Long-awaited release of drug discount rule mega-guidance means hospitals need to act quickly—but think long-term

Long-awaited release of drug discount rule mega-guidance means hospitals need to act quickly—but think long-term

On August 27, the Health Resources and Services Administration (HRSA), one of the federal public health agencies within the Department of Health and Human Services, released a long-awaited draft guidance intended to clarify eligibility requirements for the 340B Drug Pricing Program. The publication of this guidance marks the beginning of a 60-day public comment period before the agency releases a final rule.

The “340B Drug Discount Program”, named for the authorizing section of the Public Health Service Act, is a US federal government program created in 1992 that requires drug manufacturers to provide outpatient drugs to eligible health care organizations/covered entities at significantly reduced prices. Pharmaceutical companies must adhere to the program’s price discount rules as a condition of their participation in Medicaid. Over the past several years, Congress, the Administration, and health care stakeholders have been attempting to balance the program’s goals of providing drug discounts to entities that serve lower income populations, while maintaining some parameters about the definitions of qualified drugs, patients, and eligible entities to limit the expansion of the program.

The draft guidance released last week does not change the overarching purpose of the program to provide drug discounts for certain patients in qualified entities, but it does include significant proposed changes relative to which drugs the program applies to and which provider entities are eligible to claim the discounts. The changes include new restrictions on entity eligibility, drug eligibility, and patient eligibility which potentially limit the scope of 340B and could affect the savings realized by covered entities under the program. If the new rules go into effect as drafted, certain hospitals could see a large decline in the savings realized via the 340B program. In addition, existing 340B software systems (i.e., split-billing, contract pharmacy, etc.) may require additional modification to address proposed program restrictions, which could result in more time and resource commitments by covered entities.

For example, within the proposed rules, the location from which the script emanates becomes a consideration. A prescription will qualify only if it is written as part of a direct encounter at the covered entity’s location–meaning prescriptions from referring physicians or clinics would become ineligible. Furthermore, the proposed guidance places additional requirements for providers eligible to write qualifying prescriptions including the provision that the physician must by employed or independently contract with the covered entity such that the covered entity may bill for services on behalf of the provider. This may affect the eligibility of credentialed providers possessing admitting and/or health care privileges that are common throughout 340B hospitals. Finally, these changes could have deep implications for hospitals that operate infusion centers as the proposed guidance indicates that the dispensing of or an infusion of a drug alone, without a covered entity provider-to-patient encounter, does not qualify an individual as a patient under the 340B program. To keep those centers’ drugs eligible for the program, the hospitals may have to either hire new personnel or enter into new contractual arrangements to write the prescriptions and supervise care and develop new operational processes.

Some other key provisions:

  • Drugs bundled for and receiving such bundled reimbursement under Medicaid are excluded from the definition of covered outpatient drug. Only drugs whose administration is coded and billed separately would receive the program pricing. However, it is important to note that Medicaid reimbursement rules vary from state to state, adding an additional layer of complexity to this guidance, as written.
  • An eligible prescription must be associated with an outpatient encounter. Therefore, “discharge prescriptions” (e.g., those written for patients being discharged from an inpatient stay) would no longer be considered part of outpatient services, and may likely no longer quality for the program’s discounts.
  • Managed Medicaid prescriptions filled in 340B contract pharmacies are not eligible for the 340B program unless a covered entity provides the government a written agreement with its contract pharmacy and State Medicaid Agency or Managed Care Organization that describes a system to prevent duplicate discounts.
  • HRSA reiterated the requirement of routine audit and monitoring practices and indicated that a covered entity’s failure to maintain adequate records demonstrating compliance could result in program termination.

Affected providers, who remember previous proposed guidance rollouts that were never finalized, may conclude that the new 340B guidance may be a similar fire drill. However, given the current Administration’s desire to finalize rulemaking in a number of important areas, this may not be the case this time. The Administration has indicated that following the public comment period, they intend to issue a final rule most likely early in 2016.

So what does all of this mean in concrete terms? If the rules eventually go into effect without significant alteration, providers will need to understand the financial impact these changes may have. Further, providers will be required to begin to assess the changes that will be required for employment or contractual arrangements, split-billing software and other processes. Institutions should also remain vigilant in keeping up with the details of the draft guidance, and should take advantage of the comment period to contribute their own input part of the public record. Deloitte will continue to monitor and comment upon the changes as this process continues.

US National Health Care Regulatory Team

Anne Phelps
Deloitte Advisory Principal
US Health Care Regulatory Leader
Latest conversations from Anne Phelps on Twitter

Daniel Esquibel
Deloitte Advisory Senior Manager
Deloitte & Touche LLP

For more information, please contact a member of our 340B team:

Ray Albertina
Deloitte Advisory Director
Deloitte & Touche LLP

Karolyn Woo
Deloitte Advisory Principal
Deloitte & Touche LLP

Tony Lesser
Deloitte Advisory Manager
Deloitte & Touche LLP

Christine Farmer
Deloitte Advisory Manager
Deloitte & Touche LLP

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