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BKD National health care Group

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1 BKD National health care Group
Prescription for 340b success in 2018 Presented by: brian bell

2 This presentation should not be relied upon as legal advice.
Our Goals for Today CMS and Legislative Updates Who is BKD? 340B Drug Pricing Program Overview B Outlook 340B Compliance Questions Thank you for the introduction. Hello everyone. I am happy to be here to discuss the 340B Drug Pricing Program. As I was talking with our DC insider, we joked that there couldn’t be a better time for a 340B presentation with all of attention that the program is receiving. Unfortunately, when 340B receives it is usually more restrictive in nature. The program celebrated its 25th anniversary in A lot has changed since In 2015 and 2016, we thought we would have the Mega Guidance but when President Trump took office, this was withdrawn. Today we have new legislation that we will discuss. How many providers in the room participate in 340B? If you are a RRC or SCH, please keep your hand up. Today we will discuss the following: Split Billing Software and 340B Strategy This presentation should not be relied upon as legal advice.

3 BKD national health care Group
560 professionals with year around focus on health care Broad technical expertise and best practice recommendations Serving providers since 1940s Working with Medicare since 1960s A Washington D.C. perspective on industry trends & challenges 3,200 health care provider clients BKD is a full service accounting firm with approximately 2400 employees. With more than 3200 health provider clients, we have more than 500 professionals that focus solely on healthcare. Our DC perspective keeps us connected to changes occurring in our industry from a legislative perspective. With the government shut down, 340B hasn’t been the topic of discussion this week. Federal government funding is currently set until 2/8 so I am expecting, it will be Mid to Late February before 340B is the focus again. As you will see from these graphs, we work with all types of providers and provide Audit, Tax and Consulting services for our clients

4 BKD Office Locations Fort Wayne, IN Indianapolis, IN Bloomington, IN Evansville, IN Cincinnati, OH Louisville, KY Bowling Green, KY Decatur, IL Jackson, MS Denver, CO Colorado Springs, CO Wichita, KS Omaha, NE Lincoln, NE Oklahoma City, OK Enid, OK Tulsa, OK Dallas, TX Houston, TX San Antonio, TX Little Rock, AR Rogers, AR Kansas City, MO St. Louis, MO Branson, MO Springfield, MO Joplin, MO Waco, TX Fort Smith, AR Des Moines, IA Nashville, TN Chicago, IL Erie, PA Pittsburgh, PA We have 34 offices and work with clients in all 50 states. While our office footprint is in the middle of the country, our work in every state provides us with new ideas to provide to our clients.

5 340B drug pricing program overview
Federally mandated drug pricing program created in marked the 25th anniversary of the program Part of Public Health Service Act, section 340B & Medicaid rebate program Drug manufacturers must provide front-end discounts on covered outpatient drugs purchased by covered entities Provides discounts on outpatient drugs purchased by “safety net” providers for eligible patients Intended to provide financial relief to facilities that provide care to medically underserved Average savings of % for eligible covered entities on outpatient drugs How are covered entities using 340B savings? According to HRSA 340B discounts totaled 6 Billion dollars in This represents only 1.3% of total drug sales in the US. I think that it is interesting to keep this in mind as we talk through some of the scrutiny that the program receives. 340B is a critical program to provide services to our nation’s most vulnerable population Manufacturers fund the program. Manufacturers are required to provide discounted pricing to eligible covered entities. The program started in 1992 and is part of the Public Health Service Act. The program provides covered entities with discounted pricing of 25-50% on eligible outpatient drugs. Transparency is critical. It is critical for covered entities to track how they are using the savings to treat indigent and expand their services in their community. Ultimately, covered entities receive the discounted pricing to expand services and provide services to more patients. Neonatal ICU, Opiate Addiction, Cancer Clinic

6 340B Compliance Eligibility Registration Diversion Duplicate Discounts
Contract Pharmacy Group Purchasing Organization Orphan Drugs Compliance is the cornerstone of the program. In 2011, the GAO recommended that HRSA conduct selective audits of 340B covered entities to provide additional oversight and monitor the program to prevent diversion and duplicate discounts. Starting in 2012, HRSA started audits and the number of audits has increased each year since. We often say that 340B was the wild wild west prior to these audits and covered entities focusing in on We are going to jump into each of these 7 pillars of compliance. As you will see the Orphan Drugs and GPO are grey. These 2 pillars do not impact all covered entities in regards to compliance. Orphan – SCH, RRC and CAH GPO – DSH, Children’s Hospitals and Cancer Hospitals

7 Eligibility 340B participation is limited to only certain non-profit and government affiliated hospitals. DSH Hospitals – traditional acute care hospitals that can demonstrate a DSH Adjustment Factor greater than 11.75% on the most recently filed Medicare Cost Report Children’s Hospitals – pediatric hospitals with a 3300-series Medicare provider number that can perform a DSH calculation based on worksheet S-3 and demonstrate a result greater than 11.75% Sole Community Hospitals – hospitals with Sole Community designation that can demonstrate a DSH Adjustment Factor greater than 8.0% on the most recently filed Medicare Cost Report Rural Referral Centers – hospitals with Rural Referral Center designation that can demonstrate a DSH Adjustment Factor greater than 8.0% on the most recently filed Medicare Cost Report Critical Access Hospitals - All Critical Access Hospitals, regardless of DSH values There are number of covered entity types that hospitals can qualify to participate as a 340B covered entity. In order to qualify as a DSH or Children’s Hospital, hospitals must demonstrate a DSH % of greater than 11.75% on their most recently filed cost report In order to qualify as a SCH or RRC, these hospitals are required to have a DSH % of greater than 8% on their most recently filed cost report CAHs qualify for 340B regardless of their DSH %. Federal Grantees such as Ryan White Clinics and Community Health Centers also qualify for 340B based on their grant.

8 registration 4 registration periods annually
New 340B OPAIS went live on September 18, 2017 Authorizing Official and Primary Contact must be different individuals and neither can be consultant Both are required to create logins 2 step authentication Only Authorizing Official can attest to changes, registrations, terminations and recertification Government Official 340B OPAIS will house the statutorily mandated secure website to make 340B ceiling pricings available to providers So now that we know we are eligible as a hospital, what do we need to do. 4 times a year, hospitals are able to register for 340B. Hospitals are able to register during the first 15 days of January, April, July and October. Once you register, you are eligible to start purchasing on 340B at the start of the following quarter. For example, if you register during the January 1 to January 15 registration period, you will be eligible to participate in 340B starting April 1 if approved. In September of 2017, the OPA revised the OPA database which changed the registration process. In the past, a login was not required to complete registrations. Now at a hospital the AO and PC must create logins in order to complete registration. In order to participate hospitals must be owned or operated by state or local government, be a not for profit organization which has been formally granted governmental powers by state or local government or have a contract with state or local government to provide healthcare services to low income individuals. A government official from the state or local government must sign a form confirming that the contract in place. My experience is that this is the most common way to qualify. Hospitals must have this set up or it can prevent the registration from moving forward. The revised database will also provide covered entities with the 340B ceiling pricing information that is required to be provided.

9 recertification 340B covered entities must annually recertify their 340B eligibility Notifications are sent to Primary Contact and Authorizing Official Once recertification period begins the Authorizing Official only has access via their user accounts to attest their covered entity’s compliance with 340B requirements and complete recertification Contacts listed in the 340B database must be accurate at all times to receive all notifications During the transition to the new database the recertification process was delayed. Typically this process takes place starting October 1 We often see these delays towards the end of the recertification periods.

10 What is “covered entity”?
DIVERSION Diversion Drugs can only be used on an outpatient basis for covered entity’s patients as defined by HRSA Use for other individuals constitutes prohibited diversion Focus on defining “patient” & “covered entity” What is “covered entity”? Where services are provided Physicians must be employed or under a contractual or other arrangement Entity should maintain a listing of approved 340B physicians Drug diversion in the program is defined as a 340B drug being provided to an individual who is not an eligible outpatient of that entity and/or dispensed in an area of a facility that is not eligible (eg, an inpatient service or a non-covered clinic. We have discussed what constitutes a covered entity. One thing to keep in mind, if a hospital has a location that is outside of the 4 walls and on a reimbursable line of the most recently filed cost report, these locations are required to be registered as a child site. Within the 4 walls means the same physical address In order for a patient to be eligible for 340B in a hospital setting they must: Be an outpatient at the time the drug is administered. Receive the drug in a reimbursable cost center on Worksheet A. Receive the care from an employed or contracted clinician. Have a record at the hospital of the care provided.

11 Medicaid Duplicate discounts
340B laws prohibit application of both 340B price discount on front end and payment of pharmacy rebate to state Medicaid on back end for same drug claim General options for covered entities Carve-out Medicaid - from 340B drug purchases Carve-in Medicaid - requires verifying Medicaid exclusion file is accurate in 340B OPAIS Some states have been slow to establish and communicate Medicaid billing requirements and potential modifiers Transition to Medicaid managed care has created confusion Covered entities should have mechanisms in place to identify Medicaid MCO patients Contract pharmacies should not “Carve-in” Medicaid FFS or MCO Critical to maintain dialogue with state Medicaid agencies Our recommendation is to carve out MCO in addition to FFS if carving out Medicaid. HRSA encourages 340B covered entities to work with their state to develop strategies to prevent duplicate discounts on drugs reimbursed through MCOs.

12 Contract pharmacy HRSA allows providers to enter into arrangements with multiple contract pharmacies to dispense 340B drugs to qualifying patients of providers Covered entity is responsible for compliance and must monitor contract pharmacies HRSA recommends independent audits Child sites, outpatient clinics Retail pharmacy split-billing software Brand vs. generic Do you periodically review your contract pharmacy arrangements? In 2010, there were fewer than 3000 contract pharmacy locations. In 2017, it has been estimated that there are nearly contract pharmacy locations. Wal-Mart and others – Brand only 340B Wal-Green’s – owns their split billing software, Wal-Mart exclusive arrangement with MacroHelix CVS has purchased Well-Partner – required to use Well Partner If qualified as 340B – Revenues to covered entity, covered entity replenishes the drug, covered entity pays pharmacy dispensing fee Brand/Generic Split Billing Transaction fees In order for a patient to be eligible for 340B in a retail pharmacy setting they must: Have received care from the hospital in a reimbursable cost center on Worksheet A. The drug must be related to the care provided by the hospital (responsibility for the care) Receive the care from an employed or contracted clinician. Have a record at the hospital of the care provided.

13 Gpo exclusion The GPO Prohibition pertains to DSH, Pediatric Hospitals and Free-Standing Cancer Hospitals Drug Purchases through GPO contracts cannot be used for outpatients covered by 340B If covered entity is unable to track 340B and GPO use, required to purchase on WAC account All outpatient drugs not purchased on 340B account must be purchased on WAC account If you are one of these covered entities go live on April 1 and don’t have split billing software until May 1, you will most likely need to purchase on WAC account. 340B account – covered OP GPO – IP WAC – highest price

14 Orphan drugs These covered entity types must purchase all orphan drugs at non-340B pricing Critical Access Hospitals Sole Community Hospitals Rural Referral Centers Free-Standing Cancer Hospitals Manufacturers are not required to provide these covered entities orphan drugs under the 340B Program. A manufacturer may, at its sole discretion, offer discounts on orphan drugs to these hospitals. October 14, 2015 – U.S. District Court for District of Columbia ruled on Orphan Drug Interpretation HRSA lacks the authority to allow 340B pricing for orphan drugs used for common indications Last pillar of compliance is orphan drugs. I often get asked, what is an orphan drug. Orphan status is given to drugs and biologics which are defined as those intended for the safe and effective treatment, diagnosis or prevention of rare diseases or disorders that affect less than 200,000 people in the US. CAH, SCH, RRC and Free Standing Cancer Hospitals are subject to the orphan drug exclusion. This means that manufacturers are not required to provide 340B pricing for orphan drugs to these covered entities. They may do so at their sole discretion. For Example, Janssen – REMICADE. Tell why, reduction in revenue due to biosimilars Prior to October 2015, HRSA made an interpretation. Remicade orphan indication – Crohns, used frequently for rheumatoid arthritis With that being said, many orphan drugs are used to treat non-orphan conditions In June of 2017, a bill was introduced in the house which would allow RRCs, SCHs and CAHs to purchase orphan drugs on 340B for non-orphan condition but it has not gained momentum

15 Annual audit of each location will provide covered entities
HRSA audits HRSA believes that covered entities that do not regularly review and audit contract pharmacy operations are at increased risk for compliance issues Annual audit of each location will provide covered entities Regular opportunity to review and reconcile 340B patient eligibility information Prevent diversion Covered entity should compare 340B prescribing records with contract pharmacy’s dispensing records at least on a quarterly basis to prevent Diversion Duplicate discounts Conducting these audits using an independent auditor will test if the pharmacy is following all 340B program requirements and provide the covered entity with ability to timely report any violations if applicable HRSA believes that covered entities that do not regularly complete audits are at a higher risk of diversion and duplicate discounts. They recommend an annual independent audit to prevent compliance issues. These audits will provide timely results in order to prevent long-term issues. For example - Independent audit – 0 findings, Split billing vendor audits – not independent Mega Guidance not finalized but still guidance for covered entities and auditors

16 2017 audit results HRSA has conducted approximately 200 audits annually since 2015 146 publically available for 2017 Audits initially had a collaborative/educational tone but the tone has changed when HRSA began instituting punitive penalties to ensure compliance HRSA’s budget will remain the same for FY 2018 340B program has grown to 22 FTEs in 2017 from 4 FTEs in 2014 HRSA will continue to focus on contract pharmacy arrangements, diversion, duplicate discounts and 340B database records 76 had no adverse findings, 69 led to repayment to manufacturers, 10 led to termination of contract pharmacy, 4 led to termination of covered entity or child sites. Some covered entities had more than 1, termination and repayment The Bizzell Group – contractor Revisiting those locations with findings with 2nd audit.

17 Manufacturer audits Manufacturer Audit Guidelines
May only conduct after showing of “reasonable cause” Manufacturer inquiries to covered entity may help support “reasonable cause” Important for covered entities to respond to manufacturer inquiries, failure to respond could result in audit Details are not publicly available Manufacturer will inquire before requesting an audit. For example, Genentech has been sending requests if notice an issue with carve-in or carve-out. Typically the request is specific regarding a specific drug or drugs and time frame. Our biggest recommendation is to cooperate during all manufacturer requests.

18 Consequences of non-compliance
Repayment of discount to manufacturer Removal from B Program Possible Civil Monetary Penalties for knowing & intentional violations Potentially false claim liability (ripe for qui tam actions?)

19 Legislative Changes 340B Strategy Strategy Compliance Risk Continuum
Understand how these proposed changes may impact your 340B Program Make certain to have up-to-date & robust policies & procedures Form a 340B compliance committee that meets several times a year Include CEO, CFO, CNO, pharmacy, IT, medical records Perform audits & compliance reviews regularly Understand your 340B Program benefits & how those benefits are used by your covered entity Risk Continuum

20 Split billing software
Virtual Inventory Receive discounts based on the drug utilization by covered outpatients Retrospective procurement is used to realize the discounts based on utilization Example vendors: CaptureRx, EAudit Solutions, MacroHelix, PSG, Rx Strategies, Sentry, SunRx, Verity Solutions, Wellpartner Accumulator maintenance Direct vendors Crosswalk

21 Evolution of 340b Audit guidelines established.
Patient definition clarified. Contract pharmacy process established. 340B was started with the Public Health Services Act Federal judge invalidates HRSA’s orphan drug regulation HRSA guidance on contract pharmacies allowing multiple relationships. ACA expands eligibility to include 5 new entities HRSA begins audits and Recertification process established 1992 1996 2010 2012 2014 1994 2000 2011 2013 Guidance on outpatient clinics released by HRSA Medicaid duplicate discount prohibition Carve-in/Carve-out Orphan drug exclusion GPO prohibition guidance HRSA issues final rule on orphan drug exclusion

22 340b current On August 28, 2015, HRSA released 340B Omnibus Guidance (Mega Guidance) On January 30, 2017, the White House Office of Management and Budget withdrew the final Mega Guidance OPPS Final Rule 340B Reduction for Status Indicator K drugs effective January 1, 2018 H.R 4392 introduced to reverse OPPS Final Rule on November 20, AHA files lawsuit to block OPPS Final Rule PAUSE Act introduced on December 21, 2017 in House Energy and Commerce Committee releases Review of the 340B Drug Pricing Program on January 10, 2018 HELP Act introduced on January 17, 2018 in Senate

23 OPPS Final rule CY 2018 On November 1, 2017, CMS released a Final Rule that reduces payment to certain 340B hospitals for separately payable Part B drugs without pass-through status (Status Indicator K) by nearly 30%. Prior to January 1, 2018, these drugs are reimbursed at Average Sales Price + 6%. Effective January 1, 2018, the Final Rule reduces the payment rate to Average Sales Price minus 22.5% The payment reduction will apply to 340B hospitals that are designated by Medicare as DSH, RRC or Urban SCH The payment reduction will not impact 340B hospitals that are designated by Medicare as CAH, Rural SCH, children’s hospital and PPS-exempt cancer hospitals CMS releases FAQs on December 13, 2017 Hospitals that are subject to the reduced payment will be required to use modifier JG for all OP 340B drugs with status indicator K from Addendum B Hospitals that are subject to the reduced payment will be required to use modifier TB for all OP 340B drugs with status indicator G from Addendum B How much will CMS save and what will CMS do with the savings? CMS believes that the reduction in Medicare Part B reimbursement will save it approximately $1.6 billion for calendar year 2018.  But because the mechanism for the change is the OPPS and ASC adjustments, the change must be budget neutral.  CMS states that it will “redistribute” the savings to the covered entities by increasing the conversion factor for non-drug items paid through the OPPS and ASC Payment Systems by 3.2%.

24 OPPS Final RULE CY 2018 Hospital Type (CMS Designation)
Status Indicator G Drugs (Pass-through) Status Indicator K Drugs (Separately Payable) Vaccine (Status Indicator F, L or M) Status Indicator N (Packaged Drug) Not Paid under OPPS Critical Access Hospital TB, Optional N/A TB or JG, Optional Maryland Waiver Hospital Non-Excepted Off-Campus TB Paid under OPPS, Excepted from the 340B Payment Adjustment for 2018 Children's Hospital PPS-Exempt Cancer Hospital Paid under the OPPS, Subject to the 340B Payment Adjustment Rural Sole Community Hospital Disproportionate Share Hospital JG Medicare Dependent Hospital Rural Referral Center Non-Rural Sole Community Hospital This table was pulled from the OPPS 340B FAQ’s released by CMS on December 13, 2017 Source: Medicare-FFS Program Billing 340B Modifiers under the Hospital Outpatient Prospective Payment System (OPPS) Frequently Asked Questions

25 Opps final rule cy 2018 On November 13, 2017, the AHA, AAMC and America’s Essential Hospitals filed a lawsuit against HHS to prevent the payment cuts The district court dismissed the lawsuit on December 29, 2017 on the basis that hospitals have not presented a specific claim for reimbursement that has received the reduced payment On January 9, 2018 the AHA, AAMC and America’s Essential Hospitals formally notified the court of their intent to appeal the decision On November 14, 2017, HR 4392 introduced to prevent the payment cuts. Strong Opposition. Rep David McKinley introduced bill to prevent the cuts. Has lost some momentum but not completely. Will likely be discussed in March. In 2016, MedPac voted in favor of a 10% reduction of Medicare Part B drug reimbursement for 340B drugs.

26 Energy & commerce REview
HRSA should have regulatory authority to administer and oversee 340B Improve program integrity Program requirements Monitor and track use Ensure low-income and uninsured directly benefit from 340B HRSA requires additional resources Independent audit requirements Reduce duplicate discounts paid for under Medicaid managed care HRSA should work toward ensuring that it audits covered entities and manufacturers at the same rate Intent of the 340B program 340B transparency Ceiling prices Disclose annual savings and/or revenue Monitor charity care provided by covered entities Reassess whether DSH is an appropriate measure for program eligibility or base on outpatient population metric HRSA should soon finalize and begin enforcing regulations in each of the three areas in which it currently has regulatory authority, including the 340B Alternative Dispute Resolution process, the imposition of civil monetary penalties against manufacturers that knowingly and intentionally overcharge a covered entity for a 340B drug, and the calculation of ceiling prices. Congress should give HRSA sufficient regulatory authority to administer and oversee the 340B program, including the ability to improve program integrity, clarify program requirements, monitor and track program use, and ensure that low-income and uninsured patients directly benefit from the 340B program. Congress should require certain covered entities to conduct independent audits of program compliance, and should determine what such audits should assess and evaluate. All covered entities should perform independent audits of their contract pharmacies at regular intervals to ensure 340B program compliance. Congress should equip HRSA with more resources and staff to conduct more rigorous oversight and more effective management of the 340B program. Congress (and HHS to the degree possible) should take steps to identify and reduce duplicate discounts for drugs paid for under Medicaid managed care. Congress should evaluate whether the permissible scope of HRSA’s audits should be expanded to cover other features of the program. HRSA should work toward ensuring that it audits covered entities and manufacturers at the same rate. Congress should clarify the intent of the 340B program to ensure that HRSA administers and oversees the 340B program in a way that is consistent with that intent. In doing so, Congress also should evaluate how developments in the health care landscape over the past 25 years have affected, if at all, the structure and goals of the 340B program. Congress (or HRSA where HRSA already has authority to make such changes) should promote transparency in the 340B program, including ensuring that covered entities and other relevant stakeholders have access to ceiling prices and requiring covered entities to disclose information about annual 340B program savings and/or revenue. Congress should establish a mechanism to monitor the level of charity care provided by covered entities. This should include a clear definition of charity care such that the data can be used to fairly compare care provided across entities. Congress should reassess whether DSH is an appropriate measure for program eligibility, or whether a metric based on outpatient population would be more appropriate.

27 340B Pause act Introduced in House in late December with bi-partisan support 2 year moratorium on new DSH covered entities entering 340B 2 year moratorium on new child sites for current DSH covered entities Significant data reporting requirements DSH, Cancer Hospitals and Children’s Hospitals All other covered entities are exempt from new reporting requirements Would begin within 14 months of the enactment of the bill Provides authority for HHS Government official contract OIG and GAO reporting for DSH, Cancer Hospitals and Children’s Hospitals No change to patient definition Does not apply to all covered entity types The Bucshon-Peters bill would stop new disproportionate-share hospitals from enrolling in 340B and halt registration of new child sites for these hospitals. Other provisions include new reporting requirements for DSH, cancer and children's hospitals, and a mandate to make all reported data from these hospitals public. Due to split in Democrats and Republicans, bills will pass House easier, a lot more difficult in Senate

28 Help act Introduced in the Senate on January 17, 2018 by Dr. Bill Cassidy Increase transparency and strengthen reporting requirements to prevent abuse and ensure 340B savings are used to lower drug costs Hold hospitals accountable for passing 340B savings to patients Prohibit new enrollments in 340B for at least 2 years Require the HHS Secretary to issue new reporting requirements for current program covered entities Critical Access Hospitals, Rural Referral Centers, Sole Community Hospitals, Grantees, PPS-exempt Children’s and Cancer Hospitals would be excluded from enrollment restrictions and new reporting requirements In recent years, government watchdogs like the GAO, HHS, OIG and MedPAC have identified transparency concerns and loopholes in the 340B program that enable hospitals to take advantage of Medicare and Medicaid reimbursement rates and divert resources away from the patients the program is intended to help. “The 340B program is an important resource for hospitals serving low-income areas,” said Dr. Cassidy. “But too often the program’s discounts are used to pad hospitals’ bottom lines instead of helping disadvantaged patients afford their treatments. This bill will increase transparency and accountability and help ensure these discounts reach patients.”

29 2018 outlook There is real hostility on the Hill to hospitals using this as a profit center. Broader than OPPS reimbursement reduction New acts could include GAO and OIG. Include MedPac recommendations

30 In Summary Engage in Advocacy Monitor Compliance
Be Ready for the 340B Roller Coaster Ride in 2018 Optimize Savings Track Legislative Changes and Update Strategy

31 Thank you Brian Bell, Director bbell@bkd.com 513.562.5562
Right now, I would like to open it up for questions? Thank you very much for your time today. If you have any additional questions please do not hesitate to come up and talk afterwards or or call me. Thank you! Enjoy the rest of the conference. Thank you


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