The Winners and Losers of 340B Changes

The New Year has brought new changes in reimbursement to the 340B Drug Discount Program-changes that some fear could have significant negative impacts on hospitals.

On January 1, a ruling from the Centers for Medicare and Medicaid Services went into effect that reduces reimbursement rates on 340B qualified drugs from 6% above the sales price to 22.5% less than the sales price.

According to Kenneth Maxik, BS, MBA, Director of Patient Safety and Compliance for CompleteRx, the cuts-estimated to be $1.6 billion-will only impact certain hospitals.

“This rule really sets up some financial winners and losers,” said Maxik. The advantage goes to non-covered entities, because the payment reduction will only apply to 340B hospitals that are designated as disproportionate hospitals or rural referral centers.

The reimbursement cuts could mean the affected hospitals no longer have the funds to pay for certain patient-driven initiatives or chronic disease programs, according to Jillanne Schulte Wall, Director of Federal Regulatory Affairs for the ASHP. Hospitals across the country have previously used these drug margins to help pay for services such as chronic disease treatments or for transportation services for patients, she said. Some provide drugs at low or no cost to patients in need.

“It’s essentially a 30% cut to drug reimbursement to hospitals who are purchasing under 340B, so that margin goes away and it really will impact a lot of hospitals,” she said.

In an open letter released this month, Alexander Mansour, MBA, Director of Finance and Contracts at Henry Ford Health System, said the Michigan health system relied on the 340B program to help fund its charity care program. This program serves more than 2,050 patients and offers prescription medications at no cost to the program’s patients.

“Our margins are negligible and any restriction on the 340B discount program will result in our having to close pharmacies and reduce the life-saving assistance we provide to our patients and the community,” he wrote. “I am not exaggerating when I say lives will be lost.” 

Schulte Wall said hospital administrators have already looked into various ways to use resources appropriately, and are reaching the end of where they can stretch dollars.

“We’re not looking at being able to expand to more innovative care models or being able to provide for your low-cost meds, we’re just looking at what we can do to ensure folks can still access their medications,” she said. “I think that’s really where we are with the hospital pharmacy side.”

Maxik said hospitals must now evaluate whether the 340B program continues to be a viable option for them.

Hospitals should take a systematic approach to evaluating the costs and benefits of the program to determine whether it continues to be a viable option, he said. Pharmacy leaders can provide valuable feedback about the drugs that have been purchased and estimated drug savings in reviews of the program; however, hidden costs also need to be evaluated. These hidden costs can include the price of software programs or personnel costs for staff who may conduct internal audits, help monitor the program, or evaluate compliance, he said.

“We need to compare what our utilization is for those medications and then look at what our current reimbursement is and what our new reimbursement will be under this program and then add the other costs from our previous calculations to see, ‘Does this still make sense for us to be in the program?’ Or have we lost our savings or a significant portion of the savings?” he said.

Hospitals will not only lose reimbursement, but are now also faced with significant information technology implications. Under the new ruling, certain 340B covered entities will now have to add a modifier in their billing systems for drugs that fall under the program. According to Maxik, those hospitals that are subject to a reduced payment will have to add a JG and TB modifier, while those who are subjected to payment exemptions but are still a covered entity will have to add a TB modifier. 

The covered entity may not be able to establish a global system to resolve the modifier requirements, which may require a manual system which could add significant manpower hours for hospital staff. 

Determining which modifier to use, what class the drug is, and how it will be handled will likely add significant manpower hours for hospital staff.

“This is really what the pharmacy directors can help with,” Maxik said. All the information system and finance staff must map out all of these different permutations, not just by drug but also by location type and whether the location is participating in the 340B program, whether it is administering a 340B drug, or whether it is classified as a client site. “Because all those iterations mean you have to do something different,” he said.