1. 340B PROGRAM AND BEST PRICE LAW HIGPA 2003 National Pharmacy Forum February 4, 2003 Presentation By Ted Slafsky Director Public Hospital Pharmacy Coalition Powers, Pyles, Sutter & Verville, PC 202-466-6550 Ted.Slafsky@ppsv.com Powers, Pyles, Sutter & Verville, PC www.phpcrx.org Bill von Oehsen – william.voneoehsen@ppsv.com (202) 466-6550Ted Slafsky - ted.slafsky@ppsv.com

2. The Public Hospital Pharmacy Coalition Established in 1992 When 340B Law Passed Section 340B of Public Health Service Act (Section 602 of VHCA) DSH Hospitals in 340B Drug Discount Program Part of National Association of Public Hospitals and Health Systems Formed to Increase Affordability and Accessibility of Rx Care for Poor and Underserved Powers, Pyles, Sutter & Verville, PCBill von Oehsen – william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

3. 340B Program Created in 1992, Two Years After Passage of Medicaid Drug Rebate Law Rx Companies Required to Give Best Price to Certain DSH Hospitals, FQHCs, ADAPs, Other Public Health Clinics Receiving Federal Grants Operated by Public Health Service’s Office of Pharmacy Affairs Within Health Resources and Services Administration Minimum 15% Discount Off of Average Manufacturer Price and 11% Discount for Generics Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

4. Background On U.S. Drug Market: Comparison Of Prices* Average Wholesale Price Market Share 60% 25% 11% 1% 100.0% 80.0% 60.5% 51.7% 49.0% 44.8% 1% Medicaid FSS 340B VA PBM and Other Private Insurance Market Share Cash Customers Powers, Pyles, Sutter & Verville, PCBill von Oehsen – william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com *Chart is based on rough estimates

5. Eligibility Criteria For Hospitals Owned or Operated by State or Local Government Granted Governmental Powers by State or Local Government Private Non-Profit with Contract With State or Local Government to Serve the Indigent –Must Be Receiving No or Very Little Reimbursement For Services Medicare DSH Adjustment % of 11.75 or Greater Must Withdraw from GPO for Outpatient Purchases Only 160 of the 5,800 U.S. Hospitals Participate in 340B Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

6. Why Is 340B Program So Important? Public Hospitals Provide Care to All Regardless of Ability to Pay 44% of Outpatient Visits by Uninsured NAPH Hospitals Represent Only 2% of Hospitals in U.S. but Provide ¼ of Uncompensated Care Treat Patients with Multiple Complications (AIDS, TB, Diabetes) Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

7. Importance Of 340B Program (cont’d) 41 Million Under 65 Uninsured Another 13 Million Medicare Beneficiaries Have No Drug Coverage A Good Portion of These Patients Come to DSH Hospital Pharmacies for Care Powers, Pyles, Sutter & Verville, PC Bill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550 Ted Slafsky – ted.slafsky@ppsv.com

8. Importance Of 340B Program (cont’d) Federal and Local Funding Evaporating Many Outpatient Pharmacies Have Been Forced to Close Others Adopting Restrictive Formularies and Increased Cost Sharing Many Considering Closing Their Doors Powers, Pyles, Sutter & Verville, PC Bill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550 Ted Slafsky – ted.slafsky@ppsv.com

9. Importance Of 340B Program (cont’d) 340B Program Saves Hospitals Over $2 Million Annually Enables Pharmacies to Remain Open and Improves Access to Care Saves Medicaid An Estimated $70 Million Each Year by Billing at Acquisition Cost Saves Millions to State ADAP Programs Each Year Powers, Pyles, Sutter & Verville, PC Bill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550 Ted Slafsky – ted.slafsky@ppsv.com

10. Other Challenges 340B Hospitals Pay 20-25 Percent More for Inpatient Drugs Than Outpatient Costs 340B Hospitals Over $2 Million a Year Hospitals Have to Maintain Separate Inventories Efforts to Rectify this Problem Passage of Section 1555 of FASA Repealed Before Implemented Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

11. Instead Of Mandatory Discount, Clarification Of Medicaid Best Price Law Congress Intended Both Inpatient/Outpatient Drugs of 340B Hospitals to be Exempt from Best Price VA Has Agreed to Exempt Inpatient Prices for 340B Hospitals, but CMS Has Not Members of Congress, Including Authors of 340B Law, Support this Interpretation Supported by AHA, ASHP, Novation and NACO PhRMA Not Opposing It CBO Scored It as Zero Cost 340B Inpatient Volume is Less Than 0.1% of Drug Market Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

12. Areas of Common Ground With Private Purchasers? Problem Is Not Best Price But Confidentiality of Best Price Public and Private Purchasers Can’t Determine Accuracy of Prices Confidentiality of Best Price Has Given the Drug Industry Unfair Advantage in Negotiations Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

13. Solution? Make Best Price Public Information Legislation Introduced By Senator Bryan (D-NV) and Senator Gordon (R-WA)Would Have Made These Prices Public Is It Time To Reintroduce This Legislation? Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

14. Bottom Line Do No Harm If Changes Are Made To Best Price Law, Essential That “The Safety Net” Is Protected Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com

15. Resources PHPC Web Site - www.phpcrx.org Ted Slafsky – ted.slafsky@ppsv.com or (202) 872-6742 Bill von Oehsen – william.vonoehsen@ppsv.com or (202) 624-7249 OPA Web Site - www.hrsa.gov/odpp/ July Conference- www.340bcoalition.org Powers, Pyles, Sutter & Verville, PCBill von Oehsen - william.vonoehsen@ppsv.com (202) 466-6550Ted Slafsky – ted.slafsky@ppsv.com