McKesson : How Hospital Pharmacies Can Maximize on 340B Drug Savings

No hospital pharmacy wants to leave potential drug savings on the table. That's particularly difficult when seeking reimbursement for outpatient drugs dispensed to Medicaid beneficiaries. One strategy to obtain appropriate Medicaid reimbursement is to include, or carve, Medicaid drug purchases into existing 340B drug discount programs.

McKesson asked Eli Scott, director of product innovation for Macro Helix, to explain why carving Medicaid into 340B can save money on outpatient drug purchases, and the steps hospital pharmacies can take to maximize their 340B savings.

How do most hospital pharmacies bill for outpatient prescription medications dispensed to their Medicaid patients?

Scott: After a Medicaid beneficiary receives a prescription as part of an outpatient visit, the patient fills it at the hospital's outpatient pharmacy. The patient pays a nominal copay, which is based on income level. The pharmacy bills the state Medicaid program for the drug. Medicaid reimburses the pharmacy based on a HCPCS (Healthcare Common Procedure Coding System) code or an NDC (National Drug Code). The state pays the pharmacy a 'ceiling' price previously established for that drug based on the code. The ceiling price typically is lower than the wholesale acquisition cost (WAC). The WAC price is the list price charged by the manufacturer for that drug. On average, Medicaid reimburses pharmacies 90 percent or less of the cost of the drug, meaning a pharmacy loses 10 percent or more on each drug it dispenses.

Why don't most hospital pharmacies carve Medicaid into their existing 340B drug discount programs?

Scott: There are three reasons. First, most hospital pharmacies don't realize that there's an opportunity for more savings under 340B than there are under Medicaid. Second, 340B billing is complex. Medicaid billing is complex. Pharmacies fear that combining the two will make things even more complex and may be too complicated to administer. The third reason is 340B audits. The Health Resources & Services Administration (HRSA) routinely conducts compliance audits of hospital 340B programs. Pharmacies are worried that carving in Medicaid might lead to 340B compliance problems.

How does a hospital pharmacy save more on drug purchases by carving Medicaid into 340B?

Scott: Most hospital pharmacies that don't carve in Medicaid are paying the inflated WAC prices for the outpatient drugs they dispense to Medicaid beneficiaries. If pharmacies make those same purchases through their 340B programs, they're paying the discounted 340B price. The 340B price is usually much lower than the WAC price. That means substantial savings for the pharmacies. That's on the expense side. There's also a reimbursement benefit. With states reimbursing pharmacies 90 cents or less on the dollar, pharmacies paying WAC prices are at a disadvantage. When states reimburse pharmacies at 340B ceiling prices, the pharmacies that are paying the discounted 340B prices can reverse that situation. Also, most states pay hospitals a dispensing fee for every Medicaid prescription.

What are the benefits to a 340B program from carving in Medicaid?

Scott: What a hospital pharmacy is doing is maximizing purchases of covered outpatient drugs through its 340B program. Maximizing purchases means maximizing 340B savings. The savings are the difference between what the pharmacy pays for a drug and what the pharmacy bills and collects for the drug. That money ultimately benefits all patients. The hospital has more money to spend on clinical programs for more patients, including Medicaid beneficiaries. We estimate that for each Medicaid prescription charged through 340B, the hospital would save more than $7. For a large hospital or health system that bills for 500,000 Medicaid prescriptions a year, that's an annual savings of $3.6 million.

How does a hospital know whether those savings will be there for its pharmacy?

Scott: The pharmacy by itself or with the help of an outside vendor can do a retrospective analysis of its Medicaid outpatient drug spend. The pharmacy can go back and analyze the previous year's billings and compare what it spent with what it would have spent if it had carved Medicaid into 340B. The analysis will come up with an estimate of the potential savings. It's just an estimate, because it doesn't account for what may happen to drug prices in the future. But, it's still useful to determine the potential ROI.

Assuming the numbers look good, what are the next steps a hospital pharmacy should take?

Scott: The first step a pharmacy should take would be to update its 340B registration and choose to opt-in to Medicaid. The pharmacy is letting the HRSA know that purchases of covered outpatient drugs to be dispensed to Medicaid beneficiaries will be bought through the pharmacy's 340B purchasing program. The second step would be to install a software program that examines each Medicaid medication purchase to determine whether it's a covered drug, meaning it's eligible to be bought through 340B. If the drug qualifies, the software modifies the claim to reflect the accurate price and the accurate reimbursement rate. The software essentially marries purchases with billings to accurately bill Medicaid for qualified claims.

What additional resources are required to carve Medicaid into 340B?

Scott: A pharmacy isn't buying a new pharmacy management system or upgrading its existing pharmacy management system. The pharmacy is simply plugging in an application. It's integrating the software with its system. The same pharmacy staff is handling all the 340B purchases. No additional staff is required, though training and education will be needed to operate the software and recognize opportunities to make Medicaid drug purchases through 340B programs. From a patient's perspective, they will see no difference in medications or how those medications were prescribed and dispensed.

What about pharmacies' fears about billing complexity and audits?

Scott: Automation actually simplifies the process of billing Medicaid for drug purchases made through 340B programs. Software can be customized and updated to follow all billing regulations in every state. And because everything is entered, collected, monitored, and documented according to all 340B billing rules, any additional audit or compliance risk is minimal.

What KPIs should a hospital pharmacy track to know whether carving in Medicaid is working?

Scott: All KPIs are going to focus on reimbursement and cost of goods sold: how much the pharmacy is billing and getting paid to replenish the covered outpatient drugs dispensed to Medicaid beneficiaries. Pharmacies should know that cost of goods ratio before carving in and after carving in. Initially, that may take months, given the slow pace of Medicaid payments in many states. But ultimately, that will tell pharmacies whether they're getting the value they expected.

Related: Learn more about Macro Helix's 340B program software and services