1. The basics of 340(b) pharmacy pricing for human resource managers
Susan Hayes, AHFI, CPhT. LPD
PHARMACY INVESTIGATORS &CONSULTANTS
October 19, 2017

2. AGENDA Defining 340(b) and reviewing qualifications and rules
Understanding necessary changes to your benefits program to implement 340(b)
A case study in transparent pricing that can lead to 340(b) administration

3. About 340(b) Veterans Health care act 1992
Many health care facilities provide community service by providing health care for uninsured/indigent patients
Lack of reimbursement for uninsured created hardship for many facilities
Some had to close doors due to lack of funds
340(b) program allows qualified facilities the ability to stretch budget dollars by purchasing all outpatient medication at 340(b) price
As much as 50% of traditional prices
Excludes FFS Medicaid
Excludes inpatient medications
DSH hospital are subject to GPO exclusions
Other exclusions apply depending on Covered Entity type

4. About 340(b) Veterans Health care act 1992
In 2010 HRSA expanded 340(b) regulations to include unlimited number of contract pharmacies
340(b) administrators provide infrastructure in place to find qualified patients claims at contracted pharmacies
340(b) administrator collects reimbursement from payer, and brings back to qualified facilities, less dispense fee to pharmacies and administration fee to administrator
What is a contracted pharmacy?
Under 340(b) you do not have to use your own hospital’s pharmacy to dispense outpatient medication
You can use a local (or unlimited local) pharmacies
You pay them the margin on the claim plus added incentive for participating (dispensing fee of $20- $25 average)
The CE orders the replenishment medication from their 340B wholesaler account, and the medication is dripped shipped to the dispensing pharmacy
Requires auditing
Your own pharmacy is the cheapest option

5. HRSA and OPA
The Health Resources and Services Administration (HRSA) under the Office of Pharmacy Affairs (OPA) administers 340(b) pricing and programs
Underwritten by pharmaceutical manufacturers
No double dipping – fee for service Medicaid excluded and no rebates on commercial claims
Basic criteria to be 340(b) qualified patient
Must be outpatient of facility
Must be seen by provider who is employed or under contract or some other arrangement with qualified facility to provide care to patients at the time the prescription is written
Covered entity must own and maintain health record for patient
Covered entity must be responsible for overall care of patient
Child sites must appear on covered entities Medicare cost report
Tricky when patient starts out in Emergency Department and “transfers” to inpatient

6. Savings opportunities
Drugs that qualify include:
most outpatient drugs, over-the-counter drugs written on a prescription, biological products that can be dispensed only by a prescription (excluding vaccines), or FDA-approved insulin
Why should we do all this?
Approximately 50% of the cost of drugs can be saved
According to HRSA’s most recent data, covered entities spent an estimated $7.5 billion to purchase 340B drugs in FY This amount reflects a 340B discount of $3.8 billion.
Maxwell, A., Assistant Inspector General, Office of Inspector General of the Department of Health and Human Services, Testimony Before the U.S. House of Representatives Committee on Energy and Commerce: Subcommittee on Health, “Examining the 340B Drug Pricing Program”, March 24, 2015

7. Pending Legislation and audits
There are proposals to:
Limit the number of contract pharmacies
Sliding scale for medications mandatory at all contract pharmacies
Child sites must follow patient entity charity care program

8. audits
HRSA has the authority to audit Covered Entities, concerns are diversion (covering a non-eligible claim) or duplication (covering a drug that might have already received a discount/rebate)
Random and target audits can occur
Audits cover: policies and procedures, accuracy of information entered in the HRSA database, contract agreements with pharmacies, inventory management protocols, auditable records, Medicaid billing practices, and system compliance to prevent diversion and duplicate discounts
Eight week timeframe so be audit ready

9. The mechanics of the program
Claims are identified as “eligible”
Is the prescription written by a physician on staff at the Covered Entity (CE) and is the drug eligible?
Is the claim for outpatient services?
EMR and PBM claim records and Provider Eligibility Files are used to “match” to see if claim is eligible
Once eligible, the claim is priced using 340(b) pricing
The pharmacy/contract pharmacy is paid
Typically a dispensing fee that includes margin for contract pharmacies (about $20 - $25), no margin for internally owned pharmacy
Pharmacy’s virtual inventory is replenished through a reorder via the CE’s wholesaler account access under 340(b) account

10. Contract pharmacy operations
3. Ships order/replenishes stock
WHOLESALER
4. Purchases 340(b) drugs
5. Pays dispensing fee
COVERED ENTITY
CONTRACT PHARMACY
6. Collects fees/keeps virtual inventory
2. Dispenses drug
PATIENT
1. Patient’s provider and drug are verified

11. Systems expertise There are two parts to the system issues
Front end eligibility of the claim AND
Back end inventory management
In the past, these system vendors were clunky and “hard coded”
Newer system vendors (PharmaForce) can work with the existing file feeds to simplify the process and lower the costs of providing this complex administration
Or, can be part of the PBM offering, if PBM offers 340(b) administration
Files that are needed include:
Claims data from PBM and/or EMR
Contracted pharmacy list
Provider list (eligible prescribers)
Eligible members (patients and employees)

12. Sounds good, now what?
Does your hospital have an outpatient pharmacy OR is there a pharmacy in the area that will work with you to be a contract pharmacy?
Do you have a totally transparent and pass through pharmacy benefit program?
Does your facility have the IT resources to assist with the program?
Is your facility already processing 340(b) claims?
Can the pharmacy department, systems/IT department and HR department work together?

13. What is needed in hr?
The PBM program must be transparent and pass through
What does that mean and why is it important?
Transparent and pass through pricing means that your PBM cannot keep spread between what the pharmacy is reimbursed and what you are charged
You pay an administration fee for PBM services
Most PBM programs do not work on a transparent basis
Rebates cannot be collected on 340(b) claims because you are getting the rebate upfront in lower costs subsidized by manufacturers
PBM
PHARMACY NETWORK
PLAN SPONSOR
$18 to pharmacy
$188 retained by PBM
$200 to plan

14. Step one is transparency
Step One might not even involve 340(b) but a review of your pharmacy benefits program and the PBM that you are using
There are PBMs that specialize in hospital pharmacy benefit administration
Maxor and American Health Care are two PBMs that have a lot of experience with hospitals, 340(b) and what is needed
Just entering into a transparent relationship can reduce cost significantly (10%+)
These PBMs will allow for:
No spread pricing
Carve back to hospital a large portion of the retail prescriptions, specialty drugs and management of program like Prior Authorizations

15. Maximize 340(b) savings Employees who are already 340B patients
Incentivize employees to fill prescriptions at in-house retail pharmacies first line
Customized plan design to drive employees to 340B pharmacy network as second most preferred pharmacy network
Increase the 340B/employee ratio
Incentivize employees to use hospital-owned outpatient facilities first line as part of health plan offering
It helps if there are cost controls measures in place, such as a population health management program or a self-administered Prior Authorization program.

16. What to be an expert?
There are numerous places to go for information on 340(b):
HRSA’s website at
A PBM or vendor that has 340(b) experience
There are attorneys and consultants that specialize in 340(b)
There are 340(b) Universities taught by 340(b) Prime Vendors like this one:

17. Case study
Phase One involved 340(b) readiness which was changing to a transparent PBM
Rural hospital in Rolla, MO with about 1,200 employees and 3,000 members
Had a traditional PBM with no pass through pricing for discounts or rebates
All retail network claims, including those purchased at the hospital’s outpatient pharmacy, were discounted at the same rate through the PBM, even though there was a preferred copay to purchase at the hospital
Unintended consequence was that hospital pharmacy claims “appeared” more expensive
Hospital HR paid PBM for all claims, then PBM paid hospital for domestic claims
Large in-state PBM would not carve out domestic claims, specialty claims

18. Actions taken
Domestic claims (claims purchased in outpatient hospital pharmacy) are “fixed” at wholesaler price paid
Table of pricing updated quarterly at the hospital acquisition price
PBM will stop collecting from HR and paying pharmacy
Specialty drugs will go back to outpatient pharmacy and hospital will not use PBM’s specialty vendor
Rebate guarantees greatly improved
Formulary aligned with hospital formulary, excluding high cost drugs
Improved discounts for non-domestic claims

19. results Reason Current Projected Savings Domestic Claims
Now priced at acquisition cost
$3,107,564
$2,399,807
$707,756
Retail Network Claims
Better discounts at retail network
$1,536,263
$1,456,102
$80,160
Mail Order
Eliminated, domestic claims for maintenance
$22,284
$18,992
$3,292
Specialty
Moved to domestic pharmacy
$1,927,837
$1,759,158
$168,212
Total
$6,593948
$5,634,060
$902,875
Rebates
Aligned with hospital formulary, excluded some drugs
$179,196
$522,215
$343,018
Total Savings
$1,245,894 (18%)

20. Implementation of 340(b)
In 2018, we may implement 340(b) pricing for employees
The transparent relationship plus the PBM’s experience with 340(b) issues will make the transition smooth
Implementation period
30 days for existing 340(b) CE
90 days for new 340(b) CE
System maintenance can be performed internally or externally as an option
Formulary will be altered
Brand drugs preferred over generics

21. Key Take Aways
340(b) pricing can be a tremendous savings for hospitals
What used to be a complex systems file exchange has been simplified over the years
To extent 340(b) to employees requires a transparent PBM
340(b) pricing does take a village working together (systems/IT, pharmacy, HR)