Draft bill would also exempt manufacturers from Medicaid rebates on many sterile injectable drugs.
April 20, 2012—Senate Finance Committee Ranking Republican Orrin Hatch of Utah this week began circulating draft drug shortage legislation that would, among other provisions, exempt manufacturers of many sterile injectable drugs from paying Medicaid rebates and 340B discounts on the products for seven years.
The exemptions would apply to single-and multiple-source sterile injectable products that are made by four or fewer active manufacturers and for which there is no period of market exclusivity in effect. Also, they apparently would cover drugs that are not in short supply or considered life-saving. Hatch and others cite Medicaid rebates and 340B discounts as one reason why drug manufacturers might stop making or investing in generic and other low-priced products. Other experts disagree, saying that the majority of shortages today are caused primarily by manufacturing problems, not by pharmaceutical pricing.
Under Hatch's proposal, in lieu of getting 340B pricing, covered entities would be able to buy the drugs through their group purchasing organization (GPO), something they otherwise would be barred from doing under the 340B statute. The freeze on rebates and discounts would begin on or after Jan. 1, 2013 and sunset on Jan. 1, 2020.
Hatch's draft bill also would change how these drugs are reimbursed under Medicare Part B. Payment for drugs administered in physicians' offices would be based the product's volume-weighted average wholesale acquisition cost (WAC) instead of the current average sales price (ASP) plus 6 percent. Similarly, reimbursement under the Hospital Outpatient Prospective Payer System (HOPPS) would be based on WAC rather than on acquisition cost plus an add-on for overhead.
The bill also would require manufacturers to give the Department of Health and Human Services at least six months advance notice of a discontinuance or disruption of a life-saving or otherwise critical drug. Failure to comply would result in their exclusion from the Medicare and Medicaid programs, among other penalties.
Copies of Hatch's proposal began circulating among stakeholders the evening of April 17. A Finance Committee staff member who works for Hatch said in a communication to interested stakeholders that "we remain strongly committed to and supportive of" bipartisan efforts to address drug shortages in legislation to reauthorize the Prescription Drug User Fee Act (PDUFA).
However, he said that Hatch "remains focused on addressing the role of the underlying economic incentives."
Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents more than 800 hospitals enrolled in 340B, intends to raise concerns about the draft bill's 340B provisions. It believes that exempting manufacturers from 340B discounts and Medicaid rebates will only exacerbate current drug shortages and raise costs.
On the same day that Hatch issued his proposal, the House Energy and Commerce Committee issued a second discussion draft of its bill to extend PDUFA, which includes a section on shortages. Unlike Hatch's bill, the House measure has no language regarding economic incentives to spur continued production of sterile injectable drugs. It does, however, call for a study on the causes of drug shortages, including the roles played federal reimbursement and economic incentives.The Energy and Commerce Subcommittee on Health held a hearing on PDUFA's reauthorization on April 18. The same day, the Senate Health, Education, Labor, and Pensions Committee released an update to its draft drug shortages bill. Its measure would require a comprehensive study on "market factors contributing to drug shortages and stockpiling."