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H H S Department of Health and Human Services
Health Resources and Services Administration
HIV/AIDS Programs

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ADAP Manual - 2003 Version

ATTACHMENT B

QUESTIONS AND ANSWERS ABOUT THE STATE AIDS DRUG 
ASSISTANCE PROGRAM SECTION 340B REBATE OPTION

A. Basic program information

 1. What is the ADAP 340B rebate option?

On June 29, 1998, the Health Resources and Services Administration published a final Federal Register notice that allows State ADAPs to use rebates to access the drug pricing program authorized by Section 340B of the Public Health Service Act. The rebate option is designed to allow ADAPs currently using a reimbursement model to achieve cost savings that are closer to the savings received by ADAPs purchasing drugs at the 340B discount.

2. Who is eligible to participate in the ADAP 340B rebate option?

All ADAPs are eligible to participate in the 340B program by virtue of receiving financial assistance under Title XXVI. In order to participate in the ADAP 340B rebate option, interested ADAPs must activate their covered entity status by:

  •  contacting the ADAP Branch, Division of Service Systems (DSS) and
  •  providing their Medicaid pharmaceutical billing information to the Office of Pharmacy Affairs (OPA)

3. Will all manufacturers participate in the ADAP 340B rebate option?

All manufacturers that have current 340B agreements with the Secretary of Health and Human Services (HHS) and sell covered outpatient drugs to ADAPs must provide 340B rebates to participating ADAPs. Failure to do so will jeopardize their agreement with the Secretary and their participation in Medicaid.

4. What is the effective date of the ADAP 340B rebate option?

The final Federal Register notice recognizing the rebate option as a method for State ADAPs to access the 340B program was published on June 29, 1998, and specified that the rebate option would become effective 30 days after the publication date. Therefore, July 29, 1998, is the effective date that ADAPs can ask for rebates through the 340B program.

5. What are the benefits of using the ADAP 340B rebate option?

  •  better rebates than are offered by most voluntary rebate programs;
  •  ability to obtain rebates on all covered outpatient drugs on the ADAP formulary;
  •  access to all manufacturers who have signed a pharmaceutical pricing agreement with the Secretary of HHS and who manufacturer drugs on your ADAP formulary;
  •  standardized format to request drug rebates from manufacturers;
  •  establishment of an ongoing relationship that an individual manufacturer cannot terminate unilaterally; and
  •  assistance with dispute resolution issues available from the OPA.

6. How can we determine how much money our program will save if we get rebates under the 340B program?

All interested ADAPs may contact OPA for a price comparison under the ADAP 340B rebate option. Specific inquiries should be directed to the Office of Pharmacy Affairs or by calling (800) 628-6297.

7. What can I do with my rebate dollars?

Monies received as a result of participating in the ADAP 340B rebate option are subject to State rules concerning program income. If State laws allow the return of program income to the ADAP, then States should return program income generated from the rebate option to the operating budget of the ADAP so that it can permit scarce Federal dollars to reach more eligible patients and provide more comprehensive ADAP services.

8. How does participation in the ADAP 340B rebate option differ from existing manufacturer voluntary rebate agreements?

Voluntary agreements are generated by the manufacturers and are subject to their specifications and changes. However, the ADAP 340B rebate option provides ADAPs with potentially long-term arrangements because most manufacturers have signed an agreement with the Secretary of HHS and are, therefore, required to participate in the 340B program if they sell covered outpatient drugs to covered entities and wish to remain eligible for payments under Medicaid. Moreover, through the ADAP 340B rebate option, rebates may be claimed for all covered outpatient drugs on the ADAP formulary.

9. How is the ADAP 340B rebate option different from the 340B point of purchase discount, and would it be beneficial to switch from direct purchase to the rebate option?

The 340B point of purchase discount is designed to allow ADAPs that are centrally administered and operate a central drug purchase and distribution system to purchase a covered drug from a manufacturer at or below the section 340B ceiling price. On the other hand, the rebate option is designed to allow ADAPs using a drug reimbursement system to achieve cost savings that are close but not equivalent to the savings received by the point of purchase system. For example, in the ADAP discount system, the manufacturer must sell to ADAPs at the average manufacturer price (AMP) reduced by a percentage equivalent to the Medicaid rebate. Whereas, in the rebate system, the manufacturer must rebate to the ADAP an amount equivalent to the Medicaid rebate with no impact on the purchase price. As such, ADAPs using the point of purchase discount receive immediate cost-savings by directly purchasing drugs at the discounted price with no retail markup. Therefore, these ADAPs are advised to continue purchasing in this manner because they are achieving greater savings than they could using the rebate option.

10. If our program is currently receiving 340B point of purchase discounts, can we also get rebates through the 340B program?

An ADAP can never receive both a 340B discount and rebate on a purchased drug. As such, a centrally administered ADAP participating in the 340B program through a point of purchase discount is not eligible to also apply for the rebate option. However, in a decentralized ADAP, some components can select the rebate option while the rest select the point of purchase discount. However, all the decentralized components in the State which select the rebate option must do so as a single unit appearing on the OPA eligibility list as a single unit and submitting rebate claims to the manufacturer as a single unit.

11. Where can I get help on implementing the ADAP 340B rebate option?

ADAPs should direct questions about participating in the ADAP 340B rebate option to either the ADAP Branch, DSS by calling (301) 443-6745 or to OPA or by calling (800) 628-6297. http://www.hrsa.gov/opa/

B. Becoming a covered entity and meeting 340B requirements

 12. How can our ADAP be recognized as a 340B-covered entity?

An ADAP is eligible to participate in the 340B program by virtue of receiving financial assistance under Title XXVI. To be included on OPA's official list of covered entities, the ADAP must contact DSS for information needed to activate this status. In addition, the ADAP must notify OPA of its intent to participate in the ADAP 340B rebate option and provide its Medicaid pharmaceutical billing information. Please note that section 340B(a)(4)(5)(A) prohibits covered entities from generating a duplicate 340B rebate and a Medicaid rebate on the same drug. Guidelines to prevent such duplication were published in a final Federal Register notice on June 23, 1993 (58 Fed. Reg. 34058).

13. How long does it take to get on the official list of 340B-covered entities?

The official covered entity list is published quarterly by OPA. Requests to participate must be received by the beginning of the month that precedes the effective quarter (September 1 for October-December, December 1 for January-March, March 1 for April-June, and June 1 for July-September). The State ADAP will then be posted on OPA's Web site (a.k.a., electronic data retrieval system (EDRS)) at the next quarterly posting (January 1, April 1, July 1, October 1). All State ADAPs participating in the 340B program through the rebate option will be identified on the EDRS as an RWIIR.

14. What OPA guidelines should an ADAP refer to when using the ADAP 340B rebate option?

Although previous Federal Register notices were written to provide guidance for covered entities receiving 340B point of purchase discounts, they do furnish relevant information for the ADAPs seeking to implement the ADAP 340B rebate option. Specifically, Federal Register notices on Duplicate Discounts, Audits and Disputes, Definition of a Patient should be reviewed.

15. What can an ADAP do to avoid double rebates or discounts?

As discussed in question 12, ADAPs must not request a 340B rebate or a discount on any covered drug that will generate a Medicaid rebate. If the ADAP is found to have violated this prohibition, it may lose its covered entity status. In addition, section 340B(a)(5)(D) provides, in such cases, that the ADAP will be liable to the manufacturer for the discount or rebate in question. Therefore, it is important to have a good working relationship with your State Medicaid agency. If the ADAP receives a rebate from a drug manufacturer, it must be excluded from any rebates that the State Medicaid agency requests from that manufacturer.

For an ADAP that receives reimbursements from Medicaid, the ADAP must obtain a Medicaid provider number and supply it to OPA. The State Medicaid agency creates an exclusion file so that transactions with this Medicaid provider number are excluded from the agency's rebate claims submitted to drug manufacturers. You should make sure that this process is working effectively after you join the 340B program.

It is also necessary to exclude from your rebate claims any prescription reimbursements your ADAP has made to covered entities purchasing drugs at the 340B point of purchase discount. These transactions should be tagged in your data management system so that they are not included in your rebate claims. Because this exclusion has also been a requirement in the voluntary agreements, it should not be difficult to continue this practice in your implementation of the ADAP 340B rebate option.

These two steps should ensure that you are in compliance with the 340B prohibition against double rebates or discounts.

16. Under the ADAP 340B rebate option, may an ADAP continue to backbill Medicaid for outpatient drugs used on retroactively eligible Medicaid patients?

Yes, an ADAP may backbill Medicaid for these patients; however, the ADAP may only bill at the acquisition price plus a reasonable dispensing fee. As mentioned in the previous question, the State Medicaid agency will not be getting a manufacturer's rebate on the drugs that the ADAP receives a rebate on under the ADAP 340B rebate option.

 17. Do ADAPs administered through the State's Medicaid office need a separate rebate system?

Yes. Separate rebate claims must be submitted for Medicaid and ADAP.

18. What can an ADAP do to avoid drug diversion?

Section 340B(a)(5)(B) prohibits an ADAP from reselling, transferring, or otherwise diverting a 340B drug to an individual who is not a registered ADAP patient. Thus, drug diversion would occur if a rebate is requested for a 340B-covered drug provided to an individual who is not a client of the ADAP. The penalty for noncompliance is repayment of any discounts or rebates (section 340(a)(5)(D)) and possible removal from the 340B eligibility list. We strongly recommend that each ADAP continue to carefully manage its eligibility requirements and currently enrolled clients to lessen the risk of such diversion.

C. Transitioning to ADAP 340B rebates

 19. Who initiates contact to access 340B ADAP rebates, the ADAP or the manufacturer?

The ADAP is generally responsible for initiating contact with the manufacturer to establish a 340B ADAP rebate relationship. However some manufacturers took the initiative to offer voluntary rebates to ADAPs and may do the same thing under the 340B program. For a list of 340B participating manufacturers that have signed an agreement with the Secretary of HHS, contact OPA at (800) 628-6297. A list of manufacturer contacts for the Medicaid rebate program can be downloaded from the CMS. These contacts will either be the contact for the ADAP 340B rebate program or be able to refer you to the person who is the contact.

20. What is being done with manufacturers to implement the ADAP 340B rebates?

In cooperation with the ADAP Branch of the Division of Support Systems and a representation of ADAPs, the National Association of State and Territorial AIDS Directors (NASTAD) has developed uniform Conditions of Participation that ADAPs using prescription reimbursement methods may use to access 340B rebates. OPA has reviewed the uniform Conditions of Participation and regards them as acceptable methods for implementing the 340B rebate option.

In addition, NASTAD has informed the principal manufacturers of AIDS drugs that these conditions will apply to claims submitted by ADAPs for 340B rebates. All ADAPs should refer to these standard Conditions of Participation when establishing 340B rebate relationships with drug manufacturers. NASTAD has sent letters enclosing the Conditions of Participation to the following manufacturers: Hoffman LaRoche, Inc., Pharmacia & Upjohn, Hoechst Marion Roussel, Merck & Co., Glaxo Wellcome, DuPont Pharmaceuticals, SmithKline Beecham, Wyeth-Ayerst, and Johnson & Johnson. The Pharmaceutical Research and Manufacturers Association (PhRMA) will also be sending the Conditions of Participation to their members.

21. What do the Conditions of Participation require ADAPs to do?

The conditions state that an ADAP will (1) submit rebate claims only for drugs covered under its formulary; (2) include the following data with rebate claims: national drug code (NDC) number, drug name, number of prescriptions, total reimbursement amount per NDC, total units reimbursed, unit rebate amount (URA), and total rebate amount claimed; (3) maintain the following data for three years and make it available to the manufacturer, as needed to resolve disputes: name and address of dispensing pharmacy, prescription number, NDC number, units dispensed, date dispensed or paid, and amount reimbursed; (4) use URA information only for purposes of program administration and not disclose it to non-covered entities; (5) within 90 days after the end of each calendar quarter, submit a claim to the manufacturer for a rebate based on units purchased; (6) carry over claims not submitted within 90 days after the end of a quarter to a later submission, not to exceed one year from date purchased, with appropriate identification for claims submitted for preceding quarters; (7) respond and attempt to resolve any questions raised by the manufacturer within 30 days of the manufacturer's request and amend its rebate claim to correct any agreed upon errors (written documentation of the communications (phone call summary notes, letters, faxes, e-mail) should be maintained as evidence of the good faith attempt to resolve the dispute); (8) use the OPA Dispute Resolution Process, as published in 61 FR 65406, December 12, 1996, if informal attempts at resolution are unsuccessful; and (9) submit an adjusted claim with the next quarterly submission if any error is discovered after rebates are received.

22. What do the Conditions of Participation require manufacturers to do?

The conditions state that a manufacturer will (1) make a rebate payment to an account specified by the ADAP, through a mutually agreed upon procedure, within 90 days after receipt of the rebate claim; (2) provide a breakdown by NDC of actual rebate amounts paid, including the unit rebate amount and separate identification of prior quarter claims if included in the payment; and (3) identify officials designated to receive and pay claims and conduct official business with the ADAP and update information as needed. The conditions permit a manufacturer to (1) request clarification or additional information from the ADAP within 60 days of receipt of the rebate claim; and (2) withhold rebate payments beyond 90 days for the specific disputed amounts only under one of two conditions: if the ADAP has failed to respond to the manufacturer's request for additional information within 30 days, or if a request has been filed with the Office of Pharmacy Affairs for a dispute resolution review or audit.

23. If our State has voluntary agreements with drug manufacturers, what do we have to do to convert to 340B rebates?

The following steps are suggested: (1) Activate your covered entity status by contacting DSS for additional information and notifying OPA of your intent to participate in the ADAP 340B option and to provide your Medicaid pharmaceutical billing information; (2) Notify the drug manufacturers now giving you voluntary rebates that you intend to switch to the ADAP 340B rebate for prescriptions reimbursed beginning on a specific date which must coincide with or be after the date that the ADAP was added to the OPA eligibility list; (3) Reference the Conditions of Participation for the manufacturers that have already received them from NASTAD or send copies of the conditions to the manufacturers that have not received them from NASTAD; (4) Adopt a rebate claim form that includes the data elements specified in the Conditions of Participation; (5) Maintain the supporting data required by the Conditions of Participation; (6) When submitting your first 340B rebate claims, formally exercise your option to terminate the voluntary agreements with the manufacturers.

24. What is the Unit Rebate Amount (URA) used by the 340B program, and how is it calculated?

The URA is calculated for each drug each quarter of the fiscal year. The URA for the ADAP 340B rebate option is the same as for Medicaid. While the rebate amount for generic prescriptions and over-the-counter drugs is 11percent of the AMP of such drugs, the rebate for single source drugs is a more complex formula based upon a basic and an additional rebate amount. For example, the basic URA for a single source drug would be either 15.1 percent of the AMP or the difference between the AMP and the best price, whichever amount is greater. In addition, there would be an additional rebate amount that would be generally equal to the amount that the AMP had increased since 1990 in excess of any increase in the urban consumer price index of that same period. A detailed explanation of the Medicaid URA calculation can be found at CMS.

D. Submitting 340B rebate claims

 25. When can we start submitting claims?

An ADAP that is posted on OPA's EDRS beginning October 1, 1998, can claim rebates based on covered outpatient drugs purchased as of July 29, 1998. After October 1, 1998, ADAP 340B rebates can be claimed beginning the effective quarter of enrollment (January 1, April 1, July 1, October 1).

26. When do our prescription reimbursements become eligible for rebates?

Prescription reimbursements become eligible for submission by the ADAP based on the date that the ADAP paid for the drugs. The Federal Register notice is effective on July 29, 1998. Prescription purchases made on or after that date are eligible for rebates. To claim rebates for these reimbursements, the ADAP must have been included on OPA's list of covered entities for the quarter beginning October 1, 1998.

27. Do I have to submit rebate claims for all drugs on my formulary?

No. An ADAP may work with as many manufacturers as possible to generate the largest amount of cost savings. However, it is recognized that for low-volume/low-cost drugs, the administrative time and costs necessary to collect and format data to submit claims to all manufacturers may outweigh the rebate benefit. In a low volume situation, an ADAP may also choose to consolidate rebate claims data for more than one quarter.

28. How do we submit a rebate claim?

Follow the procedures stated in the Conditions of Participation that NASTAD sent to the major manufacturers of AIDS drugs and their professional organizations. The conditions specify data that needs to be submitted with your rebate claim. The data elements are: NDC number, drug name, number of prescriptions, total reimbursement amount per NDC, total units reimbursed, unit rebate amount (URA) (when available), and total rebate amount claimed. Most of these data should be available in the system used to manage your ADAP. If you have been submitting claims for voluntary rebates, the switch to 340B rebates claims should not be difficult.

29. On some prescriptions, our program pays for only a percentage or co-payment amount. How should the ADAP reflect these partial payments on the rebate invoice sent to the manufacturer each quarter?

Title II/ADAP grantees that participate in the 340b drug pricing program can claim full rebates on partial pay claims under certain circumstances, as outlined in the following April 29, 2005 letter from HRSA/HAB to Title II ADAP grantees regarding the ability of ADAP grantees to submit for full rebates through the 340b drug pricing program on partial payments of health insurance policies.

April 29, 2005

HIV/AIDS Bureau
Dear Title II ADAP Colleagues:

This letter serves as program guidance regarding an issue raised by several AIDS Drug Assistance Program (ADAP) grantees who use a portion of their ADAP funds to purchase health insurance. The issue relates to the ability of ADAP grantees to submit for full rebates through the 340B drug pricing program on partial payments of health insurance policies.

The HIV/AIDS Bureau (HAB) Policy Notice 99-01, "The Use of Title II ADAP Funds to Purchase Health Insurance" allows ADAP grantees to use a portion of their ADAP funds to purchase insurance policies that include HIV treatments and access to comprehensive primary care services. Since the implementation of this policy in 1999, it has been found that using ADAP funds to purchase new health insurance policies or to pay for the continuation of current health insurance policies for individuals eligible for ADAP services is a cost effective strategy to provide clients with needed HIV related medications.

HAB Policy Notice 99-01 allows ADAP grantees to pay for insurance policies, provided the health insurance policies at a minimum include pharmaceutical benefits equivalent to the Title II ADAP formulary and the costs of providing medications through the health insurance option versus the existing ADAP is cost neutral in the aggregate. Funds may be used to cover any costs associated with the health insurance policy, including co-payments, deductibles, or premiums.

Title II/ADAP grantees that participate in the 340B drug pricing program can claim full rebates on partial pay claims under one of the following circumstances:

  • The ADAP grantee must pay the deductible for the patient's medication under the
    insurance policy, whether or not the program also pays the health insurance premium; or
  • The ADAP grantee must pay the co-pay for the patient's medication under the insurance
    policy, whether or not the program also pays the health insurance premium.

In both of the stated circumstances, there is a direct relationship between the ADAP payment and the patient's medication. Drugs that are fully reimbursed by insurance plans, where only the insurance premiums have been funded by ADAPs, are not eligible for the rebate. Therefore, payment of the insurance premium alone does NOT entitle an ADAP to claim a rebate under the 340B drug pricing program.

If you have any questions regarding the content of this guidance letter, please contact your project officer in the Division of Service Systems, HIV/AIDS Bureau, at 301-443-6754. A copy of this letter has been forwarded to your State Governor for review.

30. How can we obtain URA information?

In a letter dated January 18, 2001, the Director of the former Health Care Financing Administration (currently the Centers for Medicaid and Medicare Services) urged State Medicaid Directors to work with State ADAPs to assist in the submission of rebate claims to manufacturers within the requirements of the drug pricing confidentiality provisions. A suggested process included the State ADAP submitting claim forms to the Medicaid agency which will add the URA information to the form and submit the claim form to the manufacturer on behalf of the ADAP. For further information, contact the ADAP Branch, DSS, at (301) 443-6745. ADAPs should request that manufacturers provide URA information for use in submitting 340B rebate claims. Many manufacturers already supply URA data in their voluntary rebate programs. In addition, interested ADAPs may contact OPA for a URA comparison under the ADAP 340B rebate option. Specific inquiries should be directed to OPA at: (800) 628-6297.

31. What records do we have to keep supporting a rebate claim?

The Conditions of Participation state that the ADAP will maintain the following data for three (3) years and make it available to the manufacturer, as needed to resolve disputes: name and address of dispensing pharmacy, prescription number, units dispensed, date dispensed or paid, and amount reimbursed. The Pharmaceutical Pricing Agreement which the manufacturer signs with the Secretary of DHHS to initiate their participation in the Section 340B program also requires covered entities (i.e., ADAP) to retain records of purchases of covered outpatient drugs for a period of not less than three (3) years. In addition, this information is critical documentation in the event of a manufacturer or HHS (OIG) 340B audit.

32. To support rebate claims, do we have to give drug manufacturers personal information about our patients?

No. There may be times when it is necessary to support your rebate claim with client-level information; however, a unique identifier for each client is sufficient to document any reimbursements that you are claiming. Under no circumstances should an ADAP have to provide confidential client information to a manufacturer.

E. Business relations with manufacturers

33. How long will it take to get a rebate payment from drug manufacturers?

The Conditions of Participation state that manufacturers are to pay claims from ADAPs within 90 days of receipt. This is the same process used by most manufacturers' voluntary rebate programs. It is financially advantageous for the ADAPs to submit their claims as quickly as possible after the close of the quarter.

34. What can we do if the payments are late?

Although there is no specific remedy in the Conditions of Participation, any initial or minor problems should be resolved using normal business procedures to collect past due bills. Under the voluntary rebates, manufacturers often made payments earlier than required by the rebate agreements. Please note that OPA assistance with dispute resolution is available at any time during a rebate dispute with a manufacturer. If a major problem of nonpayment or late payment develops, an ADAP should request assistance from the Office of Pharmacy Affairs to resolve the problem. Persistent nonpayment could be grounds for terminating the manufacturer's 340B and Medicaid agreement with the Secretary.

 35. Is it necessary to have a rebate agreement in order to submit 340B rebate claims?

No. It is not necessary to have a formal rebate agreement in order to submit 340B rebate claims. The Conditions of Participation sent by NASTAD and PhRMA to drug manufacturers can be used to replace the formal agreements that have been required under the voluntary rebates offered by manufacturers. However, ADAPs should be prepared to follow each manufacturer's standard business practices required of all its customers.

36. What if a manufacturer disputes a rebate claim we submit?

Given the complexity of the rebate claims to be submitted, it is likely that manufacturers will raise questions about certain rebates being requested. The Conditions of Participation require an ADAP to respond and attempt to resolve any questions raised by manufacturer within 30 days of the manufacturer's request. The ADAP may amend its rebate claim to correct any agreed upon errors. If a serious, protracted dispute occurs, it may be necessary to use OPA's informal dispute resolution process, specified in a separate Federal Register notice (61 FR 65406). You may contact OPA at (800) 628-6297 for more information about the dispute resolution process.

37. Can a drug manufacturer refuse to pay all or part of a 340B ADAP rebate claim?

Under the Conditions of Participation, the manufacturer may withhold rebate payments beyond 90 days only for the specific disputed amounts, under one of two conditions: if the ADAP has failed to respond to the manufacturer's request for additional information within 30 days or if a request has been filed with the Office of Pharmacy Affairs for a dispute resolution review or audit.

38. Will participation in the 340B program give the manufacturer the right to audit an ADAP's records or financial transactions with pharmacies?

Section 340B permits a participating drug manufacturer (at its own expense) to audit only the records of an ADAP that pertain to 340B rebated covered drugs that may have generated a Medicaid rebate or may have been diverted to an individual who was not a client of the ADAP. These audits may be performed only within the guidelines developed by HRSA (for example, manufacturer documentation demonstrating reasonable cause to believe that the ADAP has violated these prohibitions). See 61 Fed. Reg. 65409. You may contact OPA at (800) 628-6297 about the process for permitting manufacturers to audit covered entities.