On November 13, 2014, the Department of Health and Human Services (HHS) announced that it is withdrawing the highly-anticipated and comprehensive 340B drug pricing program (340B program) regulation (also known as the “mega-reg”) and will replace it with program guidance issued early next year through the Health Resources and Services Administration (HRSA). The “mega-reg” was designed to address key topics not fully defined in the original legislation. It was drafted earlier this year and given to the White House Office of Management and Budget in April; however, it stagnated amidst controversy and legal proceedings surrounding the HRSA-proposed orphan drug policy issued in 2013. The withdrawal of the “mega-reg” now leaves more questions than answers for covered entities as we enter into what will likely be a formative year for the 340B program.
Historically, HRSA has relied on formal and informal guidance issued in the form of Federal Register Notices and “Frequently Asked Questions” (FAQs) when providing clarification regarding 340B policy implementation or compliance. While the guidance laid certain “ground rules,” many critical topics remained largely unaddressed or open to interpretation including patient definition, hospital eligibility criteria, off-site facility eligibility, and contract pharmacy oversight. This uncertainty led to stakeholder groups from both hospitals and drug manufacturers calling for increased clarity in the regulations.
In 2010, The Patient Protection and Affordable Care Act (PPACA) expanded the 340B Program, and also granted increased regulatory powers to HRSA to support 340B program integrity. Accordingly, after the Act’s passage, HRSA began to issue more concrete policy notices, such as the Statutory Prohibition on Group Purchasing Organization (GPO) Participation issued in February 2013 and the aforementioned orphan drug policy. The 340B purchasing policies relating to orphan drugs are a critical component of PPACA; therefore, the policy struck a nerve with the pharmaceutical manufacturers by allowing for expanded purchasing of orphan drugs under the 340B program for selected covered entities. The Pharmaceutical Research and Manufacturers of America (PhRMA) filed a lawsuit challenging the regulation, and in May, the U.S. District Court for the District of Columbia issued a ruling that vacated the orphan drug regulation on the grounds that HHS lacked the statutory authority to issue the regulation. The ruling set off a seven-month dispute between HHS and PhRMA over the agency’s authority to issue regulations for the 340B Program. The withdrawal from the “mega-reg” indicates that HRSA will likely return to similar governance and oversight utilized prior to the passage of PPACA. In short, significant questions still remain regarding program implementation and compliance.
As we enter 2015, uncertainty surrounding program implementation will likely continue, but the program will remain in the legislative spotlight. HRSA has indicated that guidance on key program issues will be given next year, and the agency also intends to issue three regulations permitted by the statute that addresses civil monetary penalties for manufacturers, 340B ceiling price calculation, and dispute resolution procedures. No timetable has been released for these regulations yet. Deloitte will continue to monitor program developments closely.
Karolyn Woo, Senior Manager, Deloitte & Touche LLP