New 340B Rule in Place; Understanding the Implications

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By Kenneth Maxik, MBA, MBB, FACHE

It’s a new year and that brings new challenges for hospitals enrolled in the 340B Drug Pricing Program after the Centers for Medicare & Medicaid Services (CMS) formally implemented a new rule that cuts the reimbursement to certain covered entities by $1.6 billion.

The 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) Final Rule was finalized in November 2017 and immediately met with resistance. A number of hospital associations and several health systems joined to sue CMS – claiming the changes would reduce access to care – and a bipartisan bill was introduced before the House seeking to reverse the ruling. Due to a procedural issue, the lawsuit was deemed premature since damages had not yet been incurred, and CMS’s rule went into effect on Jan. 1, 2018, per the original time frame.

Despite efforts to halt the rule continuing into 2018 – the same complainants plan continued legal action – all 340B hospitals covered under OPPS must now comply with the new CMS rule.

For a clearer picture on the potential impacts for hospitals, patients, staff and health care programs, here is what you need to know:

Review the hospital’s bottom line.

Facilities designated as disproportionate share hospitals (DSH) or rural referral centers will receive payment reductions for certain separately payable drugs or biologicals purchased under the program and furnished to a Medicare beneficiary.

With many hospitals challenged to manage drug spending, this puts an additional burden on an already strained health care system. The loss of reimbursements impacts overall profitability and could result in cuts to health care programs or staffing to make up the shortfall. Access to care for vulnerable patient populations, such as low-income and uninsured patients, who otherwise wouldn’t be able to afford medical treatment, could also be restricted.

Update information systems.

As part of the ruling, all 340B hospitals* must use modifiers to identify those drugs billed under the OPPS. This task is significant, requiring hospitals to methodically label each medication in a class of drugs with the assigned modifier in their information systems. Modifiers are categorized by: hospitals that are subject to payment exemptions, but are a covered entity (use TB), and those subject to reduced payments (use JG and TB).

All hospitals that are covered by the rule must update their systems with these modifiers, and until it is complete, Medicare bills can’t be submitted, leading to a potential loss of income. Hospitals have been given very little time to complete this process – the rule wasn’t finalized until November 2017 – and so it is likely many are still working to update their systems.

Enlisting a whole-team approach – bringing in the pharmacy, IT and finance divisions – is recommended to determine the best way forward, not only to ensure the modifiers are accurately applied, but that doing so is done in the most effective and efficient way.

Determine 340B program viability.

While it would be disappointing that an action taken by CMS might require service lines for at-risk populations to close, any prudent health care executive should be assessing this new landscape to determine if the 340B program is still feasible.

Once reduced drug payments are calculated, hospitals could find that the 340B program becomes too expensive to maintain; however, there are also hidden costs that should be closely monitored and assessed. Examples of such costs could include the additional staff employed to conduct the purchasing aspect or monitoring of the program. It is also worth investigating whether third-party consultants have been hired to conduct internal audits or specific operating budget purchases made on software products to complete split billing requirements. Depending on the type of system a hospital is using, staff may have to manually bill Medicare in some situations, a very time-consuming and potentially costly exercise.

Accordingly, hospitals need to take a systematic approach and undertake financial calculations to ensure a clear understanding of the real cost of running the program.

It has been 25 years since Congress enacted this program, originally established to allow safety net health care providers to stretch scarce resources and reach more eligible patients. While members of Congress take time to consider whether the rule strays too far from its original intent, hospitals must still be compliant or risk the financial repercussions.

* Children’s hospitals, PPS-exempt cancer hospitals, rural sole community hospitals (TB modifier required); DSH hospital, Medicare-dependent hospital, rural referral center, non-rural sole community hospital (TB and JG modifier required).

Kenneth Maxik is director of patient safety and compliance for CompleteRx. He has more than 20 years of pharmacy operations and management experience and works with hospitals and health systems across the country to help their organizations stay ahead of current and imminent regulatory standards.

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