Little encouragement for hospitals from 340B changes

August 20, 2007

Proposed rules from the Health Resources and Services Administration to make children's hospitals eligible for 340B are moving slowly. And final rules from the Centers for Medicare and Medicaid Services will boost costs while cutting reimbursement.

The federal 340B Drug Pricing Program requires drugmakers that sell to state Medicaid programs to discount drugs sold to hospitals and other health facilities with a disproportionate share of indigent patients.

The current changes are part of rules published in the July 17 Federal Register to implement the Deficit Reduction Act of 2005 (DRA). According to SNHPA, CMS' final rules are little changed from proposed rules that evoked more than 1,600 comments. Painful provisions include a restrictive definition of patient for 340B eligibility, calculation of average manufacturer price (AMP) based on nine-digit national drug codes (NDCs), lower reimbursement for generic drugs, and mandatory reporting of drug identification and utilization information to state Medicaid programs. The new rules take effect Oct. 1.

Von Oehsen said requiring covered entities to collect NDC and utilization data for every 340B drug use will send costs through the roof. A survey of SNHPA members earlier this year found that the typical entity will spend $940,000 to meet the new provisions. "We have heard that some hospitals will withdraw from 340B because of the additional burden," he said. "That would be counterproductive because Medicaid programs save significant dollars from 340B. State agencies should be paying closer attention to how DRA impacts their overall expenditures."

David Chen, director of ASHP's section of home, ambulatory, and chronic care practitioners, said mandating the collection of NDC numbers could impact patient safety and boost costs. An ASHP survey earlier this year concluded that the new rules would cost an additional $10 to $11 per claim and take 24 extra minutes of processing time.

Georgia hospitals are already collecting drug and utilization data. The state Medicaid program began requiring the new information on all claims starting Jan. 1. Claims submitted without NDC and utilization data are automatically rejected, said Burnis D. Breland, Pharm.D., director of pharmacy at The Medical Center in Columbus, part of the Columbus Regional Healthcare System, Columbus, Ga. "It is very difficult to track NDC numbers because we buy different package sizes and formulations from different manufacturers," he said. "We had to do a major update to our pharmacy computer system and still have to enter many codes manually. It is a tremendous burden."

It is also pointless. The goal is to identify physician-administered drugs that are eligible for manufacturer rebates, Breland noted. "Physicians don't administer any of these drugs in our hospital outpatient clinics. There is no advantage to anyone, just additional cost."

Covered entities can also expect to see lower reimbursement under the new rules. DRA requires CMS to base reimbursement on AMP. The agency has decided to calculate AMP using nine-digit NDCs, which reflect a weighted average of package sizes. HRSA and other 340B stakeholders had urged CMS to use 11-digit NDCs, which are specific to each package size.

Hospitals will also be hit by reductions to the federal upper limit for Medicaid reimbursement on generics. Pharmacists have warned CMS that the new limit, 250% of AMP, will produce reimbursement that is below their actual acquisition cost for some generics.