United States: HHS Proposes January 1, 2019 Rollout Of The 340B Drug Pricing Program's Civil Monetary Penalties And Clarified Drug Ceiling Price Calculation

Click here to return to our summary of each of the rules.

On November 2, 2018, the Health Resources and Services Administration of the United States Department of Health and Human Services ("HHS") issued a notice of proposed rulemaking proposing to change the effective date of prior regulations implementing the civil monetary penalty provisions of the 340B Drug Pricing Program (the "340B Program") from July 1, 2019 to January 1, 2019. The prior regulations had also clarified the methodology that drug manufacturers should use to calculate ceiling prices for 340B-covered outpatient drugs. If the proposed rule is finalized as written, drug manufacturers that have signed pharmaceutical pricing agreements ("PPAs") with HHS may be subject to civil monetary penalties for knowingly and intentionally overcharging 340B-covered entities for covered outpatient drugs beginning next year.

The Public Health Service Act ("PHSA") Section 340B was amended in 2010 to authorize civil monetary penalties for overcharges related to 340B drug ceiling prices, and to direct HHS to clarify the 340B drug ceiling price calculation methodology. Although the PHSA had previously established a drug ceiling price calculation, ambiguity remained regarding calculated ceiling prices of less than $0.01 and ceiling prices for newly approved and released drugs. HHS issued guidelines in 1995 indicating that drug manufacturers could estimate 340B ceiling prices for new drugs until sufficient data were available to calculate ceiling prices according to the statute. However, those guidelines did not clarify how drug manufacturers should calculate the ceiling price for new drugs, nor did they address ceiling prices of less than $0.01.

The 2010 amendments to the PHSA afforded HHS an opportunity not only to establish civil monetary penalty enforcement standards for overcharging 340B-covered entities, but also to clarify the ambiguities surrounding the 340B drug ceiling price requirement. However, regulations stalled under the Obama administration, which issued a final rule in January 2017 (the 2017 Final Rule). Shortly thereafter, the Trump administration delayed the effective date of the 2017 Final Rule five times, most recently in a final rule issued on June 5, 2018, which delayed the 2017 Final Rule's effective date until July 1, 2019. Although the Trump administration indicated that the delays were required to develop comprehensive policies to address the rising costs of prescription drugs, this approach garnered provider pushback due to the lack of transparency and accountability regarding the ceiling prices that drug manufacturers were actually charging covered entities for drugs under the 340B Program.

On September 11, 2018, the American Hospital Association ("AHA") and other 340B provider stakeholders filed a complaint against HHS in the United States District Court for the District of Columbia challenging the repeated delays to the effective date of the 2017 Final Rule. In a press release, the AHA suggested a direct link between its lawsuit and the new proposed rule, which would accelerate the effective date of the 2017 Final Rule from July 1, 2019 to January 1, 2019. Likely not a coincidence, the most recent notice of proposed rulemaking was issued promptly on the heels of that lawsuit, with comments due back to CMS on or before November 23 and rollout scheduled for the beginning of the new year.

The 2017 Final Rule introduces new accountability for drug manufacturers participating in the 340B Program, who could potentially face substantial civil monetary penalties once the 2017 Final Rule goes into effect. The rule will also afford institutional providers an opportunity to monitor future drug prices to confirm compliance with 340B requirements.

Ceiling Price Calculation

The 2017 Final Rule requires that drug manufacturers calculate the ceiling price for covered outpatient drugs on a quarterly basis. Consistent with the PHSA, it defines the ceiling price as the Average Manufacturer Price ("AMP") from the preceding calendar quarter for the smallest unit of measure for the drug, minus the Medicaid Unit Rebate Amount ("URA") for the drug. Drugs for which the ceiling price is less than $0.01 will have a ceiling price of $0.01.

The 2017 Final Rule also replaces prior HHS guidelines for calculating the ceiling price for newly approved and released drugs by setting forth the methodology that drug manufacturers must use to calculate temporary ceiling prices. The Rule requires manufacturers to estimate the 340B ceiling price for such drugs by subtracting the URA percentage from the wholesale acquisition cost ("WAC") of the drug until the AMP is known and no later than the fourth quarter that the drug is available for sale. Once the AMP is known, the manufacturer must charge the 340B ceiling price (AMP minus URA) and, within 120 days, repay the covered entity for any excess amounts charged above that price.

"Knowingly and Intentionally"

The 2017 Final Rule provides that, in most cases, whether an instance of overcharging was knowingly and intentionally carried out (and therefore whether it may lead to the imposition of civil monetary penalties) will be a case-by-case determination based upon the facts. In response to commenter feedback, HHS generally declined to enumerate factors it would consider in conducting such an analysis. However, the 2017 Final Rule does provide that, if a manufacturer does not offer a refund to a covered entity after discovering that it has overcharged the covered entity for a new drug, such an instance of overcharging would meet the "knowingly and intentionally" requirement.

Moreover, the 2017 Final Rule enumerates the following situations in which a drug manufacturer would not be considered to have knowingly and intentionally overcharged a covered entity:

  • The manufacturer made an isolated inadvertent, unintentional, or unrecognized error in calculating the 340B ceiling price; and
  • The manufacturer sells a new covered outpatient drug during the period the manufacturer is estimating a price, as long as the manufacturer offers refunds of any overcharges within 120 days of discovering the overcharge.

However, the scenarios above would be considered instances of overcharging that would require the drug manufacturer to reimburse the covered entity for any amounts charged above the ceiling price.

The 2017 Final Rule explains that the following situations would not constitute instances of overcharging and therefore would neither require repayment of overcharges nor lead to civil monetary penalties:

  • The covered entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase; and
  • The covered entity chooses to order non-340B priced drugs for any reason other than the manufacturer's refusal to sell or make the drugs available at the 340B price.


The proposed acceleration of the effective date of the 2017 Final Rule would increase drug manufacturers' accountability for 340B-compliant prices for covered outpatient drugs beginning January 1, 2019, by requiring prices to be calculated according to the methodology specified in the 2017 Final Rule and introducing civil monetary penalties against manufacturers that knowingly and intentionally overcharge providers. 340B-covered entities would have improved ability to verify that the prices they are paying for drugs under the 340B Program are consistent with PHSA requirements and would be empowered to report manufacturer overcharges to HHS with the knowledge that enforcement action might ensue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions