340B: A Game Plan For Success

By Nate Taninecz, Model N

I recently had the pleasure to participate in a panel discussion at the 2013 HDMA Contracts and Chargeback conference held at the historic Hotel Du Pont in Delaware. For two days, industry thought leaders educated the attendees on the challenges of the day.  There was one particular theme that was a conference highlight and at the forefront of most attendees’ minds: 340B. 

The topic of the 340B Program, established in 1992 as part of the Veterans Health Care Act to help uninsured low-income patients gain access to “covered outpatient drugs” by providing significant pricing discounts to the entities who serve these patients, is more important than ever.  However, the words that best describe the climate caused by recent changes to the program include: confusion, worry, and doubt.  Although manufacturers and distributors often have fundamental differences of opinion on a range of topics, I believe most would agree that compliance to the law is difficult to understand at best, and at worst, worry that their approach to administering the program may support or result in non-compliance. 

The Good: Efforts To Streamline And Improve

The Office of Pharmacy Affairs (OPA), which is responsible for administering the program for Health Resources & Service Administration (HRSA), is more active than ever.  OPA has undertaken important steps towards cleaning up the program, and minimizing and penalizing fraudulent activity.  Recertification of all covered entities was completed last year and audits are being conducted to help ensure that the program achieves its objectives.  It is also a very good thing that our industry has these types of forums to discuss the challenges on a regular basis because guidance on existing policies and changes to the program occur frequently.

The Bad: Program Changes Drive Confusion

The program and its intended purpose certainly isn’t “bad”, but there is significant confusion about recent changes.  The uptick in anxiety is not limited to, but stems primarily from, program changes indicated by the Affordable Care Act.  So what is keeping contract, chargeback, and regulatory professionals up at night?  Here are a few examples:

• The expansion of the program to include new covered entity types.
• The orphan drug exclusion ruling, which allows the ACA entities access to 340B prices for orphan drugs (a drug for a rare disease or condition) when used for non-orphan indications.
• Formalized policies regarding the GPO prohibition and the resulting need for “Sub-WAC” account creation.
• Manufacturer refunds to covered entities for drug price overcharges, and manufacturer ability to accept reimbursements from covered entities for non-compliant purchases that were made.
• The challenging many-to-many relationships between contract pharmacies and covered entities
• The constant challenge of using the correct 340B IDs.

Let me try to summarize the orphan drug exclusion as an example of how challenging these developments are.   As of October 1^st of this year, the Orphan Drug Final Rule is in effect.   The rule “clarifies” that only four types of covered entities (out of 27 entity types) are required to either opt-in or opt-out of making 340B purchases of those orphan, i.e. rare disease, drugs that have been approved for marketing in the U.S. by the FDA.  These types include: free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals.  By opting in, they must be able to prove that orphan drugs purchased through the program are only used to treat non-orphan indications. 

Manufacturers of orphan drugs participating in the program are obligated to sell orphan drugs at the statutory price to those covered entity types, but also have the right to request an audit if they feel the covered entity is using the drug to treat orphan indications.  The entity can remain in the 340B program, but decide to purchase their covered outpatient orphan drugs outside of the program, even thru a GPO; unless they are a free standing cancer hospital purchasing the drug for non-orphan indications – by opting out. The list of drugs impacted and covered entities’ opt-in/out statuses are updated quarterly to reflect changes for the coming quarter.  What’s so hard to understand? 

The Ugly: Complicated Compliance

When looking at your organization’s preparedness to remain compliant, it’s best to start with the foundation of master data management.  Unfortunately, decisions made sometimes years ago can be an “ugly” barrier to adopting practices that will ensure compliance with the program.  

In order to remain compliant, there are a number of questions to ask:

• Does your master data allow you to maintain effective dated 340B identifiers on customers? 
• Are your classes of trade granular enough to help facilitate identifying eligibility given GPO prohibition or Orphan Drug Exclusion rules that pertain to certain covered entity types? 
• Can you create sub-WAC accounts distinguishable from a 340B account to support mixed use entities? 
• Are all contract pharmacy HINs added to a single covered entity customer or are separate accounts created for each unique relationship? 
• Can you distinguish the effective dates of the relationships between the covered entity and their contract pharmacies?  
• How have you modeled alternate shipping locations for a covered entity?  
• Even if you have these customers modeled correctly, is this information able to be interpreted by your contract management technical solution and/or internal processes to determine appropriate eligibility? 

These are all important questions that must be addressed to develop a holistic 340B approach.  In summary, one thing is clear – the stakes are too high for manufacturers not to have a game plan for dealing with a seemingly ever-growing and ever-changing 340B Program.  Properly classifying customers, having a contracting strategy that is understood by trading partners, and actively monitoring and managing eligibility to these contracts should be top of mind for contract, chargeback, and regulatory compliance professionals.  Through a combination of processes and systems, the opportunity to do this well can translate into an important revenue stream and a key protection against non-compliance.