340B: A brief history.

The 340B Drug Discount Program was enacted in 1992, requiring pharmaceutical manufacturers to provide outpatient drugs to eligible health care organizations (Covered Entities) at significantly reduced prices. The pharmaceutical manufacturers agreed to provide these discounts, as a condition for participating in the Medicare program. 340B is intended to allow covered entities to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

DSH, Sole Community and Critical Access hospitals can qualify for 340B.

Certain kinds of health care organizations are eligible for 340B. Essentially, eligibility requires that the organization be public and not-for-profit. Disproportionate Share (DSH) hospitals are eligible, as are Sole Community Hospitals, Critical Access and Rural Referral Centers . In order to qualify for 340B, the non-profit entity must meet what is usually called the “adjusted DSH threshold.” The formula for determining this threshold, is similar to DSH, but more stringent. Just because a hospital meets the DSH DPP threshold, does NOT mean it qualifies for 340B.

How covered entities register for 340B.

If an eligible health care organization meets the “adjusted DSH threshold,” it may partner with (contract) pharmacies in the area, and apply for registration on the HRSA website. [HRSA is the governing body that regulates 340B.] The Covered Entity then contracts with a drug wholesaler, and may purchase covered drugs at greatly reduced 340B rates. The 340B drugs may be sold through the contract pharmacies (or the hospital/clinic pharmacy) at market rates.

Wholesalers and pharmacies are usually eager to participate in a 340B program because they typically receive greater margins than through normal pharmacy sales. Even if the covered entity has it’s own pharmacy, 340B discounts are almost always much deeper than even GPO pricing.

Covered entities may pass drug savings through to patients. Or keep the margins. Or both.

When a Covered Entity buys drugs at low discounted prices from its wholesaler, then sells the drugs at higher prices to its contract pharmacies, the transaction yields a profit for the hospital. Hospitals (Covered Entities) will have agreements with their contract pharmacies to replace 340B inventory at discounted rates (better than their Group Purchasing Agreements) so that the operation benefits the pharmacies as well as Covered Entities. The Covered Entity may, at is discretion, also provide drug discounts to certain patients who might need help purchasing the drugs. The contract pharmacy would then discount the sale price accordingly, with the discount coming out of the Covered Entity’s margin. This way the hospital ensures that the neediest patients are more likely to get the drugs they require, and hopefully reduce readmissions. The decision to pass savings onto outpatients is completely up to the Covered Entity. There are no regulations requiring this practice.

How to calculate 340B revenue for your organization.

The amount of revenue generated by a 340B program has very little to do with the size of the Covered Entity. The only way to accurately calculate the size of the opportunity, is to analyze outpatient scripts given a statistically significant sample size. It is generally recommended to sample three months of outpatient prescriptions and fulfillment by the participating contract pharmacies. This analysis will yield a very accurate estimate of the 340B value to the organization. At this point, the organization should be able to make a go/no go decision on a 340B program.

A complete 340B Turn-Key solution.

To find out if your organization qualifies for a 340B program, contact QRS (below). You do not need any special expertise. QRS will conduct an analysis to accurately project 340B revenues, help you register with HRSA, draft a 340B Policy & Procedures document, help you secure agreements with contract pharmacies and wholesalers, identify qualified 340B purchases, provide audit trails and manage billing/restocking with wholesalers and pharmacies. Please don’t hesitate to call if you have any questions. We look forward to serving you.

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