Developed as a part of the Veterans Health Care Act in 1992, 340B was intended to help low-income or uninsured patients obtain more affordable medication. The program created a pricing agreement in which pharmaceutical companies could participate in exchange for their drugs being covered by Medicare/Medicaid. These companies would provide discounts to eligible providers (six categories of hospitals including critical access and rural referral centers) who also participate in the program. This helped to lower the prices for providers and allow for new cash flow from the difference between the cost of discounted drugs and the insurance reimbursement rates, for insured patients— a practice that has come under scrutiny but proved a valuable revenue stream nonetheless.
The attention to this revenue-generating loophole has resulted in pushback from pharmaceutical manufacturers as well as cuts to the program. In December of 2020, a final ruling was issued for the Outpatient Prospective Payment System (OPPS) for this year, changing the reimbursement formula from “average sales price plus 6%” to “average sales prices minus 22.5%.” A move many in the industry recognize as hitting hospital revenue at a time they need it the most.
“Continued cuts will result in the further loss of resources for 340B hospitals at the very worst possible time as COVID-19 cases and hospitalizations continue to climb across the country.”
– Tom Nickels, Executive VP of the American Hospital Association (AHA)
In addition to these changes, providers are seeing an uptick in white bagging; the practice of utilizing a third-party pharmacy for filling and billing medications then delivering them to the providers for administration. Aside from the loss of pharmaceutical reimbursement revenue, white bagging can pose a number of problems for providers. Among the worst of them are the logistical nightmare of getting medical deliveries at the time patients need them and tracking in stock medications. Since white bagged meds aren’t a part of the hospital’s internal pharmacy system, they aren’t subject to the safety systems in effect to ensure proper dosage or check for interactions with patients’ other medications. This all creates extra steps in the drug administration process that is costly for providers but also dangerous for patients.
While it’s true that the Health Resources & Services Administration (HRSA) is working to take on pharmaceutical companies who are actively in violation of 340B participation, and advocacy groups like the NRHA are still fighting to preserve 340B for the hospitals that need it most, health systems need a solution for the lost revenue now. A recent report from Kaufman Hall illustrated the extent of damage done to health system revenue due to the ongoing pandemic, showing operating margins down 16% to 55% depending on aid received from the CARES Act, and their latest report estimates an overall loss of $54 Billion in 2021 due to the strain of the ongoing pandemic.
Health Systems may need to focus on generating revenue from forgotten sources in order to offset the loss. Assessing places to curtail spending, maximizing internal resources, and improving accounts receivables are all low-cost high-impact strategies.
Professional’s experienced consultants assess each level of operations to identify the areas of greatest need and help you prioritize improvements based on time, cost, and ROI. Learn more about our comprehensive assessment program here.