1. State Opportunities under the 340B Drug Discount Program by Bill von Oehsen Counsel Public Hospital Pharmacy Coalition Phone: 202-872-6765 Email: william.vonoehsen@ppsv.com

2. OVERVIEW OF 340B PROGRAM Eligible entities include high Medicaid acute care hospitals owned by or under contract with state or local government; community health centers; ADAPs; family planning clinics; AIDS, TB and STD clinics; and other HRSA grantees Use of drugs limited to “patients” of 340B covered entity Discounts are calculated using the Medicaid rebate formula; but 340B pricing is better because (1) sales do not involve retail pharmacies thereby avoiding retail mark-ups and (2) 340B providers regularly negotiate sub-ceiling prices Medicaid must be billed at acquisition cost to avoid duplicate discounts Powers Pyles Sutter & Verville, PC Bill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

3. BACKGROUND ON U.S. PHARMACEUTICAL MARKET: COMPARISON OF PRICES Source: Data derived from Prescription Drugs: Expanding Access to Federal Prices Could Cause Other Price Changes, U.S. General Accounting Office, GAO/HEHS-00-118, August 2000 and How the Medicaid Rebate on Prescription Drugs Affects Pricing in the Pharmaceutical Market, Congressional Budget Office Papers, January 1996. Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com Private Sector Pricing “Best Price”

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, PC Bill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com * Chart is based on rough estimates

5. 340B OPPORTUNITIES FOR STATES Encouraging eligible facilities within the state to enroll in 340B Using 340B-discounted drugs for state and county prisoners Maximizing use of 340B within state-funded managed care plans Including 340B providers in state bulk purchasing initiatives Sole source contracts with 340B providers to furnish high-cost chronic care drugs Powers Pyles Sutter & Verville, PC Bill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

6. 340B OPPORTUNITIES FOR STATES: EXTENSION TO PRISONS States and counties may contract with 340B hospitals or other 340B facilities to provide health care services, including pharmacy services, to correctional populations Prisoners must be “patients” of the 340B provider to be eligible to receive discounted drugs Texas recently implemented this approach as a result of legislation passed last year (S.B. 347) Other state agencies, e.g., mental health hospitals? Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

7. 340B OPPORTUNITIES FOR STATES: STATE-FUNDED MANAGED CARE Drugs are about 35 percent more costly when purchased through PBMs instead of 340B program Shifting drug purchases from PBMs to 340B providers can lower costs for the plan which can be passed on to the state For Medicaid programs, this is an alternative to states carving out pharmacy from the plan’s benefits package and returning it to a fee-for-service program in order to collect Medicaid rebates. Application to managed care plans for state employees? Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

8. 340B OPPORTUNITIES FOR STATES: ENCOURAGING 340B PARTICIPATION 340B program reduces Medicaid reimbursement for outpatient drugs because 340B providers are required to bill Medicaid at acquisition cost in most instances For example, according to a recent analysis, 340B hospitals are saving state Medicaid programs an average of almost $300,000 per hospital per year Many hospitals, community health centers, and other eligible facilities are not participating in 340B By assisting eligible entities with 340B enrollment, states can lower their Medicaid expenses Powers Pyles Sutter & Verville, PC Bill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

9. MANAGED CARE DISEASE MANAGEMENT 340B providers participating in managed care plans can develop disease management programs for enrollees having high drug costs Plans can steer enrollees suffering from chronic diseases to these 340B-based disease management programs (e.g., AIDS, diabetes, asthma, heart disease, etc.) 340B providers can use mail order or contracted retail pharmacies to increase access by getting federal approval as an alternative methods demonstration project Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

10. 340B OPPORTUNITIES FOR STATES: BULK PURCHASING Volume plus preferred drug list moves market share and creates savings By pooling their volumes, 340B providers and states can theoretically negotiate better discounts Savings equals subceiling discounts for 340B covered entities and supplemental rebates for state Two-tiered pricing to accommodate state purchases that do not qualify for best price exemption Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com

11. 340B Opportunities for States Bulk Purchasing P R I C E S Rebates or Upfront Discounts StateMental EmployeesPrisonsSchoolsHealth AMP Medicaid340B State Pharmacy Assistance Programs Supplemental Rebates/Subceiling Pricing Best Price

12. 340B OPPORTUNITIES FOR STATES: SOLE SOURCE CONTRACTS To meet patient definition requirements, 340B provider must provide other services than pharmacy – case management and disease management are possibilities For Medicaid, a 1915(b) waiver is required to waive the patient’s freedom of choice Utah Medicaid program has a sole source contract with University of Utah for providing factor products and case management services to hemophilia population statewide (although not using 340B pricing) Powers Pyles Sutter & Verville, PCBill von Oehsen (202) 466-6550 William.vonOehsen@ppsv.com