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Mega Guidance Is Here!

� David Pointer has no actual or potential conflict of interest in relation to this presentation.

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� Introduction

� Where are we today?◦ Brief Overview of HRSA Audit Findings

� Where are we going?◦ Mega-Guidance

� 340B Program is administered by Health Resources and Service Administration (HRSA)

� Drug manufacturers who participate in Medicaid/Medicare are required to supply covered outpatient drugs to covered entities at discounted prices

◦ Program funded by manufacturers, not Medicare or taxpayers

� The intent of the 340B program is to stretch scarce federal resources to reach a greater number of eligible patients and provide comprehensive services.

◦ Intent is not to save patients money

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� 340B Program began in 1992, contract pharmacies became eligible in 1996, DSH expansion occurred in 2003, children’s hospitals were added in 2006 and critical access hospitals were included in 2010.

340B Volume by Type**340B Volume by Type**340B Volume by Type**340B Volume by Type**

Pre 2004 DSH 31%

Post 2004 DSH 50%

HIV 5%

SCH 2%

CAH 2%

Other 10%

340B Purchase340B Purchase340B Purchase340B Purchase Volume (Billion)*Volume (Billion)*Volume (Billion)*Volume (Billion)*

2005 $2.4

2010 $5.3

2013 $7.1

Projected 2019 $16

* Per Apexus ** Per Berkeley Research Group

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2012201220122012 2013201320132013 2014 2014 2014 2014 2015201520152015

No findings 42% 21% 19% 26%

Findings 58% 79% 81% 74%

Repayment 45% 63% 65% 57%

State repaid 3% 1%

Per 340B Health

2012201220122012 2013201320132013 2014 2014 2014 2014 2015201520152015

Diversion 33% 58% 60% 42%

Duplicate discount 30% 21% 21% 20%

Inaccurate database 24% 49% 47% 44%

Contract pharmacy oversight 4% 5% 3%

GPO 1% 11% 6%

Inauditable records 1%

Non-reimbursable site 1% 1%

DSH % 1%

Inaccurate Medicaid Exclusion File 2%

Orphan drug violation 5%

Per 340B Health

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� May 6, 2015◦ HRSA submits Mega-Guidance to the Office of Management and Budget (OMB)

� August 28, 2015◦ Proposed Mega-Guidance is released in Federal Register

� October 27, 2015◦ Deadline to submit comments on proposed guidance ends (60 days)

� Unknown◦ HRSA finalizes Mega-Guidance

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� Mega-Guidance Purpose◦ Provide increased clarity for stakeholders and strengthen HRSA’s ability to administer the program effectively

� Guidance vs. Rulemaking

� Proposed vs. Finalized

� No scripts/orders written outside hospital or child sites

◦ Infusion orders

◦ Referrals, follow-up care, affiliated clinics, non-reimbursable hospital clinics, providers treating patients outside the hospital

� No 340B for scripts/orders written by providers who are not employees or independent contractors where hospital bills for professional fees

� New focus on payer status of patient

◦ No discharge scripts

◦ No drugs given to outpatients later billed as part of inpatient stay

� No 340B for Medicaid bundled drugs

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� Patient eligibility

� Covered entity eligibility

� Covered outpatient drug definition/eligibility

� Covered entity responsibility

� Contract pharmacy

� Internal and external audits

� GPO Prohibition

� Existing requirements for hospitals

◦ The covered entity has established a relationship with the individual, such that the covered entity maintains recordsmaintains recordsmaintains recordsmaintains 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 responsibility for the care responsibility for the care responsibility for the care provided remains with the covered entityprovided remains with the covered entityprovided remains with the covered entityprovided remains with the covered entity

◦ An individual will not be considered a “patient” of the covered 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 selfsubsequent selfsubsequent selfsubsequent self----administration or administration or administration or administration or administration in the home setting.administration in the home setting.administration in the home setting.administration in the home setting.

◦ (61 Fed. Reg. 55156 (October 24, 1996))

Per 340B Health

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1. The individual receives a health care service at a facility or clinic site which is registered for the 340B Program and listed on the public 340B database

2. The individual receives a health care service provided by a covered entity provider who is either employed by the covered entity or who is an independent contractor for the covered entity such that the covered entity may bill for services on behalf of the provider

3. An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2)

4. The individual’s health care is consistent with the scope of the Federal grant, project, designation or contract

5. The individual’s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient

6. The individual’s patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care

� Proposed guidance:

◦ For 340B to be used, script/order must be written as a result of a healthcare service billed as outpatient

� Observations:

◦ Negates discharge scripts

◦ No 340B for drugs billed as an inpatient service, even though the patient was an outpatient at the time the drug was dispensed/administered (e.g., Medicare 72-hour rule)

◦ Huge operational impact

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� Proposed guidance would prohibit use of 340B to fill scripts/orders written outside the hospital

� Patient eligible for 340B on a script-by-script basis instead of a patient-by-patient basis

� May not impact all facilities

� Proposed guidance:

◦ Order must be written as a result of services provided in the hospital or a child site to be filled with 340B drugs

◦ “Mere” infusion of drug not enough

� Observations:

◦ Hospitals have overturned audit findings by showing that even though an order was written outside the hospital, administration of the order at the hospital or a registered clinic qualified as an actual health care service for 340B purposes

◦ Proposed change would prohibit 340B use for these orders

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� Proposed guidance:

◦ No 340B for referrals, follow-up care or care in unregistered “affiliated clinics”

� Observations:

◦ HRSA audits have allowed in limited situations

◦ Difficult to document

◦ May not significantly impact many facilities

� Proposed guidance:

◦ No 340B for scripts/orders written outside registered hospital and child sites

� Observations:

◦ May impact treatment at:

� Nursing homes

� Correctional facilities

� Indigent clinics

� School clinics

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� The legal argument:

◦ Hospitals using a self-insured plan are responsible for care given to employees covered by plan

◦ HRSA audits have said this relationship is not sufficient for 340B use; not recommended currently

� Proposed guidance would unequivocally prohibit this

� Current: Employed, contracted or under other arrangement

� Proposed:

◦ Either employed by, or an independent contractor for, the hospital

◦ Such that the covered entity may bill for services on behalf of the provider

� Note:

◦ “Simply having privileges or credentials is not sufficient”

◦ Is more required than provider being on premises of hospital?

� Creates operational burdens to track and distinguish

◦ Interpreting “may bill for services on behalf of the provider”

� Hospital does bill or could bill?

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� Current: A drug is eligible for 340B if it is a “covered outpatient drug,” as defined in section 1927(k) of the Social Security Act

� Proposed guidance: For the 340B program, a drug will not be considered a covered outpatient drug if the drug:

◦ (1) is “provided as part of, or as incident to and in the same setting as” the following services: inpatient hospital services; hospice services; dental services, except that drugs for which the State plan authorizes direct reimbursement to the dispensing dentist are covered outpatient drugs; physicians’ services; outpatient hospital services; nursing facility services and services provided by an intermediate care facility for the mental retarded; other laboratory and x-ray services; and renal dialysis; and

◦ (2) receives a bundled payment by Medicaid and does not receive direct reimbursement for the drug.

� Not entirely clear what is intended:◦ Different than current bundled drug policy

◦ May not impact all states similarly

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� Proposed guidance:

◦ A hospital must notify HRSA if it is no longer eligible or has violated a 340B program requirement

� Implications:

◦ No materiality standard

� Current statement used in recertification: Entities must contact HRSA if there is any “material” change in 340B eligibility and/or “material breach” of key program requirements

◦ Most hospitals currently correct minor errors without notifying HRSA

◦ This could be a regular notification for many facilities

� GPO prohibition only applies to DSH and free-standing children’s and cancer hospitals

� Does not apply to CAH, RRC or SCH

� Proposed guidance lists three exceptions:

1. GPO could be used in clinics that:

� Have a different physical address

� Are not registered in 340B

� Ensure GPO drugs are never provided to outpatients at hospital or child sites

� Purchase drugs through a wholesale account separate from parent entity

2. GPO could be used for drugs given to an inpatient when insurer subsequently classifies as an outpatient

3. GPO could be used when 340B and WAC pricing are unavailable

� Hospitals may use remaining GPO drugs after start date in 340B

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� Proposed guidance continues to prohibit GPO use for ineligible outpatients

� Would also prohibit GPO use for drugs that are difficult to track (e.g., IV solutions, contrast media, anesthesia) unless paid in bundled manner by Medicaid

� FAQ allowed hospitals to interpret the definition of covered outpatient to decide if “bundled drugs” meet this definition, and if not, “a GPO may be used for drugs that are not covered outpatient drugs.”

� Some hospitals have identified certain drugs they believe are outside of 340B based on this FAQ

� Would need to use WAC for such drugs if hospital can’t track 340B and GPO use

� Proposed guidance:

◦ All child sites must be listed in the contract

◦ Only covered entities may register contract pharmacies

◦ Makes clear that CEs are responsible for contract pharmacy oversight and preventing diversion and duplicate discounts

◦ CEs must conduct annual independent audits

◦ CE must conduct a quarterly review of each contract pharmacy location (e.g., comparing CE’s prescribing records with pharmacy’s dispensing records)

◦ CE must notify HRSA of any noncompliance found during a quarterly review or annual independent audit

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� Proposed guidance:◦ CE cannot use contract pharmacy to dispense 340B drugs to Medicaid FFS or MCO patients without HRSA-approved written agreement with state or MCO

� Seeking alternatives to filed cost report test

◦ Could greatly shorten timeline for new child sites

� GPO Prohibition

◦ Confirms ability to exclude some off-site locations from 340B (and GPO prohibition)

◦ Confirms ability to use existing GPO inventory

� Allows different carve-in and carve-out decisions for Medicaid fee-for-service and Medicaid managed care

� Consideration of permitting CEs to use 340B only if appropriate for service delivery (e.g., could use non-340B account if more appropriate for a specific service, instead of carving-in or carving-out by Medicaid billing number)

� Does clarify some existing rules

� Tightened audit standards

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David Pointer, President

SolutionsRx

P.O. Box 212

Gainesville, Missouri 65655

(417) 679-0141

david@pointerlaw.com