMS Nearing an Agreement on 340B Ceiling Price Calculations

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HRSA To Release New Guidance on Patient Definition and Contract Pharmacies

3

Some Manufacturers Wary of New Medicare Guidance on PAPs

4

OPA Launches New Databases and Begins Verifying Entity Eligibility

6

OIG Finds Weaknesses in State Medicaid Drug Rebate Programs

9

CMS Releases Estimates of Medicare Rx Low-Income Subsidies

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Subscription Information 12

Volume 2, no. 8 August 2005

As Congress drew its summer session to a close in late July, three bills were intro-duced on the House and Senate floors calling for significant changes to the 340B program including measures that would extend the 340B program to include inpatient drugs, expand the program to include new entities, address program oversight and transparency, and allow covered entities to partner with multiple contract pharmacies.

The bills—H.R. 3547, S. 1563, and S. 4—were all introduced within the last two days of the summer session, and were re-ferred to their appropriate committees before the session was closed. Introduced by a bipartisan group of law-makers led by Rep. Jo Ann Emerson (R-MO) and Rep. Bobby Rush (D-IL), H.R. 3547 calls for an extension of the 340B pro-

gram to include inpatient drugs purchased by participating hospitals and proposes that small rural institutions known as “critical access hospitals” be included as covered enti-ties under the program. Entitled the “Safety Net Inpatient Drug Affordability Act,” the bill is the first piece of legislation introduced in Congress this year that would require manufacturers that participate in Medicaid to offer 340B inpa-

tient discounts to the disproportionate share hospitals (DSH) in the program. Currently, the 340B program only guar-antees discounted pricing on the outpatient side, though manufacturers are permitted to offer discounted inpatient pricing to 340B hospitals on a voluntary basis without im-pacting the prices they are obligated to pro-

COPYRIGHT 2005 BY POWERS, PYLES, SUTTER & VERVILLE, P.C. ALL RIGHTS RESERVED. This newsletter is protected by U.S. Copyright Law. Reproduction, photocopying, storage, transmission or any other sharing with any unauthorized third party of any portion of this newsletter by any means (including electronic redistribution) is strictly prohibited, except with the prior written permission of Powers, Pyles, Sutter & Verville, P.C. and payment of any applicable licensing fee. Violation of copyright may result in legal action, including civil and/or criminal penalties and immediate suspension or revocation of subscription services without refund. Those desiring authorization to copy or use any portion of this newsletter should contact Jared Bloom at [email protected] or (202) 349-4244 for further details.

The Inside Source on the Public Health Service 340B Drug Discount Program

continued on pg. 5 (click here)

Key 340B Measures Introduced in Congress H.R. 3547 - “Safety Net Inpatient Drug Affordability Act” Would extend 340B discounts to inpatient drugs and expand the program to include critical access hospitals

S. 1563 (Sec. 302) - “ABCs of Children’s Health Care Act” Calls for the expansion of the program to include children’s hospitals

S. 4 (Sec. 332) - “Healthy America Act of 2005” Addresses program oversight and multiple contract pharmacy arrangements

After close to a year during which the Office of Pharmacy Affairs (OPA) was not able to accurately verify 340B pricing, the Health Resources and Ser-vices Administration (HRSA) is close to reaching an agreement with the Centers for Medicare and Medicaid Services (CMS) that will once again make it pos-sible for OPA to verify ceiling prices. In addition, the interagency agreement would make OPA responsible for calcu-lating the prices for the first time. The new agreement, which is “in its final throes” according to OPA Director Jim Mitchell, is currently being re-viewed by the two agencies. Once the contract has been completed and ap-proved, it will be signed by both HRSA and CMS and applied to fiscal year 2006, which begins on October 1 and ends on September 30 of next year. Mitchell says that the contract will allow his office to begin calculating 340B ceiling prices as soon as the agree-ment goes into effect. Under past agreements, CMS was responsible for calculating ceiling prices and providing them to OPA. However, since an agreement was never reached for fiscal year 2005—beginning on Oc-tober 1, 2004—OPA has not had access to this information since that time. As a result, Mitchell’s agency has been unable to verify pricing for cov-

ered entities that are concerned about potential overcharges by manufacturers in the program. “We have not done any of that this year,” Mitchell says. “This agreement will allow us to respond to groups repre-senting [340B entities] that want to know if the prices they are receiving are above or below the ceiling price. It will give us the tools to start validating pric-ing again.” The development of the agreement was discussed at the 340B Coalition Conference in Washington, DC on July 11 by both Mitchell and CMS Medicaid Policy Analyst Marge Watchorn during a session on enforcement of the 340B statute. Citing efforts by the US Department of Health and Human Services Office of Inspector General (OIG) to verify 340B pricing, Watchorn wondered aloud whether it was appropriate for CMS “to be calculating a ceiling price on behalf of another agency,” adding that OPA staff was better suited to calculate the ceiling prices because they are responsi-ble for administering the program. The data that will be provided to OPA under the agreement are the Aver-age Manufacturer Price (AMP) and the Medicaid unit rebate amount for 340B covered outpatient drugs. In order to perform the calculations,

The Monitor Managing Editor Jared Bloom Supervising Editors Ted Slafsky William von Oehsen

HRSA and CMS Nearing an Agreement on 340B Ceiling Price Calculations

Page 2

COPYRIGHT 2005 BY POWERS, PYLES, SUTTER & VERVILLE, P.C. ALL RIGHTS RESERVED. Unauthorized photocopying is prohibited by law. See page one.

OPA will also contract with a third party to provide package size data. The iden-tity of the third party contractor has not yet been disclosed. “From that information, using the [340B pricing] formula, we will begin computing ceiling prices and we will validate that information through vari-ous mechanisms,” says Mitchell. Under the agreement, OPA staff will be responsible for maintaining the pric-ing files and following up with industry to investigate potential overcharges. The system that the agency will use for cal-culating these prices is currently being designed by a systems development contractor. The need for such an agreement was highlighted last year when OIG with-drew its June 2004 report on the appro-priateness of 340B pricing (The Moni-tor, November 2004). According to a letter written by HHS Inspector General Daniel Levinson, one of the reasons for the withdrawal was that CMS had pro-vided OIG with data from the inappro-priate time period, thus compromising the results of their analysis. The June report also highlighted the deficiencies in the administration of the program. For instance, the report stated that OPA lacks sufficient data against which to verify manufacturers’ calcula-tions of 340B ceiling prices.

The Federal Drug Discount and Compliance Monitor is a national monthly newsletter that covers the legal and political issues surrounding the Public Health Service 340B drug discount program and other developments in federal drug pricing law and policy. The Monitor also updates subscribers on breaking news stories through e-mail alerts. The Monitor is published by the Public Hospital Pharmacy Coalition, a non-profit organization that represents approximately 300 340B hospitals, and the law firm of Powers, Pyles, Sutter and Verville.

Federal Drug Discount and Compliance Monitor

1875 Eye St., NW, 12th Floor Washington, DC 20006 Phone: (202) 349-4244

Fax: (202) 785-1756 www.drugdiscountmonitor.com

For information on The Monitor, including advertising opportunities, contact Jared Bloom at [email protected] or (202) 349-4244.

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The Health Resources and Services Administration (HRSA) has been given a green light by the US Department of Health and Human Services (HHS) to publish new guidance on key issues in the 340B program including the pro-gram’s definition of “patient” and the use of multiple contract pharmacies, according to Office of Pharmacy Affairs (OPA) Director Jim Mitchell. The guidance, which are now being drafted, will first be published in a Fed-eral Register notice and made available for public comment. It will then be evaluated once again by HHS before it is submitted as final regulations. While he is unable to speculate about when the notices will be released, Mitchell insists that they are among the “highest priorities in my office” and that providing more concrete guidance on the patient definition is of particular importance to HHS. The question of how to define a cov-ered entity patient received a great deal of attention at the 340B Coalition Con-ference in Washington, DC from July 11-13. The 340B patient definition is significant because 340B entities are only permitted to distribute drugs pur-chased through the program to individu-als who are “patients” of their entity. According to a Federal Register notice released on October 24, 1996, an individual is a patient of a 340B entity only if: (a) the entity has a relationship with the patient such that the entity maintains records of the individual’s health care, (b) the individual receives care from either an employee of the en-tity or someone who “provides health care under contractual or other arrange-ments,” such that the responsibility for care remains with the covered entity, and (c) the individual receives care that is consistent with the range of services for which the entity receives federal grants. (The third test does not apply to disproportionate share hospitals.) “An individual will not be consid-ered a patient...if the only health care service received by the individual from

the covered entity is the dispensing of a drug or drugs,” the notice states. Mitchell says that this definition has “served us well over the years,” though he acknowledges that there are a number of ambiguities in the definition that should be addressed with more detailed guidance from HHS. Specifically, HRSA hopes to tighten the definition to “remove any grey areas” and ensure that entities have a clear idea of what is per-mitted under the law. “The [340B] model is being pushed in a number of areas,” says Mitchell. “There are questions out there about whether some models exceed the intent of the definition. We want to help enti-ties make better decisions about who constitutes a patient and under what circumstances.”

The ambiguities in the patient defini-tion have led some covered entity groups to operate based on their inter-pretations of the guidelines. For in-stance, the Public Hospital Pharmacy Coalition (PHPC)—an organization that represents approximately 300 hospitals that participate in the program—recently released a set of principles that the Coa-lition uses to guide its members on how to apply the patient definition and pre-vent diversion to non-patients. On August 3, PHPC sent a letter to HRSA Administrator Elizabeth Duke to make the agency aware of its principles and to request that the patient definition be clarified. Among other things, the letter states that the 340B guidelines are unclear on how to determine when a prescription

written by a non-hospital physician may be filled under the 340B program. To correct this ambiguity, PHPC recommends that HRSA amend the pa-tient definition to allow 340B hospitals to fill such prescriptions if: (1) the hos-pital has been involved in the continuum of care related to the condition being treated by the non-hospital prescriber, (2) the services provided by the hospital is reimbursable on the hospital’s cost report, and (3) the prescription is filled within a year of the patient receiving care from the hospital. Mitchell says that HRSA will con-sider PHPC’s comments as his office drafts guidance on this matter. The second issue that OPA plans to address with more detailed guidance is the current prohibition against the use of multiple contract pharmacies by covered entities that do not operate their own outpatient pharmacies. Currently, these entities are permit-ted to contract with an outside pharmacy to dispense outpatient drugs to their pa-tients. However, the guidelines currently state that these entities may only con-tract with one such pharmacy site. According to Mitchell, the original purpose of this rule was to limit the pos-sibility that these drugs would be di-verted to non-patients that also use the contracted pharmacy. However, Mitchell says that OPA’s recent experience with the Alternative Methods Demonstrations Project pro-gram—under which a number of entities have received approval from OPA to operate multiple contract pharmacy ar-rangements—has provided the agency with evidence that these arrangements can be operated effectively while still protecting against the diversion of 340B drugs to non-patients. “We have seen no examples of any-thing other than pristine control of dis-tribution systems,” says Mitchell, add-ing that his agency is convinced that all pharmacies have the tools to ensure that diversion does not occur.

HRSA to Release New Guidance on Patient Definition and Contract Pharmacies

August 2005

“There are questions out there about whether some models exceed the in-tent of the [patient] definition. We

want to help entities make better deci-sions about who constitutes a patient

and under what circumstances.”

Jim Mitchell Office of Pharmacy Affairs


Page 4

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Some Manufacturers Wary of New Medicare Guidance on PAPs

As both providers and manufacturers prepare for the launch of the Medicare Part D drug benefit on January 1, ques-tions still remain about the future of manufacturer-sponsored patient assis-tance programs (PAP) and their role in providing financial assistance to low-income and uninsured patients. As reported in The Monitor last month, the Centers for Medicare and Medicaid Services (CMS) released guid-ance on July 1 that limits the role that product-donation PAPs—whereby manufacturers offer free drugs to pa-tients rather than cash assistance—can play in assisting Medicare patients to accumulate true out-of-pocket expenses (TrOOP) and begin receiving Medicare Part D “catastrophic coverage.” (see The Monitor, July 2005). CMS’s guidance can be found on the agency’s website at: http://www.cms.hhs.gov/pdps/cob.asp. The guidance states that manufactur-ers that donate drugs to Medicare bene-ficiaries through PAPs may only count towards TrOOP the “actual cost” of manufacturing the drug rather than the cost at which the drug is sold in the re-tail market. The notice also encourages manu-facturers that currently operate product-donation PAPs to consider offering cash assistance in the form of a “retail ID card” that beneficiaries could present at the point of service to obtain PAP finan-cial assistance through a co-pay assis-

tance program. These programs would allow the beneficiary to count the entire cash value of the manufacturer’s contri-bution towards TrOOP. Nonetheless, the new guidance could prove to be problematic for manufactur-ers and may lead them to abandon prod-uct-donation PAPs, according to Bill Shearer, a Managing Partner at Franklin Group, Inc., a consulting firm that pro-vides assistance to manufacturers that administer PAPs. Shearer and others are particularly concerned about the potential chilling effect on institutional PAPs (IPAP), which involve the donation of drugs to hospitals, clinics, and other health care institutions to replenish drugs dispensed to patients who qualify for the PAP. According to Shearer, manufacturers may be discouraged from operating such programs in this new regulatory envi-ronment because it would require them to disclose their actual costs of produc-tion, which they consider to be proprie-tary information. Furthermore, if manu-facturer contributions are limited in the manner that is described in the guidance, Shearer says that manufacturers may conclude that their product donations will not be beneficial to patients because they would still be unlikely to reach the catastrophic coverage limit. “[Drug manufacturers] want to help with copays,” he says. “Helping Medi-care be successful is in the best interest

of the manufacturers.” Though he speculates that some manufacturers may opt to donate cash assistance instead of providing free drug products—as suggested in the CMS guidance—Shearer says that most manufacturers would prefer to continue operating their own PAPs. This issue was discussed in detail at the 340B Coalition Conference in Wash-ington, DC on July 13. In addressing a session on PAPs, Vicki Robinson, Chief of the Industry Guidance Branch at the US Department of Health and Human Services Office of Inspector General (OIG), said that manufacturers’ efforts to provide financial assistance to pa-tients can potentially present issues re-lated to fraud and abuse laws and the anti-kickback statute. OIG has existing guidance on Part B premium assistance and has recom-mended that manufacturers use that model for other kinds of patient assis-tance. However, Robinson noted that OIG welcomes the opportunity to ad-dress other issues related to PAPs, in-cluding whether IPAPs should be per-mitted to provide drugs to institutions in cases where Medicare is not billed. “We are considering whether addi-tional guidance is needed and viable,” Robinson said, adding that the agency is seeking “practical and workable solu-tions” to the federal government’s fraud and abuse concerns.


August 2005 Page 5

Republican Leaders Call for More Transparency in 340B Pricing

vide to the entire Medicaid program (For more on the inpatient best price exemption, see The Monitor, July 2004). Also included in H.R. 3547 is a mechanism designed to generate new revenue for the Medicaid program. Ac-cording to the bill, a certain percentage of the inpatient 340B discounts received by hospitals on their Medicaid patients would be passed on to their state Medi-caid agency in the form of an annual rebate. This provision would require hospi-tals to take the 340B prices paid for their Medicaid inpatient drugs and multiply that amount by the standard Medicaid rebate percentages of 15.1% for brand name drugs and 11% for generics. An analysis of the bill performed by the Public Hospital Pharmacy Coalition (PHPC)—an organization that repre-sents approximately 300 DSH hospitals participating in the 340B program—estimates that this provision would save the Medicaid program over $100 million annually. “This bill would not only provide relief to hospital pharmacies that are struggling to provide pharmaceutical care to our most vulnerable patients, it would also significantly reduce costs to Medicaid at a time when Congress is faced with very difficult budget deci-sions,” said Ted Slafsky, PHPC’s Ex-ecutive Director. Aside from the inpatient extension, the bill—which has been endorsed by the American Hospital Association (AHA)—also proposes that Critical Ac-cess Hospitals (CAH) be admitted as “covered entities” under the 340B pro-gram. These hospitals are defined as institutions with 25 beds or less that provide emergency care to patients in remote rural areas. Unlike DSH hospi-tals, which are reimbursed based on Medicare’s prospective payment system, CAHs are reimbursed for the cost of the service they provide and are therefore not currently eligible for 340B pricing.

CAHs are not the only class of pro-viders that has received legislative sup-port recently in their efforts to gain cov-ered entity status under 340B. S. 1563, introduced by Sen. Mike DeWine (R-OH) and Sen. Blanche Lincoln (D-AR) on July 29, calls for the expansion of the 340B program to include children’s hos-pitals as covered entities. The bill, entitled “The ABCs of Children’s Health Care Act of 2005,” is a comprehensive piece of legislation that introduces measures to reform the Medi-caid program so that it better serves chil-dren covered by the program. According to the bill, these hospitals would have to meet the same standards of ownership status as DSH hospitals and provide a significant amount of in-digent care in order to qualify for 340B.

On the same day that S. 1563 was introduced—and just two days before H.R. 3547 was introduced—seven mem-bers of the Senate Republican leadership led by Majority Leader Bill Frist (R-TN) introduced the “Healthy America Act of 2005” (S. 4), a health care bill aimed at slowing the growth of health care costs through a variety of measures, including the introduction of significant changes to the 340B program. Specifically, Sec. 332 of the bill would introduce new oversight measures to the program and allow covered entities to partner with multiple contract pharmacies. One of the most notable 340B provi-sions in the bill would make ceiling price data available to covered entities through a password-protected website. Currently, covered entities are unable to

verify that they are receiving the correct 340B prices for covered outpatient drugs, which has raised questions as to whether entities are being overcharged. A second measure would require the Secretary of the US Department of Health and Human Services (HHS) to develop a system to verify the accuracy of the data published on the Office of Pharmacy Affairs (OPA) database of covered entities. This proposal is a re-sponse to an HHS Office of Inspector General (OIG) report released last year, which found widespread errors in the contact information submitted by 340B entities (see pg. 6). S. 4 would also require the HHS Secretary to (1) develop a third-party auditing system to ensure compliance by both manufacturers and covered entities, (2) issue more detailed guidance on the 340B definition of “patient,” and (3) establish an advisory opinion system to allow stakeholders to submit questions based on specific factual circumstances and receive guidance from OPA. In addition, the bill includes a provi-sion that would eliminate the current prohibition against 340B hospitals using group purchasing organizations (GPO) or other group purchasing arrangements for covered outpatient drugs. Many provisions in the bill, which also promotes the expansion of commu-nity health centers (CHC) and rural health centers (RHC), closely resemble a set of proposals developed by the Sen-ate Republican Task Force on Health Care Costs and the Uninsured—which consisted of Republican members of the Senate Committee on Health, Education, Labor, and Pensions—in May 2004. The Senate bill also includes meas-ures aimed at reforming the medical liability system and expanding access to Health Savings Accounts (HSA). The bill is expected to receive strong support from the Bush administration. However, some provider groups have already shown strong resistance to a number of the bill’s non-340B-related provisions.

“[H.R. 3547] would not only pro-vide relief to hospital pharmacies

that are struggling to provide phar-maceutical care to our most vulner-able patients, it would also signifi-cantly reduce costs to Medicaid .”

Ted Slafsky

PHPC Executive Director

continued from pg. 1

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On August 15, the Office of Phar-macy Affairs (OPA) will officially launch updated versions of the agency’s three online databases, part of a larger effort to improve the integrity of the program and ensure that the agency has an accurate list of participating covered entities. The new databases—which maintain information on covered entities, partici-pating manufacturers, and contract phar-macy arrangements—were first intro-duced on the OPA website on June 29, and have been available for stakeholders to navigate under a “pilot test period” since that time. The updated databases are part of OPA’s response to last year’s finding by the US Department of Health and Hu-man Services Office of Inspector Gen-eral (OIG) that 38% of covered entities in the database were inaccurately la-beled as participating in the program. The new databases will run concurrently with the old databases until they are finalized. The covered entity database includes a number of improvements over its for-mer incarnation including a “related entities” section, which links together associated providers, and more accurate

ship-to bill-to information for entities that participate in contract pharmacy arrangements (The Monitor, April 2005). OPA Public Health Advisor Sharley Chen presented a tutorial on the new databases at the 340B Coalition Confer-ence in Washington, DC on July 11 and stated that the agency plans to release a user manual in the near future.

OPA Director Jim Mitchell says the agency developed the database after soliciting input from sources including the HHS OIG, wholesalers, covered entities, manufacturers, and contractors. OPA is continuing to encourage stakeholders to review the database and provide feedback to the Pharmacy Ser-vices Support Center (PSSC), a govern-ment contractor that provides technical

assistance to 340B covered entities. In a related effort to improve the integrity of the 340B program database, Mitchell says that OPA has dedicated significant resources over the past year to cleaning up the entries in the covered entity database and reviewing the eligi-bility of certain federal grantees cur-rently enrolled in the program. To that end, OPA has been working closely with PSSC and various federal agencies in an effort to comb the data-base for entries that are inappropriately posted due to either administrative er-rors or issues related to their eligibility. “We have removed over 1,000 en-tries that were erroneously in the data-base,” says Mitchell. On the administra-tive level, this effort has required weed-ing through the database to find dupli-cate entries and other kinds of inaccu-rate information. Another obstacle facing OPA is that the agency is currently unable to track address changes for covered entities that relocate. Mitchell says his office plans on implementing systems that will allow OPA to access updated addresses in cases where the entities fail to provide the information on their own.

OPA Launches New Databases and Begins Verifying Entity Eligibility

The Office of Pharmacy Affairs has been work-ing closely with other federal agencies to re-view the eligibility of

covered entities listed in the database.

continued on pg. 10 (click here)

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August 2005

The failure of states to implement adequate procedures for recording and collecting Medicaid drug rebates paid by pharmaceutical manufacturers has led to decreased state revenues and impeded the ability of the Centers for Medicare and Medicaid Services (CMS) to effec-tively monitor the program, according to a recent study conducted by the US De-partment of Health and Human Services Office of Inspector General (OIG). The July 2005 OIG report, entitled “Multistate Review of Medicaid Drug Rebate Programs” (A-06-03-00048), summarizes the results of an OIG audit of 49 states and the District of Columbia with respect to their rebate reporting and collection practices. The Medicaid drug rebate program, established in 1990, requires pharma-ceutical manufacturers to pay rebates to states in exchange for having their drugs covered by the Medicaid program. To collect the rebates, states are required to bill manufacturers based on a unit rebate amount calculated by CMS and then report their rebate information to the federal government. Despite notable improvement since the release of a similar report in 1993, OIG’s new report identifies five prac-tices that contribute to inaccurate rebate reporting and accounting: (1) improper information submitted to CMS, (2) im-proper accounting of interest on late rebates, (3) inadequate rebate collection systems, (4) inadequate dispute resolu-tion processes, and (5) “other significant problems,” including failure to track $0 rebate amounts, inadequate controls over writeoffs and adjustments, and an improper segregation of duties. “As a result [of these weaknesses], States lacked adequate assurance that all drug rebates due to the States were prop-erly recorded and/or collected,” the re-port states. “Additionally, CMS did not have reliable information to properly monitor the drug rebate program.” According to the report, the only states that have implemented safeguards to protect against all of these errors are

Illinois, Maryland, Minnesota, and North Carolina. Arizona, the one state not included in the analysis, does not operate a rebate program because nearly all of the state’s Medicaid beneficiaries are enrolled in managed care plans. The most common weakness exhib-ited by states, according to the report, is their failure to accurately report infor-mation to CMS on the CMS 64.9R form, which requires information on rebate billings, collections, adjustments, and uncollected balances. According to the report, 37 states currently do not provide accurate infor-mation on this form, which means that “CMS cannot provide adequate over-sight of drug rebate collections.”

The most common reporting errors occur because states either do not com-pare their CMS 64.9R forms with more detailed internal records or because they are either unable or unwilling to com-plete all parts of the form, according to the report. There are currently no conse-quences for states that fail to report this information accurately. Another problem identified by OIG is that some states report $0 balances or credit balances on their 64.9R forms, which is highly unlikely because most of these forms are filed before the states receive rebate payments from manufac-turers, the report says. The report recommends that CMS “reemphasize the requirement that states submit accurate and reliable informa-tion” on the form, which was created by CMS in response to OIG’s 1993 report. CMS also was unable to develop a na-tionwide total of uncollected rebates due

to a lack of information from the states, according to the report. In it’s response to the new report, CMS concurred with OIG’s recommen-dation and stated that it is “following up with states toward this end,” and will provide “operational assistance.” A second major flaw identified in the report is that more than half of the states do not verify that manufacturers are billed for interest on rebates that are submitted late. According to the pro-gram statute, manufacturers are required to pay interest on late rebates, even if they plan to dispute the validity of the rebate request. To address this situation, CMS Ad-ministrator Mark McClellan said that his agency is using an updated system to assist states in collecting outstanding rebates while “ensuring manufacturer compliance with the payment provi-sions” of their rebate agreements. The OIG also found that a number of states do not properly track the pay-ments they receive from manufacturers. For instance, 11 states do not have a rebate general ledger control account, which means that they cannot verify that they are collecting all of the rebate reve-nue to which they are entitled. Other potential pitfalls identified in this area include the failure to make rate adjustments to the system and the inabil-ity to track records throughout the his-tory of the program. The need for more accurate and timely reporting of Medicaid rebates by states is a major component of the Medi-caid recommendations recently put forth by the National Association of Chain Drug Stores (NACDS). “Prior federal audits have identified $2.1 billion in uncollected drug rebates and $367 million in uncollected phar-macy reimbursements from third par-ties,” according to the report’s executive summary. The NACDS report, submit-ted on August 10, also calls for the in-creased use of generic drugs, enhance-ment of state preferred drug lists, and Medicaid reimbursement reform.

OIG Finds Weaknesses in State Medicaid Drug Rebate Programs

The report identifies five areas where states

have shown weaknesses in reporting and collect-ing rebates from drug

manufacturers.

Page 10


OPA Taking a Closer Look at Covered Entities’ “Scope of Grant”

According to Mitchell, these data-base errors are exacerbated by the fact that some ineligible entities were incor-rectly input into the system at the pro-gram’s inception because of the short timeline given to the government to launch the program. Only now is OPA capable of verifying their eligibility. “[In 1992] the program was ramped up in a month,” he says. “We have not had the resources to verify the database since that time.” As a first step towards re-verifying the eligibility of covered entities, OPA and PSSC have focused on program participants that receive grants from the Centers for Disease Control (CDC)—including tuberculosis (TB) and sexually transmitted disease (STD) clinics—and Title X clinics that receive funding from HRSA’s Office of Population Affairs. Over the last year, the number of

family planning clinics enrolled in the program has decreased slightly from 5,208 in July 2004 to 5,152 in July 2005. OPA projects a further decrease over the next two years, according to Mitchell. A similar drop-off has occurred in the number of CDC grantees in the pro-gram, as 100-120 records have been eliminated by OPA and PSSC over the past year “for various reasons,” accord-ing to Mitchell. With respect to Title X clinics, which are not required under the law to be recertified by OPA, Mitchell says that a number of these providers receive grants strictly for educational purposes, and that the Title X Office—an agency within the Office of Population Af-fairs—will soon begin a process to de-termine whether the scope of their grant-ees’ grants include the provision of fam-ily planning drugs. To do so, the Office of Population

Affairs will begin contacting their 85 family planning grantees requesting that they voluntarily re-verify their clinics based on their grant status. “The Title X office will be helping us to improve the integrity of the grant-ees on our website,” says Mitchell. “Some of [these entities] are not funded to provide broad-based health care.” According to Mitchell, an entity is only eligible for the 340B program if it receives grants that include the provi-sion of pharmaceuticals. It has not been determined as of yet how individual clinics will be formally notified of their removal from the pro-gram, though the covered entity data-base is currently designed to automati-cally send an e-mail message to entities if they have been removed. If a provider is removed from the program, Mitchell says that they may appeal the decision by formally contact-ing OPA to request a review.

continued from pg. 6

www.rxforaccess.org

Medicine for People in Need (Medpin), a nonprofit leader in the field of pharmaceutical access, invites you to subscribe to Rx for Access. Rx for Access brings together the information safety net providers need to manage pharmaceutical services in today’s health care environment. The monthly newsletter explores effective strategies for balancing cost and access issues, ways to in-corporate drug companies' patient assistance programs into pharmacy operations, dispensing op-tions for clinics, steps to qualify for and better use 340B discounts, and trends in federal and state policies affecting pharmaceutical access.

The Centers for Medicare and Medi-caid Services (CMS) have released new estimates regarding the size of the pre-mium subsidies that low-income Medi-care beneficiaries will receive once en-rolled in the new Medicare prescription drug benefit. Under the new drug benefit, which will go into effect on January 1, subsi-dies will be made available to those beneficiaries who meet certain income and asset requirements. (For a detailed explanation of the various income lev-els, see The Monitor, December 2004). These subsidies are designed to assist beneficiaries with paying down the pre-miums, copays, and deductibles required by their prescription drug plan (PDP) or Medicare Advantage (MA) plan. According to a CMS memo released on August 9, the size of the subsidies in each state will be largely dependent on the average premium amount charged by drug plans in each region and may not necessarily cover a beneficiary’s entire premium amount. More specifically, the memo states that the premium subsidy will be equal to the lesser of either (1) the benefici-ary’s premium amount or (2) an ad-

justed figure derived from the premiums charged by the plans in his/her region. The size of the estimated subsidies ranges widely from region to region. The lowest subsidy amount appears in California ($23.25) and the highest will be available in Mississippi ($36.39). Estimates for all regions are located at: www.cms.hhs.gov/healthplans/rates. “Based on these benchmarks, CMS

expects that people who qualify for this extra help will have multiple prescrip-tion drug plan choices with no premi-ums, as well as additional no premium coverage options in Medicare Advan-tage plans,” according to CMS. CMS continues to assert that “most beneficiaries with limited incomes will also have no deductibles, no gaps in coverage, and only small copayments

for each prescription.” The CMS memo also presents data on the estimated monthly premium amounts for each region. According to the memo, the average size of the monthly premium for all PDP and MA plans will be $32.20. This estimate, based on the data re-ceived by CMS from potential PDP and MA plans, is approximately $5 less than the figure included in the Medicare Trustees’ report, which was released in March. CMS contends that this decrease is due to the fact that the value of the ac-tual bids submitted by PDP and MA plans has been lower than expected due to strong competition. As a result, CMS has stated that plans will now have to lower their costs in order to attract bene-ficiaries. “Plans that do not offer low costs for high-quality benefits will have to charge higher premiums and will not attract beneficiaries,” according to CMS. The agency suggests that plans can reduce their costs by negotiating lower drug prices and encouraging the use of ge-neric drugs and other less costly medica-tion alternatives.

CMS Releases Estimates of Medicare Rx Low-Income Subsidies

Page 11 August 2005


“Based on these benchmarks, CMS expects that people who qualify for this extra help will

have multiple prescription drug plan choices with no premiums.”

CMS Release

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Documents

House and Senate Bills Call For 340B Reform · House and Senate Bills Call For 340B Reform ... Affordability Act,” the bill is the first piece of legislation introduced in Congress