This is a companion article to compliment the material covered in Tony Zappa’s November 10, 2015 webinar. You may use this link to access the slides and audio for that program.

Pretend you’re a pharmacy director at Health Plan USA (HPUSA). Your drug trend is increasing, and you’re looking for creative ways to manage costs and utilization. Someone at a conference mentioned that you should look at 340B as an opportunity, that the savings could be amazing. You know the pharmacy director at Urban Hospital (UH), who mentioned something at a meeting about participating in the 340B program. You wonder how you could work together to benefit both parties…

There’s no doubt that the 340B program offers substantial discounts to eligible non-profit hospitals and clinics across the U.S. But, for good reason. These facilities, often called the “safety net,” receive these discounts because they serve a higher percentage of indigent and uninsured Americans than other providers. Safety net facilities use the savings provided by 340B program discounts to expand and enhance care, meeting the government’s intent to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” Community health clinics provide free or subsidized drug programs, and hospitals use their savings to provide charity care and operate clinics in low-income neighborhoods.

There are several types of 340B-eligible facilities, or “covered entities.” These include large urban hospitals (often academic medical centers), small-to-midsize rural hospitals, community health clinics, HIV/AIDS clinics, hemophilia treatment centers and other less common condition-specific clinics. Hospitals qualify because they treat more patients covered by Medicaid, Medicare or SSI than the average hospital. Clinics qualify because of the nature of their Federal grants. Together, there are over 33,000 unique covered entities that participate in the 340B program.

To make sure that their patients have access to prescription drugs, most covered entities work with a network of retail pharmacies. These “contract pharmacies” must have an agreement with the covered entity that they’ll meet all regulatory requirements. They also must be registered with the Health Resources Services Administration (HRSA) as being associated with that covered entity. Over 20,000 pharmacies across the U.S. participate in 340B networks, including nearly all chains and thousands of independent pharmacies.

Of course, as with any government program, there are risks associated with participation. Covered entities need to be sure that each and every patient and prescription meets eligibility rules. They also need to be sure that all purchases made under the program are only used for eligible patients and prescriptions. If the rules are not followed, they risk being expelled from the program. Most covered entities work with 340B program administrators to ensure that their programs are compliant. These administrators operate similarly to PBMs: They help build and contract the pharmacy network, “adjudicate” prescriptions (often using claims data) to assess eligibility, manage purchases, provide required data and reporting, and assist with internal audit programs.

To be included, prescriptions have to meet the following criteria:
– Be written by a health care provider employed by or under contract to the covered entity, or have some other arrangement with the entity (like being a referral provider)
– Be for outpatient use after an inpatient stay or a visit to a clinic affiliated with the covered entity (there are specific requirements for “affiliation” but I’ll skip the details here)
– Be for patients for whom the covered entity has a record of care and maintains responsibility for that care
– Be filled at a contract pharmacy registered to the covered entity
– Have a 340B price offered by the manufacturer (about 95% of drugs have 340B-related discounts).

HRSA is proposing changes to these criteria that could significantly reduce the number of eligible prescriptions. These changes, if implemented, are not expected to take place until late 2016, at the earliest.

So, how can Health Plan USA work with Urban Hospital? Start by understanding and acknowledging why covered entities participate in the 340B program. Covered entities want to make sure that their patients have access to prescription drugs, that they actually get them, and that they can achieve the best outcome possible. They also have the same goals for medical care, both inpatient and outpatient, to ensure that there is good continuity of care for every patient. Over the past few years there’s been a lot of negative press over the past years about hospitals making millions of dollars from 340B programs and not spending any of it on patient care. Those stories are simply not true, at least not as they’ve been written. Even if the number of uninsured patients in the U.S. is decreasing, hospitals and clinics are still providing significant amounts of charity care and offering free prescription programs to ensure access and allow for optimal outcomes. Much of this is only possible because of the 340B-related savings they get.

Next, understand why hospitals and clinics want to work with health plans. Many hospitals are operating, or setting up, outpatient pharmacy programs (including specialty pharmacies) to make sure their patients have prescription drug access. They’re also doing this because the financial risk for care is shifting to providers through bundled payments and penalties for things like early readmissions. Hospitals are now saying “How can we be expected to assume this risk when a large part of the patients’ care is being redirected to pharmacies outside of our control?” Hospitals and clinics want to work with health plans to support their patients and make certain that prescriptions are dispensed as indicated and expected at the point of care and in a timely fashion. Gaining access to health plan (and Pharma) networks is a critical step toward that end.

On the flip side, covered entities need to understand that health plans are experiencing large increases in their drug costs, largely driven by cost and utilization increases of specialty drugs. While they can cover some of this through premium increases, health plans often end up with adverse experience (i.e., they lose money). Any additional discount they can receive helps them meet their financial targets and keep premiums reasonable.

One option HPUSA could consider is putting UH’s pharmacy, specifically the UH specialty pharmacy, into its specialty pharmacy network. HPUSA would pay UH the same rates paid to other specialty pharmacies, so that adding the pharmacy would be cost neutral (which isn’t really of any benefit to HPUSA). Of course, if HPUSA has an exclusive arrangement with another specialty pharmacy this option may not be possible at all, or could result in that specialty pharmacy raising its prices due to a lack of exclusivity.

A second, and possibly better option, is to put the UH specialty pharmacy into the HPUSA network with two requirements:
1. UH can only provide specialty drugs to its patients and not to any other HPUSA member. This limits the impact to the exclusive specialty pharmacy, because it is still preferred for the majority of HPUSA members.
2. UH must offer a 5% to 10% discount from the prevailing specialty pharmacy reimbursement rates to make up for any increases levied by the existing specialty pharmacy, and to account for potential rebate losses for prescriptions filled by UH’s pharmacy (see comment below).

This option offers a win-win for both parties. HPUSA gets to manage all outpatient drugs for its patients and meet its objective of care continuity. It also gets a new revenue stream from the specialty prescriptions, along with the additional 340B savings to fund additional care programs. In return, HPUSA gets some cost relief on high-cost specialty medications, along with enhanced clinical services from UH’s clinical pharmacists.

Keep in mind that there are other benefits to an HPUSA/UH arrangement. UH’s pharmacists can provide medication therapy management (MTM) services to HPUSA’s members, and increase that care to a more targeted therapy management program for members receiving specific specialty drugs (for oncology, hep C, hemophilia, etc.). HPUSA can also work with UH to gain access to clinical data from patients’ electronic medical records to analyze patterns of care and set or revise clinical guidelines and protocols. In addition, HPUSA can work more closely with all UH providers on targeted care programs, especially for uncommon high-risk conditions where evidence-based information may be lacking.

One thing HPUSA needs to consider is the impact UH’s pharmacy will have on its rebates. The regulations governing 340B clearly state that 340B discounts cannot be offered on prescriptions covered by fee-for-service Medicaid plans (this is also being increasingly applied to managed Medicaid programs, too). This is because manufacturers are providing rebates to the Medicaid plans, and offering a 340B price on those prescriptions would result in a duplicate discount. However, the regulations don’t say anything about prescriptions covered by commercial health plans. Common sense would dictate that prescriptions receiving 340B discounts should be excluded from commercial rebates, but in practice this is not always done. It is possible that manufacturers will start to identify these 340B prescriptions and remove them from rebate payments. HPUSA must consider this possibility in its financial calculations, and ensure that the improved reimbursement rates for UH’s pharmacy will cover the potential of rebate reductions.

In summary, there are many reasons why health plans and hospitals and clinics can and should be working together. Both sides share the same goal: Optimal care for their shared members and patients. Hospitals can use their purchasing power to leverage network access with health plans, which enhances the level of medication-related care they can provide and produces additional 340B-related savings that can be used to expand and extend care. Health plans can gain some cost reductions on specialty medications and obtain access to new targeted clinical programs for members receiving high-cost, high-risk medications. As long as both groups are committed to the patient, there’s no reason why these partnerships shouldn’t be beneficial for all concerned.

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