Change of Entity Type from Rural Hospital to DSH (April 2022)

By: Jennifer Hagen

Is your hospital considering a change in entity type from Rural to DSH? Here are a few things to consider.

  • The First thing your C-Suite will want to know is that this change of status will be for 340B purposes only and will NOT change the classification of the hospital or the ability to bill as a sole community or rural referral hospital.  Hospital 340B entity type eligibility is based on the DSH percentage and ownership classification only.
  • Double check that your MOU or contract with the state or local government has the appropriate entity type listed. If not seek an amendment.
  • Review your contract pharmacy service agreements to make sure the correct entity type is listed, if not seek an amendment.
  • The ability to carve in.  If unable to carve in, consider the percentage of outpatient Medicaid orders that would need to be purchased as WAC.  If significant, this may be a reason not to make the change, although generally being able to buy orphan drugs as a DSH should make up the difference.
  • If carving in, the plan for modifier and pricing addition, if required, must be planned for.
  • Consider the number of outpatient infusions and the current status of orphan drug exclusion and how many manufacturers are offering ‘340B like’ pricing. One can estimate that the savings of an entity associated with an infusion center might double as a DSH entity.
  • What will happen to patient definition?  Are your infusion orders coming from a majority of providers that work in areas that are on the MCR?  Does your hospital rely on referral relationships or health care professional stance? For now, patient definition allows for both factors.
  • Split billing software – Implementation for TPAs is generally taking 3-6 months, allow for sufficient time. Ensure the QA process is complete prior to go live date and that staff have been educated on all aspects of the triple split billing process.
  • When considering a change remember that GPO exclusion violations can lead to removal from the 340B program.
  • Bundling practices at organization.  See Apexus FAQ 1355 GPO prohibition and bundled drugs.
  • NCOD list (A significant bulk of time will be dedicated to the creation of this list. Each organization will have a unique list.)  Work with the split biller to set filters so items are not ordered on the 340B or WAC account. Reference: Section 1927 of the Social Security Laws, Limiting Definition of “Covered Drug”. Update your policy with NCOD exclusion language.
  • Allow for ample time for wholesaler to set up new accounts and make sure loaded correctly to split biller and then set to split correctly.  There will be various different bill to ship to accounts that need to be mapped correctly by the split biller. Determine if accounts need to be changed for Contract Pharmacies.  Entity owned retail pharmacies will need to have 340B and WAC accounts.
  • Remember to notify the hospital business office of account changes as to avoid a delay in ACH payments and associated discounts or an inability to reconcile invoices.
  • Update the prime vendor account and ensure new contracts are loaded.  If you have several child sites you will need to submit information for each one. Then make sure to follow up with wholesaler that the contracts are loaded prior to going live.
  • Educate staff on the change – Pharmacy Staff will need to be aware of the importance of ordering under the correct account to avoid a GPO exclusion violation. Educate materials management and supply chain staff on GPO violation risk and the need to notify pharmacy of all drugs that are being purchased so they can be properly excluded in the TPA software and managed by materials/supply chain exclusively.
  • Nova Plus or private label items – research what your wholesaler can do to give you ‘private label like’ pricing on items and if the auto sub feature at the wholesale level should be turned off.  This could help prevent private label items from being purchased as 340B and so that the best price items are available for inpatients even if the best price given is not private label.
  • Buy up accumulations prior to software change.
  • Expect the first two to three months of savings to be low as first package items are purchased at WAC.
  • Direct purchase accounts – all direct purchases will need to have a 340B, GPO, and WAC account or some documentation that the pricing available is non GPO or that GPO like pricing is all that is available.
  • Pharmedium-503B compounding companies do not provide covered outpatient meds and therefore GPO purchases are allowed
  • Lead time with data analyst – in case your entity has a special set up to provide data that is pre-filtered based on entity type.  For example, do you pre-filter Medicaid or eligible locations.  Are these accurate?
  • Review the Apexus minimize WAC exposure tool.
  • The ability to have auditable records at a 340B clean site or the ability to match all dispensations against purchases, this is essential as there have been recent findings that are resulting in removal from the program. During the change it might be a good time to consider utilizing TPA software to facilitate clean site auditable records and inventory reconciliation.
  • Borrow/lend policy that is followed as the change to DSH makes this even more important to avoid GPO violations. SpendMend Pharmacy has robust borrow and loan tool or Apexus has guidance on this as well, with a tool available specifically for those who have completed 340B ACE.
  • Accumulations: If you choose to deem current inventory as neutral when making the switch so you don’t always have to have a WAC first purchase you will need to prove the first purchase was at the time the hospital was not subject to GPO. This means that you may need to keep records past the 3 year recommended record keeping time frame. Before considering this option, are your accumulations in line or does it make most sense to begin with a clean slate rather than carry over.
  • Consider a physical inventory prior to the switch.
  • Plan post metrics reporting to determine savings associated with the change.

SpendMend Pharmacy has a team of staff dedicated to assisting covered entities in making this type of  change. With robust project management and experience in helping others we can guide you through this process and minimize pain points.  Please reach out if you are interested in learning more about our optimization and growth services or if you would like help transitioning your entity type.