New Rules for Discounted Drug Program
By Bill Bithoney and Venson Wallin
The 340B program was initially enacted into law in 1992 as a part of the Public Health Service Act. It requires drug manufacturers who participate in the Medicaid program to agree to provide discounts on covered outpatient drugs purchased by government-supported facilities or “covered entities,” which include disproportionate share hospitals, sole community hospitals, rural referral centers, critical access hospitals, children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system.
And overall, it has been very popular. Covered entities are able to purchase drug supplies at the 340B discounted price and then bill patients’ insurance companies the traditional rate, creating much-needed profit for some of the more income-challenged providers, while having a minimal impact on the Medicare or Medicaid program costs. The patient wins, the provider wins and the government program wins.
Providers understand the upside: As of 2011, annual 340B drug spending by covered entities has exceeded $6 billion
and approximately one-third of U.S. hospitals have participated in the program. And the spending and number of participating providers is forecasted to increase significantly in the coming years.
However, challenges have arisen when it comes to achieving compliance with 340B program guidelines. Compliance to-date has been relative, whereby a provider considers itself in compliance based on their understanding of the program’s guidelines, while HRSA considers it noncompliant based on their interpretation of these same rules.
Closing the Interpretation Gap
HHS, HRSA and the HHS Office of Inspector General (OIG) have taken notice of the need for more detailed directions to minimize violations of the program. In fact, both HHS and OIG have been actively publishing clarifying documents, establishing their commitment to improving compliance through increased audits. And HRSA is preparing to provide long-awaited direction on program implementation in its “mega-reg,” which will provide specific guidance on issues including the definition of an eligible patient, compliance requirements for contract pharmacy arrangements, hospital edibility criteria and the eligibility of off-site hospital facilities.
Outlook for Nonprofit Providers
It’s clear that the history of the 340B program being loosely regulated and enforced is just that—history. With significant changes afoot, it’s important that covered entities prepare for the inevitability of an increase in 340B program audits.
But how can program participants ensure their programs are truly compliant?
They can start by:
- Performing internal assessments of policies and procedures or partnering with external agents to assist with these assessments;
- Performing audits of program components;
- Obtaining independent audits of contract pharmacy arrangements; and
- Developing a routine process of monitoring new HRSA program updates and their impacts, including the new “mega-reg.”
- By taking these steps, covered entities can begin to move the needle from “confusion” to “compliance.”
We’re currently at the 340B Coalition Annual Conference in Washington. D.C., where we look forward to discussing the key challenges and opportunities for providers in the months ahead. Tell us your thoughts in the comments below.
“New Rules for Discounted Drug Program,” originally appeared on The Nonprofit Standard, the blog of BDO’s Nonprofit & Education practice, that offers thought leadership on the accounting, tax, and management challenges faced by nonprofit organizations, along with commentary on sector trends and developments.