Association of Cancer Executives

Transcription

1 Association of Cancer Executives 340B Drug Pricing Program How to Get It and Make the Most of It January 31, 2014

2 ECG Management Consultants, Inc. Our mission is to provide exceptional management consulting services to our healthcare clients. ECG is a national consulting firm focused on offering realistic, implementable solutions to healthcare providers. We are particularly known for our expertise in strategic and business planning, hospital/ physician integration, payor relationships, academic medicine, and service line development. We are a privately held organization that was founded in Our approximately 135 consultants work out of seven offices around the country. ECG s Oncology Practice We have significant experience working with oncology programs, having completed over 220 cancer-related assignments for 120 organizations since Our team includes nationally recognized experts in oncology who hold leadership roles in such organizations as the Association of Community Cancer Centers (ACCC) and the Association of Cancer Executives. We wrote the book on oncology service line planning: Oncology: Strategies for Superior Service Line Performance, published by HealthLeaders Media in December Boston Dallas San Diego San Francisco Seattle St. Louis Washington, D.C. 1

3 Agenda The 340B Drug Pricing Program ( 340B ) is an invaluable program for safety net hospitals. The purpose of this session is to learn how to utilize the 340B program to further a cancer center s clinical and programmatic objectives, as well as to explore partnership models for 340B participation. I. 340B Primer II. Financial Considerations III. Participation Through Partnership IV. Future of 340B and Potential Pitfalls 2

4 I. 340B Primer Overview and History 340B was established by Section 340B of U.S. Public Law , the Veterans Health Care Act of Its purpose is to limit the cost of covered drugs to certain federal and qualified entities. The program requires drug manufacturers to sell outpatient drugs to eligible covered entities (healthcare centers, clinics, hospitals) at significantly reduced prices determined using a statutory formula. Further, 340B is intended to enable covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. The Health Resources and Services Administration (HRSA) 340B Drug Pricing Program & Pharmacy Affairs administers the program. Over 12,000 healthcare facilities have been certified 340B-eligible by the U.S. Department of Health & Human Services (HHS). In January 2010, 340B eligibility was also expanded to include children s hospitals, critical access hospitals (CAHs), freestanding cancer hospitals, rural referral centers (RRCs), and sole community hospital (SCHs). Source: 3

5 I. 340B Primer Eligibility Criteria DSH In the oncology community, most hospitals qualify for 340B based on their DSH status. Requisite DSH percentages vary by type of hospital. Medicare DSH Adjustment Provision The DSH provision was enacted by Section 9105 of COBRA of 1985 and became effective for discharges occurring on or after May 1, The purpose is to identify hospitals that give treatment to a high number of uninsured, underinsured, and Medicaid patients. While the general rule for hospitals is a DSH percentage of at least 11.75%, CAH, RRC, and SCH organizations must have a DSH in excess of 8%. DSH Calculation It is based on overall facility payor mix. The DSH patient percentage is calculated by the following: (Medicare SSI days/total Medicare days) + (Medicaid, non-medicare days/total patient days) 4

6 I. 340B Primer Eligible Drugs and Patients Patients must meet prescribed criteria in order to be eligible to receive 340B medications. Eligible patients are defined as patients who meet all of the following guidelines: Established Relationship The covered entity has established a relationship with the individual, such that the entity maintains records of the individual's healthcare. Responsible for Care The prescription is for a condition for which the individual is currently receiving healthcare services from a healthcare professional. This professional either is employed by the covered entity or provides healthcare under contractual or other arrangements (e.g., referral for consultation), such that responsibility for the care provided remains with the covered entity. More Than a Referral An individual will not be considered a patient of the entity for purposes of 340B if the only healthcare service received by the individual from the covered entity is the dispensing of a drug(s) for subsequent selfadministration or administration in the home setting. It is illegal to sell or provide 340B-priced drugs to persons who are not patients of a covered entity. Currently, vaccines and inpatient drugs are not covered under 340B. 5

7 I. 340B Primer Registration Once it has been determined that the organization is eligible to participate in 340B, it must be formally enrolled, and there are limited 340B registration windows. In order to participate in 340B, eligible organizations/covered entities must register, be enrolled, and strictly comply with all requirements. Covered entities are assigned a 340B identification number that vendors verify before allowing an organization to purchase 340B discounted drugs. New registrations are only accepted during the following time periods, which then determine the effective date for participation in 340B: Registration Date Source: Effective Date January 1 January 15 April 1 April 1 April 15 July 1 July 1 July 15 October 1 October 1 October 15 January 1 For many organizations, meeting the requirements associated with conversion to a hospital outpatient department will determine the implementation timeline. 6

8 I. 340B Primer Potential for 340B Timeline Typically, it takes about 6 to 18 months to begin administering 340B drugs in a new site (generally about 6 months following the end of the cost-report fiscal year). 340B Implementation Process Complete formation of a provider based clinic (provider credentialing, facility renovations, etc.). Submit the provider-based billing (PBB) attestation and 855A form to Medicare, in order to add the new clinic location and begin billing as a provider-based clinic. At the end of the current fiscal year, submit a cost report to CMS, including expenses for the new clinic site. Following submission of the cost report, the hospital may submit an application to HRSA to add a new clinic site during the next quarterly window. After the application is approved, the hospital could begin utilizing 340B medications in the clinic. 7

9 I. 340B Primer Legal Considerations Before enrolling in 340B, it is important to consider all applicable rules and regulations. Stark Law Chemotherapy is considered a designated health service; this designation limits physicians ability to invest in chemotherapy businesses. HOPPS The infusion clinic will be subject to HOPPS (PBB) rules rather than MPFS rules. Presence: Physician presence requirements must be followed. Licensing: Hospital licensing requirements (State Health, The Joint Commission) must be followed. Operation: The clinic must be operated by the hospital. Location: The clinic must be within 35 miles of the hospital s main campus, but does not need to be on the campus. However, requirements vary for offcampus clinics (greater than 250 yards from the primary address of hospital). Billing: Services must be billed by the hospital, and the hospital must buy/provide the drugs. 8

10 I. 340B Primer Provider-Based Definition To further clarify, provider-based and freestanding clinic are Medicare designations that determine Medicare payments to outpatient clinics. Medicare uses the terms provider-based and freestanding to denote who owns and operates ambulatory clinics and how they are billed. Freestanding Clinics Physicians Physicians own and operate the clinic and bill Medicare globally. Provider-Based Clinics Hospital The hospital owns and operates the clinic and bills Medicare. Physicians Physicians practice in the clinic and bill Medicare. Freestanding (also known as physician-based, office-based, non-facility, or Place of Service [POS] 11) refers to a clinic that is owned and operated by physicians and bills Medicare globally. Provider-based (also known as hospital-based, facility, or POS 22) refers to a clinic that is owned and operated by the hospital, and both the hospital and physicians bill Medicare. In order to participate in 340B, an entity must be enrolled as a provider-based clinic. 9

11 I. 340B Primer Provider-Based Status/CMS Requirements Clinical Integration Clinical services of the facility and main hospital are integrated. Professional staff at the facility have clinical privileges at the hospital. The hospital maintains the same monitoring and oversight of the facility as it does for any other department. Medical records for patients treated in the facility are integrated with those of the main hospital. The clinics meet applicable facility requirements under state law. Financial Integration The financial operations of the facility are fully integrated within the hospital s financial system. Income and expenses are shared. Costs arising from the facility are reported in the appropriate cost center of the hospital. Financial status of the facility should be incorporated and readily identified in the hospital s trial balance. Public Awareness The provider-based entity is presented to the public and other payors as part of the main hospital. Patients must be aware that they are entering the provider s facility and will be billed accordingly. This provision will likely require changes to clinic signage and branding. Notification to other payors is also required. These regulations greatly influence the design of potential physician partnership models. 10

12 II. Financial Considerations Drug Pricing Comparison Example On average, 340B participating entities should expect to save at least 29% on drug expenses compared to non-340b average wholesale price (AWP), which is an average of list prices charged by wholesalers to pharmacies. Calculation of Average 340B Brand-Name Drug Savings Non-340B 340B Variance Variance as Percentage of Non-340B AMP 1 $100 $100 $0 0% Adjustment 20% -15.1% AWP $120 $84.90 $ % National Average Markup 2 340B Ceiling Price 1 1 Compared to a drug's average manufacturer price (AMP), covered entities receive a minimum discount of 15.1% for brand-name drugs and 11% for generic and OTC drugs, and they are entitled to an additional discount if the price of the drug has increased faster than the rate of inflation ( 2 The Congressional Budget Office estimates AMP to be approximately 20% less than AWP ( Actual savings vary based on negotiated rates pre- and post-340b, but they typically range from 20% to 40%. 11

13 II. Financial Considerations Potential Programmatic Impact The benefits of 340B can be especially profound for oncology clinics due to the typically high cost and high volume of chemotherapy medications. The impact of providing chemotherapy for one physician s patients is significant. 340B typically yields 20% to 40% savings in drug costs. Medical oncologists typically generate $2.5 million to $3.5 million in drug expenses annually. The reduction in costs, per physician, typically ranges from $500,000 to $1 million per year. With the exception of Medicaid, third-party reimbursement is unaffected by the cost of the drugs; therefore, the cost savings translate directly into enhanced margins. However, some savings may be offset by higher costs incurred in the hospital versus freestanding clinics. 12

14 II. Financial Considerations Benefits to Providers and Service Line A common barrier to 340B implementation is the limited means for sharing drug cost savings with providers. Savings from participation in 340B cannot be passed directly to physicians, as chemotherapy is a designated health service. Therefore, it is common for 340B savings to be used for the following: Improving access to oncology services. Enhancing the oncology service offering (e.g., support services). Funding increases in physician compensation to market-competitive levels.» Any provider compensation arrangement must comply with fair market value (FMV) principles.» The ability to demonstrate financial benefit for the practice will be inversely correlated with current levels of compensation. When 340B savings are used to enhance the overall oncology service line, patients and the broader community are significant beneficiaries. 13

15 II. Financial Considerations Complete Financial Analysis There are numerous financial variables that may change as a result of conversion to PBB status in order to take advantage of 340B. Those highlighted below typically have the most significant variance. Revenue Enhancement Provider-based billing. Hospital managed care contract rates. Change in commercial rates. Cost Savings Drug pricing (340B or hospital GPO). Practice management efficiencies. Other overhead costs (benefits, medical malpractice, etc.). Other Considerations Downstream benefits. Practice growth. Changes in physician production. Changes in physician compensation. Changes in staff compensation. Changes in health plan participation. In addition, the organization must consider one-time expenses, such as facility renovation; IT acquisition; and consulting, legal, and tax advisors. 14

16 III. Participation Through Partnership Alignment Models For organizations that do not qualify for participation in 340B, a variety of partnership models, including both hospital/physician and hospital/hospital alignment, enable access to 340B through an eligible entity. Hospital/Physician Alignment Professional Services Agreement (PSA) Employment Hospital/Hospital Alignment Multi-Hospital Health System Joint Operating Agreement (JOA) In evaluating potential alignment models, it is important for both parties to consider their desired financial, operational, and strategic outcomes. 15

17 III. Participation Through Partnership Hospital/Physician PSA The PSA model preserves much of the physician group s independence while offering a robust alignment structure. Physician Group Hospital Board 2 3 Oncology Service Line Clinical Services PSA 1 Compensation Physician Group 4 JOC Key Features 1. The physician group provides clinical oncology services through a PSA in exchange for a fee. 2. The hospital supports administration activities such as billing, staffing, and IT support. (A variation to this model would include a Management Services Agreement [MSA] with the physician group in addition to the PSA.) 3. The physician group maintains control over clinical coordination, internal compensation distribution, and physician hiring/termination. 4. The JOC would include hospital and medical group representatives (typically 50/50) and would have oversight for the clinic and the contractual relationship between the hospital and physicians. 16

18 III. Participation Through Partnership PSA Key Components Under the PSA model, the physicians would remain independent practitioners and provide services at the hospital. Component Characteristics/Considerations Structure The physicians would continue to be employees of the physician group. Staff could be employed by the hospital or leased to the hospital through an MSA. The clinic must operate as a hospital outpatient clinic (PBB). Funds Flow The hospital bills and collects for all professional and technical services. The hospital funds group compensation and other expenses at the aggregate practice level at a predetermined FMV rate, such as dollars per WRVU. The rate paid to the group would likely also include quality-based incentives and compensation for administrative duties within the practice and the hospital service line. Regulatory When operating as a provider-based clinic, there are additional regulatory requirements that need to be met (e.g., staffing, signage, billing). Any financial incentives must comply with federal and local regulations by not inadvertently creating incentives to reduce patient care or correlating payments to hospital referrals. Management/ Governance The physician group ownership and infrastructure would remain independent and under the control of the physicians. A committee of hospital and physician group members would make key programmatic decisions (e.g., strategic planning, physician recruitment) and administer the PSA. 17

19 III. Participation Through Partnership Hospital/Physician Employment The employment model provides the highest degree of clinical and financial alignment. Payors Hospital Clinical Services 2 Hospital Medical Group 1 Employment Agreement 4 Compensation 3 Physician Key Features 1. A physician is recruited to a medical group or solo practice established by the hospital. 2. The hospital employs the physician full time and handles all administrative functions. Specifically, the hospital performs billing and contracts with payors. 3. The physician is responsible for clinical care. 4. The physician can be employed under a variety of compensation methods: Revenue less expense model. Productivity-based method. Base salary method. Hybrid method. 18

20 III. Participation Through Partnership Employment Key Components Employment offers a more integrated alignment structure than the PSA; however, it will also require more structural changes for all parties. Component Characteristics/Considerations Structure Physicians (and potentially midlevel providers) become hospital employees. Depending on the employment structure, the physician group assets might be purchased by the hospital at FMV levels. Funds Flow The oncologists would be compensated pursuant to individual employment agreements with the hospital, the terms of which would be negotiated. If the hospital has other employed physicians, the compensation structures should be compatible (e.g., include productivity-based and performance incentives). Regulatory If the physicians wish to practice at other community partners, those contracts would need to be carefully structured to ensure that the oncologists could continue to provide regional coverage at these sites and patient access would remain unchanged. Management/ Governance When operating as a provider-based clinic, there are additional regulatory requirements that need to be met (e.g., staffing, signage, billing). The oncology program would be governed through the mechanisms that the hospital already has in place with other employed physicians. 19

21 III. Participation Through Partnership Hospital/Hospital Health System In a multi-hospital health system, the hospital that participates in 340B may operate oncology or infusion clinics across the system. Health System 1 Hospital A Hospital B 3 Oncology Clinic A Oncology Clinic B Key Features 1. Hospital A must be located within 35 miles of Hospital B, per PBB off-campus location regulations. 2. While Hospital A s oncology clinic may remain on the Hospital A campus, it would be enrolled as an outpatient department of Hospital B. 3. Hospital B qualifies for participation in 340B. 4. Clinics A and B would qualify for the reduced drug pricing of 340B. 20

22 III. Participation Through Partnership Health System Key Components For multiple hospitals to align, the simplest option is limited to those that are under a single parent health system and are located within 35 miles of each other. Component Structure Funds Flow Regulatory Management/ Governance Characteristics/Considerations One 340B-eligible entity would enroll all oncology clinics across the system. Due to provider-based clinic regulations for an off-campus site, the operator/provider must be the 340B-qualified hospital. The clinic would be owned/operated by the 340B entity. The health system could use a variety of strategies to credit or transfer funds to the non-340b hospital. Depending on the clinic s configuration and location, there may be a number of steps involved with transferring it from one hospital license to another. Otherwise, there are no new regulatory requirements. A JOC could be established to govern the services covered at all oncology clinics. 21

23 III. Participation Through Partnership Hospital/Hospital JOA The oncology JOA enables two non-system-affiliated hospitals to develop a joint oncology program that leverages 340B at multiple sites of service. Hospital A 1 4 Hospital B Oncology Clinic (Department of B) JOA Oncology Clinic 2 Payors 3 Key Features 1. The funds flow is decided based on the contributions of each hospital (value of the service line and/or capital). 2. Hospital B assumes operation of Hospital A s oncology clinic. The clinic is transferred to Hospital B s license. 3. Hospital B will contract with payors and bill for services provided at both sites. 4. Future net income/loss is reallocated based on each hospital s share in the JOA. 22

24 III. Participation Through Partnership JOA Key Components Component Characteristics/Considerations Structure The model requires transferring the operations of the non-340b hospital's clinic to the partner organization. This model can be structured contractually, without the formation of a NEWCO, reducing legal complexity. It could be transitioned from a contractual relationship to a NEWCO joint venture at any time. Funds Flow Profit is distributed based on the JOA. Financial incentives are aligned: as services grow at either campus, the equity split remains unchanged. However, if additional capital contributions are necessary, the arrangement might be better served by establishing a NEWCO. Regulatory Depending on configuration and location of the clinic, there may be a number of steps involved with transferring the clinic from one hospital license to another. Otherwise, there are no new regulatory requirements. Management/ Governance This model creates significant financial integration and allows both organizations to collaborate clinically without disrupting current services. A JOC would be established to govern the services covered within the JOA. Economic integration and shared governance facilitate enhanced clinical coordination of the program. 23

25 IV. Future of 340B and Potential Pitfalls Audit Report Findings 340B participants are subject to audit. A review of a recent HRSA audit report revealed a few common pitfalls, providing the following lessons learned: Eligibility Make certain the 340B medications are given to eligible patients only. Confirm prescriptions are written by an eligible provider. Record Keeping Keep accurate and up-to-date records, including the authorizing official and primary office location and contact information. Registration Notify the OPA of any changes, such as contracts with pharmacies and changes in outpatient facility operations (i.e., closures), through the registration process. Billing Perform appropriate billing (e.g., avoid duplicate discounts). Failure to comply may result in removal from the program or in refunds to drug manufacturers. 24

26 IV. Future of 340B and Potential Pitfalls The Outlook for 340B Interviews To gain a better understanding of the future outlook for 340B, ECG contacted two Washington, D.C., policy experts regarding conversations that are occurring at the federal level. Individual Position Background Ms. Melinda Hatton Ms. Jennifer Bell Senior Vice President and General Counsel, American Hospital Association (AHA) Co-Founder, Chamber Hill Strategies (Washington Lobbying Firm) Ms. Hatton provides leadership on all legal and advocacy matters for the AHA. She supervises all advocacy-related litigation, including administrative and class-action litigation. She also directly oversees the AHA s work on tax exemption, medical privacy, antitrust, fraud and abuse, and other related regulatory matters and congressional investigations. Prior to joining the AHA, Ms. Hatton was a partner at the law firm of Hogan & Hartson. She also served as antitrust counsel to the Senate Judiciary Committee s Antitrust Subcommittee. Ms. Bell lobbies for healthcare issues for a variety of public- and privatesector clients. Prior to her lobbying career, Ms. Bell served as a health policy advisor for Sen. Charles Grassley (R-IA) on the Senate Finance Committee, where she developed and managed legislative initiatives regarding Medicare fee-for-service programs, including passage and implementation of the Medicare Modernization Act of She also has extensive experience in working in the House of Representatives and the Senate Committee on Health, Education, Labor, and Pensions (HELP). 25

27 IV. Future of 340B and Potential Pitfalls Overall Outlook for 340B Based on our conversations, it appears that 340B remains a widely popular program among key stakeholders and most lawmakers. From a regulatory perspective, efforts are focused on improving transparency of the program, ensuring compliance, and potentially expanding the scope. Broad Support The program enjoys a broad constituency of supporters, including hospitals, medical groups, and advocates for the poor and elderly. The reelection of President Barack Obama and the strong Democratic showing in the Senate elections are seen as positive developments from the perspective of program advocates. Cuts Unlikely The discussions about Medicare/Medicaid reimbursement reductions are not likely to affect 340B, according to the experts we consulted, as the program generates savings entirely at the expense of pharmaceutical companies. Pharmaceutical Industry The only significant opposition to the program arises from the pharmaceutical industry. According to Ms. Bell, this industry does not currently enjoy high levels of support from leaders in Congress. Simplification The main critique of the program, according to the interviewees, is its complexity and organization. Likely future changes include streamlining and expansion. Slow to Change Further, our interviewees emphasized that the elimination of the program (if this were to occur) would likely require years of debate. Major changes to programs such as 340B usually require many years to take effect. 26

28 Matthew R. Sturm ECG Management Consultants, Inc