82 FR 22893 - 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Federal Register Volume 82, Issue 96 (May 19, 2017)

The Health Resources and Services Administration (HRSA) administers section 340B of the Public Health Service Act (PHSA), referred to as the ``340B Drug Pricing Program'' or the ``340B Program.'' HRSA published a final rule on January 5, 2017, that set forth the calculation of the ceiling price and application of civil monetary penalties. The final rule applied to all drug manufacturers that are required to make their drugs available to covered entities under the 340B Program. In accordance with a January 20, 2017, memorandum from the Assistant to the President and Chief of Staff, entitled ``Regulatory Freeze Pending Review,'' HRSA issued an interim final rule that delayed the effective date of the final rule published in the Federal Register (82 FR 1210, (January 5, 2017)) to May 22, 2017. HHS invited commenters to provide their views on whether a longer delay of the effective date to October 1, 2017, would be more appropriate. After consideration of the comments received on the interim final rule, HHS is delaying the effective date of the January 5, 2017 final rule, to October 1, 2017.

[Federal Register Volume 82, Number 96 (Friday, May 19, 2017)]
[Rules and Regulations]
[Pages 22893-22895]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10149]


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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: Final rule; further delay of effective date.

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SUMMARY: The Health Resources and Services Administration (HRSA) 
administers section 340B of the Public Health Service Act (PHSA), 
referred to as the ``340B Drug Pricing Program'' or the ``340B 
Program.'' HRSA published a final rule on January 5, 2017, that set 
forth the calculation of the ceiling price and application of civil 
monetary penalties. The final rule applied to all drug manufacturers 
that are required to make their drugs available to covered entities 
under the 340B Program. In accordance with a January 20, 2017, 
memorandum from the Assistant to the President and Chief of Staff, 
entitled ``Regulatory Freeze Pending Review,'' HRSA issued an interim 
final rule that delayed the effective date of the final rule published 
in the Federal Register (82 FR 1210, (January 5, 2017)) to May 22, 
2017. HHS invited commenters to provide their views on whether a longer 
delay of the effective date to October 1, 2017, would be more 
appropriate. After consideration of the comments received on the 
interim final rule, HHS is delaying the effective date of the January 
5, 2017 final rule, to October 1, 2017.

DATES: As of May 19, 2017, the effective date of the final rule 
published in the Federal Register (82 FR 1210, (January 5, 2017)) is 
further delayed to October 1, 2017.

FOR FURTHER INFORMATION CONTACT: CAPT Krista Pedley, Director, Office 
of Pharmacy Affairs, Healthcare Systems Bureau, HRSA, 5600 Fishers 
Lane, Mail Stop 08W05A, Rockville, MD 20857, or by telephone at 301-
594-4353.

SUPPLEMENTARY INFORMATION:

I. Background

    In September 2010, HHS published an advanced notice of proposed 
rulemaking (ANPRM) in the Federal Register, ``340B Drug Pricing Program 
Manufacturer Civil Monetary Penalties'' (75 FR 57230, (September 20, 
2010)). HHS subsequently published a notice of proposed rulemaking 
(NPRM) in June 2015 to implement civil monetary penalties (CMPs) for 
manufacturers who knowingly and intentionally charge a covered entity 
more than the ceiling price for a covered outpatient drug; to provide 
clarity regarding the requirement that manufacturers calculate the 340B 
ceiling price on a quarterly basis; and to establish the requirement 
that a manufacturer charge a $.01 (penny pricing policy) for drugs when 
the ceiling price calculation equals zero (80 FR 34583, (June 17, 
2015)). The public comment period closed August 17, 2015, and HRSA 
received 35 comments. After review of the initial comments, HHS 
reopened the comment period (81 FR 22960, (April 19, 2016)) to invite 
additional comments on the following areas of the NPRM: 340B ceiling 
price calculations that result in a ceiling price that equals zero 
(penny pricing); the methodology that manufacturers use when estimating 
the ceiling price for a new covered outpatient drug; and the definition 
of the ``knowing and intentional'' standard to be applied when 
assessing a CMP for manufacturers that overcharge a covered entity. The 
comment period closed May 19, 2016, and HHS received 72 comments.
    On January 5, 2017, HHS published a final rule in the Federal 
Register (82 FR 1210, (January 5, 2017)) and comments from both the 
NPRM and the reopening notice were considered in the development of the 
final rule. The provisions of that rule were to be effective March 6, 
2017; however, HHS issued a subsequent final rule (82 FR 12508, (March 
6, 2017)) delaying the effective date to March 21, 2017, in accordance 
with a January 20, 2017 memorandum from the Assistant to the President 
and Chief of Staff, entitled ``Regulatory Freeze Pending Review.'' \1\ 
In the January 5, 2017 final rule, HHS recognized that the effective 
date fell during the middle of a quarter and stakeholders needed time 
to adjust systems and update their policies and procedures. As such, 
HHS stated that it intended to enforce the requirements of the final 
rule at the start of the next quarter, which began April 1, 2017.
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    \1\ See: https://www.whitehouse.gov/the-press-office/2017/01/20/memorandum-heads-executive-departments-and-agencies.
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    After further consideration and to provide affected parties 
sufficient time to make needed changes to facilitate compliance, and 
because there were questions raised, HHS issued an interim final rule 
(82 FR 14332, (March 20, 2017)) to delay the effective date of the 
final rule to May 22, 2017, and solicited additional comment on whether 
that date should be further delayed to October 1, 2017. HHS received a 
number of comments on the interim final rule both supporting and 
opposing the delay of the effective date to May 22, 2017, or 
alternatively to October 1, 2017. After careful consideration of the 
comments received, HHS has decided to delay the effective date of the 
January 5, 2017 final rule to October 1, 2017. As the effective date of 
the final rule has been changed to October 1, 2017, enforcement will be 
correspondingly delayed to October 1, 2017. HHS continues to believe 
that the delay of the effective date provides regulated entities 
sufficient time to implement the requirements of the rule.
    Section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C. 
551 et seq.) requires that Federal agencies provide at least 30 days 
after publication of a final rule in the Federal Register before making 
it effective, unless good cause can be found not to do so. HHS finds 
that there is good cause for making this final rule effective less than 
30 days after publication in the Federal Register given that failure to 
do so would result in the final rule published on January 5, 2017, 
going into effect for several weeks, before having a delayed effective 
date of October 1, 2017. To preclude this uncertainty in the 
marketplace and to ease the burdens on all stakeholders, HHS believes 
that a clear effective date is an important goal and one that becomes 
particularly important when it is paired with potential civil monetary 
penalties. The additional time provided to the public before the rule 
takes effect constitutes an extra quarter and will assist stakeholders 
in preparing to comply with these new program requirements.

II. Analysis and Responses to Public Comments

    In the interim final rule, we solicited comments regarding whether 
HHS should delay the January 5, 2017 final rule to May 22, 2017, or 
alternatively to October 1, 2017. We received a broad range of 51 
comments from covered entities, manufacturers, and groups representing 
these stakeholders. In this final rule, we will only be responding to 
comments related to whether HHS should delay the January 5, 2017 final 
rule to May 22, 2017, or to October 1, 2017. Comments that raised 
issues beyond the narrow scope of the interim final rule, including 
comments related to withdrawal of the rule or comments related to 
policy matters, were not

[[Page 22894]]

considered and are not addressed in this rulemaking. We have summarized 
the relevant comments received and provided our responses below.
    Comment: Some commenters supported the May 22, 2017, effective date 
and opposed further delaying the final rule until October 1, 2017. The 
commenters explain that adequate enforcement of manufacturers' pricing 
obligations is key to the success of the 340B Program. These commenters 
also suggest that further delay of the final rule would result in a 
lack of oversight, regulation and basic enforcements for manufacturers, 
which would continue to hamper the 340B Program and lessen covered 
entities' ability to stretch scarce resources.
    Response: HHS decided to delay the effective date of the January 5, 
2017 final rule to October 1, 2017, to provide affected parties 
sufficient time to make needed changes to facilitate compliance. Given 
the comments received from stakeholders on the interim final rule 
regarding the challenges with complying with the January 5, 2017 final 
rule, HHS determined that delaying the effective date to October 1, 
2017, is necessary to provide adequate time for compliance and to 
mitigate implementation concerns. HHS disagrees that further delay of 
the final rule would result in a lack of oversight, regulation, and 
basic enforcements for manufacturers.
    Comment: Many commenters opposed further delaying the effective 
date to October 1, 2017, and suggested that the final rule be enforced 
immediately. These commenters noted that overcharges in the 340B 
Program were a widespread problem and that during 2003 and 2005, the 
HHS Office of the Inspector General (OIG) issued a report,\2\ which 
found that HRSA lacked the necessary oversight mechanisms to ensure 
that covered entities pay at or below the 340B ceiling price. The 
commenters further noted that because of these deficiencies, Congress 
amended the 340B statute to improve manufacturer compliance by 
directing HRSA to implement standards for calculating ceiling prices 
and establish civil monetary penalties for manufacturers that knowingly 
and intentionally overcharge 340B covered entities. Commenters said 
that these standards were to be implemented in 2010 and given the long 
delay in promulgating regulations, they do not support any further 
delay of the January 5, 2017 final rule. The commenters stated that 
civil monetary penalties are needed now because they are the only 
viable penalty that HRSA can impose on manufacturers that violate their 
340B pricing obligations.
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    \2\ See: OIG, Deficiencies in the Oversight of the 340B Drug 
Pricing Program (October 2005).
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    Response: HHS does not agree that that the final rule should be 
enforced immediately. We are delaying the effective date of the January 
5, 2017 final rule to October 1, 2017, to ensure that affected parties 
have sufficient time to make changes needed to facilitate compliance, 
which we believe will benefit all 340B stakeholders and enhance program 
integrity.
    Comment: Some commenters raised concerns that the interim final 
rule did not satisfy APA requirements for rulemaking. Specifically, 
they argued that HHS had not shown good cause for delaying the 
effective date of the January 5, 2017 final rule without prior notice 
or opportunity for public comment and making that change effective 
immediately upon publication in the Federal Register.
    Response: HHS disagrees that the good cause exemptions of the APA 
do not apply here. Our finding that good cause existed to waive the 
normal rulemaking requirements of the APA was based on our view that in 
this limited instance notice and public comment was impracticable, 
unnecessary, or contrary to the public interest. Because completion of 
a rulemaking with notice and comment procedures would not occur until 
after the previously announced effective date, we believe a delay in 
determining the effective date would create confusion that could 
disrupt orderly implementation of the January 5, 2017 final rule, and 
would be impracticable, unnecessary, and contrary to the public 
interest. In addition, we reiterate that we remain concerned that the 
original effective date for the January 5, 2017 final rule did not 
allow for sufficient time to consider the regulatory burdens that may 
be posed and did not provide stakeholders sufficient time to come into 
compliance with the new program requirements in the final rule. While 
there was good cause to amend the effective date of the January 5, 2017 
final rule, without prior notice or opportunity for public comment and 
to make the action immediately effective, we note that we implemented 
the action on an interim basis only and provided notice and an 
opportunity for comment on the further delay of the effective date of 
the final rule to October 1, 2017. Based on the foregoing 
considerations as well as the comments received on our proposal in the 
interim final rule to further delay the effective date, we are delaying 
the effective date of the final rule to October 1, 2017.
    Comment: Many commenters supported further delaying the effective 
date to October 1, 2017, at a minimum, and agreed with HHS that more 
time was needed for stakeholders to come into compliance.
    Response: HHS agrees with the commenters and has decided to delay 
the effective date of the January 5, 2017 final rule to October 1, 
2017.

III. Regulatory Impact Analysis

    HHS examined the effects of this final 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 (Pub. L. 96-
354, September 19, 1980), 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

[[Page 22895]]

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).
    HHS does not believe the proposal to delay the effective date of 
the January 5, 2017 final rule will have an economic impact of $100 
million or more, and is therefore not designated as an ``economically 
significant'' final rule under section 3(f)(1) of the Executive Order 
12866. Therefore, the economic impact of having no rule in place 
related to the policies addressed in the final rule is believed to be 
minimal, as the policies would not yet be required or enforceable.

The Regulatory Flexibility Act (RFA)

    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 3 percent impact on at least 5 
percent of small entities.
    For purposes of the RFA, HHS considers all health care providers to 
be small entities either by meeting the Small Business Administration 
(SBA) size standard for a small business, or for being a nonprofit 
organization that is not dominant in its market. The current SBA size 
standard for health care providers ranges from annual receipts of $7 
million to $35.5 million. As of January 1, 2017, over 12,000 covered 
entities participate in the 340B Program, which represent safety-net 
health care providers across the country. HHS determined, and the 
Secretary certifies that this final rule will not have a significant 
impact on the operations of a substantial number of small 
manufacturers; therefore, we are not preparing an analysis of impact 
for this RFA. HHS estimates the economic impact on small entities and 
small manufacturers will be minimal.

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.'' During 2013, that threshold level was 
approximately $141 million. HHS does not expect this final rule to 
exceed the threshold.

Executive Order 13132--Federalism

    HHS reviewed this final rule in accordance with Executive Order 
13132 regarding federalism, and has determined that it does not have 
``federalism implications.'' This final 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.'' 
This final rule 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.

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 final rule is 
projected to have no impact on current reporting and recordkeeping 
burden for manufacturers under the 340B Program. This final rule would 
result in no new reporting burdens.

    Dated: May 10, 2017.
George Sigounas,
Administrator, Health Resources and Services Administration.
    Approved: May 15, 2017.
Thomas E. Price,
Secretary, Department of Health and Human Services.
[FR Doc. 2017-10149 Filed 5-18-17; 8:45 am]
 BILLING CODE 4165-15-P