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Notice Regarding the Section 340B Drug Pricing Program-Program Guidance Clarification

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Health Resources and Services Administration, HHS.




Section 602 of Public Law 102-585, the “Veterans Health Care Act of 1992,” enacted section 340B of the Public Health Service Act, “Limitation on Prices of Drugs Purchased by Covered Entities.” Section 340B provides that a manufacturer who sells covered outpatient drugs to eligible (covered) entities must sign a pharmaceutical pricing agreement with the Secretary of HHS in which the manufacturer agrees to charge a price for covered outpatient drugs that will not exceed an amount determined under a statutory formula.

The purpose of this notice is to clarify section 340B program guidance related to the mechanism to prevent duplicate discounts (i.e., the generation of a Start Printed Page 13984Medicaid rebate on a section 340B discounted drug). Any covered entity that purchases its non-Medicaid drugs through the 340B program but its Medicaid drugs through other avenues must provide the Office of Drug Pricing (ODP) notice of this type of dual purchasing activity. The ODP will place a notation “non-applicable” (N/A) by the covered entity name on the eligibility list so that any reimbursement requests for its Medicaid drugs will continue to generate manufacturer rebates. For appropriate Medicaid drug reimbursement procedures, the Health Resources and Services Administration (HRSA) refers the covered entity to its respective State Medicaid agency for guidance.

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Captain Robert Staley, Office of Drug Pricing, Bureau of Primary Health Care, Health Resources and Services Administration, 10th Floor, East-West Towers, 4350 East-West Highway, Bethesda, MD 20814; Phone (800) 628-6297; Fax (301) 594-4982.

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Section 340B(a)(5)(A) required HHS to develop a mechanism to prevent a section 340B drug discount and a Medicaid rebate on the same drug (i.e., prevention of double discounting). HRSA, together with the Medicaid Rebate Program, Health Care Financing Administration, developed a process to prevent this potential double price reduction and published the final notice of this mechanism on June 23, 1993, at 58 FR 34058. The mechanism, which focuses only on 340B covered outpatient drugs, requires a covered entity that bills Medicaid on a cost basis (e.g., community health centers using fee for service and not all inclusive rates) to submit to ODP its Pharmacy Medicaid Number (i.e., the number used to bill Medicaid for the drugs). This information is placed by the name of the covered entity on the master electronic eligibility list. Using this Medicaid number, the State Medicaid agency creates a separate provider file for claims from that covered entity. This computer file then excludes data from this provider file when generating the rebate bills to the manufacturers. In this way, the mechanism prevents double discounting.

An entity which utilizes a Medicaid billing system that includes pharmacy in an all-inclusive rate or does not submit Medicaid claims for covered outpatient drugs would not generate Medicaid rebates. Consequently, these entities do not have to provide their pharmacy numbers (58 FR 34059). However, such entities were instructed to provide ODP with notice of such purchasing practices so that this information could be provided to participating manufacturers and appropriate State Medicaid agencies (59 FR 25112, May 13, 1994).

It has come to our attention that there may be some confusion concerning the appropriate reporting procedures for an entity not participating in the 340B Program for its Medicaid drugs (i.e., purchasing its non-Medicaid drugs through the 340B Program and its Medicaid drugs outside the Program). Because drugs purchased outside of the 340B Program are not considered covered 340B outpatient drugs, an entity that only purchases non-Medicaid drugs through the 340B Program would not request Medicaid reimbursement for its covered outpatient drugs (i.e., non-Medicaid drugs discounted through the 340B program). Consequently, the covered entity would not provide ODP its Medicaid Pharmacy number. However, this entity still must notify ODP of this type of purchasing practice. ODP will place N/A by the name of the covered entity, signaling no Medicaid reimbursement requests on drugs purchased with discounts under section 340B. In this way, Medicaid rebates will continue to be generated on its Medicaid drugs purchased outside the 340B program.

Covered entities that have submitted Medicaid Pharmacy provider numbers now included in the covered entity database but are purchasing drugs for their Medicaid patients on the open market should contact ODP as soon as possible to request that their Medicaid Pharmacy numbers be replaced by N/A in the covered entity database. An entity that has purchased Medicaid drugs outside of the 340B Program but submitted its Medicaid provider number to ODP should attempt to preserve any documentation of such purchasing activity. The entity should contact its State Medicaid agency about these past drug purchases so that the agency can bill manufacturers for rebates that were excluded from past rebate claims.

On behalf of the Medicaid Drug Rebate Program, HRSA provided notice to covered entities regarding appropriate procedures for requesting Medicaid reimbursement for covered outpatient drugs (58 FR 27293 and 59 FR 25112 regarding “actual acquisition cost”). Currently, HRSA is reviewing that portion of the guidance and recommends that covered entities refer to their respective Medicaid State agency drug reimbursement guidelines for applicable billing limits.

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Dated: March 9, 2000.

Claude Earl Fox,


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[FR Doc. 00-6287 Filed 3-14-00; 8:45 am]