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340B: When a Drug is not "A Drug"

As a teaser: This blog will explain when and where you can use GPO in place of WAC for outpatients, and remain `100% compliant with 340B rules and regulations.

Please note that this information in this blog pertains to Covered Entities subject to the GPO prohibition. Although it may prove interesting to others, the information does not specifically apply.

340B Drug Definition

Exactly what is a 340B ‘Drug’?  Here is the HRSA definition: 

1.       Means a covered outpatient drug (as defined in section 1927(k)(2) OF the Social Security Act; and

2.       Includes, notwithstanding paragraph (3)(A) of section 1927(k) of such Act, a drug used in connection with an inpatient or outpatient service provided by a hospital described in subparagraph (L), (M), (N) or (O) or subsection (a)(4) that is enrolled to participate in the drug discount program under this section.

Wow: that clears it up. This definition smacks of legalese.   Section 1927(k)(2) of the Social Security Act (click on the name to visit the internet page) defines those drugs CMS pays for. 

Long story short, it requires a manufacturer to have a rebate agreement in place before CMS will pay for their drug.  You can find the updated list at this[LINK]. You can download the CSV file for excel, but note CMS updates this quarterly, so it may be more prudent to bookmark the page and refer to it when needed.

IF the CMS list does not include a drug, HRSA does not consider it a ‘Drug’ for 340B purposes, and will not audit it. You can buy the drug from any Wholesaler account you like, 340B, GPO or WAC.  You can check on any drug you like to see if it qualifies.  Unfortunately, since this is a dynamic list, there is no single reliable ‘top ten’ to review.  Note that Ofirmev and Exparel are not on the list dated March 2018.  And for emphasis, again here is the link to see the updated list:

But Wait: There is More!

You thought that was the end of it?  This is 340B, a program near and dear to the Rube Goldberg Philosophy.  Of course, it becomes more complex. 

The short answer, as with most things 340B, is “It Depends”.  HRSA allows Covered Entities (CE) the ability to define what constitutes a “drug” at your facility. 

This means in certain situations, a drug that otherwise may be on the formal CMS approved drug list may be considered to NOT be a 340B approved drug, and may be purchased under GPO instead of WAC or 340B. This information comes directly from the aforementioned section 1927(k)(2) OF the Social Security Act. Here is the wording of the ACT:

Limiting definition.—The term “covered outpatient drug” does not include any drug, biological product, or insulin provided as part of, or as incident to and in the same setting as, any of the following (and for which payment may be made under this title as part of payment for the following and not as direct reimbursement for the drug):

(A) Inpatient hospital services.

(B) Hospice services.

(C) Dental services, except that drugs for which the State plan authorizes direct reimbursement to the dispensing dentist are covered outpatient drugs.                          

(D) Physicians’ services.

(E) Outpatient hospital services.

(F) Nursing facility services and services provided by an intermediate care facility for the mentally retarded.

(G) Other laboratory and x-ray services.

(H) Renal dialysis.

CMS goes on to state: Such term also does not include any such drug or product for which a National Drug Code number is not required by the Food and Drug Administration or a drug or biological used for a medical indication which is not a medically accepted indication.

Well, that clears it up. . .

My regrets on all the legalese.  However, this is a complex area of 340B and it is important to have more than a rudimentary understanding of what drives this specific portion of 340B.

Consider that you can define what is or is not a drug specific to your facility.  HRSA expects the CE to document in your Policies and Procedures when you decide that a drug does not meet the definition of a covered outpatient drug and when a GPO may be used for non-covered outpatient drugs. It is important to note that HRSA does not consider cost between 340B and GPO to be a determining factor.

I Can See Clearly Now (Johnny Nash, 1972)

In general, this applies to Bundled drugs: drugs that are not reimbursed, but are charged as part of a procedure, and paid for as part of the procedure.  The more common categories include:

  1. Anesthesia Gases
  2. Radiopaque dyes
  3. Saline or Heparin for IV locks
  4. IV Solutions that are included as part of the drug charge
  5. IV Solutions that are included as part of the ‘Room Rate’
  6. Unit dose packets of antibiotic ointment
  7. Some local anesthetics

This includes any ‘drug’ without a charge, but as with any 340B rule, it is more complex:  You can have the rule apply in one area, but not another.

For example, your P&P states that drugs used in Radiology are all included as a bundled charge.  Not being charged, they do not make it to your split billing accumulator, and end up falling into the WAC bucket.  You can define the process in your P&P where you identify these drugs and process that drives their replacement.  In this instance, perhaps your buyer uses your hospital’s interdepartmental billing to determine what drugs were dispensed to radiology. 

The buyer then uses this list to purchase these drugs on the GPO account, makes a manual adjustment, and documents/files the action for later potential audits. This could include not only radiopaque dyes, but also any drug used incidental to a radiology procedure. In this situation, diphenhydramine for a rash may be considered a ‘non-340B drug’ if it is not charged, and used (by your P&P definition) as part of the radiological procedure.  BUT the same diphenhydramine is considered a 340B drug when used anywhere else in the hospital for an outpatient.

Here are some examples of how to manage tracking/replenishment of bundled charges;

  • The situation noted above – use the interdepartmental charge mechanism of your software to document uncharged drugs in other departments.
  • For anesthesia gases, use your departmental charge reports to determine the ratio of inpatient to outpatient anesthesia gas use, and use this ratio to determine what relative percent of gases were used for outpatients. Use this number to drive replenishment from the appropriate account.
  • If the “drug” is exclusively used as a bundled charge, exclude it from the accumulator and have it default to GPO. Examples include saline locks, heparin locks, etc.
  • I cannot emphasis enough the importance of documenting this in your P&P, and performing internal audits on the process periodically to be sure it’s up to date and working.

The Strategic Use of the Non-Drug Rule

This is a valuable rule for any CE subject to the GPO prohibition.  Too often we find many CE’s buy all bundled charged drugs on WAC, as the drugs don’t hit the accumulator.  Use this process as part of your WAC purchasing optimization.

Story time:  I sat in on a HRSA audit for a large Health system.  They were running 100% compliant on all transactions, and everyone was feeling great. Then the HRSA auditor pulled up a transaction on Neosporin ointment packet, 1/32nd ounce.  There was no order for the Neosporin ointment, and no documentation that it was administered.  Although the staff explained use of the Neosporin was part of the wound care procedure, no one could provide the documentation, and a CE with an otherwise perfect compliance had to complete a CAP for a $0.07 packet of antibiotic.

To avoid this in the future, the CE re-wrote their P&P to include certain topical drugs as bundled drugs, and then purchased them all as GPO.

Action Item: Periodically review your WAC purchases.  Determine if there are drugs showing up for WAC that are bundled. Update your P&P and your ‘non-drug’ list.

Until the next blog:  Stay compliant, document your 340B savings benefits, and call your Comprehensive Pharmacy Services Compliance Consultant if you have any questions!

Posted: Thursday, August 27, 2020

Tags: 340B, CPS Blog Posts, 340B Bundles Charges, 340 Ineligible Drug