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HRSA Eliminates Delay in Use of 340B Drugs in New Hospital Clinic Locations

Payment Matters

The Health Resources and Services Administration (HRSA) has issued guidance eliminating a longstanding enforcement position that delayed the ability of hospitals participating in the 340B drug pricing program to use 340B-purchased drugs in new outpatient clinics for as long as nearly two years. HRSA issued the policy in new FAQs on HRSA's Office of Pharmacy Affairs website and through FAQs issued by Apexus, HRSA's contractor.

Hospitals that wish to use 340B drugs in new clinic locations consistent with the new policy should update their policies and procedures accordingly and maintain auditable records demonstrating that patients treated in new clinics meet the definition of a 340B-eligible patient.

Updated Policy for Use of 340B Drugs in New Clinics

HRSA's updated policy is outlined in new FAQs on HRSA's COVID-19 Resources Page and through updated FAQs on the Apexus website (see FAQ # 4301, last modified June 4, 2020). Although the HRSA FAQs appear on the agency's COVID-19 Resources Page, the new position does not appear to be limited to the COVID-19 public health emergency. The new Apexus FAQs include the same language and are not specific to the COVID-19 pandemic.

The FAQs address a hospital's ability to use 340B drugs in new clinic locations that will be listed as reimbursable on the next cost report while a hospital waits to file the cost report. The FAQs indicate that, "for hospitals who are unable to register their outpatient facilities because they are not yet on the most recently filed Medicare Cost Report, the patients of the new site may still be 340B eligible to the extent that they are patients of the covered entity." HRSA outlines the definition of a 340B-eligible patient in its 1996 patient definition guidelines, which HRSA references in the FAQs.

The policy appears to apply only to new clinics that will appear as hospital outpatient clinics on a reimbursable line of the next filed cost report.

Change from Prior HRSA Audit Enforcement

HRSA's Outpatient Facility Guidelines, issued in 1994, require an outpatient facility to be listed on a reimbursable line of the hospital's cost report to be an "integral part" of the hospital and, therefore, able to "access" 340B drugs. Separately, HRSA's 1996 guidelines define a 340B-eligible patient. HRSA audits have resulted in a finding of diversion – transferring or reselling a 340B drug to an ineligible patient – if a hospital used 340B drugs in a location that did not appear on a reimbursable line of the hospital's most recently filed cost report and was not registered as a child site. Such audit enforcement has suggested that HRSA reads these two guidance documents together, requiring individuals to be treated in a location listed on a reimbursable line of the hospital's cost report for the individual to be a 340B-eligible patient of the hospital.

For a clinic to be listed as reimbursable on the cost report, the location must meet Medicare's provider-based rules, showing that the clinic is a fully integrated hospital outpatient department. Although a new clinic may be able to meet the provider-based rules upon opening and does not need to wait until the next cost report is filed to be considered by Medicare to be a hospital outpatient department, HRSA FAQs and website guidance have specified that a clinic location must be listed on a reimbursable line of the hospital's most recently filed cost report to be considered part of the hospital for 340B purposes. This policy has caused significant delays before hospitals can use 340B drugs in new clinics. For some hospitals, this policy could delay use of 340B drugs in a new clinic for nearly two years.

Hospitals file cost reports annually for a 12-month cost-reporting period and have up to five months to file the report. If a hospital opens a clinic just after a cost reporting period ends, the next report may not be filed to reflect the new clinic's costs and charges for another 17 months (after the 12-month cost reporting period and the five months to file). At that point, the hospital can register the clinic as a new 340B child site during the next quarterly enrollment period, which may not be for another two months, and then wait another three months until the child site is active. This could take up to 22 months in total.

Based on the new FAQs, HRSA does not appear to be changing its policy on child site registrations; hospitals must still register new outpatient clinic locations as child sites, and a hospital may not register a child site until its outpatient costs and charges appear on a reimbursable line of the most recently filed cost report. However, HRSA appears to be acknowledging that individuals treated in a new clinic location while the hospital waits for the next cost report filing may still be able to meet the 340B patient definition test and receive 340B drugs.

Hospital Considerations Related to Policy Implementation

The new FAQs suggest that HRSA does not require a new clinic to meet the Outpatient Facility Guidelines for individuals treated in the clinic to meet the 340B patient definition test. What is not clear, however, is what facts HRSA will require a hospital to provide to demonstrate that an individual who is treated in a location that does not yet appear as reimbursable on the cost report is nevertheless a 340B-eligible patient.

The patient definition guidelines require that, for an individual to be a 340B-eligible patient, the hospital must be responsible for the care provided to the individual. A hospital may be able to demonstrate responsibility for a patient's care by showing that the individual was treated in a location that is reimbursable on the hospital's cost report, indicating that the location is a hospital outpatient department and individuals treated in the location are hospital patients. If a hospital is not yet able to rely on the filed cost report, HRSA may expect the hospital to produce alternative documentation to show responsibility for the patient's care.

Hospitals should update their policies and procedures to address situations in which the hospital will use 340B drugs in a new clinic, before the clinic appears on a reimbursable line of the next cost report. The policies and procedures should outline the circumstances that must be met and the documentation that should be produced for the hospital to deem an individual treated in such a location to be 340B-eligible.

Hospitals should also consider other 340B compliance rules that could be implicated by the use of 340B drugs in a new clinic. For example, if a hospital plans to "carve-in" and bill Medicaid for 340B drugs used in the new clinic, the hospital should ensure that billing numbers specific to the new clinic are listed in HRSA's Medicaid Exclusion File to prevent Medicaid duplicate discounts. Hospitals should also review agreements with contract pharmacies to ensure that any contracts that list or reference clinic locations are appropriately amended to include new clinic locations.

For any questions, please contact Jeff Davis or any member of Baker Donelson's Reimbursement Team.

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