Drug companies will face $5,000 fines for 340B drug overcharges, HHS says

The Department of Health and Human Services on Wednesday finalized its rule regarding 340B drug pricing and set civil monetary penalties of up to $5,000 for each instance a drug manufacturer overcharges hospitals for outpatient drugs covered in the program.

The rule applies to all drug manufacturers that are required to make their drugs available to entities covered in the 340B program.

"Any manufacturer with a pharmaceutical pricing agreement that knowingly and intentionally charges a covered entity more than the ceiling price may be subject to a civil monetary penalty not to exceed $5,000 for each instance of overcharging," HHS said.

The money penalty is in addition to the repayment of an overcharge.

Health and Human Services issued the rule last year, asked for comment, and then extended the comment period.

[Also: MedPAC's proposed cut to hospitals in 340B drug program hits Congress in March]

Some commentators asked HHS to build in a significant grace period to give manufacturers time to put the necessary system capabilities in place.

Others wanted HHS to implement the rule retroactively, but the administration disagreed.

Some argued HHS did not have the rule-making authority to issue a ceiling price.

In the rule, Health and Human Services set enforcement to begin on April 1, 60 days after publication in the federal register on Thursday.

The 340B program allows Health and Human Services to enter into pharmaceutical pricing agreements with certain drug manufacturers.

[Also: AHA furious over ruling to exclude 'orphan' drugs from 340B program]

"The 340B Program as a whole creates significant savings for entities purchasing drugs through the program, with total savings estimated to be $6 billion in CY 2015," HHS said.

A manufacturer is required to calculate the 340B ceiling price for each covered outpatient drug on a quarterly basis.

The ceiling price is equal to the average manufacturer price from the preceding calendar quarter for the smallest unit of measure, minus the unit rebate amount and will be calculated using six decimal places.

The Health Resources and Services Administration will publish the 340B ceiling price rounded to two decimal places, HHS said.

[Also: 'Mega-guidance' proposal puts big limits on 340B Drug discounts]

When the ceiling price calculation results in an amount less than $0.01, the ceiling price will be $0.01.

While infrequent, there are instances when the 340B ceiling price does calculate to a zero price, HHS said. For example, in the first calendar quarter of 2016, approximately 1 percent of all drugs listed under the 340B program for that quarter resulted in a zero price.

"Many commenters strongly objected to the penny pricing policy," HHS said in the the rule.

Commenters argued that the penny pricing policy would result in an illegal taking of private property by the government. They also argued the policy would result in "arbitrary" or "confiscatory" price controls, HHS said.

Some commenters stated the penny pricing proposal is likely to result in a potential increase in drug shortages and diversion, requiring manufacturers to adopt burdensome and costly "alternate allocation procedures" to correct for the market-distorting effect of the rule.

Commenters further stated the continuation of penny pricing policy would exacerbate drug shortages, particularly for generic drugs, given that in the first quarter 2017 generic drugs will be subject to an additional rebate in the formula if the average manufacturer price for such drugs rises faster than inflation.

"Given this, the penny pricing provision would result in potential of stockpiling, diversion, harm to patients, and abuse of controlled substances," commentators said, adding the rule could create a market for drugs on the black market.

After consideration of the comments, HHS modified the final rule to require that manufacturers estimate, using a standardized methodology, the 340B ceiling price for a new covered outpatient drug until there is manufacturer data available to calculate an actual 340B ceiling price.

HHS determined the final rule will not have economic impacts of $100 million or more in any any one year.

Twitter: @SusanJMorse