The Journal of Healthcare Contracting

Outpatient Drug Program
340B program can help disproportionate-share hospitals save on their purchases of outpatient drugs

Taking advantage of the government’s 340B program for the purchase of outpatient drugs may take some work and resources on the part of eligible facilities, but the effort is well spent. One facility – Long Island Jewish Medical Center in New Hyde Park, N.Y. – saved close to $4 million, or roughly 24 percent of its outpatient pharmacy supply budget, in 2008, using the program. With 80,000 ED visits annually and 25 outpatient departments (e.g., oncology, dialysis, ambulatory surgery), those kinds of savings may not be available to small or rural hospitals. Still, it may be worth their while to explore the opportunity.

That’s the assessment of James Abberton, M.S., R.Ph., director of the department of pharmacy services at Long Island Jewish; and Francine Disla Freise, MBA, CMRP, manager of operations for Nexera Inc., a business service of the Greater New York Hospital Association. Abberton and Disla Freise gave a presentation on the topic at the recent annual conference of the Association for Healthcare Resource & Materials Management (AHRMM).

Strictly outpatient
340B extends significant discounts to providers on many outpatient medications, explained Disla Freise. It has its roots in the Veterans Health Care Act of 1992, when the government identified the need for additional savings for hospitals that serviced low-income populations. The program is overseen by the Health Resources and Services Administration’s Office of Pharmacy Affairs, part of the U.S. Department of Health & Human Services.

The program is not limited to inner city hospitals and clinics, but rather, to qualified disproportionate share hospitals (called DSHs) and other federally qualified health centers. (For some basic information on 340B, go to http://www.hrsa.gov/opa/introduction.htm.)

No cherrypicking allowed
As with any federal program, 340B comes with its own set of rules and regulations, including the following:

Just because one hospital in an IDN qualifies as a DSH does not mean that its "siblings" will. Long Island Jewish, for example, which is part of North Shore-Long Island Jewish Health System, is a DSH. But North Shore University Hospital, located just a few miles away, does not qualify for that status.
Once a hospital signs up for 340B, it can’t cherrypick contracts to get lower prices, except under defined circumstances where covered drugs are not available. In other words, a 340B hospital can’t check its GPO portfolio for lower prices, then use those prices on selected drugs. "The idea is, you’re either all or nothing," said Disla Freise. That said, HRSA has contracted with Apexus, a nonprofit subsidiary of the Provista purchasing group, to be the 340B prime vendor. As prime vendor, Apexus is responsible for negotiating pharmaceutical pricing below the 340B ceiling, and to make available a distribution network for them. The prime vendor program currently provides access to 340B sub-ceiling prices for more than 2,800 drug products, according to HRSA.
Once a facility signs up for the 340B program, it must make every effort to use it for all of its outpatient activities, regardless of how cumbersome or difficult that may be. Implementing 340B in some departments, such as outpatient surgery or dialysis, is relatively easy, pointed out Disla Freise at the AHRMM conference. The patients in these areas are clearly outpatient and easily identified as such. But implementing 340B in other departments can be trickier. For example, many ED patients are sent home after treatment, while others are admitted as inpatients. It’s up to the facility to keep track of which pharmaceuticals were administered to ED patients while they were outpatients, and which were administered after they were admitted.
Inventory management for inpatient and outpatient pharmaceuticals must be separately maintained. Some may do so physically. But often, as is the case with Long Island Jewish Medical Center, the facility lacks the space to do so. That’s why most 340B facilities use a "virtual" inventory method, in which inventories are separated "electronically," through a separate numbering and tracking mechanism.

Savings for outpatient drugs can be dramatic, according to Abberton and Disla Freise. Long Island Jewish, for example, saved 64 percent on the cost of one oncology drug. In fact, hospitals with outpatient oncology programs can realize tremendous savings, they said.

Manufacturers consider 340B pricing to be proprietary information and have challenged efforts to disclose it publicly. But according to HRSA, providers can estimate the 340B price by taking 50 percent of the Average Wholesale Price, which is a publicly available number. The actual price may be higher or lower than this, however.

What’s more, at this point, 340B is only extended to outpatient drugs. However, DSHs participating in 340B now have their inpatient drug purchases excluded from the Medicaid "best price" calculation. Drug manufacturers now have more incentive to voluntarily choose to provide discounts on inpatient drugs to participating 340B DSHs. What’s more, at press time, as part of the healthcare reform discussions, lawmakers were debating whether to extend 340B to inpatient services at DSHs. Editor’s note: For a list of 340B supplier agreements, go to https://www.340bpvp.com/public/agreements/suppliers/.