March 12016Medicare Part B Cuts for 340B Entities; What to be Ready for

- By Tim Olmstead, Managing Partner

The recent news of MedPAC’s Vote in favor of a 10% reduction of Medicare Part B drug reimbursement for 340B entities has sent ripples through the safety net hospital community. If you aren’t familiar with safety net hospitals and/or 340B covered entities, these are the hospitals that brunt the bill for some of the nation’s most vulnerable patient populations unable to pay for care (indigent care patients). By meeting certain criteria based on serving high levels of care to low-income patients, 340B entities are able to purchase drugs at a discount for outpatients seen in their provider-based settings, offsetting those high levels of uncompensated or poorly compensated care. Currently, all hospitals, including 340B hospitals and non-340B hospitals, are being paid the same rate by Medicare for drugs whether or not the drugs are purchased through the 340B program.

As 340B hospital administrators; and be assured that the Medicare B cuts have the attention of hospital finance and reimbursement, try to grasp the potential revenue impact to their organizations, many are asking if there will be an end to the onslaught of changes to the 340B program which has seen new requirements around Medicaid billing and reimbursement, requirements for much tighter controls in monitoring (Compliance 10 Questions), and proposed changes in the Omnibus proposal, termed as the “Mega Guidance Rule”, which is set to be released in September of 2016.

As Medicare and Medicaid continue to find new areas to cut costs, 340B covered entities will need to perform the due diligence necessary to understand the impact of the proposed Medicare Part B cuts and engage strategies to mitigate this loss and the impact on their already skinny operating margins. As sited by 340B Health, a safety net provider advocacy group for 340B integrity and sustainability, Medicare already pays 340B disproportionate share hospitals 13% less for drugs reimbursed through Medicare Part B.

While Medicare Part B cuts will likely have a substantial impact on reimbursement to 340B entities, underscoring the benefit to 340B providers, there is a silver lining—albeit dim and unclear at this time. The Medicare Payment Advisory Commission also recommends that 340B program savings from the payment reduction be redistributed to the hospitals based on the amount of uncompensated care they report on Medicare Cost Report Worksheet S-10. As S-10 information is publicly available, it would be prudent for 340B entities to understand where they rank in uncompensated care and to weigh in on how this redistribution of funds should be allocated.

The ultimate question for covered entities, in this day of cost reduction and Manufacturer lobbying, is whether or not 340B savings will outweigh the negative impacts of these changes being imposed on the 340B community. It is imperative that 340B covered entities perform the necessary due diligence to understand how these changes will impact them and develop strategies to ensure valuable 340B savings is preserved.

About Alinea Pharmacy Enterprise Solutions:

The Alinea Group (“Alinea”) provides management consulting and audit services to the country’s leading healthcare organizations with a focus on pharmacy enterprise solutions. Alinea has worked in the pharmacy consulting space for the last 20 years, and more specifically, pioneered the Pharmacy Operational Enhancement (“POE”), 340B, Pharmacy Audit, and Specialty Pharmacy Service teams at Ernst & Young, LLP. We are trusted advisors who specialize in helping our clients overcome operational challenges, assess and mitigate regulatory risk, and engage innovative strategies to unlock new opportunities for growth. We provide independent professional services and are vendor agnostic. Our only goal is to be objective and help ensure our client’s success.

Pharmacy Enterprise Solutions:

  • Specialty Pharmacy Strategy and Implementation
  • 340B Audits, Implementation, and Advisory
  • Pharmacy Revenue Cycle
  • Pharmacy Cost Containment and Operational Improvement
  • Healthcare and Pharmacy Big Data Analytics

Team Background:

Alinea’s Pharmacy Enterprise Solutions team is a diverse and tenured group comprised of healthcare audit professionals, regulatory experts, clinicians, pharmacists, former hospital administrators, healthcare information systems experts, and data analysts to name a few. Prior to joining Alinea, Alinea professionals served as leaders at some of the nation’s most highly regarded hospital systems, pharmaceutical companies, supply chain distributors, managed care organizations, and management consulting / Big 4 audit firms.