March 2019

Polsinelli’s 340B and Reimbursement teams continue to closely monitor several key developments impacting 340B covered entities. There has been a flurry of federal and state developments in the past few weeks that may have significant implications on covered entities. 

Below is a brief recap of recent developments along with practical next steps that covered entity leaders need to quickly consider given the potential economic and policy implications of the issues described below.

HHS Prolongs Medicare Reimbursement Cuts for 340B Drugs by Filing Appeal 
The Medicare / 340B payment reduction saga continues as the U.S. Department of Health and Human Services (“HHS”) filed a notice of appeal of a recent decision by the D.C. District Court to enjoin enforcement of CMS’s nearly 30% payment cut to Part B payments for 340B drugs. HHS filed its notice of appeal on February 22, 2019 and sent a clear signal that the Administration intends to defend its actions that are estimated to save the Medicare program roughly $1.6 billion.  

In its 2018 OPPS Final Rule, HHS reduced reimbursement for such drugs from Average Sales Price (“ASP”) plus 6%, to ASP minus 22.5% in 2018, resulting in a nearly 30% reduction in reimbursement. Following challenges from a group of hospital associations and nonprofit hospitals, District of Columbia District Court Judge Rudolph Contreras held that the Secretary of HHS had overstepped his authority when he made such a significant change to reimbursement in light of the clear statutory mandate to reimburse covered entities at ASP plus 6% absent availability of acquisition cost survey data. Although this was a significant win for 340B covered entities, Judge Contreras stopped short of vacating the 2018 rule due to the potential for widespread disruption to Medicare’s Part B payment system. Instead, Judge Contreras ordered that the parties submit supplemental briefs for consideration of appropriate remedies. The plaintiffs also filed a motion in early February of 2019 seeking to permanently enjoin the 2019 OPPS rule that extended the 340B payment reductions. 

With litigation ongoing, covered entities are essentially left in limbo. It is critical that all impacted covered entities preserve their rights relative to underpaid claims for 340B drugs by appealing such claims with to the relevant Medicare Administrative Contractor (“MAC”).  This case may take years to make its way through the judicial system, so covered entities need to consider the relatively low expense to preserve their rights versus the significant lost opportunity by taking a wait-and-see approach. As a reminder, the payment reductions at issue apply to very high cost, separately payable drugs, such as oncology products.

Key takeaways:

  • Applicable covered entities should continue to report the JG modifier for all separately payable, status indicator K drugs.
  • Covered entities should develop an appeal strategy for all underpaid 2018 and 2019 Part B claims for separately payable 340B drugs.
  • Covered entities need to be aware that claim appeals are subject to timely filing requirements (i.e., claims paid more than 120 days ago may require a separate filing).

HRSA Enhances Scrutiny of 340B Eligibility Documentation

The Health Resources & Services Administration (“HRSA”) recently announced that as of April 1, 2019, it will begin conducting additional program integrity reviews of covered entity eligibility under the 340B Program and may require additional supporting documentation of hospital classification upon registration. HRSA has historically relied on covered entities self-policing and, more recently, random audits to validate compliance with the hospital classification requirements. HRSA’s April 1, 2019 announcement reflects its intent to more proactively test compliance on a much wider scale. Typically, HRSA’s “program integrity reviews” equate to desk audits with very short deadlines.

In order to be eligible to participate in the 340B Program, a hospital-type covered entity must meet the criteria for one of three classifications based on the hospital’s relationship with State or local government:

  1. Owned or operated by a unit of State or local government; or

  2. A public or private non-profit corporation formally granted governmental powers by a unit of State or local government; or

  3. A private non-profit hospital which has a contract with a State or local government to provide health care services to low income individuals who are not entitled to benefits under Medicare or Medicaid.

HRSA requires all covered entities to maintain the necessary documentation verifying that they meet all statutorily required eligibility criteria. Significantly, HRSA’s recent update provides more detail on the type of documentation that would satisfy the above requirements.

For example, the contract to provide services to low income individuals not entitled to Medicare or Medicaid needs to include the names of the hospital and the government agency, signatures of those representatives and dates clearly indicating the effective dates of the contract. The updated guidance also delves deeper into the formal grant of governmental powers and what constitutes a governmental power for the purposes of satisfying that eligibility requirement.

Key takeaways:

  • Covered entities must be prepared to provide HRSA with auditable eligibility documentation upon registration or request and do so under short timelines or face termination from the 340B program.
  • Private, nonprofit hospitals in the third classification should be prepared to produce their compliant contract with a state or local government agency and failure to produce a compliant contract will result in immediate termination.
  • Given HRSA’s recent announcement that it will be conducting additional audits in this space, providers should review relevant internal documents and ensure a process is in place for readily producing all requested information.
  • Providers should also review HRSA’s recent policy statement and updated registration instructions in order to familiarize themselves with current HRSA priorities and registration requirements. 

California Governor’s Medicaid Drug Pricing Executive Order Could Have Significant 340B Implications

On January 7, 2019, Governor of California Gavin Newsom signed an executive order to carve out prescription drug benefits from Medi-Cal managed care plans. 

The executive order requires the California Department of Health Care Services to transition all pharmacy benefits for the State’s Medicaid managed care plans to a fee-for-service (“FFS”) plan by January 2021. Aimed at curbing the State’s spending on prescription drugs, the Governor’s executive order would significantly reduce covered entity savings by applying Medi-Cal’s actual acquisition cost payment scheme to 340B drugs that were historically reimbursed under Medi-Cal managed care plans.

California’s Medicaid program, dubbed Medi-Cal, currently provides prescription drug coverage directly to beneficiaries on a FFS basis, however, managed care organizations (“MCOs”) provide prescription drug coverage for those beneficiaries enrolled in managed care. Medi-Cal FFS reimburses 340B drugs on an actual cost basis, essentially negating any net financial benefit for covered entities.  In contrast, MCOs typically operate like traditional commercial health insurance plans, negotiating rates for 340B drugs with covered entities. 

Key takeaways:

  • Covered entities that treat Medi-Cal patients should continue to monitor this development and consider advocacy strategies.
  • While this change could cause serious financial consequences for covered entities in California, all 340B providers should remain cognizant of state initiatives regarding prescription drug spending and the potential for impacts on the 340B Program.