1. © 2014 SUNRx, Inc. All rights reserved. NCHA and SUNRx MegaGuidance Overview October 19, 2015 1

2. © 2014 SUNRx, Inc. All rights reserved. www.nchastrategicpartners.org NCHA and SUNRx Webinar Instructions  Webinar will begin shortly  All attendees muted, in listen-only mode  Submit questions through question box  If a disconnection occurs, please log back in using the access code emailed to you  We are recording this webinar and will share a link to the recorded presentation via email 2

3. © 2014 SUNRx, Inc. All rights reserved. The contents of this presentation are confidential and proprietary to SUNRx, Inc. and may contain material MedImpact considers Trade Secrets. This presentation may not be reproduced, transmitted, published or disclosed to others without SUNRx’s prior written authorization. 340B: MegaGuidance Overview For NCHA Hospitals Presented By: Brian Ward, R.Ph., Vice President Regulatory Affairs and Compliance SUNRx, LLC

4. © 2014 SUNRx, Inc. All rights reserved. Agenda Overview of the 340B program Key Regulations MegaGuidance Other Regulatory Activities 4

5. © 2014 SUNRx, Inc. All rights reserved. What is 340B? 340B is a federal program that allows qualified entities (“340B Covered Entities (CE)”) to: – Purchase “outpatient” pharmaceutical products at a substantial discount—25% to 50% discount – Create savings for safety net organizations to provide more comprehensive care – Can be used for ALL entity patients – Can utilize either in-house or contract pharmacies 5

6. © 2014 SUNRx, Inc. All rights reserved. What Hospitals are Eligible? HospitalsDSH Adjustment % Disproportionate Share Hospitals (DSH) 11.75% Critical Access Hospitals (CAH)*No DSH % Requirement Rural Referral Centers (RRC)*8% Sole Community Hospitals (SCH)*8% Children’s Hospitals11.75% * Rural Hospitals added in 2010 as part of the Affordable Care Act 6

7. © 2014 SUNRx, Inc. All rights reserved. Key Regulations—Diversion Diversion 340B may only be used for “Entity Patients” Diversion—Using 340B drugs for non-qualified purposes, such as: – Inpatients – Prescriptions written at non-cost reported (non-registered) facilities – Prescriptions from non-documented referrals 7

8. © 2014 SUNRx, Inc. All rights reserved. Key Regulations—Duplicate Discounts Entities must protect manufacturers from “Duplicate Discounts” A payment of both a Medicaid rebate and a 340B discount on the same claim constitutes a “duplicate discount” Duplicate Discounts 8

9. © 2014 SUNRx, Inc. All rights reserved. Entity Specific Prohibitions GPO Prohibition (DSH and Children’s Hospitals) – Entity MAY NOT USE GPO drugs for any outpatient – Must have a tracking system (Split Billing) – Three account types: GPO Drugs (inpatient) 340B (340B eligible outpatients) WAC (non-340B eligible outpatients) Orphan Drug Prohibition (CAH, SCH, RRC) May not use 340B for orphan drugs for the original Orphan Diagnosis Entity may opt-in/opt-out to using 340B for orphan drugs Just in: 10/15/15—PhRMA challenged HRSA’s Orphan interpretation and won Entities can no longer use 340B for Orphan Drugs—for any diagnosis 9

10. © 2014 SUNRx, Inc. All rights reserved. HRSA MegaGuidance Mega- Guidance Announced by HRSA Jan 2015 Oct 27th Mega Guidance Released (60 day Comments) Dec 2015 Comment Period Ends Finalize Guidance 2016 Begin Implementation August 27th Submitted To OMB (up to 90 d) May 2015 Expected to take up to a year to finalize HRSA may finalize incrementally August 27, 2015--HRSA released its long awaited MegaGuidance—clarifying the 340B regulations 10

11. © 2014 SUNRx, Inc. All rights reserved. An individual establishes a relationship with the Covered Entity (i.e., visits to a qualified/registered facility) Facility Requirement The Covered Entity maintains the records of the individual’s health care Record Requirement The patient is seen by a health care professional who is employed, contracted, or through other arrangements (such as a referral for consultation), such that the “responsibility for care” remains with the entity Provider/Responsibility for Care Requirement Six elements under HRSA’s Proposed MegaGuidance Today’s Three Patients Eligibility Requirements 11

12. © 2014 SUNRx, Inc. All rights reserved. New MegaGuidance– Patient Eligibility The individual receives a health care service at a facility or clinic site which is registered for the 340B program and listed on the 340B database; Facility Requirement (current—but clarified) The individual receives a health care service provided by a CE provider who is either employed by the CE or who is an independent contractor for the CE, such that the covered entity may bill for services on behalf of the provider as a result of the service described above; Privileges or credentials with a 340B hospital would no longer be “sufficient to demonstrate that an individual treated by that privileged provider is a patient of the covered entity for 340B program purposes.” Provider Requirement (new—excludes referrals and privileged providers, concern with ER services) The individual’s patient records are accessible to the CE and demonstrate that the CE is responsible for care. Record Requirement (current—but clarified) 12

13. © 2014 SUNRx, Inc. All rights reserved. New MegaGuidance—Patient Eligibility The individual’s health care is consistent with scope of the CE’s federal grant, project, designation, or contract; Scope Requirement (applicable to grantees only) The individual receives a drug that is ordered or prescribed by the CE provider; Drug Requirement (new—limits patient eligibility to prescribing visits only) The individual’s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient; Outpatient Requirement (current— but limits discharges, patient admissions) 13

14. © 2014 SUNRx, Inc. All rights reserved. Proposed MegaGuidance—Significant Elements Patient Eligibility Disallows all prescriptions from private practices, even if follow-on or referrals Eliminates “affiliation arrangements” with outside organizations Allows scripts only from employed or independently contracted providers, such that the entity bills for the provider services Eliminates prescriptions by “privileged/credentialed” providers Disallows 340B eligibility for discharge prescriptions Eliminates blanket 340B eligibility for self-insured employees 14

15. © 2014 SUNRx, Inc. All rights reserved. Medicaid Duplicate Discount Proposes a new mechanism for entities to separately elect to carve-in/out Fee- for-Service Medicaid from MCO Medicaid Requires entities to block FFS and MCO Medicaid at contract pharmacies (or create other arrangements to prevent duplicate discounts) Contract Pharmacy Elements Requires pharmacy registrations to be submitted by covered entities only Requires quarterly self-audits and annual independent audits Split Billing Elements Eliminates 340B for infused drugs prescribed by outside providers Excludes 340B drugs bundled as a single payment under Medicaid Clarifies three possible exceptions to the Hospital GPO Prohibition Eliminates 340B used on outpatients later admitted as inpatients Proposed MegaGuidance—Significant Elements 15

16. © 2014 SUNRx, Inc. All rights reserved. Other 340B Regulatory Activities Congressional Activities Potential Congressional Legislation (not yet introduced by Congress) o Program intent o Use of 340B funds o Minimum Rx discounts o Mandatory independent audits o Hospital eligibility (replace eliminate DSH%) o Patient definition Other Activities Exchanges and Medicaid expansion moving more uninsured to insured Lower reimbursement is driving patients to safety net providers Expect continued attacks on 340B (political posturing) 340B will continue to provide high market value 16

17. © 2014 SUNRx, Inc. All rights reserved. www.nchastrategicpartners.org NCHA and SUNRx Contacts Brian Ward 267-648-5886 Brian.Ward@sunrx.com Ronnie Cook 919-677-4225 rcook@ncha.org Jeff Spade 919-677-4223 jspade@ncha.org Jody Fleming 919-677-4130 jfleming@ncha.org 17