340B: A New Source of Revenue for Qualified Hospitals.

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 help hospitals that serve extremely low-income populations, to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

How 340B Works.

In a typical outpatient prescription scenario, a doctor affiliated with the hospital, writes the prescription. The patient takes the scrip to a retail pharmacy for fulfillment. The pharmacy buys drugs from a wholesaler (at wholesale rates) and sells to the “outpatient” at Point-Of-Sale rates – keeping the margin (profit). In a 340B scenario, the hospital buys the drugs directly from a wholesaler at deeply discounted (340B) rates, and sells to a pharmacy (usually at pricing below retail). The hospital is allowed to keep the margin between buying low and selling higher to the pharmacy. The result is a whole new revenue stream for the hospital.

The covered entity may, at its discretion, provide ID to certain patients needing help purchasing the drugs. This way, the hospital insures the most needy patients are more likely to get required drugs. The contract pharmacy would then discount the sales price accordingly.

The HRS 340B Program Is Designed to Help Hospitals That Have Never Had a 340B Program Before.

Starting a 340B program can be a daunting experience for hospitals that have no experience in this area. Registering with Health Resources & Services Administration (HRSA), developing a “Policy & Procedures” manual, setting up a compliance council, establishing checks and balances for compliance procedures, maintaining an audit trail, setting up Data Interfaces…and then modifying accounting procedures to comply with HRSA guidelines – all require special expertise. Most hospitals are looking at steep start-up costs, just to put the right personnel in place for a 340B program. But HRS puts 340B expert personnel at the client hospital’s disposal.

An HRS 340B Manager is assigned to each client hospital. The manager will spend the first week or so on premises, working with hospital administration, registering with HRSA, drafting “Policy & Procedures,” organizing a compliance committee, and generally getting the program off and running. The 340B Manager will attend all Compliance Committee meetings (in person or remotely), and will serve as a 24/7 resource for the hospital in all things relating to 340B.

What Are The Criteria For Being 340B Eligible?

There are two primary criteria for 340B eligibility:

    1. The healthcare organization must be “not-for-profit”
    2. The healthcare organization must meet the “adjusted DSH threshold” for 340B. The easiest way to find this out, is to look on your most recent cost report: Worksheet E, Part A, Line 33. If the value in this field is 0.1175 or greater, you meet the threshold. Other thresholds may apply depending on the hospital designation.

How Much Revenue Can A 340B Hospital Expect Per Year?

340B revenue is dependent upon the kind of prescriptions written for outpatients, and the volume of prescriptions being written. HRS advises all prospective 340B healthcare organizations to undergo a “feasibility study” before embarking on a 340B program. HRS will conduct this study at no charge. The study typically captures 3 months of data from a pharmacy that the hospital expects to work with. From this data HRS will develop a projectable model that will very accurately predict revenue to the hospital and to the contract pharmacy. If all parties are satisfied, Agreements will be drawn up, and the hospital can expect to begin seeing 340B revenue in month 4 after registration.

Contact Us For More Information

If you would like to learn more about 340B, or more specifically about the HRS 340B program, please contact us: info@hlthrs.com.