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Understanding the 340B Drug Pricing Program Requirements

VBCC - Other
Wayne Kuznar

Chicago, IL—Participation in the 340B Drug Pricing Program can result in con-siderable savings on prescription drugs. Therefore, it is necessary that potential covered entities understand the requirements for 340B eligibility, the enrollment process, and the criteria that define the patient of a covered entity.

C. Frederick Geilfus II, JD, partner at Foley and Lardner, LLP, provided an overview of the 340B Drug Pricing Program during the 2011 Cancer Center Business Summit.

The Section 340B Drug Pricing Program is a federally mandated program that is intended to provide financial relief to facilities that provide care for medically underserved persons.

In 1990, the Medi­caid Rebate Program was created, in which drug manufacturers had to pay a rebate to Medicaid based in part on the manufacturer’s best price. Soon after, the 340B Drug Pricing Program was enacted into law. It established a maximum price similar to the Medicaid price in the rebate program.

Under the 340B program, manufacturers that participate in Medicaid must make outpatient drugs available to covered entities as defined by the program. “In contrast to Medicaid, which is a rebate paid after the fact, here you have up-front discounts, and the manufacturers are precluded from selling the covered outpatient drugs to a covered entity for a price greater than a statutory ceiling price,” said Mr Geilfus.

Price Limits
The maximum price that can be charged is based on the Medicaid rebate formula, but the discount is built into the manufacturer’s or the wholesaler’s selling price rather than being paid as a postpurchase rebate.

For branded drugs, the 340B ceiling price is the lower of the manufacturer’s best price, or 15.1% off the drug’s average manufacturer price (AMP). Brand-name manufacturers must provide an additional discount on a covered outpatient drug if the price has increased faster than the rate of inflation. For generic and over-the-counter drugs, the 340B ceiling price is 11% off the AMP.

“These are ceiling prices, and covered entities are free to negotiate prices that are lower than the 340B ceiling price,” said Mr Geilfus. The cost-savings are estimated to be 20% to 50% on prices otherwise achievable if 340B pricing is used.

“You have the right to negotiate reduced prices, and the government has established a prime vendor program. A prime vendor involved can help you navigate it and help you negotiate pricing with the drug manufacturer,” he pointed out.

“The fact that you get your drug prices cheaper does not necessarily mean that that is all profit,” he said. A recent survey by the General Accounting Office showed that 60% of covered entities had received revenue that exceeded the drug-related costs.

Utilizing the Savings
“One factor you’ll want to consider when you approach this is your reimbursement level, and how is that going to be affected when you get in the program,” Mr Geilfus warned.

The 340B program does not specify how the savings are to be utilized. “You can use them to serve more patients, expand your formulary, expand available services, subsidize prescriptions, or you can use it in any other way,” he said. “The one caveat is that for a lot of the grant-funded covered entities, you may be required to use that surplus consistent with how the grant was provided.”

Participation Criteria
Eligibility for participation in the 340B program is strictly limited to the specific categories of entities specified in the statute. Before the Patient Protection and Affordable Care Act (ACA), typical entities eligible to receive 340B pricing were federally qualified health centers, Ryan White HIV/AIDS clinics, black lung clinics, Title X Family Planning clinics, state-operated AIDS drug assistance programs, disproportionate-share hospitals, and certain children’s hospitals.
Newly eligible entities under the ACA are free-standing cancer hospitals, critical access hospitals, rural re­ferral centers (with a disproportionate share >8%), sole community hospitals (with a disproportionate share >8%), and certain children’s hospitals.

To be eligible for 340B drug pricing, free-standing cancer hospitals must meet the Centers for Medicare & Medicaid Services criteria for exclusion from the Medicare Prospective Payment System, and they must have a disproportionate-share adjustment of more than 11.75%. They must also be a government-owned, government-operated, or nonprofit hospital with a contract to provide services to low-income individuals. To avoid double discount, the hospital cannot acquire drugs under a group purchasing organization contract.

Filing an Application
Hospitals are required to file an application to participate; they must notify the Office of Pharmacy Ad­ministration (OPA) of their intent to participate. The application needs to be filed the month before the quarter in which participation is intended. Once the OPA receives and processes the registration information, the covered entity is eligible to purchase pharmaceuticals at 340B pricing at the start of the next calendar quarter.

“One of the key compliance issues you need to worry about is that you can sell only to patients of covered entities; drugs cannot be diverted to patients of noncovered entities,” Mr Geilfus stated. Al­though the term “patient” is not defined, the US Health Resources and Services Administration has issued guidelines regarding the definition of a patient.

According to these guidelines, to be considered a patient, the covered entity must maintain records of the individual’s healthcare, the responsibility for care must be with the covered entity, and the individual must receive healthcare services from the covered entity that are consistent with services for which grant funding or federally qualified health center look-alike status has been provided (disproportionate-share hospitals are exempt from this requirement).

Individuals are not considered “patients” if the only service they receive from the covered entity is the dispensing of drugs for self-administration or administration in a home setting.
 

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Last modified: May 28, 2014
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