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Prohibition and 340B

Here discuss 340B GPO Prohibition. Not quite as exciting as Prohibition, unless you’re the pharmacy manager who violates it.

No - this is not about the Volstead Act, which was enacted to enforce the 18th amendment (more commonly known as Prohibition).  Woodrow Wilson vetoed the Volstead act, but both Congress and the senate over-rode his veto.

Hello Al Capone and Elliot Ness!

But this is about the 340B GPO Prohibition. Not quite as exciting, unless you’re the pharmacy manager who violates it.

Two questions prompted this post, which pertains to DSH, Children’s Hospitals, and Free Standing Cancer Hospitals.

  1. When a brand new CE goes live – what do they do if they don’t have split billing software in place – can they continue using GPO if they don’t buy 340B until the split billing software is in place?
  2. An older and well managed 340B CE was supplying non-registered off-site clinics with GPO pricing, but did not meet all the required criteria, creating a prohibition violation issue. How do they resolve it?

We also had a number of DSH facilities asked for clarification as to when Group Purchasing Organization (GPO) purchases can be made for outpatients. One or two questions came from a misunderstanding about what is called The GPO Policy Release.  A few eager readers thought this meant HRSA was ‘releasing’ the GPO prohibition.  What it actually was, was a clarification of the original 1994 information.

There are specific situations where GPO instead of WAC is appropriate for outpatient use.  You just need to know how the GPO Prohibition rules work to be certain you use it appropriately.

Just to be clear, and For the Record:  The GPO Prohibition applies to Disproportionate Share Hospitals, Children’s Hospitals, and Free-Standing Cancer Hospitals.  All others may choose GPO or 340B, whichever is most cost favorable, for outpatient use.  Remember that little disclaimer about Outpatients.  One CAH buyer thought it meant they could buy 340B or GPO for inpatients as well as outpatients.  That didn’t last long.


What the GPO Prohibition States

The actual wording of the GPO Prohibition is:

Hospitals and their off-site outpatient clinic sites that are registered on the OPA 340B database as participating in the 340B Program are subject to the GPO prohibition and cannot purchase any covered outpatient drugs through a GPO or other group purchasing arrangement. A hospital subject to the GPO prohibition may not purchase covered outpatient drugs through a GPO for any of its clinics/departments within the four walls of the hospital (same physical address) under any circumstance.


When you CAN Use GPO for an Outpatient Clinic

Not all off-site clinics show up on the Medicaid Cost Report and as such do not qualify as 340B eligible child sites.  The GPO prohibition rule specifically states:

However, certain off-site outpatient facilities of the hospital may use a GPO for covered outpatient drugs if those off-site outpatient facilities meet all of the following criteria:

  1. Are located at a different physical address than the parent;
  2. Are not registered on the OPA 340B database as participating in the 340B Program;
  3. Purchase drugs through a separate pharmacy wholesaler account than the 340B participating parent; and
  4. The hospital maintains records demonstrating that any covered outpatient drugs purchased through the GPO at these sites are not utilized or otherwise transferred to the parent hospital or any outpatient facilities registered on the OPA 340B database.


Managing GPO Purchases and Remaining Compliant with the GPO Prohibition Rule

OK, so what does this mean for you, the DSH, Children’s Hospital, or Free Standing Cancer Center manager?  If your organization is like the health system I used to work for, you may own a significant number of medical clinics, but many of these are not included on your Medicaid Cost Report, and they are not registered child sites.  Notice the four (4) criteria above – NOT located at the same address as the Parent, NOT registered on the OPA database, use a SEPARATE wholesaler account, and maintain records. 

These four criteria are critical to allowing use of GPO pricing in place of WAC for these clinics.  In an audit, a Parent organization owned a clinic that met three of the four criteria. The sole criteria they did not meet was number three – use a separate wholesaler account.  They used their local pharmacy’s GPO account to supply the clinic, and this violated the GPO prohibition.

What happens if a Covered Entity violates the GPO prohibition? Here is a HRSA quote: “Since the GPO prohibition is an eligibility requirement, covered entities found in violation will be considered ineligible and immediately removed from the 340B Program.”.

Not warned, removed. Then the CE has to prove compliance before they can be reapproved for 340B purchases. So: if you have non-340B clinics, and want to use GPO pricing and not WAC to supply those clinics, be certain you meet all four of the four required criteria. Be precise, just like Monty Python at the encounter at the Cave of Caerbannog, when they used the Holy Hand Grenade of Antioch -- count not to three, nor to five, but to four. . . (paraphrased, of course).


So What About the new CE and GPO?

This brings us back to the Brand New CE:  the brand new CE must purchase all drugs on WAC until their split billing software is in place.  No 340B, no GPO.  Does this include inpatient usage?  Yes, unless they have a method that they can use that they are confident will demonstrate appropriate use of GPO pricing for inpatients (rare). For this reason, it’s prudent to have your split billing software ready to go at the same time your 340B registration is published.

When I first understood this rule, I was flustered.  A lot of new CE’s don’t have any TPA or split billing software in place when they ‘go-live’ with 340B.  A lot of them figure that they just won’t start buying 340B until they get the software in place, and that makes it OK for staying with GPO purchases. Not.  The GPO prohibition is specific, and HRSA even states they expect CE’s to stop buyinmg GPO for outpatient before they go live with 340B.  Which means if you’re scheduled to ‘go-live’ on April 1st, your last GPO purchase for any OP area should be no later than March 31st

OK, so they buy everything on WAC.  Three months later the split billing software is implemented.  So now they go retro-active and re-class drugs to WAC, 340B and GPO, right?  No, according to HRSA.  “HRSA does not authorize covered entities to reclassify a purchase as 340B eligible after the fact. Covered entities participating in the 340B Program are responsible for requesting 340B pricing at the time of the original purchase.”

If you decide that’s just not going to fly, HRSA does allow for a CE to re-class 340B drugs, IF the CE first notifies manufacturers, and ensures all processes are transparent and auditable.  It can be done, and it is not that difficult, but we’re now seeing Wholesalers ask the CE to gain permission from the manufacturer before they even attempt a ‘credit/rebill’ for 340B. 

So. If you’re new, plan ahead and have your split billing software ready to roll on day one!


Posted: Friday, June 5, 2020

Tags: 340B, White Papers, GPO, Compliance, Prohibition, WAC