XXXXXXXFUNDAMENTALS An Essential Guide for Health System Executive Management
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1 340B XXXXXXXFUNDAMENTALS An Essential Guide for Health System Executive Management
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3 Table of Contents 340B Fundamentals for Health System Executive Management...1 What is the 340B Program?... 2 Participation Requirements... 3 Hospital Eligibility...4 Key Program Requirements Contract Pharmacy Arrangements... 7 Key Considerations for Executive Leadership...8 Wellpartner and the tri-heart logo are trademarks of Wellpartner, Inc by Wellpartner, Inc. This document is intended to inform the reader about the federal 340B Program. Wellpartner has taken reasonable care in the description and presentation of material contained in this paper. However, it is not intended, nor should it be used as a comprehensive information source. This paper is provided with no warranty, expressed or implied regarding the suitability of the information contained herein for any specific purpose and any such warranties are hereby disclaimed.
4 340B Fundamentals for Health System Executive Management Introduction This brief provides a detailed overview of the 340B Drug Pricing Program. It is designed to give the executive management of qualified safety net health care provider organizations a firm grasp on the program s construct, benefits and requirements. An investment in understanding program basics and ensuring integrity helps protect the opportunities afforded by this important federal discount program. Key Takeaways The 340B Program can provide great savings, but the rules of participation are complex. Discounts on qualified prescription drugs can be as much as 50% below the market price. However, capturing these savings requires that Covered Entities adhere to strict compliance guidelines. Organizations that do not meet these regulations can be required to repay 340B savings to manufacturers and may be dropped from the program altogether. Proper implementation and operation is not just the responsibility of the pharmacy department. Because of the complexity of the 340B program, executive management should coordinate the efforts of several departments in addition to pharmacy including, but not necessarily limited to: finance, purchasing, billing, patient services, and compliance. The 340B Program faces unprecedented scrutiny. The 340B Program was created through statute in 1992, but is experiencing heightened attention from HRSA and pharmaceutical manufacturers today due to health care reform and program growth. This increased scrutiny forces compliance efforts to the forefront. Covered Entities must prevent diversion of 340B prescriptions to ineligible patients. Best practice is to have a clear patient definition incorporated into the organization s 340B policies and procedures documentation. 1 Wellpartner 340B FUNDAMENTALS
5 What is the 340B Program? The 340B Drug Pricing Program is federally administered and allows certain qualified safety net health care provider organizations (referred to as covered entities in the regulation) to purchase outpatient medications at or below a defined discount price, known as the 340B ceiling price. Congress intention is to assist covered entities in stretching their limited federal funds to better serve the pharmaceutical needs of uninsured patients and other vulnerable populations. The 340B Discount The discount available through the 340B ceiling price is determined based on a statutorily defined formula. In general, the discount is equal to the average price reduced by a minimum rebate percentage, which varies by drug type. In addition to the minimum rebate percentage, manufacturers must provide additional discounts on brand name drugs given certain predefined marketplace dynamics. A full review of the 340B discount formula and methodology can be found at According to HRSA estimates, the 340B ceiling price is an estimated 20 to 50 percent lower than typical retail cost. Protection from Price Increases A unique aspect of the 340B Program is the protection against price increase for brand name drugs. When the average price of a brand name drug increases the 340B discount increases. As a result, the 340B price can decrease as commercial prices rise. 340B program administration The Health Resources and Services Administration s Office of Pharmacy Affairs (HRSA/OPA) administers the 340B Program. OPA contracts with an organization called Apexus to serve as the program s single preferred purchasing agent that specializes in price negotiation and drug distribution responsibilities on behalf of participating entities. An Essential Guide 2
6 Participation Requirements The full range of safety net health care providers includes everything from small community health clinics to multi-site community hospitals and health systems. Regardless of organization size or type, participating 340b covered entities must ensure that they: Meet eligibility thresholds and maintain the accuracy of registration Only provide 340B drugs to eligible patients Develop systems for preventing duplicate discounts with the Medicaid Drug Rebate program Institute self-auditing and audit preparedness Organization Eligibility Requirements In general, 340B eligible entities can be divided into two categories: grantees and hospitals. Grantees must meet the conditions of the various Health and Human Services (HHS) programs under which they are funded. Example grantees are community health centers, hemophilia treatment centers, and family planning clinics. For hospitals, there are four main eligibility requirements: 1. Hospital Classification: The hospital must be either: a) owned or operated by a unit of the State or local government, b) a public or private non-profit corporation which is formally granted governmental powers by a unit of the State or local government or c) a public or private non-profit corporation which has a contract to provide health care services to low income individuals not eligible for Medicare or Medicaid. 2. Disproportionate Share Adjustment Percentage: For hospitals, eligibility for 340B is not based on the traditional benchmarks of other public insurance programs, like poverty level, demographics, or health status. Instead, eligibility is based on meeting a threshold DSH percentage, which varies based on the hospital type. 3. GPO Prohibition: Certain hospitals types cannot obtain covered outpatient drugs through a group purchasing organization. The GPO prohibition applies specifically to DSH, children s and free-standing cancer hospitals. 4. Orphan Drug Exclusion: Certain hospital types cannot purchase orphan drugs using 340B when those drugs are used for their orphan indications. The orphan drug exclusion applies specifically to critical access hospitals, sole community hospitals, rural referral centers and free-standing cancer hospitals. 3 Wellpartner 340B FUNDAMENTALS
7 Hospital Eligibility Eligibility Requirements for 340B Hospitals Hospital Type DHS Threshold GPO Prohibition Disproportionate Share Hospitals (DSH) Orphan Drug Exclusion 11.75% YES NO Children s Hospital (PED) 11.75% YES NO Critical ACcess Hospital (CAH) N/A NO YES Free Standing Cancer Hospital (CAN) 11.75% YES YES Rural Referral Center (RRC) 8% NO Sole Community Hospital (SCH) 8% NO YES Exhibit 1 Hospitals and larger Federally Qualified Health Centers (FQHC) may also elect to register certain outpatient facilities as child sites of the main facility. To be eligible, the outpatient child facility must be listed as reimbursable on the hospital s most recently filed Medicare cost report. Covered Entity Registration Registration for the 340B Program for both Covered Entities and contract pharmacies occurs on a quarterly basis as follows: Exhibit 2 Registration Window Start Date January 1 January 15 April 1 April 1 April 15 July 1 July 1 July 15 October 1 October 1 October 15 January 1 When registering for the 340B program, entities should refer to the HRSA website to make sure they have required documentation readily available, understand how to respond to the questions, and appoint an appropriate authorizing official to sign off on registration. An Essential Guide 4
8 Key Program Requirements In general, covered entities must to comply with three statutory requirements: Patient Eligibility Duplicate discount prohibition Maintenance of auditable records 1. Patient Eligibility Requirements A basic concept underpinning the 340B Program is the definition of an eligible patient. While there are no income requirements as with most assistance programs, the entity must be able to demonstrate that the patient is theirs. Conceptually, this means having the documentation that the patient received care at your facility, by one of your physicians, and, for grantees, that the drug administered is appropriate given the scope of grant received. Practically, there are many issues with tracking eligible patients as well as regulatory gaps and divergent interpretations of eligibility. The formal HRSA/OPA patient definition is: Current Patient Definition Guidelines For 340B eligibility purposes, an individual is considered a patient of a covered entity only if: The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual s health care; and The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or Federally Qualified Health Center Look-Alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement. Statute prohibits the resale of drugs purchased under 340B to any person who is not an eligible patient of the Covered Entity. The 340B guidelines refer to such distribution as diversion and this violation can result in disqualification from the program. It is therefore critical that Covered Entities pay strict attention to patient definition guidelines and implement procedures to ensure the guidelines are met. Common Issues with Meeting Patient Definition Ensuring that patients receive health care services from the covered entity: Patient definition guidelines specifically state that an individual is not considered a patient of the entity for the purposes of 340B if the only health care service received by the individual is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting. Eligible Providers: While admitting privileges may qualify a prescriber when they are providing care in an integral part of the entity, relying only on privileges is not sufficient to establish the relationship with a 340B entity. Employees: Employees can meet HRSA S definition of a patient, but they may not receive 340B drugs simply by virtue of being employed by the entity. 5 Wellpartner 340B FUNDAMENTALS
9 Key Program Requirements (cont d) 2. Duplicate Discount Prohibition Federal law created two drug discount programs: the Medicaid Drug Rebate Program and the 340B Program. Because entities using the 340B Program dispense drugs to a large number of Medicaid beneficiaries, there is a potential for a manufacturer s product to be discounted twice. A covered entity can receive a discount through the 340B program or the State Medicaid Agency can receive a mandatory (OBRA 90) rebate, but both discounts may not occur for the same drug. To assist with the identification of 340B claims, HRSA created the Medicaid Exclusion File. The Medicaid Exclusion File lists the Medicaid provider numbers and National Provider Identifiers (NPI) of covered entities that provide 340B drugs to Medicaid beneficiaries. In addition, covered entities are required to follow any State specific guidance regarding the billing or identification of 340b drugs. For instance, many States require covered entities to bill the State at actual acquisition cost plus a dispensing fee. Entities are also required to adhere to State Medicaid guidelines for 340B billing, be correctly listed in the online HRSA Medicaid Exclusion File, and work with their billing departments to prevent duplicate discounts. Preventing duplicate discounts Duplicate discounts are statutorily prohibited. The penalties range from the required repayment to manufacturers to disqualification from the 340B Program altogether. Common Issues with Preventing Duplicate Discounts Incorrect Listing on Exclusion File Limitations of the Exclusion File Billing of Physician-Administered Drugs Lack of Clarity on Medicaid Managed Care Requirements Maintenance of Auditable Records Requirements 3. Maintenance of Auditable Records Requirements Entities may be audited by HRSA or by manufacturers. HRSA s audit protocols are uniform across entity type and broadly cover program operations and 340B purchases. Since 2012, HRSA has published the findings from a significant number of audits on its web site. Manufacturer audit protocols must be approved by HRSA per program guidelines and are product-specific. According to HRSA, six (6) manufacturers have been approved to conduct audits as of April, Covered entities must maintain information sufficient to demonstrate compliance and should have written policies and procedures in place. The OPA published detailed audit and compliance expectations in 2010 (75 fed eg 10272). An Essential Guide 6
10 Key Program Requirements (cont d) Maintaining auditable records Entities should be prepared to demonstrate to auditors that 340B drugs are not subject to duplicate discounts nor resold or transferred to persons who are not patients of the entity. Many covered entities choose to conduct periodic self-audits to ensure they meet this standard. Others go further and arrange for an annual independent audit. In either case, preparing for an audit can help covered entities identify gaps in compliance and to efficiently manage resources over time. Common Issue with Maintaining Auditable Records Maintaining comprehensive and documented policies and procedures. Covered entities should have written policies and procedures. These policies and procedures should be comprehensive, covering all key areas of 340B Program compliance, including patient definition, prevention of duplicate discounts, compliance with eligibility requirements and maintenance of auditable records. Using 340B for prescriptions written by referral providers, without adequate documentation/ auditable records. It is important to note that a patient who is referred by a covered entity to an outside provider is still considered a patient of the entity. The patient is still eligible to receive 340B medications, as long as responsibility for the patient s care remains with the original covered entity. Contract Pharmacy Arrangements Covered Entities may choose to dispense 340B drugs to qualified patients using contract pharmacies. This is an arrangement whereby retail and/or mail order pharmacies are contracted to fill 340B-eligible prescriptions for covered entity patients. This arrangement helps facilitate patient participation for covered entities that do not have appropriate in-house pharmacy services or want to supplement these services. By creating a 340B contract pharmacy network, the covered entity can significantly increase patient access to 340B drugs. In a typical 340B contract pharmacy arrangement, a retail pharmacy will allow a covered entity to track and identify 340B-eligible prescriptions dispensed to its patients. This can be done manually, but more commonly the Covered Entity is given access to the pharmacy s adjudication switch feed, so claims data is captured and analyzed electronically. In return for a pre-negotiated service fee, the pharmacy will remit funds collected for 340B claims to the covered entity and then receive replenishment inventory for the drugs dispensed. Since inventory used to fill 340B prescriptions is replaced by the covered entity, the contract pharmacy is inventory-neutral with respect to 340B drugs over time. New 340B contract pharmacies must be registered with the OPA by the covered entity. Registration windows are scheduled quarterly (see Exhibit 2 on page 4). 7 Wellpartner 340B FUNDAMENTALS
11 Key Considerations for Executive Leadership Be aware of registration deadlines. OPA uses a quarterly registration processes. If you miss the registration period, you must wait until the next open registration period to register a new site or add new outpatient facilities or contract pharmacy arrangements. Regularly review eligibility. OPA requires covered entities to recertify annually. This should include a review of the accuracy of the OPA data base and covered entity eligibility. For hospitals, this should include discussions with the individuals responsible for submitting the Medicare Cost Report. Any changes in the Medicare Cost Report must be accurately reflected in the OPA registration. Keep your record in the OPA database up to date. Make sure addresses are correct and authorizing official/contact is correct. Several of HRSA s recent negative audit findings have cited inaccuracies in program registration, so descriptions of this process to executives is essential. Ensure an accurate listing in the Medicaid Exclusion File. Review your entry in HRSA s Medicaid Exclusion File, verify practices and appropriateness of Medicaid billing procedures for both pharmacy-dispensed and physician-administered drugs, and assess steps for adherence to State billing policies for 340B drugs. Establish strong patient definition controls. Although some covered entities may feel that all patients should be considered eligible for 340B or that the hospital, health system and affiliated physician practices are one entity, for 340B, only individuals meeting current patient definition guidelines are eligible for 340B. Entities should have a defensible and documented position on qualified patients that is rooted in the guidelines. Invest in 340B Program integrity. This means ensuring that all 340B Program requirements are met, including ordering, inventory management, dispensing and billing of 340B drugs. Covered entities should regularly conduct self-audits and review their written policies and procedures. Determine appropriate use of contract pharmacies for your organization. This includes the number, type and location of contract pharmacies in your service area and inclusion of a mail order option. Covered Entities must ensure that procedures are in place to prevent diversion of 340B prescriptions to ineligible patients. Best practices suggest that patient definition be part of a Covered Entity s documented policies and procedures. An Essential Guide 8
12 Wellpartner is nationally recognized as the leading provider of strategic 340B administration and specialty pharmacy services. We serve a diverse range of 340B Covered Entities including safety net Hospitals & Health Systems, FQHCs, Blood Centers and HIV/AIDS Clinics. All of our clients have a common goal: improved community health through increased access to high-quality care. Wellpartner shares this commitment and works hard every day to help our clients achieve it. For more information, visit wellpartner.com or call
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42 USC 256b. NB: This unofficial compilation of the U.S. Code is current as of Jan. 4, 2012 (see http://www.law.cornell.edu/uscode/uscprint.html).
TITLE 42 - THE PUBLIC HEALTH AND WELFARE CHAPTER 6A - PUBLIC HEALTH SERVICE SUBCHAPTER II - GENERAL POWERS AND DUTIES Part D - Primary Health Care subpart vii - drug pricing agreements 256b. Limitation