Is your organization 340B equipped? Understanding Contract Pharmacy arrangements

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1 Is your organization 340B equipped? Understanding Contract Pharmacy arrangements In today s era of healthcare reform that emphasizes enhanced accessibility and cost reductions, the 340B program remains a historical initiative designed to achieve those exact goals, well ahead of its time. Whether your institution successfully achieves these goals through prudent 340B management or sinks in a compliance quagmire depends on your thorough understanding of the program, its compliance requirements and your due diligence. Maintaining program integrity is imperative. To guide you in these efforts, this white paper offers insights into the program s intent, requirements and rules.

2 Despite the controversy and challenges to hospitals and healthcare decision makers, the 340B Drug Pricing Program has offered benefits and opportunities to Covered Entities for more than 20 years. Introduction In 1992, Congress created the 340B Drug Pricing Program with a far-reaching goal: to reduce outpatient drug costs for eligible healthcare facilities that serve large numbers of indigent patients. The 340B program requires pharmaceutical manufacturers participating in the Medicaid Drug Rebate Program to provide discounts for outpatient drugs to eligible healthcare organizations known as Covered Entities (CEs). 1 The program was established in response to the fact that, following the initiation of the Medicaid Drug Rebate Program, pharmaceutical manufacturers stopped offering discounted drug prices to federally funded clinics and hospitals serving large numbers of low-income and uninsured patients. 2 Consequently, Congress established the 340B program so that affordable medications could be made available to providers working with patients ineligible for Medicaid but who have a need for low-cost healthcare. 2 The program represents an innovative approach to helping indigent patients receive needed medications, without additional government funding. For many CEs, 340B represents a win-win initiative: it helps them achieve significant cost savings while expanding medication coverage and services to those patients who need it most. The program also has an option that allows CEs to enter into Contract Pharmacy arrangements to help facilitate program participation and to increase patient access to 340B drugs. Historical perspective 340B was enacted as part of the Veterans Health Care Act to provide discounts on outpatient prescription drugs to select safety net facilities serving the poor. Hospitals or clinics that qualify for the program are known as Covered Entities and include community health centers, AIDS drug assistance programs, hemophilia treatment centers, Title X family planning clinics and public and nonprofit hospitals that serve a high number of Medicaid patients. 3 The intent of the program is to permit CEs to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. 4 Some CEs may channel 340B drug savings into initiatives that benefit patients in additional ways, such as medication therapy management or mental health and substance-abuse counseling. 5 Which nonprofit healthcare organizations are eligible to become a 340B CE? 3 Health centers Federally qualified health centers Federally qualified health center look-alikes Native Hawaiian health centers Tribal/urban Indian health centers Ryan White HIV/AIDS program grantees Hospitals Children s hospitals Critical access hospitals Disproportionate share hospitals Free-standing cancer hospitals Rural referral centers Sole community hospitals Specialized clinics Black lung clinics Comprehensive hemophilia diagnostic treatment centers Title X family planning clinics Sexually transmitted disease clinics Tuberculosis clinics Over the years, the program has expanded with, participation growing from just under 5,000 CEs in 2000 to more than 7,700 in According to the Health Resources and Services Administration (HRSA), participants in the 340B Drug Pricing Program are expected to save approximately $2.5 billion on their estimated $5 billion outpatient drug expenditures this year. 7 And a new analysis by the RAND Corporation shows that safety net healthcare providers saved an estimated $1.6 billion in 2011 by participating in the 340B program. 8 There are no restrictions on how 340B savings can be used by CEs. These savings can be used to Page 2

3 expand facilities, treatment programs and other services for all patients. For these reasons, 340B growth is projected to continue in future years, with purchases expected to double again from $6 billion annually in 2010 to $12 billion annually by By participating in the 340B Drug Pricing Program, safety net providers will save approximately $2.5 billion on their estimated $5 billion outpatient drug expenditures this year. 7 Safety Net Hospitals for Pharmaceutical Access (SNHPA), a nonprofit organization that represents CEs, has formed a 340B CEO Council to serve as a resource for legislative efforts to help protect the program. 5 The association s position is that the 340B program is deeply important across the entire geographic spectrum of healthcare delivery and that, without 340B savings, many systems would have to close pharmacies and oncology clinics, make deep reductions in other healthcare services or close their doors. 5 Charitable and safety net hospitals have long provided care to lowincome and underserved individuals, compensated in part by funding from the Medicaid and Medicare Disproportionate Share Hospital (DSH) program. Now faced with an $18 billion decrease in DSH payments (FY 2014-FY 2020) enacted through the Affordable Care Act, many institutions may view 340B programs as a survival lifeline amidst healthcare reforms. 9 Respondents to a recent SNHPA survey of 381 hospitals participating in the 340B program reported that, as a result of the program, spending on outpatient drugs was reduced 27 percent, resulting in an average annual savings of $5.2 million. 10 Unanimously, respondents reported that the savings stemming from 340B participation are important to the operation of their institution, with 85 percent characterizing the savings as critical. 10 Critics, on the other hand, suggest that the program creates financial incentives that flow to CEs but may not always reach patients B program benefits 11 Average savings of 25 percent to 50 percent on outpatient drug purchases for 340B CEs Savings may be used to: Reduce price of pharmaceuticals for patients Expand services offered to patients Provide services to more patients While the 340B program can provide CEs with the opportunity for substantial cost savings 25 percent to 50 percent on the cost of outpatient drugs, on average health centers can often find the program difficult to navigate without professional assistance. 11,12 Concerns have been expressed regarding issues such as deciding what kind of pharmacy service to establish in an organization, understanding how 340B interacts with Medicaid and Medicare and knowing how to comply with auditing, tracking and compliance requirements. 12 Choosing a proven, compliant, end-to-end 340B solution is critical to success. Key program elements The 340B program is administered by the Office of Pharmacy Affairs (OPA) in HRSA. 12 Under the program, CEs must register with HRSA to receive an upfront discount for drug purchases and may use those drugs for all of their eligible patients, not only the indigent. 12 To be eligible to receive 340B-purchased drugs, patients must receive healthcare services other than drugs from the 340B CE. Patients of state-operated or -funded AIDS drug purchasing assistance programs are the only exception. 3 The 340B price for outpatient drugs is the ceiling price, meaning that it is the highest price that 340B CEs would have to pay for a drug. Health centers also may negotiate with manufacturers for prices below the 340B prices. The 340B ceiling price is set according to a formula based on the Average Manufacturer Price, less a discount that is generally equivalent to the state Medicaid Drug Rebate Program. 12 Page 3

4 Most CEs choose one or more options to dispense medications to eligible patients, including in-house pharmacies, Contract Pharmacies, provider dispensing or alternative demonstration project methods. 13,14 They may contract with multiple pharmacies to provide services, must register each with HRSA and must comply with established contracting requirements. 15 The 340B program allows CEs to have multiple Contract Pharmacies for increased patient access to cost-effective outpatient drugs. 15 When creating a Contract Pharmacy Network, meeting regulatory requirements should be top of mind. Working to maintain compliance and eligibility in the 340B arena can be an administrative burden due to lack of resources and technology, the annual recertification process and continuously changing rules and patient eligibility criteria. It is essential that your chosen Contract Pharmacy Network has proven competencies in fulfilling these needs. It is also important to select Contract Pharmacies that are convenient for the patient and afford ready access to prescribed medications. To purchase drugs at the 340B price, HRSA requires CEs to 16 : Prevent duplicate discounts CEs must ensure that an upfront 340B discount and a Medicaid rebate are not taken on the same drug transaction Prevent diversion of 340B drugs to ineligible patients Maintain an up-to-date 340B database and auditable records documenting program compliance Register outpatient facilities and Contract Pharmacies Refrain from participating in a group purchasing organization for covered outpatient drugs* Recertify eligibility every year * Only applies to DSH, free-standing cancer hospitals and children s hospitals. To prevent duplicate discounts and diversion and to satisfy HRSA requirements and validation parameters, coordinated front- and back-end prescription eligibility verification is necessary. This ensures that every 340B prescription meets regulatory requirements 3 : Prescriber and patient are eligible CE and pharmacy maintain the designated contractual arrangement Medication is covered by the program Given the breadth and depth of program requirements, selecting the correct 340B Contract Pharmacy solution vendor may be the most-important business decision you face. You will need a proven and reliable end-to-end 340B Contract Pharmacy solution that offers a wholly integrated billing and replenishment platform that supports program implementation, operations, audit and analytics. The platform should support integration of your current pharmacy network and provide robust reporting metrics. If your 340B Contract Pharmacy Network operates in mixed environments where drugs are dispensed to both 340B-eligible and noneligible patients, or in settings where patients are treated only briefly and/or providers float, you will need real-time, frontend screening that uses multiple data feeds to determine prescription eligibility. The 340B drug-dispensing process Given 340B prescription validation requirements, as well as the logistical complexities of the program, seamless integration with varied electronic medical records and e-prescribing systems across healthcare settings is essential. Inventory models 17 Inventory management is essential for compliance. Generally, Contract Pharmacies use one of two distinct inventory models: The prepurchased inventory model 340B-purchased drugs are kept in inventory at the Contract Pharmacy. When filling prescriptions on behalf of the CE, the Contract Pharmacy uses the CE s 340B-purchased drugs. When filling other prescriptions, the Contract Pharmacy uses its own non-340b-purchased drugs. The replenishment inventory model When filling 340B prescriptions, the Contract Pharmacy uses its own drugs. When a sufficient quantity of a given drug has been dispensed to 340B-eligible patients, the CE purchases that quantity of the drug at the discounted 340B price and has it delivered to the Contract Pharmacy. This order of 340B-purchased drugs thus replaces or replenishes the non-340b-purchased drugs. Page 4

5 Figure 1 The 340B Drug-Dispensing Process* * Adapted from the Health Strategies Consultancy LLC, for the Kaiser Family Foundation. Copayments for uninsured eligible patients are handled by the Contract Pharmacy according to the Covered Entity s policy. Certain Contract Pharmacy Networks place orders on behalf of Covered Entity through a Covered Entity wholesaler. Generally, the 340B Contract Pharmacy Network process (Figure 1) works in the following way 18 : CE provides patient and prescriber 340B eligibility information Outpatient receives healthcare services and a prescription from the CE For insured patients, the Contract Pharmacy submits the script and patient information to the pharmacy benefit manager (PBM), the payer and the eligibility verification system for benefit verification Patients pay the required copayment and the Contract Pharmacy fills the prescription Real-time patient eligibility verification is important so that uninsured patients are able to pay a discounted price (according to the CE s policy) at the point of sale The PBM reimburses the Contract Pharmacy according to its contractual agreements Contract Pharmacy submits a replenishment purchase order to the CE, and the CE submits the replenishment purchase order to the wholesaler Can occur electronically in what is known as a ship-to/bill-to arrangement In some instances, the Contract Pharmacy submits the replenishment order on behalf of the CE directly to the CE wholesaler Contract Pharmacy and the CE reconcile payment CE pays for the Contract Pharmacy replenishment inventory and the wholesaler replenishes the Contract Pharmacy inventory Page 5

6 Ensuring due diligence According to HRSA, CEs that establish Contract Pharmacy arrangements must oversee these arrangements to prevent diversion of 340B-purchased drugs to ineligible patients and to ensure that duplicate drug discounts are not awarded by Medicaid ( double dipping ). Both diversion and duplicate discounts are prohibited. That means the CE must periodically review pharmacy contract records and arrange for annual independent audits. 17 HRSA guidance, however, stops short of advising how CEs should undertake these responsibilities. Without such guidance, CEs are using different methods to identify 340B-eligible prescriptions when checking for diversion and duplicate discounts, resulting in considerable inconsistency as to which prescriptions filled at Contract Pharmacies are treated as 340B eligible. 17 Careful 340B management is critical to ensure compliance with 340B prescription eligibility for medications dispensed at Contract Pharmacies. Regardless of how an arrangement with a Contract Pharmacy may be structured, responsibility for maintaining program integrity and compliance rests squarely on the shoulders of the CE, which will suffer any repercussions for violating program rules. 12 It is risky to assume no one is watching, as HRSA has nearly doubled its audits of 340B Covered Entities in 2013 vs In FY 2014, Congress provided an additional $6 million toward oversight of the 340B program. 20 Drug manufacturers have also been auditing CEs and sharing results with OPA. 19 OPA has authority to audit manufacturers for compliance to ensure they are providing accurate 340B prices to CEs and are not discriminating against CEs when a drug is in limited distribution. Lack of attention to compliance requirements can lead to financial consequences, negative attention or even loss of Covered Entity status. Policies and procedures, controls and auditing/ monitoring processes are essential. 21 Meeting the challenge: Henry Ford Health System 22 Implementing a 340B program can create opportunities for savings that can be used to expand facilities, treatment programs and other services for all patients. But, as Henry Ford Health System discovered, choosing the right compliance partner is key for success. Henry Ford Health System is the largest nonprofit health system in southeast Michigan. It is a DSH (23.74 percent in 2012) consisting of seven hospitals and 40 medical centers. In 2011, Alexander Mansour, Henry Ford s director of finance and current 340B compliance officer for Community Care Services, was looking for ways to save the health system money, improve patient care and remain federally compliant. Participating in Contract Pharmacy services within the 340B program seemed to make a lot of sense for the Henry Ford Health System; however, it also introduced a significant risk. Although there were many opportunities for savings that could allow the health system to better serve its patients through enhanced service offerings, the risk of being audited and potentially failing an audit could eliminate service offerings and cost many employees their jobs. Mansour selected Walgreens as a Contract Pharmacy Network partner that could deliver in the event of an audit, while mitigating risk and supporting compliance with HRSA regulations. Medication access was another key consideration. Southeast Michigan has a very large indigent population that does not have convenient access to transportation, making it difficult for patients to come back to Henry Ford clinics and hospitals to get their medications. The health system chose a partner strategically located in neighborhoods surrounding Henry Ford hospitals and medical clinics. Henry Ford Health System saved $3.25 million in 2013 by utilizing the 340B program. The health system used those savings to expand care for its patients. Page 6

7 In 2013, the 340B program afforded a $3.25 million savings on prescription drugs for the Henry Ford Health System. The savings were used to fund several free clinics, provide bedside delivery of medications to all discharged patients and provide medications ordinarily not covered to dialysis patients. Notably, the system has experienced a large reduction in readmission rates since instituting the 340B program. In addition to the bedside delivery of medications to discharged patients, Mansour believes this is due to having pharmacies within walking distance of patients homes, which helps our patients to adhere to their treatment plans. Mansour s fear of an audit did come to fruition in August With the appropriate partner (in this case, Walgreens) and controls in place, Henry Ford was able to furnish the necessary documentation and was found to be HRSA compliant. With the appropriate Contract Pharmacy partner and controls in place, Henry Ford Health System was able to furnish the necessary audit documentation and was found to be HRSA compliant. How good is your organization s 340B Contract Pharmacy management? Established procedures for assessing prescription eligibility? Careful monitoring of Contract Pharmacy dispensing, inventory and pricing? Effective inventory management systems in place to track 340B drugs? Processes in place to prevent diversion and duplicate discounts? At least annual audits of dispensing pharmacies to ensure compliance? Real-time 340B eligibility verification to enable 340Beligible patients to benefit at point of dispensing? What s in store for 340B? In 2015, HRSA plans to issue proposed guidance for notice and comment that will address key policy issues raised by various stakeholders committed to the integrity of the 340B program. 23 HRSA will also issue proposed rules in areas where it believes it has authority to act, such as civil monetary penalties for manufacturers, calculations of 340B ceiling prices and dispute resolution. 23 This November 2014 announcement followed HRSA s withdrawal of its much-anticipated Mega Reg from the rulemaking process where it had resided with the Office of Management and Budget since April. 24 This redirection comes in the wake of the recent orphan drug exclusion rule debate, which calls into question the extent of HRSA s rulemaking authority. For now, it appears any new guidance or regulations may depend on the courts and a ruling on PhRMA s pending lawsuit challenging HRSA s power to implement and enforce its new orphan drug exclusion interpretive rule. 24 Regardless, Commander Krista Pedley, the director of the OPA in HRSA, indicated that the 340B community should expect additional guidance sometime in Once implemented, new guidelines and regulations will make operational and reporting competencies more important than ever. Page 7

8 Conclusions 340B CEs are struggling financially to fulfill their mission as nonprofits while improving and expanding care for eligible patients. The 340B Drug Pricing Program offers an opportunity for substantial drug cost savings to further that mission and to fulfill the program s intent: to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. 4 The program also offers opportunities to increase patient access and services and savings through the option to engage in Contract Pharmacy arrangements. Working to maintain compliance and eligibility in the 340B program is an administrative burden and challenge due to lack of resources, time, technology and other administrative requirements. The likelihood of new and expansive regulations and the ongoing controversy around the orphan drug exclusion rule means CEs will need to adapt swiftly and efficiently to comply with changing regulatory requirements. Selecting a proven and trusted Contract Pharmacy vendor can help maximize 340B savings, minimize your risk and enable compliance so that your organization can continue to fulfill its mission to care for those patients most in need. The information herein is provided for informational and educational purposes only. This paper does not constitute legal advice nor is it in any way intended to substitute for consultation with legal counsel. You are encouraged to review and discuss this educational information with your own attorney to determine whether and to what extent it may be applicable to you or your business. 1. Biotechnology Industry Organization, Community Oncology Alliance, National Community Pharmacists Association, National Patient Advocate Foundation, Pharmaceutical Care Management Association, Pharmaceutical Research and Manufacturers of America. The 340B drug discount program: a review and analysis of the 340B program. White Paper FINAL.pdf. Published Accessed September 24, What is 340B? Accessed September 24, Health Resources and Services Administration. Eligibility and registration: eligible organizations. Accessed September 24, Health Resources and Services Administration. 340B drug pricing program. Accessed September 24, Hart C. Protect the 340B drug program. Mod Healthc. 2014;44(7): Health Resources and Services Administration. Contract pharmacy data extract. Accessed July 24, Health Resources and Services Administration. Did you know facts. Accessed September 23, Mulcahy AW, Armstrong C, Lewis J, Mattke S. The 340B prescription drug discount program: origins, implementation, and post-reform future. RAND Corporation Web site. Published Accessed September 24, Centers for Disease Control and Prevention. Distribution of reference biological standards and biological preparations. Fed Regist. 2013;78(181): Wallack MC, Herzog SB. Demonstrating the value of the 340B program to safety net hospitals and the vulnerable patients they serve. Safety Net Hospitals for Pharmaceutical Access Web site. Published June 29, Accessed September 24, Scholz L. Office of Pharmacy Affairs 340B Drug Pricing Program. Health Resources and Services Administration information session. Accessed September 24, National Association of Community Health Centers. Understanding the 340B program: a primer for health centers Manual Primer for Health Centers2.pdf. Published May Accessed September 24, Health Resources and Services Administration. 340B implementation. index.html. Accessed September 24, Health Resources and Services Administration. Alternative methods demonstration projects. alternativemethods/index.html. Accessed September 24, Health Resources and Services Administration. Contract pharmacy services. contract/index.html. Accessed October 17, Health Resources and Services Administration. Program requirements. Accessed September 24, The Kaiser Family Foundation. Follow the pill: understanding the U.S. commercial pharmaceutical supply chain. Follow_the_Pill.pdf. Published March Accessed September 24, U.S. Department of Health and Human Services, Office of Inspector General. Memorandum report: contract pharmacy arrangements in the 340B program. Published February 4, Accessed September 24, Hudson Headwaters 340B Solutions. Will 2014 be the year of the 340B mega-reg? Published January 14, Accessed September 24, Health Resources and Services Administration. 340B staffing investments. Accessed September 24, Williams BS, Vogelien M. The pharmacy 340B drug discount program overview and emerging issues. Accessed September 24, Walgreen Co. Case study: the right 340B partner can help your organization succeed. Published Accessed September 24, Health Resources and Services Administration. 340B drug pricing program. Accessed November 24, Blake MB, Jackson T, Vasquez K. Breaking 340B news: HRSA withdrew its much-anticipated 340B mega-reg. JD Supra Business Advisor Web site. breaking-340b-news-hrsa-withdrew-its-mu-90371/. Published November 18, Accessed November 24, To learn more about Walgreens 340B Contract Pharmacy solution, visit 340BComplete.com Walgreen Co. All rights reserved. WGPS