Final Rule on 340B Program Sets Price Ceilings for Covered Drugs and Subjects Drug Companies to Fines for Overcharges

The Department of Health & Human Services (HHS) established the 340B drug discount program in the 1990s. The program allows safety-net health care organizations known as “covered entities” to enter into a pharmaceutical pricing agreement (PPA) with drug manufacturers to access lower-priced medicines. When a drug manufacturer signs a PPA and joins the Program, it agrees that the prices charged for covered outpatient drugs to covered entities will not exceed defined ceiling prices.

On January 5, 2017, HHS published a final rule to set the calculation of 340B ceiling prices and application of civil monetary penalties (CMPs) for charging above the ceiling price. This rule, effective March 6, 2017, establishes the basic ceiling price as the average manufacturer price, minus the unit rebate amount. With regard to new drugs where sufficient information to establish a 340B ceiling price is not yet available, the estimated 340B price is equal to the drug’s wholesale acquisition cost minus the statutory Medicaid Drug Rebate Program rebate applicable to the drug. The new rule requires manufacturers to offer refunds for overcharges on new drugs.

The rule provides that CMPs are not to exceed $5,000 for each instance where a drug manufacturer “knowingly and intentionally” overcharges a covered entity for a covered outpatient drug. The HHS Office of Inspector General will have authority to bring 340B CMP actions. However, the future of the final rule is uncertain as it is subject to the President’s Freeze Memo. See our Health Law Alert published with this Health Law Update.