How Medicare Part D affects 340B program

August 21, 2006

Hospitals with large indigent patient populations have a new financial ally: the Medicare Part D outpatient pharmacy benefit.

Hospitals with large indigent patient populations have a new financial ally: the Medicare Part D outpatient pharmacy benefit.

That is an about-face from hospital attitudes toward Part D a year ago. Institutions that qualified for discounted drug pricing under Section 340B of the Public Health Service Act saw Part D as a threat that could scuttle indigent-care programs.

Section 340B also requires entities that come under the act to maintain separate inventories for 340B-eligible patients-to ensure that ineligible patients do not take advantage of discount drug prices. The act does not pay hospitals directly for drugs dispensed to eligible patients, Barnes noted, but the discounts help pharmacy managers stretch budgets to cover more indigent patients.

Medicare Part D threatened to derail 340B discounts. As originally envisioned by the Centers for Medicare & Medicaid Services, Part D would have required 340B entities to offer similar pricing to any Part D patients, open 340B pharmacies to community access, and change other elements in violation of 340B requirements. More important, Part D threatened to siphon off a significant portion of 340B entities' indigent patient load. The problem was dual eligibles, patients who were eligible for both Medicaid and Medicare. CMS planned to randomly assign dual eligibles to any available drug plan.

So many indigent patients could be lost to Part D that hospitals would no longer qualify as 340B entities. That would immediately boost drug costs for their remaining indigent patients, noted Chris Hatwig, senior director of the 340B Prime Vendor Program.

At the same time, hospitals may see patients flood back into ambulatory care clinics after falling into the drug coverage gap in Part D. But without 340B discounts, hospitals would be paying nondiscounted prices on drugs used to treat those returning indigent patients.

The only way hospitals could continue to treat dual eligibles would be to contract with Part D drug plans in their service area. But contracts were not available.

"Section 340B entities weren't given consideration by drug plans or CMS when the drug benefit was designed," Hatwig said. "We heard that plans were not offering contracts or returning phone calls to safety-net providers and decided to become engaged."

Shands and other 340B entities got their first break in 2005 when MemberHealth, a Cleveland-based Part D drug plan, heard of the prob-lem from the National Community Pharmacists Association. NCPA was working with MemberHealth on what the two groups called a pharmacy-friendly drug plan, CommunityCareRx (CCRx), to enroll patients in the Medicare discount drug program.

With Part D looming, MemberHealth realized that 340B patients represented a population and a market that its competitors had missed. MemberHealth and the 340B Prime Vendor helped create a standardized safety net provider agreement.

The new language allows 340B entities to maintain their 340B status by contracting with CCRx and enrolling their 340B patients in the new Part D drug plan. The contract addendum changes service and access requirements and other details so hospitals and other covered entities continue to qualify for 340B status.

The changes let covered entities continue to use the 340B Prime Vendor to acquire drugs at discount for this specific outpatient population. A special formula reduces federal Part D payments to reflect discounted 340B drug prices. The net effect, Hatwig said, is that Part D now reimburses for 340B purchases. For the first time, 340B hospitals have stable and predictable pharmacy funding.

"This contract addendum provides some federal funding to help support these 340B programs," said MemberHealth partner and VP Scott Hughes. "We have a very strong focus on being able to serve 340B program beneficiaries in every market across the country."

CCRx was the first drug plan to accept 340B entities for Part D coverage, Hatwig noted. CareMark also has a modified contract for 340B providers.