© Wipfli LLP 2015 HFMA Annual Update January 30, 2015.

© Wipfli LLP

2015 HFMA Annual Update

J a n u a r y 3 0 , 2 0 1 5

© Wipfli LLP

340B Drug Pricing Program

V i c k i M u e l l e r , C PA

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Outline

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• 340B Drug Pricing Program Overview

• 340B Pricing

• 340B Eligibility

• 340B Program in Operation

• 340B Contract Pharmacy

• 340B Regulatory Requirements and Compliance

• Audit Procedures and Questions to Ask

• Questions

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340B Drug Pr ic ing Program Overview

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340B Drug Pricing Program Overview

• The 340B Drug Pricing Program (“340B” or the “Program”) is a federal program that requires drug manufacturers participating in the Medicaid drug rebate program to provide outpatient drugs to enrolled “covered entities” at or below the statutorily defined ceiling price.

• The Program is administered by the Office of Pharmacy Affairs (OPA).

• OPA and drug manufacturers have the right to conduct compliance audits of participating facilities. A clear audit trail must be created to remain in compliance with the regulations of the program.

• To be eligible for 340B drugs:

− Patient must be an outpatient

− Treated at a covered entity

− Prescribed by an eligible provider

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Covered Entities

• Critical access hospitals (CAHs)

• Disproportionate share hospitals (DSHs) with a DSH adjustment factor of greater than 11.75%

• Sole community hospitals (SCHs) with a DSH adjustment factor of 8% or greater

• Children’s hospitals

• Ryan White HIV/AIDS programs

• Federally qualified health centers

Eligible Providers

• Employed providers

• Contracted providers

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Intent of the 340B Program

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Enrollment Procedure

• http://www.hrsa.gov/opa/updates/hospitalregistrationoverview.html

• Click on “Hospital Registration Instructions”

− http://www.hrsa.gov/opa/files/hospitalreginfo.pdf

• Enrollment DeadlinesRegister Start DateJanuary 1-15 April 1April 1-15 July 1July 1-15 October 1October 1-15 January 1

• Recertification is required annually after enrollment into the Program to remain in the Program.

• Entities must notify OPA whenever there is a change in their eligibility.

http://www.hrsa.gov/opa/updates/hospitalregistrationoverview.html

http://www.hrsa.gov/opa/files/hospitalreginfo.pdf



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340B Pr ic ing

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340B Pricing

A typical 340B hospital can expect to save approximately 25% off of the cost of drugs used for outpatient services.

• Savings are typically greatest for high-cost brand name drugs

− Some drugs have savings approaching 95%+

− Hospitals with large amounts of oncology, dialysis, or specialty pharmaceutical usage could save more through 340B unless using Orphan drugs.

Drug Name Est. GPO Cost Est. 340B CostNeulasta 6mg/0.6mL $2,520 $1,810Gemzar 1GM VL 50mL $720 $0.01Lovenox 40mg PFS $180 $140Humalog 10mL $45 $0.10

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340B Pricing

0.0%

34.6%

47.9%49.0%51.7%

60.5%

80.0%

100.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Data derived from Prescription Drugs: Expanding Access to Federal Prices Could Cause Other Price Changes, U.S. General Accounting Office, GAO/HEHS-00-118, August 2000 and How the Medicaid Rebate on Prescription Drugs Affects Pricing in the Pharmaceutical Market, Congressional Budget Office Papers, January 1996.

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340B El ig ib i l i ty

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340B Eligibility

The Medicare Cost Report plays a critical role in determining 340B eligibility and cost savings.

Eligibility – For non-CAH hospitals, Worksheet E, Part A identifies the DSH adjustment factor. Hospitals must demonstrate a DSH adjustment factor of greater than 11.75% for DSH hospitals or greater than 8% for SCH and RRC hospitals.

Qualified Locations – Once enrolled, 340B drugs can only be used in reimbursable outpatient cost centers as determined by Worksheets A and C, lines 50 to 118. Retail pharmacy prescriptions are qualified for 340B if they relate to care provided to an outpatient in a reimbursable cost center on Worksheets A and C, lines 50 to 118.

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340B Patient Definition

An individual is a “patient” of a covered entity and eligible for 340B drugs 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.

• 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.

• An individual will not be considered a "patient" of the entity for purposes of 340B if the only health care service received by the individual from the covered entity is the dispensing of a drug or drugs for subsequent self- administration or administration in the home setting.

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340B Patient Definition (in plain English)

In order for a patient to be eligible for 340B in a hospital setting, they must:

• Be an outpatient at the time the drug is administered.

• Receive the drug in a reimbursable cost center on Worksheet A and C, lines 50 to 118.

• Receive the care from an employed or contracted clinician.

• Have a record at the hospital of the care provided.

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340B Patient Definition (in plain English)

In order for a patient to be eligible for 340B in a retail pharmacy setting, they must:

• Have received outpatient care from the hospital in a reimbursable cost center on Worksheets A and C, lines 50 to 118.

• The drug must be related to the care provided by the hospital (responsibility for the care).

• Receive the care from an employed or contracted clinician.

• Have a record at the hospital of the care provided.

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340B Program in Operat ion

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340B Program in Operation

• Hospital must file application for 340B status with the OPA

• Separate 340B account(s) is established with existing drug wholesaler

− Purchasing system remains the same

− New account contains 340B prices

• Hospital Pharmacy department purchases eligible drugs on 340B account and all other drugs on GPO account, except for DSH hospitals

• Wholesaler delivers drugs from both purchase orders

• Drugs purchased direct from a manufacturer can be obtained at 340B prices

• No need for separate inventory if tracking system is in place

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340B Virtual Inventory Process

Eligible drugs are ordered on the 340B account

Patient receives a drug as part of an outpatient service at 340B hospital

Information system is queried for outpatient drug charges

Patient charges are converted from charge code units to package equivalent amounts and associated with NDC dispensed

Wholesaler ships drugs to hospital

340B drugs are placed into inventory and can be used for any patient

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340B Contract Pharmacy

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Benefits of a Contract Retail Pharmacy

• Prescriptions are filled in the usual manner

− 340B use is invisible to the customer

• Reimbursement is unaffected for non-Medicaid prescriptions

− Medicaid is subject to rebate/duplicate discount limitations or carve-out for 340B inventory only

• Cost savings can be achieved for all qualified patients

− 340B savings can average 30% – 40%

• Cost savings is realized and revenue is received by the hospital without any significant investments in personnel, equipment, or infrastructure

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Operationalizing a 340B Contract Pharmacy

• 340B in this type of pharmacy requires a two-part test on all prescriptions:

− Did the customer in the pharmacy receive an outpatient health service from the 340B covered entity within a preceding period of time?

~ (Defined as a reasonable length of time determined by the Hospital, commonly used is “within the last 12 months”)

− Was the health service proximal to the prescription filled?

~ (i.e., a hospital chest pain patient filling a blood pressure medication would be deemed qualified whereas, the same patient filling a prescription for a skin rash would not because the prescription isn’t proximal to the service provided by the 340B hospital)

• 340B inventory must be invoiced to the enrolled hospital

• Revenue pass-through and dispensing fees must be calculated, tracked, and paid per the contract terms

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Retail Pharmacy Inventory Process

A patient is discharged

from the 340B hospital after receiving a

qualified service

A prescription is written for the patient

at discharge

The patient sends the prescription to the

contracted pharmacy

The pharmacy fills the prescription from inventory on hand.

Billing and collection occurs.

The claim is tested for 340B eligibility.

Replacement inventory for the qualified prescriptions are

ordered on a 340B account billed to the

hospital

The hospital pays all invoices for 340B

inventory

Revenue from 340B qualified

prescriptions less a dispensing fee is passed through to the hospital

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Example Prescription

Stand-alone Pharmacy:

Prescription reimbursement $ 50

Less pharmacy’s ingredient cost (41)

Pharmacy margin $ 9

Hospital revenue $ 0

Less hospital’s ingredient cost 0

Hospital margin $ 0

Contracted Pharmacy Structure:

Prescription reimbursement $ 50

Less revenue passed to hospital (50)

Less pharmacy’s ingredient cost 0

Dispensing fee received 14

Pharmacy margin $ 14

Hospital revenue ($50 less $14) $ 36

Less hospital’s 340B ingredient cost (26)

Hospital margin $ 10

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340B Regulatory Requirements and Compliance

• All 340B enrolled entities are entitled to utilize 340B in outpatient care areas

that appear on the Medicare Cost Report as reimbursable cost centers

(lines 50 to 118) and at all contract pharmacies.

• All enrolled entities are further permitted to utilize contract pharmacies,

which act as the covered entity’s agent in the dispensing of 340B drugs.

− The contract pharmacy agreement must:

~ Identify the specific pharmacies (physical addresses) covered by the contract

~ Incorporate a “bill-to-ship-to” arrangement where the covered entity retains

responsibility for payment for 340B inventory

~ Clearly define the fee structure and avoid paying the contracted pharmacy on

the basis of individual patient profitability

~ Hold both parties responsible and liable for any noncompliance with 340B

regulations See Federal Register Vol. 61, No. 165, 8/23/96, Pg. 43549 – 43556

Vol. 75, No. 43, 3/5/10, Pg. 10272 - 10279

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Audit Trail

All participating hospitals MUST maintain an audit trail for ALL 340B purchases.

Data required for the audit trail includes:

• Policies and procedures

• 340B purchase history

• GPO purchase history

• List of eligible points of service

• DSH adjustment factor calculation

• CDM to 11-digit NDC Crosswalk

• Specifications used to define outpatient utilization query

• Patient billing records including patient classification (IP/OP)

• Wholesale average cost (WAC) purchase history (DSH hospitals)

All 340B enrolled entities agree to be subject to audits at the time they join the program. Audits can be requested by OPA AND by pharmaceutical manufacturers.

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Official Sources of Information:• HRSA – http://www.hrsa.gov/opa/index.html• APEXUS – https://www.340bpvp.com/resource-center/

The Department of Health and Human Services (HHS) was working on a Mega Regulation to govern the 340B Program – proposed regulations were withdrawn in November

HRSA, within HHS, plans to propose guidance for notice and comment in 2015 that will address key 340B Program policy issues (i.e., definition of eligible patient, hospital eligibility criteria, etc.)

HRSA also plans to propose regulations related to the following specific 340B Program issues: civil monetary penalties for manufacturers, how the ceiling prices of 340B drugs are calculated, and dispute resolution

http://www.hrsa.gov/opa/index.html

https://www.340bpvp.com/resource-center/

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Top 10 Pitfalls of Participating in the 340B Program

1. Poor tracking of activity, eligible patients, qualified providers, etc.

2. Incomplete, inaccurate database

3. Lack of contract pharmacy oversight

4. Having too many contract pharmacies

5. Poor audit trail

6. Ineligible patients receiving 340B drugs

7. Use of a third-party administrator without deference to compliance

8. Failure to register all “child” sites

9. Medicaid election to exclude 340B for Medicaid patients

10. Overlooked 340B opportunities

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Questions to Ask

1. Who is charged with oversight of the 340B Program?

2. Are policies in place regarding the 340B Program to address the following?

3. Are 340B Program drugs being used only at internal pharmacy or are contract pharmacies being utilized?

4. Did the covered entity complete the recertification?

5. Are the appropriate child sites registered?

6. What procedures are being performed internally to verify the 340B Program is working appropriately and complying with regulations?

7. Have you had an external compliance review of your 340B Program?

8. Is your 340B Program profitable?

9. What are your 340B savings being used for?

10. What software is being used to monitor the 340B Program?

~ Who is responsible for maintaining the criteria in the software program?

~ How often is it reviewed?

11. Has your facility elected to exclude Medicaid transactions from 340B-qualifying activity?

~ Are procedures in place to ensure no duplicate discounts are being received?

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Contact Information

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Vicki Mueller, CPAManager, Health Care Practice 469 Security Boulevard, Green Bay, WI [email protected]

www.wipfli.com/healthcare

© Wipfli LLP 2015 HFMA Annual Update January 30, 2015.

Documents

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