September 11, 2009 – After more than a two-year delay, the Health Resources and Services Administration (HRSA) issued final guidelines on Sept. 1 to let free-standing children’s hospitals participate in the 340B program. The change, eagerly anticipated by safety-net providers serving indigent children, is effective immediately.
But the new rules severely curtail the hospitals’ ability to obtain retroactive discounts from manufacturers – if not completely bar such discounts. They also impose new and stiffer documentation requirements.
The HRSA guidelines implement provisions of the Deficit Reduction Act of 2005, which first legalized children’s hospital participation in the 340B drug discount program. HRSA’s Office of Pharmacy Affairs (OPA) kept the program closed to such providers until guidelines could be adopted, in part because of HRSA concerns with how the Deficit Reduction Act, first effective in early 2006, was drafted. (See Monitor Feb. 2009)
HRSA published proposed guidelines in July 2007, but the rules have not been adopted in final form until now.
The National Association of Children’s Hospitals, representing about 250 institutions nationwide, applauded the agency’s move.
“(We) estimate that each independent children’s hospital will save, on average, $1 million annually on outpatient drug costs by participating in the program,” said Jim Kaufman, the association’s vice president of public policy. “These savings will allow hospitals to improve and expand health care services for children.”
One such hospital, St. Jude Children’s Research Hospital in Memphis, Tenn., already has an application package under way and plans to finish the documentation process as soon as possible. The hospital estimates it may cut costs for outpatient drugs by at least 25 percent once it’s admitted to the 340B program, a saving of several million dollars annually.
“It would be fairly significant so we’re very excited that the guidelines have finally been published,” said Steve Pate, the hospital’s manager of outpatient pharmaceutical services.
Fewer savings with ban on retroactive discounts
When the 340B program was first implemented in 1993, HRSA guidelines gave participating hospitals the right to collect rectroactive discounts from manufacturers for 18 months, back to the Dec. 1, 1992, effective date of the 340B program.
The children’s hospital guidelines allow such providers to seek rebated discounts retroactively to DRA’s enactment in February 2006. But they do not allow discounts to be sought from manufacturers for drugs sold during any quarter in which the children’s hospital purchased a 340B-covered outpatient drug from a group purchasing organization (GPO).
This differs from the approach taken at the 340B discount program’s startup, when hospitals were allowed to transition from GPO participation during an 18-month start-up period and collect discounts retroactively on any drugs purchased during that period from a source other than a GPO.
Because hospitals would face a financial hardship if they stopped buying their outpatient drugs from a GPO during the two-year-plus waiting period, the current restriction will, for most hospitals, result in a total ban on retroactive discounts – and millions of dollars in lost savings.
A 340B-eligible children’s hospital that terminated its GPO outpatient account at some point after Feb. 8, 2006, could still qualify for retroactive manufacturer discounts for the quarters that followed the termination of the GPO contract.
A children’s hospital must contact the manufacturers for rebated discounts within 30 days of being listed in OPA’s database of 340B-covered providers. This is more restrictive than the process was for DSH hospitals, which had more time to submit their requests back in 1993.
Paperwork – and more paperwork
Because of HRSA’s new documentation requirements, children’s hospitals that had already filed papers to join the program must resubmit their application to OPA. They will also be expected to resubmit their paperwork annually for recertification, although OPA may waive that requirement if the agency can obtain the information from other sources.
Children’s hospitals that apply for 340B status will have to meet either the 11.75-percent disproportionate-share hospital (DSH) adjustment standard required of other covered entities, or an alternative indigent-care standard listed in the 340B statute.
New documentation requirements outlined in Subsection D of the guidelines set out how a children’s hospital can determine its DSH adjustment percentage.
Still time to apply
Like other 340B participants, children’s hospitals applying for entry into the program must normally wait until the next quarterly update of OPA’s database after submitting their application at least one month ahead of that date.
But those that submit a complete application and qualify for 340B status during the month of September may be able to start purchasing and using 340B drugs as early as Oct. 1, 2009. This is due to a new federal public health emergency enrollment policy implemented in response to the H1N1 epidemic. The policy lets HRSA enter new entities into its database on a case-by-case basis as soon as they’re approved for 340B.