An Update on the 340B Drug Discount Program

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It has been a year of change for health care providers eligible to participate in the 340B drug discount program. All hospital providers have completed a recertification process, and many have been selected for on-site program audits by the Health Resources and Services Administration (HRSA). Ongoing issues remain with this program; here are a few noteworthy items.

Group Purchasing Organizations

On February 7, 2013, HRSA issued a program notice regarding the prohibition of purchasing covered outpatient drugs through a group purchasing organization (GPO) for disproportionate share hospitals (DSHs), children’s hospitals and free-standing cancer hospitals participating in the 340B program. Facilities registering for 340B as critical access hospitals (CAHs), sole community hospitals (SCHs) and rural referral centers (RRCs) are not subject to this GPO exclusion. Under this prohibition, a covered entity is unable to purchase a covered drug using GPO pricing. Details of the recent program notice include:

  • A hospital subject to the GPO prohibition may not purchase covered outpatient drugs through a GPO for any of its clinics/departments within the four walls of the hospital, i.e., same physical address, under any circumstance.
  • Certain hospital off-site outpatient facilities may use a GPO for covered outpatient drugs if those off-site outpatient facilities meet the following criteria:
    1. They’re located at a different physical address than the parent.
    2. They’re not registered in the OPA 340B database as participating in the 340B program.
    3. They purchase drugs through a separate pharmacy wholesaler account than the 340B participating parent.
    4. The hospital maintains records demonstrating that any covered outpatient drugs purchased through the GPO at these sites are not used or transferred to the parent hospital or any outpatient facilities registered on the OPA 340B database.

This important notice allows areas within hospitals that are not eligible for the 340B discounted price to purchase those drugs using GPO pricing, rather than at wholesale acquisition cost (WAC), if the above criteria are met.

  • Through its auditing process, HRSA has become aware that some hospitals have been purchasing drugs through a GPO and subsequently replenishing the drug with a 340B item or reclassifying the method of purchase after dispensing. This notice indicates HRSA has not authorized this GPO replenishment model and that the GPO prohibition is violated upon use of a GPO to obtain covered outpatient drugs and cannot be fixed by subsequently changing the characterization of the purchase. Hospitals using such models should immediately cease this practice. A 340B-covered entity subject to the GPO prohibition should purchase drugs using a non-GPO account and only replenish with 340B drugs once 340B patient eligibility is confirmed. Hospitals have been given until April 7, 2013, to comply with the new policy.

Medicaid Exclusion File

On February 7, 2013, HRSA issued a program notice regarding use of the HRSA Medicaid Exclusion File to avoid potential duplicate discounts when a drug is discounted under the 340B program and subject to a Medicaid pharmaceutical rebate to the state. Here are the details:

  • If a covered entity houses many different clinics and only some are 340B-eligible, and it wants to receive the 340B price on drugs dispensed to Medicaid outpatients, it must obtain separate Medicaid provider numbers for the eligible clinics that use 340B drugs when billing Medicaid. If state Medicaid programs cannot generate additional Medicaid provider numbers for those entities, the covered entities must discuss alternative arrangements with the state.
  • When registering a new covered entity, the registrant must include all Medicaid billing numbers the covered entity uses to bill Medicaid with 340B drugs. Changes to how a covered entity uses 340B drugs for its Medicaid patients will be effective quarterly only.
  • Covered entities must attest to the accuracy of their information on the HRSA Medicaid Exclusion File during annual recertification. Covered entity billing information must be accurate at all times to ensure integrity of the file. If an audit reveals a covered entity’s information on the file does not reflect actual billing practices, the covered entity could be found in violation of the duplicate discount prohibition and be required to repay manufacturers.

Covered entities also should understand how state Medicaid agencies handle drug rebate calculations for drugs dispensed to patients of Medicaid Managed Care (MCO) plans. Some states could be including MCO drugs in the state pharmaceutical rebate. If a covered entity has elected to carve Medicaid patients out of the 340B program, the covered entity also should understand if this applies to Medicaid MCO patients as well. Inclusion of Medicaid MCO in the 340B program and failure of the state to remove those claims from its pharmaceutical rebate would result in an improper duplicate discount.

Orphan Drugs

Free-standing cancer hospitals, CAHs, SCHs and RRCs have been precluded from receiving the 340B price on orphan drugs since the inclusion of these types of covered entities into the 340B program. In May 2011, HRSA proposed regulations allowing these types of covered entities to purchase orphan drugs at 340B prices when the drugs were used to treat non-orphan diseases or conditions. This proposed regulation has not been finalized, but draft final regulations have been sent to the Office of Management and Budget (OMB). It is unclear what is included in these draft final regulations, but many covered entities are hopeful the content of the proposed regulations will be upheld in final regulations. We should know more on this later this spring.

For more information on the 340B program and its related compliance elements, please contact your BKD advisor.

BKD offers updated information on dealing with health care regulations

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