Overview of the Federal 340B Drug Pricing...

Arnett Carbis Tootham ‐ HFMA Accounting & Auditing Update 2018

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Overview of the Federal 340B Drug Pricing Program

Presented by:James A. Raley, CPA

Senior Manager – Health Care ServicesArnett Carbis Toothman LLP


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340B Program: Overview

Provides discounts on outpatient drugs to certain safety‐net covered entities Program’s intent is to allow safety net entities to increase patient services with savings Estimated $6.9 billion dollars in 340B drug purchases last year or about 2.1% of the pharmaceutical market Manufacturers that participate in Medicaid must also participate in the 340B Program

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340B Program AdminisTraTion

The 340B Program Team:

HRSA’s Office of Pharmacy Affairs340B PVP Prime Vendor Program (Apexus Inc.)

Pharmacy ServicesSupport Center (PSSC/PharmTA)

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340B Program: BenefiTs

Average savings of 25‐50% on outpatient drug purchases for 340B covered entities Savings may be used to:

Reduce price of pharmaceuticals for patients Expand services offered to patients Provide services to more patients

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340B Program: Eligible enTiTiesFederal Grantees Non‐grantees

Hemophilia Treatment Centers Federally Qualified Health Centers/ Look‐alikes Ryan White Programs Sexually Transmitted Disease/Tuberculosis Title X Family Planning Urban/ 638 Health Center Native Hawaiian Health Centers

Disproportionate Share Hospitals Critical Access Hospitals Rural Referral Centers Sole Community Hospitals Children’s Hospitals Free Standing Cancer Hospitals

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AcTive ParTicipanTs in 340B

Drug Manufacturer

GPOs and Buying Groups

Wholesaler

Contract Pharmacy

Covered Entity(CE)

3rd Party 340B Administrators

(Software Vendors)

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ConTracT Pharmacy Process Flow

Contract Pharmacy

Rx 340B Admin

Covered Entity

Wholesaler

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PoTenTial OpporTuniTies

Source: ACT database of 340B claims

Avg. Receipts Avg. ReceiptsPhysician Specialty Per Prescription Physician Specialty Per Prescription

Family Practice/Internal Medicine Cardiology Brand 104.21$ Brand 233.14$ Generic 9.63$ Generic 4.27$ Combined 40.14$ Combined 62.82$ Pulmonary Hematology Brand 172.94$ Brand 480.30$ Generic 2.32$ Generic 34.25$ Combined 124.79$ Combined 136.20$ Urology Gastroenterology Brand 80.35$ Brand 367.64$ Generic 1.76$ Generic 15.86$ Combined 37.25$ Combined 85.63$

(1) Receipt per prescription, net of cost of drugs, dispensing fees and administration fees.

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Medicare DSH - 340B QualificaTion PercenTage

Eligible Hospital Non-Profit/Gov't ContractDSH Adjustment

PercentageGPO

Ex clusionOrphan Drug

Ex clusion

DSH Hospital Yes 11.75% Yes No

Critical Access Hospital Yes No Required % No Yes

Rural Referral Center Yes 8% No Yes

Sole Community Hospital Yes 8% No Yes

Free-standing Cancer Hospital Yes 11.75% Yes Yes

Children's Hospital Yes 11.75% Yes No

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Medicare DSH - 340B STraTegies

Patient Day Scrub If your hospital is close to the Qualifying Medicare DSH percentage, a

Medicaid and Total Patient day scrub may be enough to increase yourDSH percentage to the qualifying percentage.

Psychiatric Unit Conversion If the hospital has a distinct psychiatric unit, it could possibly be

converted to a PPS psychiatric unit so that the Medicaid days and totaldays would be counted in the Medicaid DSH factor.

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If the psychiatric unit is large enough, the hospital might beable to create two psychiatric units from the current distinctunit. The Geriatric psychiatric unit would remain a distinct part Medicare

unit for older, more medically fragile patients.The reimbursement method would not change in this unit.These patients would not be included in the Medicare DSH calculation.

The non‐geriatric unit would be paid as a PPS unit and be included inthe Medicaid DSH fraction.

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The Medicaid utilization of this type of psychiatric unit istypically between 40‐70%. This Medicaid utilization, along with existing PPS services, can often

increase the hospital’s Medicaid utilization percentage enough tomeet the required DSH payment percentage to qualify for 340B.

In the example on the next slide, the hospital’s current DSHpercentage is 6.85%. After converting the psychiatric unit to a PPSunit, the DSH percentage increases to 12.23%, which exceeds therequired 11.75% for 340B.

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Medicare DSH - AddiTion of PsychiaTric Days

Description Non‐ Qualified Hospital PPS Psych Unit Adjusted DSH %Medicaid Days In‐State Paid 400 500 900 Medicaid Days In‐State Eligible 500 500 Medicaid Days Out‐of State Paid 10 10 Medicaid Days Out‐of State Eligible ‐ ‐ Medicaid Days HMO 2,850 1,850 4,700 Medicaid Days Other ‐ ‐ Medicaid Days Total 3,760 2,350 6,110 Total Days Acute Hospital Days 28,500 3,000 31,500 Total Days Employee Discount Days ‐ ‐ Total Days Total Hospital Days ‐ DSH 28,500 31,500 Total Days Calculated Medicaid 13.19% 19.40%Total Days Cost Report Medicaid % 13.19% 19.40%Total Days SSI% 8.50% 8.50%Total Days Total DSH% 21.69% 27.90%Total Days Allowable DSH% 6.85% 12.23%

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Reclassification Strategy If your hospital is located in an urban area and does not qualify for

340B at the 11.75% level, you might be able to reclassify to ruralstatus under 42 CFR 412.103, if your Hospital meets the criteria tobecome a Sole Community Hospital (SCH), (42 CFR 412.92) or RuralReferral Center (RRC), (42 CFR 412.96).

As we saw previously, SCHs and RRCs qualify for 340B at 8%, ratherthan 11.75%; however, SCHs and RRCs have pros and cons relating tothe 340B program.

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Pro – SCHs and RRCs are not subject to GPO exclusion.Con – SCHs and RRCs are subject to Orphan Drug Exclusion. This wouldreduce your 340B benefit if one of your largest 340B savings is going tobe an outpatient cancer center.Con – Your hospital will be paid the rural wage rate while you areclassified rural.Pro – You may reclassify to either your home wage or the nearest urbanarea, if it is higher.Pro – As a RRC, you only have to meet 82% of the wage area you wish to reclassify.

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Example: Urban to rural reclassification as a RRC. Lost revenue for 12 months as rural wage ($4,000,000). Wage reclassification using special access to the closest urban area. Increased Medicare Revenue for 36 months as reclassified urban

area ($15,000,000). Eligible for 340B program with a 9.2% Medicare DSH percentage

($1,500,000 annually).

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Commonly Seen Issues


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DuplicaTe DiscounTStep 1: Manufacturer sells Covered Drug to a CE at 340B discounted price.

Covered Entity

Step 2: Covered Drug dispensed to Medicaid

patient

Step 3: CE requests reimbursement from the State

Step 4 & 5: State submits rebate request to manufacturer & manufacturer pays rebate

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DuplicaTe DiscounT, conT.

Covered entities may not receive a 340B discount for drugs that are subject to a Medicaid rebate. Providers required to inform HRSA (Medicaid billing number) at the

time of 340B enrollment how they plan to handle 340B drugs for Medicaid patients

Carve In or Carve Out

Follow procedures established by each State Medicaid agencyIn Pennsylvania, CE may choose to: Carve out Medicaid patients from 340B so the State can claim the

rebate Use 340B drugs for Medicaid patients and reduce Medicaid payment

to the Covered Entity Medical Assistance Bulletin 99‐13‐08 offers guidance for

Pennsylvania Hospitals

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Diversion

An individual is a patient of a 340B 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.

Not considered a patient if the only health care service is the dispensing of a drug for self‐administration

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OuTdaTed / IncorrecTInformaTion

Very important to maintain information in OPAIS Used by manufacturers to screen CE’s Requires registration of all contract pharmacy

arrangementsRegistration changes may only be submitted the first 15 days of the quarter (October 1‐15; January 1‐15; April 1‐15; July 1‐15) Become effective the start of the following quarterEqually important is the information being maintained by the 340B Administrator

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Compliance RecommendaTions


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340B Compliance recommendaTions

Leadership CommitteeDeveloping a Leadership Committee to foster compliance and expectations for the 340B program.The purpose is to communicate and maintain benefits and compliance for all aspects of the 340B Program, including: Pharmacy Department Quality Department Finance Department Entity Operations Contract Pharmacy Compliance Risk Management

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Education and TrainingDevelop and maintain staff knowledge as related to the 340B Program.Establish knowledge requirements for the staff.Identify potential gaps with staff knowledge and create training based on knowledge gaps.Educate participating staff on EHR accumulation and 340B drugs that qualify for the 340B Program.Develop and maintain comprehensive 340B policies and procedures.

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Conduct monthly internal and external audits.Collect, analyze, and disseminate the data to evaluate and guide improvement to the 340B Program.Develop consistent and systematic process to regularly audit 340B procurement, administration/dispensing, and billing transactions at all sites utilizing 340B drugs.Maintain records of all audit results, reporting, and actions taken to correct/improve 340B processes.Establish process to review all audit findings and action items.

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340B Independent Audit An independent audit is recommended yearly by HRSA, and the results are a guide for

measure and action plans. They can also accompany internal self‐audit records in the event of an HRSA audit.

An independent audit is an audit usually made by professional auditors who are wholly independent of the company or vendors of the entity where the audit is being made.

An audit is a planned and documented activity performed by qualified personnel to determine the adequacy and compliance with established standards and procedures.

The audit may include both financial and compliance review, and testing of internal controls.

Let the audit work for the entity; any issues or problem areas should have recommendations that accompany them to aid in the process of having a 100% compliant 340B Program.

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Skilled Nursing FaciliTycosT analysis


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Skilled Nursing Facility (SNF) CosT Analysis

Hospitals continuing to acquire SNFs Most SNFs being acquired are operating at a loss

Hospital based SNFs operating at a loss in most situationsSNFs require a different skill set to operate effectively Still comes down to controlling costs and

maximizing revenues

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Analyze organization’s monthly statistics to assist in future business decisionsCompare organization’s cost/day to similar organizationsUtilize benchmarking data to assist with decision making process regarding future operationsUnderstand your benchmarks and their impact on operations

Benchmarking

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Data Dashboard

November November Home Home Similar6/30/17 6/30/16 Organizations

CensusAdmissions 216 130 196 Discharges 174 135 195

Nursing MA Case Mix Index 1.02 0.95 1.07 Hands on Nursing 3.65 3.70 3.50 MC Average Length of Stay 23.00 36.00 42.00

These numbers do not reflect actual results.

Benchmarking

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Data Dashboard

November November Home Home Similar6/30/17 6/30/16 Organizations

FinancialDays in Accounts Receivable 53.00 33.00 36.00 Days Cash on Hand 145.00 162.00 47.85 Debt Service Coverage Ratio 5.74 5.50 3.26 Current Ratio 1.34 3.25 2.75 Debt to Net Assets 2.65 1.50 2.21 Operating Margin 1.15 1.35 1.85

These numbers do not reflect actual results.

Benchmarking

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Cost Per Day AnalysisUtilizing the Medicaid cost report to evaluate your organization's cost per day can provide valuable insight on how the organization is operating.Organizations with independent living, assisted living, or personal care should evaluate the allocations utilized in the Medicaid cost report in conjunction with review of the cost per day.Ultimately, you want to either validate the cost or determine if it is an indicator of a potential issue.

Benchmarking

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Average Total Average Cost % of TotalCost Per Patient Day Cost Average

COST CENTERS Non Profit Non Profit Non Profit

I. RESIDENT CARE COSTS 1 Nursing $4,893,534 $107.68 33.90%2 Director of Nursing 545,705 12.10 3.78%3 Related Clerical Staff 128,806 3.04 0.89%4 Practitioners 11,148 0.15 0.08%5 Medical Director 26,108 0.66 0.18%6 Social Services 140,628 3.27 0.97%7 Resident Activities 269,160 6.29 1.86%8 Volunteer Services 6,458 0.11 0.04%9 Pharmacy‐Prescription Drugs 338,579 7.65 2.35%10 Over‐the‐Counter Drugs 30,329 0.65 0.21%11 Medical Supplies 221,595 4.76 1.53%12 Laboratory and X‐rays 49,951 1.26 0.35%13 Physical,Occupational & Speech Therapy 941,122 22.83 6.52%14 Oxygen 40,825 0.82 0.28%15 Beauty & Barber Services 33,414 0.76 0.23%16 RC Minor Movable Property 14,814 0.36 0.10%17 Nurse Aide Training 23,575 0.33 0.16%18 Other: See Attached 40,220 0.85 0.28%19 Other: See Attached 9,903 0.22 0.07%20 TOTAL RESIDENT CARE COSTS $7,765,874 $173.79 53.78%

II. OTHER RESIDENT RELATED COSTS 21 Dietary and Food $1,231,172 $28.58 8.53%22 Laundry and Linens 201,195 4.33 1.39%23 Housekeeping 415,572 8.57 2.88%24 Plant Operation & Maintenance 637,775 14.09 4.42%25 ORR Minor Movable Property 13,043 0.29 0.09%26 Other: See Attached 22,409 0.57 0.16%27 Other: See Attached 79,457 0.64 0.55%

28 TOTAL OTHER RESIDENT RELATED COSTS $2,600,623 $57.07 18.02%

Cost Per Day Analysis

Focused on Resident Care and Other Resident Related costs, excluding Administrative and Capital costs.

Benchmarking

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Focused on Resident Care and Other Resident Related costs, excluding Administrative and Capital costs.

Cost Per DayOver (under)

Average Cost Average Cost Average Cost

NovemberPer Patient

DayPer Patient

Day Per Patient DayCOST CENTERS Home All Non Profit Non Profit

I. RESIDENT CARE COSTS1 Nursing 113.80 98.77 107.68 6.122 Director of Nursing 16.43 10.87 12.10 4.333 Related Clerical Staff 1.54 2.88 3.04 -1.504 Practitioners 0.00 0.14 0.15 -0.155 Medical Director 1.40 0.71 0.66 0.746 Social Services 4.78 3.09 3.27 1.517 Resident Activities 5.95 5.49 6.29 -0.348 Volunteer Services 0.89 0.06 0.11 0.789 Pharmacy-Prescription Drugs 16.32 7.83 7.65 8.67

10 Over-the-Counter Drugs 1.45 0.65 0.65 0.8011 Medical Supplies 5.24 4.13 4.76 0.4812 Laboratory and X-rays 2.01 1.26 1.26 0.7513 Physical, Occupational & Speech Therapy 34.98 23.18 22.83 12.1514 Oxygen 0.00 0.88 0.82 -0.8215 Beauty & Barber Services 0.61 0.56 0.76 -0.1516 RC Minor Movable Property 0.00 0.56 0.36 -0.3617 Nurse Aide Training 0.00 0.26 0.33 -0.3318 Other: See Attached 0.00 0.58 0.85 -0.8519 Other: See Attached 0.00 0.15 0.22 -0.2220 TOTAL RESIDENT CARE COSTS 221.37 162.05 173.79 47.58

II. OTHER RESIDENT RELATED COSTS 0.0021 Dietary and Food 31.23 24.14 28.58 2.6522 Laundry and Linens 3.88 3.69 4.33 -0.4523 Housekeeping 8.67 7.62 8.57 0.1024 Plant Operation & Maintenance 13.22 12.71 14.09 -0.8725 ORR Minor Movable Property 0.00 0.26 0.29 -0.2926 Other: See Attached 0.00 0.38 0.57 -0.5727 Other: See Attached 0.00 0.32 0.64 -0.6428 TOTAL OTHER RESIDENT RELATED COSTS 73.88 49.12 57.07 16.81

Cost Per Day Analysis

Benchmarking

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Nursing Cost Per DayNursing cost per day appears high at $6.12 higher per day than the average nonprofit.Potential contributing factors for the higher cost per day: Staffing Fringes Agency Hands‐on nursing

Benchmarking

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Nursing Cost Per DayHow do my nursing costs per day compare to my competitors? Nursing

CostsNovember Home 113.50Avg. Non Profit 107.68

November Home 113.50Avg. Non Profit 107.68Variance 5.82November Home Resident Days 43,344Estimated Excess Cost $252,262.08

Benchmarking

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Nursing Cost Per DayHow do my salaries per hour compare to my competitors?

November Average

Home Non Profit

Salaries Per Hour

Registered Nurses 34.23 31.85

Licensed Practical Nurses 26.14 23.57

Nurses Aides 17.41 15.05

Benchmarking

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Nursing Cost Per DayHow does my hands‐on nursing compare to similar organizations?

2017

November Home hands‐on nursing hours 3.65Similar organization hands‐on nursing hours 3.50Difference in hours per resident day 0.15

Actual resident days 43,344Total hours difference 6,502

Total hours difference 6,502Average hourly rate (RNs, LPNs, CNAs) 25.93Estimated excess cost over similar organizations $168,565

Benchmarking

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Pharmacy Cost Per DayPharmacy cost per day appears high at $8.67 higher per day than the average nonprofit.Potential contributing factors for the higher cost per day: Part D drug costs Review pharmacy contracts

Real Life Example

Benchmarking

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Benchmarking

Therapy Cost Per DayTherapy cost per day appears high at $12.15 higher per day than the average nonprofit.Potential contributing factors for the higher cost per day: Medicare Part A Resource Utilization Group (RUG) Medicare Part B Case Load Review Therapy Contract

Real Life Example

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Dietary Cost Per DayDietary cost per day appears high at $2.65 higher per day than the average nonprofit.Potential contributing factors for the higher cost per day: Salaries Contracts Cost per meal Guest and employee meals

Current Meal Charge Structure

Benchmarking

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Dietary Cost Per DayWhat are my actual meal costs?

June 30, 2017

November Home dietary costs $1,353,633

November Home meals served 130,032

Cost per meal 10.41

November Home's cost per meal 10.41Similar organizations’ cost per meal 9.53Difference in cost per meal 0.88

Actual meals served 130,032 Estimated excess cost over similar organizations $114,862

Benchmarking

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Board InvolvementProviding key indicators to your Board on a monthly basis provides them an understanding of the organization and enhances their basis for strategic business decisionsStrategic planning assists organizations in determining their success for the future

Benchmarking

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James A. Raley, CPASenior Manager – Health Care Services voice: 724.658.1565 or 800.452.3003e‐mail: [email protected]

QUESTIONS?

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Overview of the Federal 340B Drug Pricing...

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