Notice Regarding 340B Drug Pricing Program-Contract Pharmacy Services, 10272-10279 [2010-4755]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES
• Health Resources and Services Administration

[Federal Register Volume 75, Number 43 (Friday, March 5, 2010)]
[Notices]
[Pages 10272-10279]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-4755]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Resources and Services Administration


Notice Regarding 340B Drug Pricing Program--Contract Pharmacy 
Services

AGENCY: Health Resources and Services Administration, HHS.

ACTION: Final notice.

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SUMMARY: Section 602 of Public Law 102-585, the ``Veterans Health Care 
Act of 1992'' enacted Section 340B of the Public Health Service Act 
(PHS). Section 340B implements a drug pricing program by which 
manufacturers who sell covered outpatient drugs to particular covered 
entities listed in the statute must agree to charge a price that will 
not exceed the amount determined under a statutory formula. The purpose 
of this Final Notice is to inform interested parties of final 
guidelines regarding the utilization of multiple contract pharmacies 
and suggested contract pharmacy provisions, which had been previously 
limited to the Alternative Methods Demonstration Project program.

FOR FURTHER INFORMATION CONTACT: Mr. Jimmy Mitchell, Director, Office 
of Pharmacy Affairs (OPA), Healthcare Systems Bureau (HSB), Health 
Resources and Services Administration (HRSA), 5600 Fishers Lane, 
Parklawn Building, Room 10C-03, Rockville, Maryland 20857 or by 
telephone through the Pharmacy Services Support Center at 1-800-628-
6297.

DATES: Effective Date: April 5, 2010.

SUPPLEMENTARY INFORMATION:

A. Background

    Proposed guidelines for contract pharmacy services were announced 
in the Federal Register at 72 FR 1540 on January 12, 2007. A comment 
period of 60 days was established to allow interested parties to submit 
comments. HRSA, HSB, acting through the OPA, received 32 comments 
concerning the proposal.
    In 1996, HRSA issued guidelines that permitted covered entities 
participating in the 340B Drug Pricing Program to contract with a 
pharmacy to provide services to the covered entity's patients (61 FR 
43549, August 23, 1996). Those guidelines permitted a covered entity to 
use a single point for pharmacy services, either an in-house pharmacy 
or an

[[Page 10273]]

individual contract pharmacy. Since 2001, covered entities that have 
wanted to use other types of arrangements, or to blend the method of 
providing services (e.g. contract pharmacy to supplement an in-house 
pharmacy) have needed to apply to the OPA for an Alternative Methods 
Demonstration Project (AMDP) and secure approval in order to proceed.
    It is important for all covered entities to keep in mind that use 
of a contract pharmacy arrangement (single, multiple or AMDP) does not 
lessen a covered entity's duty to ensure that the 340B program is being 
administered in compliance with the statute and HRSA guidelines. The 
covered entity has, and continues to bear, full responsibility and 
accountability for compliance with all requirements to prevent 
diversion of covered drugs to individuals other than patients of the 
covered entity, and to prevent situations in which a drug is subject to 
both the 340B discount and a Medicaid Rebate claim. Covered entities 
will be permitted to use multiple pharmacy arrangements as long as they 
comply with guidance developed to help ensure against diversion and 
duplicate discounts and the policies set forth regarding patient 
definition. Auditable records must be maintained to demonstrate 
compliance with those requirements. Such records must be maintained for 
as long as required by Federal, State and local law. Additionally, 
compliance with 340B requirements and guidelines does not excuse 
individual providers, covered entities, pharmacies, wholesale 
distributors or manufacturers from adherence to all other local, State 
or Federal requirements.
    Covered entities should also be mindful that use of a contract 
pharmacy is voluntary. Covered entities are not required to use 
multiple contract pharmacies or any contract pharmacy at all. Each 
covered entity should conduct its own business review and patient 
assessment to determine what level of pharmacy services is needed, and 
the appropriate delivery mechanism for those services.
    We received many comments in support of the proposal. Many of these 
came from covered entities that participate in 340B and highlighted how 
their delivery of patient care would be enhanced with a multiple 
contract pharmacy option. According to these comments, some patients 
currently face transportation barriers or other obstacles that limit 
their ability to fill their prescriptions. It would be a significant 
benefit to patients to allow the use of more easily accessible, 
multiple contract pharmacy arrangements by covered entities. This would 
permit covered entities to more effectively utilize the 340B program 
and create wider patient access by having more inclusive arrangements 
in their communities which would benefit covered entities, pharmacies 
and patients served.
    Comments raised a number of issues: Audits; protecting against 
diversion; network models; limits on the number or location of contract 
pharmacies; and the need for model agreement provisions and 
certification procedures. Also addressed was the potential impact on 
manufacturers, pharmacies, covered entities and patients. Additional 
comments challenged the sufficiency of the data used to justify the 
changes, and questioned whether the proposed notice was in compliance 
with the Administrative Procedure Act.
    The following section presents a summary of all major comments, 
grouped by subject, and a response to each grouping. All comments were 
considered in developing this Final Notice, and changes were made 
accordingly. Other changes were made to improve clarity and 
readability.

B. Comments and Responses

(1) Administrative Procedure Act (APA) Compliance

    Comment: The proposed revisions represent a substantive rulemaking 
under the APA because they constitute new obligations and burdens on 
manufacturers. They also create new rights for covered entities under 
the law.
    Response: HRSA disagrees. This guidance neither imposes additional 
burdens upon manufacturers, nor creates any new rights for covered 
entities under the law. HRSA has used interpretive guidance and 
statements of policy to provide guidance since the inception of the 
program and to create a working framework for its administration. 
Contract pharmacy service guidelines have been considered by HRSA to be 
``interpretative rules and statements of policy'' exempt from notice 
and comment rulemaking under the APA. Nonetheless, HRSA has published 
these guidelines in the Federal Register and provided a public comment 
period to obtain input into guideline development. The present 
guidelines used this same process. HRSA has considered all comments, 
both Federal and public, in developing the Final Guidelines.
    Comment: Eleven demonstration projects out of a total of 12,000 
covered entities do not give HRSA enough data to expand the scope of 
the contract pharmacy model. An additional demonstration project, with 
not less than 100 sites, should be the next step to further evaluate 
risks and benefits of the expanded model.
    Response: At the time of publication of the proposed guidance there 
had been 18 demonstration projects. HRSA realizes that only a small 
percentage of covered entities have gone through the AMDP process. HRSA 
is working with the data that exists, which was overwhelmingly 
supportive of the guidelines. Although there have been a limited number 
of AMDPs approved, some of the approved projects included a large 
number of health care sites and contract pharmacies. The number of 
participating health care sites exceeded 50 and the number of contract 
pharmacy sites was over 170. The results of the AMDP are not the only 
basis for issuing this guidance. The circumstances surrounding pharmacy 
practice and the resources available to track transactions have changed 
substantially over the past decade. The AMDP provides concrete examples 
of the ability of covered entities to utilize multiple contract 
pharmacies without sacrificing program integrity. Upon review of the 
evidence and current circumstances, HRSA does not find sufficient basis 
to continue limiting contract pharmacies to a single site. The 
restriction has imposed its own costs by restricting the flexibility of 
covered entities in meeting the needs of their patients. Furthermore, 
pharmacy and inventory management processes are available that make 
utilization of more than one pharmacy readily feasible for many covered 
entities without increasing the risk of diversion. The use of multiple 
contract pharmacies is not appropriate for all covered entities; 
however, we do not find a blanket restriction on all covered entities 
to be justified.

(2) Audits

    Many commenters presented varying perspectives on the topic of 
audits. Multiple comments from drug manufacturers argued that 
manufacturers should be given the ability to audit covered entities 
that use multiple pharmacy contracting services due to the heightened 
risk of drug diversion and duplicate discounts. Other comments focused 
on HRSA audit requirements, arguing that they should be identical to 
the current standards required for the AMDP. Finally, some comments 
supported not having an audit requirement, arguing that audits would be 
burdensome and costly for the covered entities.
    Comment: The audit requirements from the AMDP process should be 
applied to multiple contract pharmacies. There is no evidence of 
diversion and duplicate discounts

[[Page 10274]]

because of the audit requirements. Their elimination may lead to 
increased diversion and duplicate discounts. Some commenters 
recommended retaining the audit requirements for at least a few years 
until a track record of compliance with multiple contract pharmacies 
can be created. Audits should include a full compliance review of all 
mandatory contract terms/requirements including implementation of 
tracking system, patient status verification, and providing information 
about other pharmacy options.
    Response: Although HRSA does not believe that precisely the same 
procedures are appropriate as utilized under the AMDP, HRSA agrees that 
independent audits can play an important role in ensuring program 
integrity. The guidelines have been revised to state that the covered 
entity must have sufficient information to meet its obligation of 
ensuring ongoing compliance and the recognition of any problem. 
Furthermore, the guidelines have been revised to indicate that it is 
the expectation of HRSA that covered entities will fulfill their 
ongoing obligation by the utilization of independent audits. However, 
HRSA leaves it up to covered entities to determine how to meet their 
compliance responsibilities. The guidelines intentionally do not 
specify the precise method, personnel or items for ensuring sufficient 
information is obtained by the covered entity. As long as covered 
entities comply with their obligations under the guidelines, HRSA 
prefers to leave the method of compliance to the judgment of the 
covered entities.
    To the extent that any internal compliance activity or audit 
performed by a covered entity indicates that there has been a violation 
of 340B program requirements, it is HRSA's expectation that such 
finding be disclosed to HRSA along with the covered entity's plan to 
address the violation.
    Comment: A copy of the audits conducted by covered entities should 
be submitted to OPA. The results of such audit should be made available 
to manufacturers.
    Response: HRSA does not feel there is a need for the automatic 
submission of audits conducted by covered entities. HRSA believes that 
there are already appropriate safeguards in place. Covered entities are 
required to maintain auditable records sufficient to demonstrate 
continued compliance with 340B requirements; and, to the extent that a 
situation warrants, HRSA will request copies of any internal compliance 
documents of covered entities.
    Comment: Covered entities should be required to conduct audits of 
their contract pharmacies and be required to terminate the contract 
with pharmacies found to be in violation.
    Response: As noted earlier, HRSA agrees that audits can play an 
important role in ensuring integrity, and that covered entities are 
required to have sufficient information to ensure against diversion and 
duplicate discounts. The extent to which an audit of the contract 
pharmacy or other arrangement is necessary to satisfy that obligation 
will depend upon the individual circumstances. Covered entities have 
the responsibility to have agreements with contract pharmacies and 
procedures in place sufficient to enable the covered entity to meet its 
obligations under the law, including the prohibition on diversion and 
duplicate discounts. While an audit capability and various grounds for 
termination are terms that could be included in such contracts, there 
is no requirement in the guidelines for such terms. However, covered 
entities are reminded that they retain ultimate responsibility for 
compliance with the 340B program. Covered entities may be well-served 
by ensuring that compliance terms are included in their pharmacy 
contracts. To the extent that covered entities uncover these problems, 
the appropriate response is to report those problems to HRSA and ensure 
that they are properly addressed.
    Comment: Manufacturers should be permitted to audit covered 
entities that use multiple contract pharmacy services. No reasonable 
cause should be required, due to heightened risk of diversion.
    Response: We do not agree that utilization of more than one 
contract pharmacy creates automatic cause to suspect diversion. The 
issue as to whether additional audits by an outside manufacturer are 
permitted is addressed in the guidance published in the Federal 
Register on that issue (61 FR 65406, December 12, 1996). To the extent 
a manufacturer believes there is a reasonable basis to conclude that a 
covered entity is in breach of program requirements, it may audit a 
covered entity consistent with these guidelines. Additionally, HRSA has 
developed a dispute resolution process to provide parties with an 
informal mechanism to bring before the Department allegations of 
behavior that are in violation of 340B. For further guidance on the 
audit and dispute resolution process see 61 FR 65406 (December 12, 
1996). As indicated in this guidance, covered entities and contract 
pharmacies must retain auditable records of 340B covered drug 
transactions sufficient to demonstrate compliance with the requirements 
to ensure against diversion to non-patients and against duplicate 
discounts.
    Comment: It would be burdensome for covered entities to provide 
reports and data for audits. It is unclear who would be required to 
construct the actual components of the audit, what would be included, 
and who would pay for it.
    Response: HRSA would like to remind all 340B stakeholders that it 
is an option for covered entities to voluntarily enter into contract 
pharmacy arrangements. Each covered entity is encouraged to conduct its 
own analysis of the costs and benefits of implementing or expanding 
their pharmacy services. It is the responsibility of the covered entity 
to ensure against diversion and duplicate discounts. Covered entities 
may determine how to best meet that responsibility: By performing a 
separate audit, including spot audits as part of pre-existing auditing 
responsibilities, or via other mechanisms. HRSA believes that including 
these issues as part of an independent audit is the best but not 
necessarily the only approach to meet covered entities' ongoing 
responsibility to know that their covered outpatient drugs are being 
appropriately ordered and distributed to their patients.

(3) Diversion

    Comment: The proposed guidelines do not adequately describe 
safeguards that will combat drug diversion and duplicate discounts. 
There should be more severe penalties for violations, especially 
duplicate discounts. Reimbursement of any inappropriate discounts is 
insufficient and will not deter bad behavior. A covered entity should 
be excluded from 340B if it continues to use a pharmacy found to be in 
violation of the program.
    Response: HRSA believes that there are appropriate safeguards in 
place, based on the parameters of the program. HRSA has the ability to 
exclude covered entities that abuse the program. HRSA has no statutory 
authority to assess additional penalties beyond the authority provided 
in section 340B. However, to the extent HRSA is aware that an action by 
a covered entity or contract pharmacy may be a violation of the law, 
such cases are referred to appropriate authorities.
    Comment: The proposed guidance appears to limit the need to 
segregate records for easy accessibility by auditors rather than for 
purposes related to ensuring there is no diversion. Is this intended, 
or is segregation, virtual or

[[Page 10275]]

otherwise, still expected to be used by the contract pharmacy as a 
method of showing that diversion has not occurred?
    Response: All covered entities are required to have auditable 
records sufficient to fully demonstrate compliance with all 340B 
requirements. Any covered entity that chooses to utilize a contract 
pharmacy must ensure that any such contract fully addresses that 
requirement and has the responsibility to ensure that the contract is 
actually performed and administered in compliance with those 
requirements. Inventory and record segregation is one of many methods 
that can be used to ensure compliance with the program guidelines. HRSA 
does not intend to limit the methods covered entities may use in order 
to remain in compliance with the guidelines. As noted previously, 
covered entities and contract pharmacies must retain auditable records 
of 340B covered drug transactions sufficient to demonstrate compliance 
with the requirements to ensure against diversion to non-patients as 
well as duplicate discounts.
    Comment: Covered entities should be required to maintain and 
provide to HRSA and manufacturers written policies and procedures for 
preventing diversion and duplicate discounts in their contract pharmacy 
services.
    Response: The ultimate responsibility for compliance with all 
aspects of the 340B program lies with each covered entity. The contract 
arrangements between covered entities and outside pharmacies will have 
various terms and procedures, which are acceptable as long as there are 
no violations of the program. It is expected that all covered entities 
will have written policies and procedures for preventing diversion and 
duplicate discounts as part of their obligations to prevent diversion 
and duplicate discounts. They are also required to maintain auditable 
records. HRSA will not automatically require covered entities to submit 
such policies and procedures for HRSA review.

(4) Contract Pharmacy Services Mechanism--Potential Alternatives to 
Single Location/Single Pharmacy Model

    Comment: HRSA should permit separate covered entity sites to enter 
into one comprehensive agreement between the sites and a single 
contract pharmacy, instead of requiring a separate agreement for each 
site. Additionally, HRSA should permit a covered entity to enter into 
one comprehensive agreement with a chain pharmacy binding on multiple 
locations of the chain, instead of requiring a separate agreement for 
each contract pharmacy site.
    Response: Each covered entity retains its own responsibility for 
compliance with the program. With respect to a covered entity with 
multiple sites, HRSA agrees that a single covered entity may contract 
for sites that are integral parts of the covered entity and for which 
it has legal control of so long as all of the requirements are met in 
the contract. This approach maintains and recognizes the central 
responsibility of the covered entity. In the case of agreements with 
``chain pharmacies,'' there appears to be potential for loss of 
accountability without a clearly established relationship between the 
actual pharmacy site and the covered entity. Covered entities are not 
precluded from entering into agreements with chain pharmacies, however, 
each participating pharmacy location must be listed on the contract and 
comply with the requirements.
    Comment: One comment suggested that HRSA should clarify the 
definition of ``multiple.'' The commenter interprets ``multiple'' to 
mean that an FQHC could contract with more than one pharmacy, including 
more than one site of a chain pharmacy, more than one independent 
pharmacy, or a combination of chain sites and independent pharmacies. 
Additionally, the commenter interprets ``multiple'' to mean that a 
covered entity with an in-house pharmacy could use any acceptable 
contract pharmacy arrangement to supplement the in-house pharmacy. The 
commenter encourages OPA to adopt this interpretation in the final 
guidance.
    Response: HRSA agrees with the comment about the meaning of 
``multiple'' and believes that the Final Notice is clear with respect 
to this meaning.
    Comment: Does a covered entity that currently has an agreement with 
only one contract pharmacy need to revise its agreement with that 
pharmacy if the entity subsequently enters into agreements with 
additional pharmacies?
    Response: The covered entity may need to revise its existing 
contract, depending on the terms that it contains. There is no 
requirement in the guidelines to revise contracts, as long as they meet 
the criteria outlined. All entities are encouraged to seek competent 
counsel to assess their needs.
    Comment: The proposed guidelines do not provide cautionary language 
about possible negative results of implementing a multiple contract 
pharmacy model. Some small pharmacies that currently contract with 
covered entities may be hurt by implementation of the guidance due to 
reduced business. More guidance and decision analysis tools should be 
provided to guide the process of deciding whether to implement.
    Response: HRSA notes that participation in any multiple contract 
pharmacy models is completely voluntary. All stakeholders are 
encouraged to conduct a full business analysis to determine whether to 
implement a multiple contract pharmacy model before moving forward. 
HRSA also provides free technical assistance for covered entities, 
including assistance with business analysis, to help navigate these 
issues. Ultimately, the decisions and responsibility for those 
decisions lies with the covered entity.

(5) Network Models

    Comment: Multiple commenters proposed that network arrangements 
(i.e. arrangements involving a network of more than one covered entity) 
should be permitted under the guidelines without prior approval from 
HRSA. They argued that network arrangements would decrease the burden 
on covered entities and contract pharmacies by simplifying the 
contracting process and maintaining multiple inventory records. They 
also made the point that networks would also encourage parties to 
participate in 340B and therefore, expand access to eligible patients.
    Response: HRSA understands the comments that a network model might 
potentially ease the administrative burden for participants in some 
cases. However, due to ongoing concerns about maintaining the integrity 
of the program with such complex arrangements, at this time, we decline 
to include network models in the guidelines without the added scrutiny 
of the AMDP process. HRSA will reassess the appropriateness of the 
utilization of networks outside the AMDP process as sufficient 
experience with them is gained in the future.
    Comment: Some comments urged HRSA not to permit networks of 
multiple covered entities outside the framework of the AMDP process and 
requested confirmation that under the new guidance the development of a 
network of 340B covered entities will remain subject to the entire 
process now applicable to the AMDPs.
    Response: HRSA agrees that covered entity networks should remain 
under the AMDP process, as indicated in the response to the prior 
comment.
    Comment: ``All covered entities participating'' language is 
unclear. Does it mean a covered entity with multiple sites, a network 
model, or a DSH would need to name each covered entity that

[[Page 10276]]

has an agreement with a pharmacy under contract with the covered 
entity? If so, that would be burdensome on the entity, which would need 
to research and identify other covered entities that may contract with 
a particular pharmacy. What is the justification for requiring a 
covered entity to specify the names and 340B ID numbers of other 
participating covered entities?
    Response: If a covered entity wants to use any alternative to a 
single location/single pharmacy model, it must submit its name and 340B 
identification number, and the names of all participating pharmacies to 
HRSA. Network models will still need to go through the AMDP process. 
The commenter is correct that the ``all covered entities 
participating'' language is unclear, because such arrangements only 
apply to a single covered entity. The language has been changed in 
response to this comment.
    Comment: The guidelines should limit the numbers and geographical 
locations (not over State lines) for contract pharmacy relationships. 
Perhaps contract pharmacies should only be added one at a time. 
Monitoring various sites by the covered entity may be extremely 
difficult unless safeguards are in place.
    Response: HRSA understands the commenter's concerns, but at this 
point, HRSA declines to limit the number of arrangements, as long as 
each arrangement meets our guidelines. Each covered entity retains the 
obligation to ensure its program remains compliant with the guidelines. 
HRSA does not intend to prescribe the methods covered entities use to 
run their programs or to ensure compliance at this time. Each covered 
entity and contract pharmacy is responsible for ensuring that its 
particular contracting arrangements and operations conform to the 
requirements of all applicable Federal, State and local laws and 
regulations.

(6) Model Agreement Provisions/Covered Entity Compliance Elements

    In the final guidelines the phrase ``Model Agreement Provisions'' 
has been changed to ``Covered Entity Compliance Elements'' to better 
reflect the purpose of the elements and to distinguish them from model 
contract provisions.
    Comment: Covered entities with multiple contract pharmacy 
arrangements should have written contracts with each pharmacy, 
including procedures to ensure against drug diversion and duplicate 
discounts, to maintain records available for audit, and to meet all 
other 340B requirements. Covered entities should submit these contracts 
and procedures to HRSA.
    Response: HRSA agrees in part, which is why the guidelines do 
require a covered entity to have a contract that specifies all 
participating pharmacy locations. Such contracts must include adequate 
terms to ensure compliance with all aspects of the 340B program as 
listed in the Covered Entity Compliance Elements. However, at this 
time, HRSA does not have the need, or the resources to collect and 
review each contract. The covered entity bears responsibility for 
compliance with the program and will be held accountable in the event 
of non-compliance.
    Comment: HRSA should create a single list of model contract terms, 
add suggested language on duplicate discount prohibition, and require 
covered entities to certify that their contracts use these terms or 
apply to HRSA for approval to use alternative terms.
    Response: The Appendix of the guidelines does include a list of 
suggested contract provisions. HRSA has included provisions necessary 
to ensure that covered entities and contract pharmacies understand and 
agree not to violate 340B provisions. Because of the wide diversity of 
covered entities, it would be impossible to include provisions that 
would respond to the needs of all covered entities.
    Comment: Manufacturers should be allowed to request copies of the 
contracts between the covered entities and contract pharmacies.
    Response: Manufacturers are certainly permitted to request copies 
of such contracts, however, HRSA declines to mandate that covered 
entities must provide copies of contracts upon any request. In the 
event a manufacturer demonstrates a reasonable need for the copy of a 
contract and its request for a copy of the contract has been denied, 
the manufacturer may ask OPA to obtain a copy. The suggested Covered 
Entity Compliance Elements include providing a copy of the contract 
pharmacy service agreement upon the request of the Office of Pharmacy 
Affairs.
    Comment: The Appendix provisions impose additional requirements not 
discussed in Section (3) of the proposed guidance and the suggested 
provisions in Section (3) do not appear in the Appendix. The Appendix 
does not mention the 340B prohibition on duplicate discounts.
    Response: The Suggested Contract Provisions, found in the Appendix 
of the Guidelines, are not meant to be comprehensive, exhaustive, or 
required. They offer a model format and sample provisions, but are not 
intended to be used as the complete terms of the contract.
    Comment: Covered entities should not be permitted to use 
alternative mechanisms other than the model agreement provisions. The 
use of alternatives would increase OPA's oversight responsibilities, 
which may lead to different standards or the potential for abuse. A 
commenter also cited GAO/OIG reports on lack of oversight of the 
program to support his/her assertion that the model provisions should 
be required.
    Response: The Covered Entity Compliance Elements are not intended 
to be required contract provisions. All covered entities must certify 
that all of the elements have been addressed; however, HRSA gives the 
covered entities the discretion to negotiate contract provisions 
suitable to their individual circumstances and jurisdictions. The 
various complexities of covered entities and the pharmacies with whom 
they will contract led HRSA to permit flexibility between the parties 
in designing their contract terms. HRSA does not intend to review 
contracts. As under the previous guidelines, the covered entity is 
ultimately responsible for assuring full compliance with 340B.
    HRSA disagrees with the comment that recent reports by the GAO and 
the OIG would support the creation of a standard uniform contract. HRSA 
has worked diligently to implement the recommendations of both the GAO 
and the OIG, and HRSA does not believe that dictating to covered 
entities specific contract language that must be used in all contracts 
regardless of individual circumstances would assist in those efforts at 
this time.

(7) Miscellaneous Comments

    Comment: Anti-kickback provisions may prohibit pharmacies from 
offering Medication Therapy Management and Pharmacy by Mail activities 
that would be beneficial to 340B and patients.
    Response: Covered entities are not exempt from anti-kickback 
provisions. Section 340B does not authorize HRSA to grant any 
exceptions whether beneficial or not. It is recommended that covered 
entities get competent professional legal advice when appropriate.
    Comment: In section B(3)(c), the proposal states that the 
manufacturer is not required to offer the 340B drug price if the 
patient declines to use the contract pharmacy. If however, the 
manufacturer does extend the 340B price in this case, please clarify 
whether this extension sets a new best price for the drug.

[[Page 10277]]

    Response: The 340B drug pricing program does not restrict the 
prices that manufacturers voluntarily choose to offer to patients 
outside the parameters of the program. Whether such actions serve to 
set a new best price for a drug is beyond the scope of this guidance. 
We encourage anyone with specific best price questions to consult with 
the Centers for Medicare & Medicaid Services.
    Comment: To prevent drug diversion, an additional contract 
requirement should be added that the contract pharmacy may not fill or 
refill a prescription using 340B medications until the covered entity 
confirms that the individual is a patient of the entity at the time the 
prescription is filled. There should also be an independent, annual 
audit to review the covered entity's policies and procedures for 
patient verification.
    Response: The program guidelines for 340B make it clear that only 
individuals who are patients of the covered entity are eligible for 
drugs purchased under the program. Like all other program requirements, 
responsibility for compliance lies with the covered entity, which must 
structure agreements and systems appropriately to ensure that diversion 
does not occur. Technical assistance may be available for help with 
implementation and compliance for the 340B program, and maximizing the 
value of comprehensive pharmacy services for their patients. However, 
HRSA has chosen not to require time-of-services verification as 
suggested in the comment.
    Comment: Pharmacy records from contract pharmacies should be made 
available to covered entities to ensure patient safety and continuity 
of care.
    Response: HRSA agrees that this might be beneficial for patient 
care and encourages the parties to include such terms in their contract 
agreements. However, this is a decision which will be left to the 
contracting parties. In any case, the covered entity must have 
sufficient records or direct access to records for the covered entity 
to meet its responsibility to ensure compliance and to provide a 
complete audit trail to verify that there is no diversion or duplicate 
discounts.
    Comment: HRSA should include in its final guidance and suggested 
contract provisions, language to reinforce that all savings from the 
340B program should remain with the covered entity. Without written 
guidance, all savings will not be returned to the covered entity.
    Response: HRSA agrees that the intent of the 340B program was to 
permit the covered entities to stretch scarce Federal resources, and 
that the benefit of the program was intended to accrue to the covered 
entities. However, the covered entity is free to negotiate how it 
chooses to use any such funds as it sees fit. For example, the covered 
entity is free to choose to use those dollars to pay contract 
pharmacies for their services or for extra services such as delivery.

C. Contract Pharmacy Services Mechanism

    These final guidelines replace all previous 340B Program guidance 
documents addressing non-network contract pharmacy services, including, 
but not limited to, the ``Notice Regarding Section 602 of the Veterans 
Health Care Act of 1992; Contract Pharmacy Services,'' (61 FR 43549) 
and any individual correspondence issued by HRSA on the subject.

(1) Basic Compliance Issues in Utilization of Pharmacy Services 
Contracts

    A covered entity that wishes to utilize contract pharmacy services 
to dispense section 340B outpatient drugs must have a written contract 
in place between itself and a specified pharmacy. A single covered 
entity that has more than one 340B eligible site at which it provides 
health care may have individual contracts for each such site or include 
multiple sites within a single pharmacy services contract. This 
mechanism is designed to facilitate program participation for those 
covered entities that do not have access to available or appropriate 
``in-house'' pharmacy services, those covered entities that have access 
to ``in-house'' pharmacy services but wish to supplement these 
services; and covered entities that wish to utilize multiple contract 
pharmacies to increase patient access to 340B drugs. The covered entity 
has the responsibility to: Ensure against illegal diversion and 
duplicate discounts; maintain readily auditable records; and meet all 
other 340B Drug Pricing Program requirements (See: https://www.hrsa.gov/opa/introduction.htm). HRSA has provided essential covered entity 
compliance elements below as guidance for the type of contractual 
provisions expected in such agreements. Suggested contract provisions 
are also in the Appendix. All covered entities utilizing a contract 
pharmacy must comply with the certification requirements described in 
(5) below.

(2) Potential Alternatives to Single Location/Single Pharmacy Model

    In addition to contracting with a single pharmacy for each clinical 
site, covered entities may pursue more complex arrangements that 
include multiple pharmacies only if: (a) There is a written agreement 
and procedures that meet the requirements outlined above in (1) between 
the covered entity and each pharmacy; (b) the written agreement 
includes, and fully addresses, all of the essential elements outlined 
in (3) and (4) below and a full listing of all pharmacy locations that 
may be utilized under that agreement; (c) the operation under the 
contract continues to meet all 340B Drug Pricing Program requirements 
and does not create diversion of covered drugs or duplicate discounts; 
(d) the arrangements are one of the two following models either 
individually or in combination: (i) The use of multiple contract 
pharmacy service sites, and/or (ii) the utilization of a contract 
pharmacy(ies) to supplement in-house pharmacy services (the use of 
multiple contract pharmacy service sites refers to any arrangement 
wherein a covered entity site seeks to provide drugs at 340B discounted 
prices for its patients at more than one pharmacy location). 
Supplementing in-house pharmacy services with a contract pharmacy 
refers to any arrangement wherein a covered entity site purchases drugs 
at 340B discounted prices for its patients at both an in-house pharmacy 
and at least one additional contract pharmacy location; and (e) the 
arrangement involves a single identifiable 340B covered entity and does 
not include a network, or other similar arrangement, of more than one 
covered entity unless specifically authorized in writing by HRSA 
through an AMDP or by other official written authorization.

(3) Essential Covered Entity Compliance Elements

    The following are essential elements to address in contract 
pharmacy arrangements: (a) The covered entity will purchase the drug, 
maintain title to the drug and assume responsibility for establishing 
its price, pursuant to the terms of an HHS grant (if applicable) and 
any applicable Federal, State and local laws.
    A ``ship to, bill to'' procedure is used in which the covered 
entity purchases the drug; the manufacturer/wholesaler must bill the 
covered entity for the drug that it purchased, but ships the drug 
directly to the contract pharmacy. See Section 1 of Appendix. In cases 
where a covered entity has more than one site, it may choose between 
having each site billed individually or designating a single covered 
entity billing address for all 340B drug purchases.
    (b) The agreement will specify the responsibility of the parties to 
provide comprehensive pharmacy services (e.g.,

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dispensing, recordkeeping, drug utilization review, formulary 
maintenance, patient profile, patient counseling, and medication 
therapy management services and other clinical pharmacy services). Each 
covered entity has the option of individually contracting for pharmacy 
services with a pharmacy (ies) of its choice. Covered entities are not 
limited to providing comprehensive pharmacy services to any particular 
location and may choose to provide them at multiple locations and/or 
``in-house.''
    (c) The covered entity will inform the patient of his or her 
freedom to choose a pharmacy provider. If the patient does not elect to 
use the contracted service, the patient may obtain the prescription 
from the covered entity and then obtain the drug(s) from the pharmacy 
provider of his or her choice.
    When a patient obtains a drug from a pharmacy other than a covered 
entity's contract pharmacy or the covered entity's in-house pharmacy, 
the manufacturer is not required to offer this drug at the 340B price.
    (d) The contract pharmacy may provide other services to the covered 
entity or its patients at the option of the covered entity (e.g., home 
care, delivery, reimbursement services). Regardless of the services 
provided by the contract pharmacy, access to 340B pricing will always 
be restricted to patients of the covered entity.
    (e) The contract pharmacy and the covered entity will adhere to all 
Federal, State, and local laws and requirements.
    Both the covered entity and the contract pharmacy are aware of the 
potential for civil or criminal penalties if either violates Federal or 
State law. [The Department reserves the right to take such action as 
may be appropriate if it determines that such a violation has 
occurred.]
    (f) The contract pharmacy will provide the covered entity with 
reports consistent with customary business practices (e.g., quarterly 
billing statements, status reports of collections and receiving and 
dispensing records). See Section 2 of Appendix.
    (g) The contract pharmacy, with the assistance of the covered 
entity, will establish and maintain a tracking system suitable to 
prevent diversion of section 340B drugs to individuals who are not 
patients of the covered entity. Customary business records may be used 
for this purpose. The covered entity will establish a process for 
periodic comparison of its prescribing records with the contract 
pharmacy's dispensing records to detect potential irregularities. See 
Section 3 of Appendix.
    (h) The covered entity and the contract pharmacy will develop a 
system to verify patient eligibility, as defined by HRSA guidelines. 
The system should be subject to modification in the event of change in 
such guidelines.
    Both parties agree that they will not resell or transfer a drug 
purchased at section 340B prices to an individual who is not a patient 
of the covered entity. See 42 U.S.C. 256b(a)(5)(B). The covered entity 
understands that it may be removed from the list of covered entities 
because of its participation in drug diversion and no longer be 
eligible for 340B pricing. See Section 4 of Appendix.
    (i) Neither party will use drugs purchased under section 340B to 
dispense Medicaid prescriptions, unless the covered entity, the 
contract pharmacy and the State Medicaid agency have established an 
arrangement to prevent duplicate discounts. Any such arrangement shall 
be reported to the OPA, HRSA, by the covered entity.
    (j) The covered entity and contract pharmacy will identify the 
necessary information for the covered entity to meet its ongoing 
responsibility of ensuring that the elements listed herein are being 
complied with and establish mechanisms to ensure availability of that 
information for periodic independent audits performed by the covered 
entity.
    (k) Both parties understand that they are subject to audits by 
outside parties (by the Department and participating manufacturers) of 
records that directly pertain to the entity's compliance with the drug 
resale or transfer prohibition and the prohibition against duplicate 
discounts. See 42 U.S.C. 256b(a)(5)(c).
    The contract pharmacy will assure that all pertinent reimbursement 
accounts and dispensing records, maintained by the pharmacy, will be 
accessible separately from the pharmacy's own operations and will be 
made available to the covered entity, HRSA, and the manufacturer in the 
case of an audit. Such auditable records will be maintained for a 
period of time that complies with all applicable Federal, State and 
local requirements.
    (l) Upon written request to the covered entity, a copy of the 
contract pharmacy service agreement will be provided to the Office of 
Pharmacy Affairs.

(4) Ongoing Responsibility of Covered Entity To Ensure Compliance

    Covered entities are responsible for ensuring that the system of 
distribution chosen fully meets statutory obligations of ensuring 
against diversion to non-patients or creating a situation that results 
in a State Medicaid Program seeking a rebate on a discounted drug. The 
covered entity remains responsible at all times for the disposition of 
covered outpatient drugs it purchases through a contract pharmacy. 
Annual audits performed by an independent, outside auditor with 
experience auditing pharmacies are expected, although the exact method 
of ensuring compliance is left up to the covered entity. The covered 
entity must have sufficient information to ensure it is meeting that 
responsibility. Independent audits are particularly valuable where the 
covered entity utilizes multiple pharmacy options. They should follow 
standard business practices for audits, including audit trails provided 
by the entity to the auditor, and use of standard reports. The precise 
methodology utilized to ensure compliance and obtain the necessary 
information is up to the covered entity given its particular 
circumstances and, for example, might include spot audits where the 
system in place permits. Drug diversion and duplicate discounts are a 
significant concern of HRSA and all efforts to avoid these problems 
should be well documented. In the event a covered entity determines 
that drug diversion or duplicate discounts have occurred or that it is 
otherwise unable to comply with its responsibility to reasonably ensure 
compliance, then it must take immediate remedial action to assure 
compliance and notify the OPA about such compliance problems and 
actions taken to remedy those problems.

(5) Certification

    Under section 340B, if a covered entity using contract pharmacy 
services requests to purchase a covered outpatient drug from a 
participating manufacturer, the statute directs the manufacturer to 
sell the drug at a price not to exceed the statutory 340B discount 
price. If the covered entity directs the drug shipment to its contract 
pharmacy or pharmacies, the covered entity must comply, under any 
distribution mechanism, with the statutory prohibition on drug 
diversion and duplicate discounting.
    To provide HRSA and manufacturers with assurance that the covered 
entity has acted in a manner which limits the potential for drug 
diversion, covered entities should submit to OPA a certification that 
it has signed and has in effect an agreement with the contract pharmacy 
or pharmacies that satisfies both (3) and (4) above (i.e. that the 
contract(s) fully address the issues listed in (3) and that the covered 
entity has a

[[Page 10279]]

plan to meet its ongoing responsibilities to ensure compliance). The 
names of those covered entities which submit a certification, or an 
alternate mechanism approved by OPA, will be listed on the OPA Web site 
for the convenience of participating drug manufacturers and wholesaler 
distributors.
    In addition, any covered entity that has opted to utilize any 
pharmacy arrangement described in (2) must specify which arrangement or 
combination of arrangements it is utilizing and the names of any 
pharmacies participating when registering. Covered entities seeking to 
materially change this arrangement that entail changes in the covered 
entity database should notify OPA of any such proposed changes and be 
aware that some changes may require advanced notice to manufacturers 
and wholesalers as part of quarterly updates to the database.
    In order to ensure accuracy, integrity and transparency, the OPA 
may conduct a recertification process periodically (most likely 
annually) where covered entities affirmatively certify as to their 
ongoing compliance with 340B requirements. It is currently expected 
that the annual process would include certification by a duly 
authorized official: (1) That all information listed on the database 
for that covered entity is complete, accurate, and correct; (2) that 
the covered entity met the 340B eligibility requirements throughout the 
prior year and continues to do so; (3) that any contract pharmacy 
arrangement was actually performed in accordance with specified 
requirements including, but not limited to, that the covered entity 
obtained sufficient information from the contractor to ensure 
compliance with applicable policy and legal requirements; and (4) the 
methodology utilized to ensure compliance (e.g. through independent 
audit or other mechanism).

(6) Anti-Kickback Statute

    Contract pharmacies and covered entities should be aware of the 
potential for civil or criminal penalties if the contract pharmacy 
violates Federal or State law. In negotiating and executing a contract 
pharmacy service agreement pursuant to these guidelines, contract 
pharmacies and covered entities should be aware of and take into 
consideration the provisions of the Medicare and Medicaid anti-kickback 
statute, 42 U.S.C. 1320a-7b(b).

D. Appendix--Suggested Contract Provisions

    The following suggested contract provisions are included for 
illustrative purposes and are not intended to be comprehensive, 
exhaustive or required. They offer sample provisions for
    consideration, but are not intended to be used as the complete 
terms of the contract. Given the variances among many jurisdictions and 
among the numerous types of covered entities, HRSA has decided at this 
time not to include a complete model contract in this notice.
    (1) ``The covered entity owns covered drugs and arranges to be 
billed directly for such drugs. The pharmacy will compare all shipments 
received to the orders and inform the covered entity of any discrepancy 
within five (5) business days of receipt. The covered entity will make 
timely payments for such drugs delivered to the pharmacy.''
    (2) ``The covered entity will verify, using the contract pharmacy's 
(readily retrievable) customary business records, that a tracking 
system exists which will ensure that drugs purchased under the 340B 
Drug Pricing Program are not diverted to individuals who are not 
patients of the covered entity. Such records can include: Prescription 
files, velocity reports, and records of ordering and receipt. These 
records will be maintained for the period of time required by State law 
and regulations.''
    (3) ``Prior to the contract pharmacy providing pharmacy services 
pursuant to this agreement, the covered entity will have the 
opportunity, upon reasonable notice and during business hours, to 
examine the tracking system. For example, such a tracking system may 
include quarterly sample comparisons of eligible patient prescriptions 
to the dispensing records and a six (6) month comparison of 340B drug 
purchasing and dispensing records as is routinely done in other 
reconciliation procedures. The contract pharmacy will permit the 
covered entity or its duly authorized representatives to have 
reasonable access to contract pharmacy's facilities and records during 
the term of this agreement in order to make periodic checks regarding 
the efficacy of such tracking systems. The contract pharmacy agrees to 
make any and all adjustments to the tracking system which the covered 
entity advises are reasonably necessary to prevent diversion of covered 
drugs to individuals who are not patients of the covered entity.''
    (4) ``The pharmacy will dispense covered drugs only in the 
following circumstances: (a) Upon presentation of a prescription 
bearing the covered entity's name, the eligible patient's name, a 
designation that the patient is an eligible patient of the covered 
entity, and the signature of a legally qualified health care provider 
affiliated with the covered entity; or (b) receipt of a prescription 
ordered by telephone or other means of electronic transmission that is 
permitted by State or local law on behalf of an eligible patient by a 
legally qualified health care provider affiliated with the covered 
entity who states that the prescription is for an eligible patient. The 
covered entity will furnish a list to the pharmacy of all such 
qualified health care prescribers and will update the list of 
prescribers to reflect any changes. If a contract pharmacy is found to 
have violated the drug diversion prohibition, the contract pharmacy 
will pay the covered entity the amount of the discount in question so 
that the covered entity can reimburse the manufacturer.''

    Dated: March 2, 2010.
Mary K. Wakefield,
Administrator.
[FR Doc. 2010-4755 Filed 3-4-10; 8:45 am]
BILLING CODE 4165-15-P