80 FR 34583 - 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Federal Register Volume 80, Issue 116 (June 17, 2015)

The Health Resources and Services Administration (HRSA) administers section 340B of the Public Health Service Act (PHSA), which is referred to as the ``340B Drug Pricing Program'' or the ``340B Program.'' This proposed rule will apply to all drug manufacturers that are required to make their drugs available to covered entities under the 340B Program. The proposed rule sets forth the calculation of the ceiling price and application of civil monetary penalties.

[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Proposed Rules]
[Pages 34583-34588]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-14648]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

42 CFR Part 10

RIN 0906-AA89


340B Drug Pricing Program Ceiling Price and Manufacturer Civil 
Monetary Penalties Regulation

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Health Resources and Services Administration (HRSA) 
administers section 340B of the Public Health Service Act (PHSA), which 
is referred to as the ``340B Drug Pricing Program'' or the ``340B 
Program.'' This proposed rule will apply to all drug manufacturers that 
are required to make their drugs available to covered entities under 
the 340B Program. The proposed rule sets forth the calculation of the 
ceiling price and application of civil monetary penalties.

DATES: Submit comments on or before August 17, 2015.

ADDRESSES: You may submit comments, identified by the Regulatory 
Information Number (RIN) 0906-AA89, by any of the following methods. 
Please submit your comments in only one of these ways to

[[Page 34584]]

minimize the receipt of duplicate submissions. The first is the 
preferred method.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments. This is the preferred 
method for the submission of comments.
     Email: [email protected]. Include 0906-AA89 in the 
subject line of the message.
     Mail: Office of Pharmacy Affairs (OPA), Healthcare Systems 
Bureau (HSB), Health Resources and Services Administration (HRSA), 5600 
Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857.
    All submitted comments will be available to the public in their 
entirety.

FOR FURTHER INFORMATION CONTACT: CDR Krista Pedley, Director, OPA, HSB, 
HRSA, 5600 Fishers Lane, Mail Stop 08W05A, Rockville, MD 20857, or by 
telephone at 301-594-4353.

SUPPLEMENTARY INFORMATION: The President encourages Federal agencies 
through Executive Order 13563 to develop balanced regulations by 
encouraging broad public participation in the regulatory process and an 
open exchange of ideas. The Department of Health and Human Services 
(HHS) accordingly urges all interested parties to examine this 
regulatory proposal carefully and to share your views with us, 
including any data to support your positions. If you have questions 
before submitting comments, please see the ``For Further Information'' 
box above for the names and contact information of subject-matter 
experts involved in this proposal's development. We must consider all 
written comments received during the comment period before issuing a 
final rule.
    If you are a person with a disability and/or a user of assistive 
technology who has difficulty accessing this document, please contact 
HRSA's Regulations Officer at: Room 14-101, 5600 Fishers Lane, 
Rockville, MD 20857; or by telephone at 301-443-1785, to obtain this 
information in an accessible format. This is not a toll free telephone 
number.
    Please visit http://www.HHS.gov/regulations for more information on 
HHS rulemaking and opportunities to comment on proposed and existing 
rules.

I. Background

    Section 602 of Public Law 102-585, the ``Veterans Health Care Act 
of 1992,'' enacted section 340B of the Public Health Service Act (PHSA) 
``Limitation on Prices of Drugs Purchased by Covered Entities,'' 
codified at 42 U.S.C. 256b. The 340B Program permits covered entities 
``to stretch scarce Federal resources as far as possible, reaching more 
eligible patients and providing more comprehensive services.'' H.R. 
REP. No. 102-384(II), at 12 (1992). Eligible covered entity types are 
defined in section 340B(a)(4) of the PHSA, as amended. Section 340B of 
the PHSA instructs HHS to enter into a pharmaceutical pricing agreement 
(PPA) with certain drug manufacturers. If a drug manufacturer signs a 
PPA, it agrees that the prices charged for covered outpatient drugs to 
covered entities will not exceed defined 340B ceiling prices, which are 
based on quarterly pricing data reported to the Centers for Medicare & 
Medicaid Services (CMS). Section 7102 of the Patient Protection and 
Affordable Care Act (Pub. L. 111-148) as amended by section 2302 of the 
Health Care and Education Reconciliation Act (Pub. L. 111-152) (HCERA) 
(hereinafter referred to as the ``Affordable Care Act''), added section 
340B(d)(1)(B)(vi) of the PHSA, which provides for: The imposition of 
sanctions in the form of civil monetary penalties, which--
    (I) shall be assessed according to standards established in 
regulations to be promulgated by the Secretary not later than 180 days 
after the date of enactment of the Patient Protection and Affordable 
Care Act;
    (II) shall not exceed $5,000 for each instance of overcharging a 
covered entity that may have occurred; and
    (III) shall apply to any manufacturer with an agreement under this 
section that knowingly and intentionally charges a covered entity a 
price for purchase of a drug that exceeds the maximum applicable price 
under subsection (a)(1).
    The Affordable Care Act also added section 340B(d)(1)(B)(i)(I) of 
the PHSA, which requires the ``[d]evelopment and publishing through an 
appropriate policy or regulatory issuance, precisely defined standards 
and methodology for the calculation of ceiling prices. . . .''
    Since 1992, HHS has administratively established the terms and 
certain elements of the 340B Program through guidelines published in 
the Federal Register, typically after notice and opportunity for 
comment. In September 2010, HHS published two advanced notices of 
proposed rulemaking (ANPRM) in the Federal Register, 340B Drug Pricing 
Program Administrative Dispute Resolution Process (75 FR 57233 
(September 20, 2010)) and 340B Drug Pricing Program Manufacturer Civil 
Monetary Penalties (75 FR 57230 (September 20, 2010)). The 
administrative dispute resolution process remains under development and 
is not included in this notice of proposed rulemaking. HHS intends to 
address dispute resolution in future rulemaking.
    In the manufacturer civil monetary penalties ANPRM, HHS sought 
comments relevant to this provision and requested comment on nine 
identified areas: (1) Existing Models; (2) Threshold Determination; (3) 
Administrative Process Elements; (4) Hearing; (5) Appeals Process; (6) 
Definitions; (7) Penalty Computation; (8) Payment of Penalty; and (9) 
Integration of Civil Monetary Penalties with Other Provisions in the 
Affordable Care Act. The request for comments on existing models 
requested comments on the appropriateness on the use and adaptation of 
the procedures codified at 42 CFR part 1003, which includes procedures 
for the imposition of civil monetary penalties by the HHS Office of the 
Inspector General. HRSA received 15 comments on the ANPRM. The comments 
received have been considered in the development of this notice. HHS is 
also proposing this rule to provide increased clarity in the 
marketplace for all 340B Program stakeholders as to the calculation of 
the 340B ceiling price. HHS encourages all stakeholders to provide 
comments on this notice of proposed rulemaking.

II. Summary of the Proposed Regulations

    The proposed revisions to 42 CFR part 10 of the regulations are 
described according to the applicable section of the regulations. The 
United States District Court for the District of Columbia recently 
vacated the 340B Program Regulations at 42 CFR part 10 relating to 
Orphan Drugs. PhRMA v. HHS, No. 13-01501 (D.D.C. May 23, 2014). This 
NPRM proposes to replace sections 10.1, 10.2, 10.3, and 10.10 with the 
provisions of this NPRM, add a new section 10.11, and eliminate 
sections 10.20 and 10.21.

Subpart A--General Provisions

Sec.  10.1 Purpose
    This part implements section 340B of the Public Health Service Act 
(PHSA) ``Limitation on Prices of Drugs Purchased by Covered Entities.''
Sec.  10.2 Summary of 340B Drug Pricing Program
    Section 340B of the PHSA instructs the Secretary of Health and 
Human Services to enter into agreements with manufacturers of covered 
outpatient drugs under which the amount to be paid to manufacturers by 
certain

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statutorily-defined covered entities does not exceed the 340B ceiling 
price. Manufacturers participating in the 340B Drug Pricing Program 
(340B Program) are required to provide these discounts on all covered 
outpatient drugs sold to participating 340B covered entities.
Sec.  10.3 Definitions
    The Department is proposing to revise the following definitions: 
``ceiling price,'' ``covered entity,'' ``covered outpatient drug,'' and 
``manufacturer.''
    The Department is proposing to add the following definitions: 
``340B drug,'' ``Average Manufacturer Price (AMP),'' ``CMS,'' 
``National Drug Code (NDC),'' ``quarter,'' and ``wholesaler.''
    The definitions for ``Pharmaceutical Pricing Agreement (PPA),'' and 
``Secretary'' would remain in the section, and the definitions for 
``Group purchasing organization (GPO),'' ``orphan drug,'' and 
``participating drug manufacturer'' would be removed from the section.

Subpart B--340B Ceiling Price

Sec.  10.10 Ceiling Price for a Covered Outpatient Drug
    A manufacturer must calculate the ceiling price for all of its 
covered outpatient drugs on a quarterly basis. The calculation of the 
340B ceiling price for a 340B drug is established by statute. Under 
section 340B(a) of the PHSA, the 340B ceiling price for covered 
outpatient drugs 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. To ensure 
the final price is operational in the marketplace, HRSA then multiplies 
this amount by the drug's package size and case package size. HRSA will 
publish the 340B ceiling price rounded to two decimal places.
    Under the Medicaid Drug Rebate Program, CMS indexes quarterly AMPs 
to the rate of inflation (Consumer Price Index adjusted for inflation-
urban). Section 1927(c)(2)(A) of the Social Security Act provides that 
with respect to single source and innovator multiple source drugs, if 
the AMP increases at a rate faster than inflation, the manufacturer 
must pay an additional rebate amount which is reflected in a higher 
URA. Historically, because of the basic rebate and the inflation 
factor, section 1927(c)(2)(A) could increase the rebate amount a 
manufacturer must pay to States, resulting in negative 340B prices. As 
of January 1, 2010, a provision in section 1927(c)(2)(D) of the Social 
Security Act effectively limited the unit rebate amount to 100 percent 
of the AMP. Thus, an increase in the basic rebate and inflation factor 
would not result in a negative 340B price, but could result in a zero 
340B price.
Exception: Penny Pricing and Distribution
    HHS recognizes that when the URA equals the AMP in the calculation 
of the 340B ceiling price, it is not reasonable for a manufacturer to 
set a 340B ceiling price to $0.00 per unit of measure. HHS proposes 
that a manufacturer charge a $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.
    Manufacturers may not use the prior quarter's pricing, wholesale 
acquisition cost (WAC), or any other non-340B contract price in place 
of the penny pricing, as 340B ceiling prices must be based on the 
immediately preceding calendar quarter pricing data. Using the prior 
quarter pricing or some other price would nullify the pricing formula.
New Drug Price Estimation
    Calculation of the current quarter ceiling price for each covered 
outpatient drug is based on pricing data from the immediately preceding 
calendar quarter. For new drugs, there will be no sales data from which 
to determine the 340B ceiling price. HHS published final guidelines in 
1995 describing ceiling price calculations for new drugs (60 FR 51488 
(October 2, 1995)). HHS is proposing to codify the longstanding policy 
from the 1995 final guidelines in these regulations. HHS proposes that 
a manufacturer will continue to estimate the 340B ceiling price for the 
first three quarters a new covered outpatient drug is available for 
sale. The ceiling price calculation described in paragraph (a) of this 
section will be required beginning with the fourth quarter the drug is 
available for sale. A manufacturer must calculate the actual 340B 
ceiling price for the first three quarters the drug was available for 
sale and 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. For 
example, if a manufacturer with a PPA has a new drug approved for sale 
in February and that drug meets the definition of covered outpatient 
drug, the price estimation requirements would apply. The manufacturer 
would estimate the 340B ceiling price for the first three calendar 
quarters of availability. Beginning with the fourth quarter (October 1-
December 31), the manufacturer will have the necessary pricing data to 
calculate the ceiling price based on section 340B(a)(1) of the PHSA. 
The manufacturer would then calculate the actual 340B ceiling price for 
the first three quarters and refund or credit covered entities which 
paid above the calculated ceiling price during those quarters. The 
refunds and credits must be completed by the end of the fourth quarter.
    HRSA solicits comments on all aspects of the 340B ceiling price 
methodology proposed.
Sec.  10.11 Manufacturer Civil Monetary Penalties
General
    Any manufacturer with a pharmaceutical pricing agreement that 
knowingly and intentionally charges a covered entity more than the 
ceiling price, as defined in Sec.  10.10, for a covered outpatient 
drug, may be subject to a civil monetary penalty not to exceed $5,000 
for each instance of overcharging a covered entity, as defined in 
paragraph (b) of this section. Any civil monetary penalty assessed will 
be in addition to repayment for an instance of overcharging as required 
by section 340B(d)(1)(B)(ii) of the PHSA. Pursuant to a delegation of 
authority, the HHS Office of Inspector General (OIG) will have the 
authority to bring 340B CMP actions utilizing the standards applied to 
other civil monetary penalties under 42 CFR parts 1003 and 1005.
Instance of Overcharging
    An instance of overcharging is any order for a certain covered 
outpatient drug, by NDC, which results in a covered entity paying more 
than the ceiling price, as defined in Sec.  10.10, 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. 
Likewise, if a covered entity orders a single bottle of a covered 
outpatient drug four times in a month, it would be considered four 
instances of overcharging. This includes any order placed directly with 
a manufacturer or through a wholesaler, authorized distributor, or 
agent. An instance of overcharging is considered at the 11-digit NDC 
level and may not be offset by other discounts provided on any other 
NDC or discounts provided on the same NDC on other transactions, 
orders, or purchases. An instance of overcharging may occur at the time 
of initial purchase or when subsequent ceiling price recalculations 
resulting

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from pricing data submitted to CMS occur and the manufacturer refuses 
to refund or issue a credit to a covered entity. 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. 
Covered entity orders of non-340B priced drugs will not subsequently be 
considered an instance of overcharging unless the manufacturer's 
documented refusal to sell or make drugs available at the 340B price 
resulted in the covered entity purchasing at the non-340B price. When a 
manufacturer's documented refusal to sell or make drugs available at 
the 340B price results in the covered entity purchasing at the non-340B 
price, a manufacturer's sale at the non-340B price could be considered 
an instance of overcharging.
    All requirements for offering the 340B ceiling price to covered 
entities apply regardless of the distribution system. Specialty 
distribution, regardless of justification, must ensure 340B covered 
entities purchase covered outpatient drugs at or below the ceiling 
price. Manufacturers commonly use wholesalers to distribute drugs on 
their behalf. This regulation and associated penalties applies solely 
to manufacturers, even though other parties, such as wholesalers, have 
a role in ultimately ensuring the covered entity receives a 340B drug 
at or below the ceiling prices. Manufacturers should consider the 
wholesaler role in this process and work out issues in good faith and 
in normal business arrangements regarding the assurance that the 
covered entity receives the appropriate price as outlined in this 
regulation. A manufacturer's failure to ensure that covered entities 
receive the appropriate 340B discount through its distribution 
arrangements may be grounds for the assessment of civil monetary 
penalties under this regulation.

III. Regulatory Impact Analysis

    HHS has examined the effects of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 8, 2011), the Regulatory Flexibility Act (September 19, 1980, 
Pub. L. 96-354), the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), and Executive Order 13132 on Federalism (August 4, 1999).

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 is supplemental to and reaffirms the principles, 
structures, and definitions governing regulatory review as established 
in Executive Order 12866, emphasizing the importance of quantifying 
both costs and benefits, of reducing costs, of harmonizing rules, and 
of promoting flexibility. Section 3(f) of Executive Order 12866 defines 
a ``significant regulatory action'' as an action that is likely to 
result in a rule: (1) Having an annual effect on the economy of $100 
million or more in any 1 year, or adversely and materially affecting a 
sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, or tribal 
governments or communities (also referred to as ``economically 
significant''); (2) creating a serious inconsistency or otherwise 
interfering with an action taken or planned by another agency; (3) 
materially altering the budgetary impacts of entitlement grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raising novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in the Executive Order. A regulatory impact analysis (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in any 1 year), and a ``significant'' regulatory action 
is subject to review by the Office of Management and Budget (OMB).
    This proposed rule is not likely to have economic impacts of $100 
million or more in any 1 year, and therefore has not been designated an 
``economically significant'' rule under section 3(f)(1) of Executive 
Order 12866. The 340B Program as a whole creates significant savings 
for entities purchasing drugs through the program, with total savings 
estimated to be $3.8 billion in FY 2013.\1\ However, this proposed rule 
would not significantly affect the impact of the program. This proposed 
rule incorporates current policies regarding calculation of the ceiling 
price and introduces manufacturer civil monetary penalties. HHS does 
not anticipate that the imposition of civil monetary penalties would 
result in significant economic impacts.
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    \1\ In FY 2013, 340B covered entities spent approximately $7.5 
billion on the total purchases of 340B drugs under the 340B Program. 
This data was obtained from the 340B Prime Vendor Program. This 
amount represents 2 percent of the overall prescription drug market. 
Assuming covered entities pay 25 to 50 percent less than non-340B 
prices, HHS calculated the estimated total savings in FY 2013 to be 
approximately $3.8 billion. 
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    The 340B Program uses information which already must be reported 
under Medicaid to calculate the statutorily defined 340B ceiling price 
as required by this proposed rule. Because the components of the 
ceiling price are already calculated by the manufacturers under the 
Medicaid program and reported to CMS, HHS does not believe this portion 
of the proposed rule would have an impact on manufacturers. The impact 
on manufacturers would also be limited with respect to calculation of 
the ceiling price as defined in this proposed rule due to the fact that 
manufacturers regularly calculate the 340B ceiling price and have been 
since the program's inception.
    Separate from calculation of the 340B ceiling price, manufacturers 
are required to ensure they do not overcharge covered entities, and a 
civil monetary penalty could result from overcharging if it met the 
standards in this proposed rule. The use of those penalties would 
probably be rare. Since the program's inception, issues related to 
overcharges have been resolved between a manufacturer and a covered 
entity and any issues have generally been due to technical errors in 
the calculation. For the penalties to be used as defined in the statute 
and in this rule, a manufacturer would only be subject to those 
penalties when the overcharge was a result of a knowing and intentional 
act. Based on anecdoctal information received from covered entities, 
HHS anticipates that this would occur very rarely if at all.
    This rulemaking also proposes that a manufacturer charge a $0.01 
per unit of measure for a drug with a ceiling price below $0.01. A 
small number of manufacturers have informed HRSA over the last several 
years that they charge more than $0.01 for a drug with a ceiling price 
below $0.01. However, this is a long-standing HRSA policy and HRSA 
believes the majority of manufacturers currently follow the practice of 
charging a $0.01. Therefore, this portion of the regulation will not 
result in a significant impact. This proposed regulation would allow 
HRSA to enforce the policy in a manner that would require the 
manufacturer to charge a $0.01, and it is likely that manufacturers 
would charge $0.01 in order to avoid the imposition of a civil

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monetary penaly for overcharging a covered entity. Therefore, HRSA 
believes manufacturers that currently do not comply will come into 
compliance, which will result in the covered enity paying less for 
these drugs. This will be a cost transfer from the covered entity to 
the manufacturer.
    HHS recognizes that some administrative costs would be incurred for 
compliance with this proposed rule. HHS does not collect data related 
to such administrative costs from manufacturers, and compliance costs 
are expected to vary significantly. HHS believes it is reasonable to 
assume that manufacturers would use one-half to one full-time 
compliance officer to ensure compliance with the requirements in this 
proposed rule. According to the Bureau of Labor Statistics, the mean 
annual wage for a pharmaceutical compliance officer (NAICS 325400, 
occupation code 13-1041) is $74,620 in 2014. Inclusion of benefits and 
overhead (resulting in a total labor cost of 1.5 times mean annual 
salary) yields a total annual cost of $111,930 for one compliance 
officer. Thus the estimated annual cost for labor across all 600 
manufacturers is between $33,579,000 and $67,158,000.

The Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) and the 
Small Business Regulatory Enforcement and Fairness Act of 1996, which 
amended the RFA, require HHS to analyze options for regulatory relief 
of small businesses. If a rule has a significant economic effect on a 
substantial number of small entities, the Secretary must specifically 
consider the economic effect of the rule on small entities and analyze 
regulatory options that could lessen the impact of the rule. HHS will 
use an RFA threshold of at least a three percent impact on at least 
five percent of small entities.
    This proposed rule would affect drug manufacturers (North American 
Industry Classification System code 325412: Pharmaceutical Preparation 
Manufacturing). The small business size standard for drug manufacturers 
is 750 employees. While it is possible to estimate the impact of this 
proposed rule on the industry as a whole, the data necessary to project 
changes for specific manufacturers or groups of manufacturers were not 
available. This proposed rule clarifies statutory requirements for all 
manufacturers, including small manufacturers, and proposes current 
ceiling price calculation policies be codified in regulation. HHS is 
not aware of small manufacturers which currently do not follow the 
ceiling price policies proposed in this regulatory action. HHS welcomes 
comments concerning the impact of this proposed rule on small 
manufacturers.
    HHS therefore estimates that the economic impact on small entities 
will be minimal and less than three percent.

Unfunded Mandates Reform Act

    Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires 
that agencies prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before proposing ``any rule that 
includes any Federal mandate that may result in the expenditure by 
State, local, and Tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year.'' In 2013, that threshold level is 
approximately $141 million. HHS does not expect this proposed rule to 
exceed the threshold.

Executive Order 13132--Federalism

    HHS has reviewed this proposed rule in accordance with Executive 
Order 13132 regarding federalism, and has determined that it does not 
have ``federalism implications.'' This proposed rule would not ``have 
substantial direct effects on the States, or on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government.'' 
The proposals in this notice of proposed rulemaking, if implemented, 
would not adversely affect the following family elements: Family 
safety, family stability, marital commitment; parental rights in the 
education, nurture, and supervision of their children; family 
functioning, disposable income or poverty; or the behavior and personal 
responsibility of youth, as determined under Section 654(c) of the 
Treasury and General Government Appropriations Act of 1999. HHS invites 
additional comments on the impact of this proposed rule from affected 
stakeholders.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires 
that OMB approve all collections of information by a Federal agency 
from the public before they can be implemented. This proposed rule is 
projected to have no impact on current reporting and recordkeeping 
burden for manufacturers under the 340B Program. Changes proposed in 
this rulemaking would result in no new reporting burdens. Comments are 
welcome on the accuracy of this statement.

    Dated: March 6, 2015.
Sylvia M. Burwell,
Secretary.

List of Subjects in 42 CFR Part 10

    Biologics, Business and industry, Diseases, Drugs, Health, Health 
care, Health facilities, Hospitals, 340B Drug Pricing Program.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 42 CFR part 10 as follows:

0
1. Revise part 10 to read as follows:

PART 10--340B Drug Pricing Program

Subpart A--General Provisions

Sec.
10.1 Purpose.
10.2 Summary of 340B Drug Pricing Program.
10.3 Definitions.
Subpart B--340B Ceiling Price
10.10 Ceiling price for a covered outpatient drug.
10.11 Manufacturer civil monetary penalties.

    Authority: Sec. 340B of the Public Health Service Act (42 U.S.C. 
256b), as amended.

Subpart A--General Provisions


Sec.  10.1  Purpose.

    This part implements section 340B of the Public Health Service Act 
(PHSA) ``Limitation on Prices of Drugs Purchased by Covered Entities.''


Sec.  10.2  Summary of 340B Drug Pricing Program.

    Section 340B of the PHSA instructs the Secretary of Health and 
Human Services to enter into agreements with manufacturers of covered 
outpatient drugs under which the amount to be paid to manufacturers by 
certain statutorily-defined covered entities does not exceed the 340B 
ceiling price.


Sec.  10.3  Definitions.

    For the purposes of this part, the following definitions apply:
    340B drug is a covered outpatient drug, as defined in section 
1927(k) of the Social Security Act, purchased by a covered entity at or 
below the ceiling price required pursuant to a pharmaceutical pricing 
agreement with the Secretary.
    Average Manufacturer Price (AMP) has the meaning set forth in 
1927(k)(1) of the Social Security Act.
    Ceiling price means the maximum statutory price established under 
section 340B(a)(1) of the PHSA and these regulations.
    CMS is the Centers for Medicare & Medicaid Services.

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    Covered entity means an entity that is listed within section 
340B(a)(4) of the PHSA, meets the requirements under section 340B(a)(5) 
of the PHSA, and is registered and listed in the 340B database.
    Covered outpatient drug has the meaning set forth in section 
1927(k) of the Social Security Act.
    Manufacturer has the meaning set forth in section 1927(k) of the 
Social Security Act.
    National Drug Code (NDC) has the meaning set forth in 42 CFR 
447.502.
    Pharmaceutical Pricing Agreement (PPA) means an agreement described 
in section 340B(a)(1) of the PHSA.
    Quarter refers to a calendar quarter unless otherwise specified.
    Secretary means the Secretary of the Department of Health and Human 
Services and any other officer of employee of the Department of Health 
and Human Services to whom the authority involved has been delegated.
    Wholesaler has the meaning set forth in 42 U.S.C. 1396r-8(k)(11).

Subpart B--340B Ceiling Price


Sec.  10.10  Ceiling price for a covered outpatient drug.

    A manufacturer is required to calculate 340B ceiling prices for 
each covered outpatient drug, by National Drug Code (NDC) on a 
quarterly basis.
    (a) Calculation of 340B ceiling price. The 340B ceiling price for a 
covered outpatient drug is equal to the Average Manufacturer Price 
(AMP) for the smallest unit of measure minus the Unit Rebate Amount 
(URA) and will be calculated using six decimal places. To ensure the 
final price is operational in the marketplace, HRSA then multiplies 
this amount by the drug's package size and case package size. HRSA will 
publish the 340B ceiling price rounded to two decimal places.
    (b) Exception.When the ceiling price calculation in paragraph (a) 
of this section results in an amount less than $0.01 the ceiling price 
will be $0.01.
    (c) New drug price estimation.A manufacturer must estimate the 
ceiling price for a new covered outpatient drug as of the date the drug 
is first available for sale and must provide HRSA an estimated ceiling 
price for each of the first three quarters the drug is available for 
sale. Beginning with the fourth quarter the drug is available for sale, 
the manufacturer must calculate the ceiling price as described in 
paragraph (a) of this section. A manufacturer must calculate the actual 
ceiling prices for the first three quarters and refund or credit any 
covered entity which purchased the covered outpatient drug at a price 
greater than the calculated ceiling price. The refunds or credits for 
the first three quarters must be provided to covered entities by the 
end of the fourth quarter.


Sec.  10.11  Manufacturer civil monetary penalties.

    (a) General.Any manufacturer with a pharmaceutical pricing 
agreement that knowingly and intentionally charges a covered entity 
more than the ceiling price, as defined in Sec.  10.10, for a covered 
outpatient drug, may be subject to a civil monetary penalty not to 
exceed $5,000 for each instance of overcharging a covered entity, as 
defined in paragraph (b) of this section. This penalty will be imposed 
pursuant to the procedures at 42 CFR part 1003. Any civil monetary 
penalty assessed will be in addition to repayment for an instance of 
overcharging as required by section 340B(d)(1)(B)(ii) of the PHSA.
    (b) Instance of overcharging. An instance of overcharging is any 
order for a covered outpatient drug, by NDC, which results in a covered 
entity paying more than the ceiling price, as defined in Sec.  10.10, 
for that covered outpatient drug.
    (1) Each order for an NDC will constitute a single instance, 
regardless of the number of units of each NDC ordered. This includes 
any order placed directly with a manufacturer or through a wholesaler, 
authorized distributor, or agent.
    (2) Manufacturers have an obligation to ensure that the 340B 
discount is provided through distribution arrangements made by the 
manufacturer.
    (3) An instance of overcharging is considered at the NDC level and 
may not be offset by other discounts provided on any other NDC or 
discounts provided on the same NDC on other transactions, orders, or 
purchases.
    (4) An instance of overcharging may occur at the time of initial 
purchase or when subsequent ceiling price recalculations due to pricing 
data submitted to CMS result in a covered entity paying more than the 
ceiling price due to failure or refusal to refund or credit a covered 
entity.
    (5) 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. Covered entity orders of non-340B 
priced drugs will not subsequently be considered an instance of 
overcharging unless the manufacturer's refusal to sell or make drugs 
available at the 340B price resulted in the covered entity purchasing 
at the non-340B price.

    Editorial Note: This document was received for publication by 
the Office of the Federal Register on June 10, 2015.

[FR Doc. 2015-14648 Filed 6-16-15; 8:45 am]
 BILLING CODE 4165-15-P