Summary of MDRP Final Rule

In the Federal Register of August 28, 2015, the Health Resources and Services
Administration (“HRSA”) of the Department of Health and Human Services (“HHS”) published
an omnibus guidance document to implement the 340B Drug Discount Program (the “Proposed
Guidance”). This program, which was established in 1992 pursuant to Section 340B of the
Public Health Service Act (“PHS Act”),requires a manufacturer of covered outpatient drugs, as
a condition of having its drugs be eligible for federal payment under Medicaid and Medicare Part B, to enter into a Pharmaceutical Pricing Agreement (“PPA”) with HHS. Under the agreement, the manufacturer is obligated to charge no more than a statutorily defined ceiling price to certain types of purchasers (called “Covered Entities”) designated in the statute. The categories of Covered Entities include certain types of specialized clinics that receive federal funding (e.g., HIV/AIDS clinics receiving funding under the Ryan White HIV/AIDS program, black lung clinics, and family planning clinics), and certain types of safety net hospitals as further discussed below. The ceiling price is calculated using pricing data submitted by manufacturers under the Medicaid Drug Rebate Program (“MDRP”), and is intended to provide Covered Entities a discounted price equivalent to that received by Medicaid under the MDRP.

Since the inception of the 340B Program in 1992, HHS has implemented the program by
issuing a series of guidances on various topics, typically after notice and comment. The new
Proposed Guidance accomplishes the dual purpose of consolidating and updating the previous
guidances, and implementing a number of program integrity mandates added to the 340B statute
by the Patient Protection and Affordable Care Act in 2010 (“ACA”). The Proposed Guidance
was initially intended to be issued as a regulation, but before publication, HRSA transformed it into a guidance following a federal district court ruling, in a case involving a related 340B regulation, that HRSA has statutory authority to issue regulations only in specific, narrowly defined areas.