Navigating 340B’s choppy waters


Experts offer their advice to Texas Hospitals looking navigate in the drug-discount waters

By Marty Stempniak

The federal 340B drug discount program provides a vital lifeline to Texas hospitals -- with one in four participating receiving upward of 50 percent discounts on their outpatient pharmaceutical purchases.

Despite that vitality, increased scrutiny on the program from government officials and opposition from the drug industry creates uncertainty about the program’s future. In January, a nearly 30 percent cut to Medicare Part B reimbursement for hospitals for drugs obtained through 340B went into effect, although a legal challenge remains undecided.

If nothing changes, that policy change will spell a roughly $41 million cut to hospitals in the Lone Star state, the Texas Hospital Association estimates. Those are precious dollars, used by safety net providers for everything from community-based cancer care to rural dialysis centers and school-based clinics.

In this climate of heightened attention and auditing of hospitals by the Health Resources and Services Administration, vigilant program compliance is crucial, experts say.

JPS Health Network, the safety net public health system for Tarrant County, offers a good example of a hospital with a strong compliance protocols in place. JPS employs a 340B coordinator just to stay ahead of any compliance issues. Tasked with oversight, auditing and monitoring, on top of any work already performed by the pharmacy department, Nicole Shoquist said, putting all those duties on the back of the pharmacy team would be challenging. In addition to its chief pharmacy officer, JPS also hired an outside third party to conduct a HRSA-style mock audit of its program to ensure compliance.


“It would be very difficult for someone operational to shoulder the load for true oversight and compliance,” Shoquist said. “It is important to have a second set of eyes looking at your program.”

John Bretz, director of strategic relations for SunRX, a consulting firm that offers administrative and other services tied to 340B, said having a strategic communication plan, which can help keep hospitals’ 340B programs in line through confusing and complex priorities. Bretz said the plan should accurately and consistently align with the hospital’s charter as a crucial first step to navigate the 340B program and its requirements.

JPS, for example, created a statement outlining the impact of its 340B program — about $50 million saved last year, which goes toward school-based clinics among other things — and is strengthening its advocacy message to Congress on the devastating effect of further cuts.


“This is a program that supports a very important segment of America, and without it, these safety net hospitals are forced to fight with one arm tied behind their backs,” said Bretz. “It’s a very important program for these hospitals and so, getting the message out is step one. We need to make sure we do a good job of getting the message out of how your hospital utilizes the program and how the community benefits from your hospital participating in the 340B program.”

Two common pitfalls to avoid

Transparency can be crucial when working to avoid some of the compliance pitfalls in the 340B program.

Amanda Nagrotsky, legal counsel with 340B Health, a membership organization that works on behalf of hospitals and other 340b covered entities said.


Two key requirements typically trip up hospitals. Her team works with other attorneys and government relations staff at 340B Health to educate hospitals on compliance and implementation of the program.

The first requirement is prohibition against diversion. Diversion, Nagrotsky explained, is giving a 340B drug to an ineligible patient. HRSA has issued guidelines that strictly define patients who can take part in program. The hospital must maintain a relationship and health care records with the patient. The patient must also receive a health care service from a professional who is employed by the hospital or is under some contractual or other arrangement with the hospital, such that, the responsibility for the care provided remains with the hospital.

The second requirement bars duplicate discounts. If a drug manufacturer wants its product covered by Medicaid and Medicare Part D , it needs to participate in 340B and make covered outpatient drugs available to all 340B entities, at the program’s ceiling price.

Manufacturers need to provide those discounts for covered, outpatient drugs, but those same manufacturers also participate in the Medicaid drug rebate program, Nagrotsky said. The 340B law, however, explicitly protects them from having to pay a 340B discount and a Medicaid rebate on the same drug.

HRSA specifies that, 340B hospitals must decide whether to use 340B drugs for Medicaid fee-for-service patients. If so, hospitals need to include Medicaid billing numbers in HRSA’s Medicaid exclusion file, because that signals to the state not to collect a rebate on those drugs, to avoid the duplicate discount.

Texas hospitals, either in conjunction with the Medicaid exclusion file or, instead of the exclusion file, must follow modifier requirements in order to identify 340B claims to indicate to the state that it’s a 340B drug, and the state shouldn’t collect a rebate.

Texas, Nagrotsky said, recently passed a bill in its House of Representatives, which requires Medicaid managed care organizations to reimburse 340B drugs at an amount that is not less than the reimbursement amount for Texas fee-for-service Medicaid. At her last check, the bill, which she labeled as a “provider-friendly policy that we were excited about.” was in the Texas Senate.

A covered entity’s strategy

Harris Health System in Houston formed a “340B governance committee” ahead of a planned audit of its program. The group brings several other segments of the hospital into the fold, including pharmacy, finance, legal, corporate compliance, information technology and finance. They meet every month to discuss issues tied to the program, with reimbursement being the latest hot-button topic.

“I would advise anyone who is starting a 340B program to convene such a committee because it’s very helpful,” said Goldina Erowele, administrative director of pharmacy operations for Harris Health System. “Most people think that this is just a pharmacy program, and it’s not.”

The committee is also the perfect avenue to keep leadership abreast of any regulatory changes coming down the pipeline related to 340B. Most recently of interest are cuts that went into effect on Jan. 1. The Centers for Medicare & Medicaid Services slashed Medicare Part B drug reimbursement to 340B Disproportionate Share Hospitals by 28.5 percent. That impacts Harris by about $1.5 million per year, Erowele said.

All told, Harris Health — which includes 19 community health centers, six same-day clinics, five school-based clinics, three multi-specialty clinics, a dental and dialysis center, mobile health units, a rehab and specialty hospital and two full-service hospitals — spent about $77 million on outpatient pharmaceuticals in fiscal 2017 with the program, which would balloon by 72 percent without 340B.

“It’s a vital lifeline for safety net providers and covered entities like us, because we are able to leverage that opportunity to buy drugs at a heavily discounted rate,” she said. “If we are unable to do that, we would have to double or sometimes triple our drug costs, and if that happens, I don’t know if we’d be able to survive.”

Key considerations for covered entities

Bretz, who just spoke at the THA’s Annual Conference and Expo in February, offered up four key considerations that hospitals must keep in mind when navigating 340B. Here they are in his own words:

(1) Diverse Expertise: You need a multi-stakeholder A-Team to help run your 340B program — with experts in pharmacy, technology and 340B compliance, as examples. Many hospitals don’t have these people within their four walls, so they need to make sure the partner they work with can provide as many of these as possible because they’re going to need them.

(2) Continuous Quality Improvement: The program you implement today will most likely not be what an optimal program will look like a year from now. Pharmacies change. Stakeholders’ roles evolve. You have to adjust your business model to all of these things. Hospitals need to make sure they’re constantly evaluating the program because what optimized savings for them last year might not be the right recipe for them today.

(3) Pharmacy Know-How: Some hospitals have pharmacies, but that doesn’t mean they have the expertise to build a 340B program using that pharmacy. Helping hospitals navigate and develop relationships to optimize their program is an area that is significantly underserved. These sound like very easy tasks until you’re the hospital that has to do them and you don’t have the expertise or the experience.

(4) Transparency: For all the stakeholders that help you put together a 340B program, what is their motivation and how does everything fit together? Are there any blind spots where revenue passes? Ownership of some 340B organizations is starting to become less and less transparent. That creates a cloud of how this all works and whether it’s to the benefit of the ultimate consumer. Transparency is a real challenge for hospitals and they need to understand how that impacts their program.


THA HealthShare Solutions magazine

SunRX has been an endorsed partner with the Texas Hospital Association since 2012. Contact Matthew Bobo at 267/648-5888 or mbobo@sunrx.com.

Learn More