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    340B Drug Pricing Challenges and Best Practices

    Posted by: Valerie Bandy | September 28, 2023

    340B Drug Pricing Challenges

    The Centers for Medicare & Medicaid Services (CMS) 340B Drug Pricing Program enables covered entities to purchase discounted drugs and outpatient medications, allowing them to provide affordable and essential healthcare services to vulnerable patient populations. It has been a critical lifeline for safety-net hospitals, clinics and other eligible healthcare providers in the United States.  

    Given the tremendous financial implications of 340B program compliance and reimbursement to covered entities, let’s look at the 340B drug pricing challenges and best practices, including controversies surrounding the program, the status of payments under the program today, the overall complexities healthcare organizations face in program compliance, and what they can implement to help drive successful – and streamlined – reimbursement moving forward.  

    The 340B Program: 2018 to Today 

    In 2018, CMS slashed Medicare reimbursement for drugs acquired through the 340B program by nearly 30%. These cuts, which lasted through September 27, 2022, put a tremendous financial strain on U.S. healthcare organizations at a time when they were hit with rising inflation, surging labor costs and negative margins. 

    A battle ensued with 340B covered entities and hospital associations on one side, and CMS on the other. The definition of covered entities includes certain disproportionate share hospitals, children’s hospitals, rural hospitals, including critical access hospitals (CAHs), rural referral centers (RRCs) and sole community hospitals (SCHs), and free-standing cancer hospitals. Covered entities also include 11 other categories of providers, including federally qualified health centers (FQHCs), FQHC look-alikes, AIDS and tuberculosis clinics, and other outpatient clinics funded under the Public Health Service Act (PHSA). 

    For four years the fight raged on, culminating in a 2022 decision by the U.S. Supreme Court (American Hospital Association v. Becerra), which determined that CMS exceeded its authority in implementing 340B program reimbursement cuts. As a result, CMS was directed to repay the affected healthcare providers for improperly withheld payments during calendar years 2018-2022.  

    In July 2023, CMS released its long-awaited proposed rule on how it plans to repay hospitals for 340B program underpayments, which includes a “one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy” – a total of $9 billion. CMS anticipates issuing the final rule “before the Calendar Year (CY) 2024 Outpatient Prospective Payment System/Ambulatory Surgery Center (OPPS/ASC) final rule is published in Fall 2023.” 

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    340B Program Compliance Challenges 

    Even with CMS rectifying the unlawful cuts, navigating the complexities of reimbursement claims and managing the associated administrative tasks for compliance with the 340B Drug Pricing Program is a daunting task for healthcare providers already stretched thin. Here are just a few 340B program nuances that can derail your organization’s drug spending: 

    • For all organizations: Purchasing products under the correct pricing model – 304B, wholesale acquisition cost (WAC) or group purchasing organization (GPO) contract – in an ever-changing environment of patient, physician and location eligibility requires constant oversight. A typical health system has locations that fall into different pricing categories; for example, a hospital with a high proportion of uncompensated care eligible for 304B purchases, an ambulatory surgery center caring mostly for insured patients, a clinic caring for a mix of insured and uninsured patients, etc. Errors can lead to overspending on drugs when an entity misses 304B opportunities or penalties if they erroneously claim 304B eligibility.  
    • For GPO-prohibited organizations: Disproportionate share hospitals, freestanding cancer hospitals and children's hospitals enrolled in the 340B program cannot participate in a GPO for covered outpatient drugs. Hospitals that participate in 340B such as CAHs, RRCs and SCHs are not subject to the GPO prohibition. If this type of entity experiences a change in patient mix that makes it ineligible for 340B program pricing, it runs the risk of paying WAC pricing.  
    • For organizations on the edge of eligibility: Once enrolled, an entity must demonstrate compliance with all program requirements and provide evidence of eligibility to CMS annually to stay in the program. Some healthcare organizations fluctuate between eligible and non-eligible status from one program period to the next as their patient mix changes. If an organization once again becomes eligible but fails to recognize the fact, they could end up paying GPO or WAC rates that are significantly higher than 340B pricing.  

    In all these situations, if a healthcare organization inadvertently makes eligible drug purchases outside of the 340B program at a higher price tag, it burdens both the organization and its patients with added expense.  

    3 Best Practices for 340B Drug Pricing Program Reimbursement in 2023 and Beyond

    1. Structure your team for success based on your distribution model. For organizations running a consolidated service center (CSC) that purchases drugs on behalf of their facilities, establish processes to ensure the facilities are purchasing the drugs from the CSC at the proper price based on their eligibility. For healthcare supply chain organizations without a CSC, it’s imperative they have a system-level 340B program manager who performs audits, handles 340B program reporting and monitors purchasing trends to maximize program benefits. 
    1. Leverage third-party administrator software to assign purchase orders (PO) for drug products to the correct category (304B, WAC, GPO) based on the purchase qualifications (e.g., 304B status of patient, physician and facility). Having a supply chain management (SCM) platform that integrates with this split billing software – regenerating the PO in the ERP system with the correct pricing model – adds another layer of adherence to program rules and regulations.
    1. Prepare ahead when switching administrators given their critical role in 340B purchasing and compliance. Under the 340B program rules, eligible healthcare organizations must accumulate a certain number of drug purchases in the 340B accumulator or at WAC price before they can purchase at 340B pricing. Since third-party administrators typically keep track of these accumulations, a healthcare organization can lose them when switching to a different administrator. If you know you are switching administrators, build up those purchases so you can exhaust accumulations ahead of the move. 

    While the CMS proposed rule to repay 340B covered entities for the past unlawful cuts is a step in the right direction, organizations must safeguard future drug purchasing under the 340B program by putting into place the right people, partners, processes and technology. Our review of 340B drug pricing challenges and best practices provides a roadmap to rectify past challenges as well as ensure a smoother and more efficient journey for 2023 and beyond.  

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