analyzing the impact of the dra on the 340b program

1: Analyzing the Impact of the DRA on the 340B Program by Stuart Yael Gordon Director of Legal and Regulatory Affairs Safety Net Hospitals for Pharmaceutical Access 12th Annual 340B Coalition Conference July 15, 2008 Washington, DC Stuart.Gordon@safetynetrx.org � 202-552-5851

2: Deficit Reduction Act of 2005 Several drug pricing provisions within the DRA affect the 340B program: Children�s hospitals Changes to average manufacturer price (AMP) & best price Nominal pricing Reporting of NDCs for physician-administered drugs Also, changes in Medicaid reimbursement for outpatient drugs could impact 340B pharmacies adversely.

3: DRA AMP Changes: Issues for Retail Pharmacy Congress modified calculation of upper limits on Medicaid reimbursement for generic drugs by replacing pricing metrics previously used to calculate upper limits (published AWP, WAC) with AMP. Congress believed AMP would better reflect market prices. Issues for retail pharmacy: AMP is price charged to wholesaler by manufacturer for drugs then resold for use in �retail class of trade� and does not reflect wholesaler markup to retailer. CMS�s implementing regulation includes purchasers (hospitals, nursing homes) in AMP calculation not normally considered retail class. Those entities get better discounts than retail, so rule would lower pharmacy reimbursement below cost to pharmacy to acquire drugs.

4: Mandated AMP Publication Bad for Retail Pharmacy Prior to passage of DRA, AMP was confidential. DRA mandated publication of AMPs for generics AND brands on public website and sharing of AMPs with state Medicaid programs. Retail pharmacy feared publication of artificially low AMPs would lead to use by private insurers to set private reimbursement and use by State Medicaid programs of branded AMPs to set Medicaid reimbursement for brand name drugs.

5: Mandated AMP Publication Good for 340B 340B entities have always lacked the ability to verify they are receiving discounts required by law. Publication of AMPs would afford 340B providers for the first time an opportunity to verify their 340B prices: For brand names: 340B price the lower of best price or AMP � 15.1% , For generics: 340B price < AMP � 11%. BUT �July 2007 CMS implementing regulations mandated publication of AMP in 9-digit format. Publication of AMP in 11-digit NDC format would have included AMPs for the individual package sizes needed by 340B providers to verify prices of individual products.

6: Temporary Injunction: Impact on 340B NACDS and NCPA sue in November 2007 to stop CMS from implementing its AMP rule, saying new AMP definition will cause pharmacy losses that will eventually reduce beneficiary access. Temporary injunction issued by federal District Court in December 2007 prohibits distribution of AMPs outside HHS or publication on CMS web site. Court does not prohibit use of AMP formula to determine 340B prices or Medicaid rebates.

7: Temporary Injunction: Impact on 340B HRSA tells SNHPA that injunction prevents agency from verifying 340B prices, although retail pharmacies told HHS they would not object to use by HRSA for 340B pricing. Pricing pilot project and price verification services in limbo. If pharmacies win, CMS would have to re-define AMP, but re-defined AMP would still have to be published under federal law.

8: HRSA Reacts to New AMP Definition Initially took position in January 2007 letter to mfgrs that pre-DRA definition of AMP was locked in, and that changes would not affect 340B price calculations, only Medicaid reimbursement. Agency reversed its position in May 2007 letter to mfgrs, saying that new AMP and best price would be calculated the same way for Medicaid rebates and 340B.

9: DRA: Changes in Reimbursement 340B pharmacies that already bill Medicaid at AAC: AMP-based reimbursement should have minimal impact. Covered entities that carve out their Medicaid drugs from 340B: New definition of AMP will reduce Medicaid revenue from generics and could jeopardize 340B pharmacies� financial viability. GAO and OIG found significant projected reductions in reimbursement to pharmacy in use of re-defined AMP.

10: DRA: Best Price Changes � Authorized Generics In addition to change in AMP calculation, DRA changed best price calculation in two ways: Authorized generics Nominal pricing Authorized generics (brand name products with generic label allowed on market during 6-month exclusivity period) Prices of brand-name authorized generics now included in best price calculation. Intended to reduce costs for government and level playing field for generic drug manufacturers. Has resulted in increase in number of penny-priced drugs such as Desogen. Good news: Price drops for 340B entities. Bad news: Shortage of drug product as mfgrs. reduce allocation of product to 340B providers to prevent stockpiling of penny-priced drugs.

11: 340B Best Price Changes - Nominal Pricing Nominal pricing (pricing below 10% of AMP) exempted from best price calculation. To crack down on perceived marketing abuse by mfgrs, DRA limited organizations eligible to receive nominal pricing to (1) government-supported entities, (2) intermediate care facilities for the mentally retarded, and (3) any other facility or entity that the HHS Secretary determines is a �safety net provider�. Many safety net facilities (family planning clinics) lost access to nominal prices. Secretary chose not to exercise his authority to include other entities. Nominal pricing has disappeared for most legitimate and authorized 340B facilities.

12: AMP Delay - Federal Legislation H.R. 6331 would delay AMP implementation until October 1, 2009. Passed by House 6-24-08 by veto-proof majority (355-59) Passed by Senate 7-9-08 by veto-proof majority (69-30). President Bush threatening to veto bill due to inclusion of cuts in Medicare Advantage stabilization payments to plans and an alleged expansion of the Medicare program. H.R. 6331 also would further delay release posting of AMPs on public website until 10-1-09.

13: AMP & 340B Pricing Outlook Impact on 340B pricing remains unclear. Some experts predict 340B prices will decline because either AMP will decline or increases in AMP will be more than offset by inflation penalty. If AMP ends up increasing as a result of litigation win by retail pharmacy, could impact 340B pricing adversely. Bottom Line: Stay Tuned!