340B Drug Pricing Program Basics for Brokers with Hospital Clients

340B is a drug discount program that was signed into law in the U.S. in 1992 with the purpose of helping health care providers, specifically those who served a large portion of low-income, Medicaid, underinsured, or uninsured populations. The program enables those healthcare facilities to continue their mission of providing health care to all regardless of their ability to pay.

Drug manufacturers play a key part of the 340B program. They provide prescription drugs at a reduced price to hospitals and other eligible healthcare facilities. By doing so, it allows more services to be provided by the hospitals. Participating facilities can stretch their resources to reach more patients with more comprehensive services. A recent study about critical access hospitals reported that those facilities rely on 340B to keep the doors open.

The list of 340B-eligible entities and organizations includes health centers, hospitals, specialized clinics, and the Ryan White HIV/AIDS program. Each of these entity types has different criteria and different qualifications they need to meet in order to register. The focus of this discussion will center on disproportionate share hospitals.

What is the Criteria For a Disproportionate Share Hospital to Qualify for 340B?

First and foremost, the disproportionate share hospital must meet one of the 340B program’s hospital ownership requirements:

  • Be owned and operated by a state or local government
  • Be a public or private non-profit corporation which has been formally granted governmental powers by a unit of state or local government
  • Be a private non-profit hospital with a contract with a state or local government to provide health care services to low-income individuals who are not entitled to benefits under Medicare or Medicaid

Second, the hospital must sign an agreement that it will no longer purchase outpatient drugs through a group purchasing organization (GPO) arrangement. Lastly, it must have a Medicare cost reporting percentage of greater than 11.75%.

What is the 340B Registration and Recertification Process?

If the hospital meets those criteria, the next step is the registration process. During the 340B registration process, you can either register the hospital as a covered entity, or you can register a child site or contract pharmacy. Registration occurs four times per year, and there is about two weeks to submit the registration to the Office of Pharmacy Affairs. After the registration is done, the Office of Pharmacy Affairs will verify all of the information. During that time period, the hospital has time to get everything set up on the backend, which could include getting new software in place or establishing new policies and procedures. Ultimately, there is a three-month window from the time you submit the registration to the time and the time the hospital gets approved to get everything in line.

What is a 340B Child Site?

When a hospital registers, it’s only the four walls of the hospital that are eligible for 340B prescriptions. A lot of times, in order to stretch the 340B opportunity, hospitals or clinics will register child sites, which could be anything from a cancer clinic or a physician practice off-site. There are certain criteria that must be met when you are looking at 340B eligibility for a child site:

  • The facility must be listed on a line of the parent hospital’s Medicare cost report
  • Services provided at each of the facilities have associated outpatient costs and charges on the cost report

An example of a location that wouldn’t qualify for 340B would be an employee health clinic because they don’t normally have costs and charges that are coming out of the Medicare cost report.

Which Prescriptions Qualify for 340B Pricing?

Even though the hospital is registered as a 340B covered entity, not all prescriptions that come out of the hospital are 340B-eligible. To be eligible, the covered entity must have an established relationship with the individual filling the prescription. This means that the hospital must maintain records of the individual’s care and the prescriber is employed by the covered entity or has some type of contractual arrangement. Additionally, 340B pricing only applies to outpatient prescriptions, and so any prescription orders that take place within the hospital, such as on the cardiac unit, do not qualify. Lastly, Medicaid and managed care prescriptions are ineligible as well.

Why Would a Hospital Want to Participate in the 340B Program?

Administering a 340B program comes down to one word: discounts. Generally speaking, the 340B discounts are much deeper compared to what hospitals typically procure. The savings can range from 20%-45% below their GPO prices. A study of 340B savings reported that hospital savings are around $11.8 million. When the 340B is applied to the employee benefits program, the hospital’s savings and rewards are even greater, as hospital is able to leverage their cost of goods and keep valuable healthcare dollars in-house.

If your hospital and health system clients are not taking advantage of 340B, they may be missing out on significant pharmacy savings. To find out more about 340B and other strategies to help your hospital clients lower their pharmacy benefits costs without the conflict inherent in most PBM contracts, check out our free e-book, Pharmacy Benefit Strategies for Hospitals & Health Systems.

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