Managing Procurement for Ineligible Locations

By Chelsea Violette and Rich Bucher

A question we’ve received a number of times, in a few different ways is how to manage drug inventory across multiple locations, when you have a mix of 340B eligible and ineligible locations you need to provide drugs to but are subject to the Group Purchasing Organization (GPO) Prohibition and are trying to minimize the impact that “bad WAC” (wholesale acquisition cost) has on your overall drug budget. Unfortunately, like so many areas of the 340B Program, there is no single right answer or a one-size-fits all solution. While we don’t have a magic wand to make this frustrating scenario disappear, we’ve tried to consolidate the considerations you may need to take into account while determining what the best solution for your program is and are happy to help you navigate the nuances of processes within your own organization.

If you’ve gotten this far and feel completely lost, there is a good chance that your organization is not subject to the GPO Prohibition. To summarize, there are three types of 340B covered entity (CE) hospitals that are not permitted to purchase covered outpatient drugs on a GPO or GPO-like account. This means that in addition to accumulating 340B eligible administrations to bolster future purchases on a 340B account, disproportionate share hospitals (DSH), children’s hospitals (PED), and free-standing cancer hospitals (CAN), must accumulate GPO eligible inpatient administrations to bolster future purchases on a GPO account. Any inventory needs that cannot be supported by accumulations available on the 340B and GPO accounts must be made on the WAC account, which is typically a higher cost.

Now that we’re up to speed on the background, the problem at hand is when one of these types of CEs has an offsite outpatient clinic that does not qualify as a 340B eligible location (e.g., is not listed on the CE’s most recently filed Medicare cost report (MCR), and will not be on the next filed MCR, between Lines 50-118 with outpatient expenses and revenue), that has requested the CE supply the drug inventory for in-clinic administration. While sourcing these products from the hospital’s main inventory would streamline system procurement processes and inventory management, the administration of drugs in this clinic would not result in either 340B (ineligible location) or GPO (outpatient) eligible accumulations, and thus result in an increase of WAC purchases and associated costs. While a CE may not permissibly obtain covered outpatient drugs through a GPO or GPO-like account, there are a few strategies CEs may consider to support both operational and financial interests.

  • Non-340B/GPO: Purchase the requested drugs through a non-340B, non-GPO (e.g., WAC) purchasing account and provide them to the clinic.
    • Clinic’s Own Account: Inform the clinic that the CE’s buyer(s) can assist the clinic in purchasing its own drugs on a drug purchasing account that belongs to the clinic and not to the CE. In this way, the CE is not obtaining the drugs but rather helping the clinic to obtain its own drugs.
    • For example, the CE’s Pharmacy buyer may receive requisitions from the clinic and then provide the Clinic assistance by ordering the requested drug(s) for the clinic on the clinic’s own account (that may be a GPO account). The drugs may be shipped to the clinic first, or to the CE first. If they are shipped to the CE first, the CE must be sure not to intermingle any of the clinic’s drugs purchased on the clinic’s account with any of the CE’s own drug inventory and keep auditable records of each purchase and delivery.
  • First: To meet this exception, the clinic must first be an “off-site outpatient facility” of the CE. Some CEs have determined that since the Clinic is an outpatient clinic listed on the CE’s MCR (even outside of Lines 50-118) and/or a medical group clinic commonly owned by an entity that owns the CE, it can be reasonably defended as an “off-site outpatient facility of the hospital”.
    • Next: If the Clinic is an off-site outpatient facility of the CE, confirm that the remaining  4 criteria for the exception set forth in the HRSA 2013 Guidance can be met: is available for further consultation if necessary.
      • NCOD: In some circumstances, a requested drug may be a drug that is defined by the CE as not being a “covered outpatient drug” under Section 1927(k) of the Social Security Act (SSA). In other words, the CE may already define/interpret a drug requested by the Clinic as a non-covered outpatient drug (NCOD). In such circumstances, some CEs have determined that since they are not prohibited from obtaining an NCOD under a GPO or other group purchasing arrangement, they can compliantly purchase the NCOD for the Clinic on the CE’s own GPO account. While this may be a compliant approach, it should be taken with extreme caution since the CE may be required to defend its definition/interpretation to demonstrate it is consistently followed. We recommend working closely with the CE’s compliance/legal to confirm that all these criteria are satisfied. SpendMend Pharmacy (Turnkey) is available for further consultation if necessary.