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.

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.

HRSA Authority, Contract Pharmacies, Manufacturers and Covered Entities: The History of How We Got Here

In order to fully understand how we have gotten to the day when manufacturers are limiting contract pharmacy distribution of 340B drug; we need to understand the history– so let’s take a step back in time. In 1992, Congress created the 340B Drug Pricing Program to protect safety-net hospitals from paying for escalating drug prices by creating a process by which they could purchase outpatient drugs at a discount. The creation of the 340B Program was in response to the 1990 Medicaid drug rebate program (MDRP) created by Congress to lower the costs of pharmaceuticals that were reimbursed by the state Medicaid agencies. Manufacturers were asked to sign a pharmaceutical pricing agreement (PPA), with the HHS Secretary in exchange for having their drugs covered by Medicaid and Medicare Part B.  As part of the PPA, manufacturers agreed to provide up-front purchasing discounts on covered outpatient drugs to safety-net hospitals (covered entities) that serve the most vulnerable patients allowing them to take the savings to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”  The original intent of the 340B program is important to remember.

Congress appointed the department of Health and Human Services (HHS) and the Health Resources & Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA) oversight of the 340B Program. The statute creating the 340B Program is only eight pages long in the 340B Public Health Service Act. This seems extremely brief given the complexity and compliance nuances associated with running a program. By definition, a statute is a written law passed by a legislative body, in this case, Congress, that provides authority and legal basis. At a high level, this statute only addresses twelve components of the program which was intentional by design. These include:

  1. Requirement for 340B participating manufacturers to offer a 340B price
  2. Calculating instruction for determining the 340B price
  3. Listing of eligible covered entities
    1. GPO Prohibition falls under this section as a condition of eligibility for certain hospitals
  4. Prohibition of diversion and duplicate discounts (The compliance foundation for covered entities)
  5. Requirement that covered entities must permit manufacturer and government audits
  6. Covered Entity potential liability to manufacturers for repayment if in violation of compliance
  7. Recertification of eligibility and compliance outline
  8. Requirement for the prime vendor program
  9. Requirement for HRSA to notify manufacturers when covered entities lose eligibility
  10. Mandates for improvement in program integrity
    1. Pricing, overcharges, recertification, database updates and monetary penalties
    1. Gives HRSA the ability to issue regulations in certain areas
  11. Dispute Resolution Process outline
    1. HRSA has the ability to issue regulations in this area
  12. Orphan Drug Exclusion

In reading the list, one should have noticed that language related to contract pharmacy is missing. There is NO requirements in 340B statute for covered entities to purchase drugs directly from the manufacturer or to dispense drugs themselves. In 1992, to participate in the 340B Program eligible covered entities needed to have an in-house retail pharmacy. Contract pharmacy arrangements originated from a Notice issued by HRSA in 1996 entitled “Notice Regarding Section 602 of the Veteran Health Care Act of 10992: Contract Pharmacy Services, “which permitted a covered entity to use a single point for pharmacy services, through an entity-owned pharmacy or a single contract pharmacy. After several years during which HRSA tested the use of covered entities utilization of multiple contract pharmacies, HRSA expanded the scope of the services officially allowing covered entities the option to register multiple contract pharmacies. In 2010, guidance entitled, “Notice Regarding 340B Drug Pricing Program- Contract Pharmacy Services, “replaced the initial 1996 policy. As stated in the Federal Registry the purpose of the Final Notice “is to inform interested parties of the final guidelines regarding the utilization of multiple contract pharmacies and suggested contract pharmacy provisions.” In addition, this guidance provided comprehensive guidelines to govern the operations and compliance of contract pharmacy arrangements for 340B covered entities and their contract pharmacies including the key message that covered entities are responsible for ensuring compliance with all 340B Program requirements when it comes to contract pharmacy arrangements to include diversion prevention, duplicate discount prevention and maintenance of auditable records. According to the guidelines, “A single covered entity that has more than one 340B eligible site at which it provides health care may have an individual contract for each such site or include multiple sites within a single contract pharmacy.” The pharmacy location included in the contract must be listed by name and address. In addition, the contract must be finalized and signed prior to registering the contract pharmacy with HRSA. Lastly, the contract pharmacy must be listed on OPAIS as active to use 340B drug. The guidance includes the 12 essential elements that are recommended to be addressed within all contract pharmacy arrangements to include maintaining title to the drug (ship to, bill to arrangement), comprehensive pharmacy services, freedom of choice for the patient to choose a pharmacy, optional additional services such as delivery services, compliance with federal, state and local requirements, customary business practices, a tracking system that established compliance with diversion and duplicate discounts, auditable records, and compliance with internal and external audits. And there it is, the guidance for multiple contract pharmacies as published in the Federal Register.

In 2014, HRSA provided a program update that emphasized the information in the 2010 guidance to include a reminder for covered entities to conduct independent annual audits, establish oversight, maintain an accurate OPAIS record, develop written policies, and restated the instruction for carve-out Medicaid at contract pharmacies unless arrangements with the state agency have been made and reported to HRSA. In 2015, HRSA released another program update related to processes around a change in contract pharmacy ownership. So, what happened in 2020 when manufacturers started limiting the distribution of drug to contract pharmacies?

Transparency to pharmaceutical manufacturers of how 340B savings are being used has been deemed lacking, however, the reporting of how savings are being used has never been officially required as part of the program. In addition, the number of contract pharmacies registered by covered entities has soared since 2010, resulting in concerns by manufacturers, in addition to providing exorbitant low costs drugs, that they also are providing duplicate discounts in the form of upfront discounted pricing to 340B covered entities and also a backend rebate to state Medicaid agencies. There are also concerns over the lack of oversight with multiple contract pharmacies. Adding to this atmosphere, are the misconceptions floating in the media about how covered entities are not passing the savings of the discounted prices of the drugs on to patients.  May I remind those, that is NOT the intent of the program as was developed by Congress.

The Trump administration just prior to leaving office issued numerous Executive Orders seeking to curb high drug prices. One such Executive Order was filed on October 2019 entitled, “Promoting the Rule of the Law Through Improved Agency Guidance Documents.”  This aimed to prohibit federal administrative agencies from issuing binding rules through guidance documents. Which may have played a role in the new pricing trend by manufacturers in that the savvy lawyers representing the pharmaceutical companies realized that contract pharmacy language was in guidance, not statute. Biden reinstated the original guidance policy which includes that drug manufacturers are violating the 340B statute by restricting covered entity access to 340B discounts for drugs dispensed in the contract pharmacy setting. HRSA is cautious to move forward with the support from the Biden administration due to the number of lawsuits, litigation, and their previously voiced opinion that they lack regulatory authority. So here we are today, in the midst of a national pandemic trying to care for patients while dealing with staffing issues, how to get paid for the care provided, and limited distribution of life-saving drugs from fourteen profitable manufacturers who have chosen to restrict the distribution of entity owned drug to contract pharmacies.

Now more than ever, your advocating voices are important to ensure HRSA is given administrative authority to enforce 340B Program compliance and access. Let your voice be heard.

References: February 14, 2022: 340B Winter Coalition 2022 – Congratulations on 30 Years! Continue to Share Your Story By: Jennifer Hagen

340B Winter Coalition 2022 – Congratulations on 30 Years! Continue to Share Your Story

For the first time in two years, an opportunity to attend the 340B Winter Coalition in person brought out a record number of attendees while also allowing virtual attendance as an option. 340B Health unveiled the new logo representing the 30-year evolution of covered entities ensuring access to patient care. Maureen Testoni, 340B Health President and CEO, explained during the welcome address that, “conference sessions provide the most important intelligence needed to operate compliant, effective 340B programs. Attendees share innovative approaches to using resources to expand care access and improve patient health outcomes. The event provides valuable opportunities to meet with peers during stakeholder breakout sessions, at networking receptions, and in the exhibit hall.” There was no greater evidence of this, than when hearing the amazing testimonial of a Consolidated Health Center while at dinner. We learned that an outstanding team of 340B providers from Colorado, in addition to meeting the health care needs of their patients, have also been able to set up food vouchers for quality fresh produce and meat for those in need. They are also in the process of building affordable housing with the clinic as the epicenter to promote and sustain population health initiatives. Now that is an amazing use of savings! These are the conversations that need to be shared to ensure the continued vitality of the program. The knowledge shared at the coalition is why Turnkey, now SpendMend Pharmacy, chooses to send a small contingent of staff to participate, even during these times of risk. Key takeaways from the conference are outlined below.


  1. Contract Pharmacy Limitations
    1. Six companies have been referred to OIG for fines by HRSA
      1. Three courts are hearing appeals
        1. Two sided with HRSA and one sided with the manufacturer
    1. There are now thirteen manufacturers restricting pricing
      1. Shout out to the numerous (>700) manufacturers still keeping their promise
    1. The reduction of Contract Pharmacy benefit has caused worsening harm for CAHs by 39% and 23% for DSH/RRC/SCH
    1. A reminder that sharing claims data has a negative impact downstream regarding PBMs and rebates.
      1. 340B Health suggests restructuring of commercial rebates is a better plan
      1. What can CEs do? Open In-house retail pharmacies; Ship drug to CE for delivery to its contract pharmacies (cautions apply); Apply for an exception – designation of pharmacies under common ownership.
    1. 340B ESP Considerations:
      1. Manufacturers want to avoid paying commercial rebates to pharmacy benefit managers (PBMs) and payers on 340B drugs.
      1. Could undermine congress’s intent for how 340B should operate.
      1. Risk of reduced payment for 340B claims by PBMs/insurers.
      1. Risk of exclusion from provider networks.
      1. CE Call to Action:
        1. Report overcharges to HRSA
        1. Ask lawmakers to co-sponsor the PROTECT 340B ACT
      1. 340B Health Stance – Do not share data with ESP as The Berkely Research Group has historically not been a neutral party with collected data.
  2. Federal and State Payer Developments and Trends
  3. Fourteen states have enacted anti-discrimination laws, others considering, so half could have laws this year.
  4. The Rutledge Supreme Court decision supports State efforts to protect CEs from lower reimbursement terms for Employee retirement income security act (ERISA) plans, but is silent on Medicare Part D.
  5. Medicare Part D preempts State’s from creating laws. Some payers argue the applicability of anti-discrimination laws to Medicare Part D plans, making State laws ineffective.
  6. There are no Federal Laws to Protect 340B – Over the decade, PBMs and Health Insurers have increased their discriminatory practices against covered entities impacting reimbursement.
  7. Protect 340B ACT – Will prevent insurers and PBMs from engaging in discriminatory contracting practices at the federal level (pickpocketing) – Major call to support this act. Share your Story!
  8. 340B DSH Eligibility Bipartisan bills introduced in the Senate and House to protect hospitals from losing 340B eligibility due to the pandemic
    1. S. 773 and H.R. 3203
    1. HHS thus far has not felt like they could take action with waivers.
  9. White House Budget Proposal FY 22 issued May 21
    1. Two requests for changes to 340B statute:
      1. Permit HHS to issue regulations on all aspects of the 340B program
      1. Permit HHS to audit covered entities to “determine how net income from purchases under this section are used by the covered entity”
  10. FQHCS are a major factor that have contributed to the growth of the 340B program with over 28 million patients served.
  11. Grantees topped the number of attendees at 32% followed by hospitals at 25%. For the first time, Grantees outnumbered hospitals at 340B University representing over 50% of attendees.

As stated by multiple presenters during the 340B Coalition, now is the time to advocate and here are some tips:

  • Stay informed
  • Monitor your state for legislative and regulatory activity that could impact 340B
  • Update your organization’s state government relations team and state provider associations of these issues, so they are aware and can monitor for activity too
  • Have state and federal advocacy plans
  • Complete your 340B Impact Profile and share the importance of the 340B program to your organization and patients
  • Engage state officials and educate them about the 340B program
  • Advocate for policies that make the 340B program stronger and against policies that undermine 340B

Let’s continue to spread the word about how important this program is for the patients you serve.  I can only imagine what we can do in the next 30 years! If you have a story you would like to share, please let us know and we will highlight it in our newsletter.  SpendMend Pharmacy loves hearing the exciting and creative ways our clients are using their 340B savings. Please Share!

Don’t Forget Referral Capture Strategies

Written By: Rich Bucher

While implementing a referral capture strategy can potentially lead to significant 340B savings for your 340B covered entity (CE), it is important to remember that you, the CE, remain responsible for ensuring full compliance. Managing a fully compliant and cost-effective referral process will require diligence and resources, despite what some third-party vendors or others may tell you. The old proverb “You don’t get something for nothing” applies here. For this reason, it is important for you to first take steps to estimate the potential benefit that implementing such a strategy will provide and then compare the estimated benefit to the cost/resources that it will take to maintain full compliance (cost/risk vs. benefit analysis). For the potential benefit, the reality is every CE is unique with respect to its particular mix of prescribers, types of clinics and healthcare services, drugs prescribed to its patients, and retail pharmacies where prescriptions are filled. All these factors will influence the cost to you that will offset the 340B savings benefit you receive.

Don’t rely on data that is not specific to your CE or that is not comprehensive. When reviewing filled prescription data, work with your third-party administrator (TPA) vendor(s) to determine which prescriptions are accessible for review since those that were not qualified (but potentially could be) is key. In addition to prescription data and operational costs, it is important to also account for the specific expenses associated with internal oversight and auditing.

While third-party referral capture vendors can play an important part as partners to CEs in their referral capture processes, there is simply no substitute for the CE itself proactively maintaining responsibility for compliance and financial oversight. Each CE must maintain a clear understanding of each step in the process and the specific role that its vendor(s) play. Miscommunication with vendors about responsibilities or complacency with respect to internally confirming ongoing compliance and operational efficiency can lead to disastrous results.

Have you already implemented a referral capture process or are you considering it? Do you want a 340B partner with extensive 340B experience and expertise that you can trust? SpendMend Pharmacy’s Referral Capture program focuses first and foremost on full compliance, while also optimizing the 340B savings available to you. Learn more at: