National Institute on Drug Abuse; Meeting

Pursuant to Public Law 92Ä463, notice is hereby given of the meeting of the
National Advisory Council on Drug Abuse, National Institute on Drug Abuse on
January 25Ä26, 1994, at the National Institutes of Health, Building 1, Wilson
Hall, 9000 Rockville Pike, Bethesda, Maryland 20892.

The meeting will be open to the public on January 25 from 9 a.m. to 1 p.m. and
on January 26 from 9 a.m. to 5 p.m. for announcements and reports of
administrative, legislative, and program developments in the drug abuse field.

In accordance with provisions set forth in section 552b(c)(4) and 552b(c)(6),
title 5, U.S.C. and section 10(d) of Public Law 92Ä463, the meeting will be
closed to the public on January 25 from 1 p.m. to 5 p.m. for the review,
discussion, and evaluation of grant applications. These applications and
discussions could reveal confidential trade secrets or commercial property
such as patentable material and personal information concerning individuals
associated with the applications, disclosure of which would constitute a
clearly unwarranted invasion of personal privacy.

A summary of the meeting and a roster of committee members may be obtained
from Ms. Camilla L. Holland, NIDA Committee Management Officer, National
Institutes of Health, Parklawn Building, room 10Ä42, 5600 Fishers Lane,
Rockville, Maryland 20857 (301/443Ä2755).

Substantive program information may be obtained from Ms. Eleanor C.
Friedenberg, room 10Ä42, Parklawn Building, 5600 Fishers Lane, Rockville,
Maryland 20857 (301/443Ä2755).

Individuals who plan to attend and need special assistance, such as sign
language interpretation or other reasonable accommodations, should contact the
contact person named above in advance of the meeting.

(Catalog of Federal Domestic Assistance Program Numbers: 93.277, Drug Abuse
Research Scientist Development and Research Scientist Awards; 93.278, Drug
Abuse National Research Service Awards for Research Training; 93.279, Drug
Abuse Research Programs.)

Dated: December 22, 1993.

Susan K. Feldman,

Committee Management Officer, NIH.

[FR Doc. 93Ä31762 Filed 12Ä28Ä93; 8:45 am]

BILLING CODE 4140Ä01ÄM

Public Health Service Notice Regarding Section 602 of the Veterans Health Care
Act of 1992 Entity Guidelines

AGENCY: Public Health Service, HHS.

ACTION: Notice.

SUMMARY: Section 602 of Public Law 102Ä585, the "Veterans Health Care Act of
1992'' (the "Act''), enacted section 340B of the Public Health Service Act
("PHS Act''), "Limitation on Prices of Drugs Purchased by Covered Entities.''
Section 340B provides that a manufacturer who sells covered outpatient drugs
to eligible entities must sign a pharmaceutical pricing agreement (the
"Agreement'') with the Secretary of Health and Human Services in which the
manufacturer agrees to charge a price for covered outpatient drugs that will
not exceed the amount determined under a statutory formula.

The purpose of this notice is to inform the covered entities of recent
decisions regarding program implementation. Further, covered entities who wish
to participate in the drug discount program have certain responsibilities
created by the Agreement and section 340B of the PHS Act. These include the
prohibition against selling or transferring section 340B discounted drugs to
persons who are not patients of the entity, (section 340B(a)(5)(B) of the PHS
Act) and generating Medicaid rebates while accepting section 340B discounts on
the same drugs, (section 340B(a)(5)(A) of the PHS Act). The Department has
developed guidelines related to these prohibitions, and this notice discusses
the proposed guidelines and invites public comment.

Section II contains a description of the mechanism to prevent duplicate
discounts and rebates and methods for its implementation. The mechanism was
published on May 7, 1993, and public comments were submitted at that time. We
are not inviting further comment on this section.

DATES: The public is invited to submit comments on the proposed covered entity
guidelines (all sections except II which was subject to an earlier notice
inviting public comment) by January 28, 1994. Subject to consideration of the
comments submitted, the Department intends to publish a final notice regarding
these entity guidelines.

FOR FURTHER INFORMATION CONTACT: Marsha Alvarez, R. Ph., Chief Pharmacy
Officer, Attn: Drug Pricing Program, Bureau of Primary Health Care, Health
Resources and Services Administration, East West Towers Rm 10Ä3A1, Bethesda,
Maryland 20814, Phone: (301) 594Ä4353.

ADDRESSES: Comments should be submitted to Marsha Alvarez at the address
listed above.

SUPPLEMENTARY INFORMATION: The PHS Act and the Agreement contain several
important prohibitions for covered entities.

(I). Confidential Drug Pricing Information

Section III(f) of the Public Health Service (PHS) Pharmaceutical Pricing
Agreement states that "[t]he Secretary shall require, under a reasonable
schedule of implementation, that covered entities not reveal confidential drug
pricing information.'' "Confidential drug pricing information'' includes both
"best price'' and "average manufacturer price.'' The quoted price or the
actual price given by the manufacturer to the covered entity is not
confidential.

(II). Duplicate Discount/Rebate Potential

There is a potential for a drug purchased by a covered entity at the statutory
discount to be subject to a Medicaid rebate under section 1927 of the Social
Security Act, if the drug is reimbursed by the Medicaid program. Accordingly,
the PHS Act directs the Secretary of HHS to establish a mechanism to avoid the
potential double price reduction.

In consultation with the Health Care Financing Administration (HCFA), which is
responsible for the administration of the Medicaid program, the PHS developed
a mechanism. The proposed mechanism was published in the Federal Register on
May 7, 1993, and the Department requested public comment. The comments were
addressed in a final notice published on June 23, 1993, at 58 FR 34058, which
adopted the proposed mechanism without substantive change. The Department
began implementation of the mechanism on July 1, 1993. The mechanism is as
follows:

(a). Billing Per Encounter

For all-inclusive rates (either per encounter or visit), drug purchases are
not billed as separate cost items; therefore, there is no opportunity for a
Medicaid rebate to be sought. To the extent that covered entities are
reimbursed by Medicaid through all-inclusive rates, there is no possibility
that the duplicate discount and rebate can occur. These entities included on
the initial list of covered entities may request drug discounts retroactive to
December 1, 1992, if appropriate documentation of drug purchases is presented
to the manufacturer.

(b). Billing on a Cost Basis for Drugs

For other entities billing on a cost basis for drug purchases, PHS is
providing a list of participating covered entities to State Medicaid agencies
with the Medicaid provider numbers for each covered entity in the respective
State. Based on the provider number, the State Medicaid agency will create a
separate provider file for claims from covered entities. They will exclude
data from these provider files when generating the rebate bills to the
manufacturers under the Medicaid rebate program.

      The entity must provide the Drug Pricing Program with the Medicaid
provider number so that State Medicaid agencies can create the appropriate
exclusion files. The first group of State Medicaid provider numbers was mailed
to the State Medicaid agencies on June 25, 1993. The Department will create a
separate computer file on the Electronic Data Retrieval System which will list
those entities and their Medicaid provider numbers which were added to the
eligibility list and entities which chose to withdraw from the program. From
October 1993, until June 30, 1994, the computer file will be updated on a
quarterly basis. Thereafter, the file will be updated annually.

There are large facilities which house several different clinics. Some of
these clinics are covered entities eligible for the section 340B discounts and
others are not eligible. Because the exclusion file (i.e., flagging or marking
the entity file for exclusion from Medicaid rebate program) will effectively
eliminate all of the facility's outpatient drug purchases from the Medicaid
rebate program, the facility must request from its respective State Medicaid
agency a separate Medicaid provider number for the eligible clinics. With this
separate number, only the outpatient drug purchases from the eligible clinics
will be excluded from the Medicaid rebate program. For those States which
cannot generate additional Medicaid provider numbers for entities, covered
entities must discuss an alternative arrangement with the States to accomplish
this objective.

A covered entity which bills Medicaid separately for covered outpatient drugs
can accept a discount on those drugs for which no claims for Medicaid
reimbursement were sent to its respective State Medicaid agency. For drugs
reimbursed by Medicaid, the covered entity may accept the discounted price
once its Medicaid provider number is received by the Drug Pricing Program, and
the Program provides the number to the respective State Medicaid agency
through the regularly scheduled updates to the covered entity file. If a
covered entity has adequate documentation proving drugs purchased at the
section 340B discount were not billed separately to Medicaid or did not
generate Medicaid rebates, the entity may accept the discount and also request
discounts retroactive to December 1, 1992. For retroactive adjustments, the
entity must have been listed on the initial eligibility list.

(c). Billing Medicaid at Acquisition Cost

When a covered entity submits a bill to the State Medicaid agency for a drug
purchase by or on behalf of a Medicaid beneficiary, the amount billed may not
exceed the entity's actual acquisition cost for the drug, as charged by the
manufacturer at a price consistent with the Veterans Health Care Act of 1992,
plus a reasonable dispensing fee established by the State Medicaid agency.
This will assure that the cost savings to the covered entity will be passed on
to the State Medicaid agency, offset the loss of the collection of the rebate
by that agency, and prevent the duplicate discount/rebate by the drug
manufacturer. This mechanism is consistent with the Veterans Health Care Act
and the limitations established in the Medicaid regulations, 42 CFR
447.331Ä447.334, which limit the amount the Medicaid State agency may
reimburse providers.

(III). Eligibility for Retroactive Discounts

Until November 30, 1993, or 30 days after publication of the final entity
guidelines, whichever is later, eligible covered entities included on the
initial eligibility list may request retroactive discounts (discounts,
rebates, or account credit) for covered outpatient drugs purchased retroactive
to December 1, 1992. Only those entities on the initial eligibility list that
(1) bill covered outpatient drugs using an all-inclusive rate (either per
visit or per encounter), (2) have not billed Medicaid for those covered
outpatient drugs since December 1, 1992, or (3) have adequate documentation
proving that drugs for which a retroactive discount is being requested have
not generated Medicaid rebates, may request the retroactive discount.

(IV). Entity Guidelines Regarding Drug Diversion

Section 340B contains a number of prohibitions related to drug diversion which
might require entities to develop alternate systems. These systems will be
necessary to avoid diversion and will provide adequate documentation for audit
purposes.

(a). Diversion to Nonpatients of the Covered Entity

Covered entities are required not to resell or otherwise transfer outpatient
drugs purchased at the statutory discount to an individual who is not a
patient of the entity. If individuals, other than patients of the covered
entity, obtain covered outpatient drugs from the pharmaceutical dispensing
facility, the entity must take affirmative steps to prevent their receipt of
discounted drugs. The entity must develop and institute adequate safeguards to
prevent the transfer of discounted outpatient drugs to individuals who are not
eligible for the discount (e.g., separate purchasing accounts and dispensing
records).

(b). Diversion to Ineligible Entities Within the Same Facility

Section 340B(a)(6) of the PHS Act recognizes that a covered entity may be part
of a larger facility and states that the larger facility (e.g., a hospital)
will not be considered eligible for the discounted drug prices unless it is
listed as a covered entity. Only the covered entity (e.g., the eligible
clinic) housed within the hospital organization will be eligible for section
340B drug discounts. Another example is a department of health that contains
an eligible family planning clinic but itself is not covered. Only the family
planning clinic is eligible for section 340B discounts. Therefore, the
facility which contains an eligible entity within its structure is required to
establish separate purchasing accounts and maintain separate dispensing
records for the eligible entity.

(c). Diversion to Excluded Services of the Covered Entity

Section 340B mandates the statutory price only for outpatient drugs;
therefore, the covered entity must use these discounted drugs only in
connection with outpatient services. Because the covered entity may not use
the covered outpatient drug in excluded services such as inpatient, a separate
method for purchasing and dispensing the discounted drugs (or alternate
systems as approved by the Secretary) is required.

(d). Adequate Systems To Safeguard Against Diversion

Developing a separate purchasing system, including separate purchase number
and a separate dispensing system for outpatient drugs, should provide a
sufficient audit trail to prove the prevention of drug diversion.

The covered entity may, at its option, develop an alternative system, short of
tracking each discounted drug through the purchasing and dispensing process,
by which it can prove compliance. If an alternate system of tracking is
proposed to be used, this system must meet criteria developed by the Drug
Pricing Program. These criteria will be developed at a later date. The Drug
Pricing Program welcomes comments or suggestions concerning alternative
tracking systems that could be included in the program.

(V). Audit Requirements

All entities receiving statutory prices are required to maintain records of
purchases of covered outpatient drugs and of any claims for reimbursement
submitted for such drugs under title XIX of the Social Security Act. The
entity must permit HHS and the manufacturer to audit any record of a covered
drug purchase that was subject to the discount. Manufacturer audits will be
conducted in accordance with procedures developed by the Secretary of HHS.
Until these guidelines are developed and published in the Federal Register,
entities are not required to permit audits by manufacturers except as approved
by the Secretary. This notice addresses only audits related to purchases as a
covered entity; it does not address other audit requirements related to
participation in State Medicaid programs or receipt of Federal grant funding.

(VI). Entity Participation

Covered entity participation in the section 340B drug discount program is
voluntary. Once an entity has elected to participate in the program and has
submitted its Medicaid provider number to the Drug Pricing Program, the entity
must wait to withdraw from the program until the next official updating of the
eligible entity list. The entity must comply with all requirements of the
discount program until the date it is removed from the eligibility list. This
date can be obtained from the Office of Drug Pricing Program. This restriction
does not apply to entities that use all-inclusive rates or that do not bill
Medicaid for covered outpatient drugs.

(VII). Group Purchasing

(a). Disproportionate Share Hospitals

The Department has interpreted the group purchasing restriction of section
340B(a)(4)(L)(iii) regarding disproportionate share hospitals ("DSH'') that
are covered entities as follows: (1) A DSH may participate in a group
purchasing arrangement for inpatient drug use without affecting its
eligibility to purchase section 340B discounted drugs. (2) If a DSH
participates in a group purchasing organization (GPO) or arrangement for
covered outpatient drugs, the DSH will no longer be an eligible covered entity
and cannot purchase covered outpatient drugs at the section 340B discount
prices. This is a new policy approach which we are considering adopting for
two reasons. First, this approach appears to carry out more fully the
legislative intent. Section 340B(a)(4)(l) states that a hospital is a covered
entity if it meets three criteria. This first two criteria deal with the
public nature of the hospital and the level of its disproportionate share
adjustment percentage. The third criterion states that the hospital must not
"obtain covered outpatient drugs through a group purchasing organization or
other group purchasing arrangement,'' section 340B(a)(4)(l)(iii). The proposed
policy would appear to achieve the Congressional intent better than the
earlier interpretation.

      Second, the earlier interpretation which allowed DSHs to participate
both in the section 340B discount program and also in a GPO resulted in
Federal dollars being lost. When a DSH elected to participate in the program,
it provided its Medicaid provider number to allow the State Medicaid agency to
exclude it from the Medicaid rebate mechanism. The result was that GPO drugs
were excluded from rebate mechanism, with Medicaid losing the statutory rebate
it would otherwise receive. Thus, while the DSH could obtain comparable price
reductions for outpatient drugs purchased through a GPO, the corresponding
Federal savings would be lost.

(b). Group Purchasing Arrangements - Other

States, or other groups, which purchase drugs for covered entities (other than
disproportionate share hospitals) are not included on the list of covered
entities; however, they are eligible to purchase at the section 340B discount
if the following requirements are met: (1) The group purchasing arrangement
must be comprised of only covered entities, or (2) if group purchasing
arrangements contain entities which are not eligible for the discount,
separate purchasing accounts and dispensing/distribution must be maintained.

(VIII). Purchasing Agents

A covered entity is permitted to use a purchasing agent without forfeiting its
right to the section 340B drug discounts. If a purchasing agent is used, the
arrangement must be in writing and the terms of the agent's relationship with
the entity must be clearly defined. The entity and the agent should decide
whether the agent simply negotiates the drug purchasing contracts on behalf of
the entity or actually receives drug shipments for distribution to the entity.
If the latter, the transfer of purchased pharmaceuticals from an agent to the
entity would not be viewed as drug diversion. This paragraph does not
supersede the statutory limitations that DSHs eligible to receive the section
340B drug discounts may not participate in group purchasing arrangements.

(IX). Definition of Covered Outpatient Drug

The Department has adopted an interpretation of the statutory definition of
"covered outpatient drug'' developed by the Health Care Financing
Administration ("HCFA''). Section l927(k)(2) of the Social Security Act
defines "covered outpatient drug'' to include most drugs and biologicals which
may be dispensed only by prescription and which require approval by the Food
and Drug Administration or a license under section 351 of the PHS Act. Section
l927(k)(3) limits the definition of "covered outpatient drug'' to exclude
certain settings (e.g., such services as emergency room, hospice, dental,
physician, nursing facilities, x-ray, lab, and renal dialysis) in some
instances. In these settings, if a covered drug is included in the per diem
rate (i.e., bundled with other payments in an all-inclusive, per visit, or an
encounter rate), it will not be included in the section 340B discount program.
However, if a covered drug is billed and paid for instead as a separate line
item as an outpatient drug in a cost basis billing system, this drug will be
included in the program.

(X). Dealing Direct or Through a Wholesaler

Under the PHS Agreement signed by each manufacturer participating in the
Medicaid program, the manufacturer has the option of dealing either directly
with the covered entity or through a wholesaler (the Agreement, section
II(a)(3)). If purchasing through a wholesaler, the entity will be required to
provide the manufacturer with information necessary to arrange for such
purchases consistent with the terms of the Agreement.

The purpose of the option for direct or wholesaler purchases was to allow
manufacturers, when dealing with covered entities, to continue their usual
business practices. If a manufacturer has customarily dealt directly with a
particular covered entity, *then requiring the continuation of this form of
purchasing with the covered entity is reasonable. When dealing directly with a
covered entity, manufacturers must offer covered outpatient drugs at or below
the section 340B discount prices. If a manufacturer customarily uses a
wholesaler as a means of distribution, then it may continue this practice. If
the manufacturer's drugs are available to covered entities through
wholesalers, the discount must be made available through that avenue.

Manufacturers may not single out covered entities from their other customers
for restrictive conditions that would undermine the statutory objective.
Manufacturers must not place limitations on the transactions (e.g., minimum
purchase amounts) which would have the effect of discouraging entities from
participating in the discount program.

(XI). Manufacturer's Contracts Requiring Entity Compliance

A manufacturer may not condition the offer of statutory discounts upon an
entity's assurance of compliance with section 340B provisions. The enforcement
of section 340B provisions is a Federal responsibility. Covered entity
assurances regarding the following activities may not be required: (1)
Eligibility to participate in the program; (2) utilization of covered
outpatient drugs only in authorized services; (3) maintaining the
confidentiality of the drug pricing information; (4) permitting the
manufacturers to audit purchase, inventory, and related records prior to the
publication of approved PHS guidelines; and (5) submitting information related
to drug acquisition, purchase, and inventory systems. Entities are not
required to sign agreements assuring manufacturers of their compliance with
section 340B provisions. (If a manufacturer asks a covered entity whether the
entity is in fact participating in the section 340B discount program, the
entity must supply the manufacturer with this information).

Dated: December 21, 1993.

William A Robinson,

Acting Administrator, Health Resources and Services Administration.

[FR Doc. 93Ä31791 Filed 12Ä28Ä93; 8:45 am]

BILLING CODE 4160Ä15ÄP