Certain hospitals and other providers can save hundreds of thousands or even millions of dollars on outpatient drug costs by participating in the 340B Drug Pricing Program. However, compliant participation is not a simple task.
The 340B Drug Pricing Program requires drug manufacturers to provide outpatient drugs to eligible health care organizations at significantly reduced prices. This program was originally created by the federal government in 1992 to address shortcomings of the Medicaid Drug Rebate Program that failed to control rising drug costs. Drug manufacturers that sell drugs covered by the Medicaid program are required to participate in the 340B Drug Pricing Program.
“Typically what you are going to see in savings are 40% to 60%,” says Emily Johnson, an attorney at McDonald Hopkins, LLC in Chicago. “It can be as low as 15%, but if you have any high cost drugs the savings can definitely be hundreds of thousands or millions of dollars per year.”
In 2003, the 340B program’s eligibility requirements were modified to include hospitals that met an established disproportionate share percentage threshold for government payors. In 2005, freestanding children’s hospital became eligible to participate. In 2010, the Affordable Care Act added free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals (CAHs) as eligible program providers.
Johnson says the popularity of the program has absolutely increased during the past several years. High cost oncology drugs and high volume cardiology drugs are prime targets for cost savings.
“Disproportionate share hospitals (DSHs) are the vast majority of enrollees,” says Johnson. “If they meet the 11.75% share disproportionate share requirement, then they can be eligible. New facilities often enroll because they hear about what other organizations are achieving through press releases and word of mouth. The most common misconception though is that the 340B Pricing Program can just be left up to a pharmacist. Unfortunately, pharmacists often know little about program, and it is important to get the hospital’s finance team and administrators involved as well. The program is always under scrutiny, and it takes the cooperation of these individuals to maximize compliance.”
Johnson warns that providers always need to be prepared for an audit by the Health Resources and Services Administration (HRSA), because HRSA’s goal is to audit every provider in the program. She recommends that providers conduct annual internal audits so they can become aware and eliminate problems on their own.
“You don’t want to be caught off guard,” says Johnson. “Diversion and violations of the GPO prohibition are the top audit findings. It is best to find these issues and correct them on your own instead of waiting for an auditor to show up.”
The 340B program prohibits DSHs, children’s hospitals, and freestanding cancer hospitals from using a Group Purchasing Organization (GPO) to purchase outpatient drugs covered under the program. To accommodate this requirement, a DSH hospital enrolled in 340B must keep separate inventories to keep inpatient and outpatient drugs separate. GPO purchasing can still be used for inpatient drugs.
However, Johnson says the vast majority of the time the separation is accounted for virtually. Split-billing software will track when drugs are provided to 340B-eligible patients and ineligible patients down to the dose. If a drug is provided to a 340B-eligible patient, then the dispensing record credits toward 340B inventory. This software tracks which account is affected down to individual pills.
“Patients can oscillate between inpatient and outpatient status,” says Johnson. “Mixed-use areas such as observation units also pose compliance risks because these units treat both inpatients and outpatients. Split-billing software becomes critical in these situations, and this software must be interfaced with the electronic health record system. This is a critical component of compliance. However, there are costs involved in enrolling in the 340B program and implementing the split-billing software. You are going to realize some expenses up front.”
Another common finding during audits is an incorrect registration in the Office of Pharmacy Affairs (OPA) database. Only providers that are properly registered and enrolled may dispense drugs purchased under the 340B program. Upon enrollment, the main provider is assigned the 340B identification number. Any outpatient department outside of the four walls of a hospital has to be registered as a child site. So a cardiology clinic that is operated as an outpatient hospital clinic and that dispenses 340B drugs would not be compliant if it is not properly registered.
The intensity of audits is increasing. Johnson says that some auditors now want documentation on how organizations are using the 340B savings to provide more charity care, prescriptions cards, and other services. Ideally, a provider organization should be able to produce figures to show how the drug cost savings improved access.
“Auditors want to know how 340B savings are being used,” says Johnson. “In the beginning, when audits were performed, these things were not requested. Now auditors are becoming more sophisticated, and they want to know where savings are going.”
There is also a recent compliance trend for drug manufacturers to conduct their own 340B audits. Manufacturers can audit provider organizations if they demonstrate reasonable cause to do so to HRSA. Manufacturer audits are limited in scope to investigating duplicate discounts under 340B and the Medicaid Drug Rebate Program, and diversion of 340B drugs to ineligible patients.
“The program is changing,” Johnson cautions. “Another thing to keep eye out for is the new mega guidance. It was supposed to be released Summer 2015, but sources now say it should be out in early 2016. Auditors have seen the new guidance, but it has not been made public yet. This will provide clarification and new definitions regarding the program. A notice of proposed rulemaking was issued in June 2015 concerning program ceiling prices and Civil Monetary Penalty. ”
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Emily Johnson is an attorney at McDonald Hopkins, LLC in Chicago. She can be reached at 312.642.1798 or ejohnson@mcdonaldhopkins.com.