BETHESDA, MD 14 June 2013—Some hospitals that participate in the federal 340B Drug Pricing Program are rapidly approaching the deadline for compliance with newly clarified rules on the use of group purchasing organizations (GPOs).
By August 7, no 340B-covered entity to which the prohibition applies may use a GPO or other group purchasing arrangement at any time to buy 340B-covered drugs for outpatient use. Hospitals that are unable to comply with the GPO prohibition must withdraw from the 340B program.
That withdrawal can be costly. According to the Health Resources and Services Administration (HRSA), whose Office of Pharmacy Affairs (OPA) administers the 340B program, hospitals and other participants save an estimated 20–50% on the cost of outpatient drugs, for a total of about $5 billion annually.
OPA chief Krista Pedley said in a written statement that 1074 hospitals that are subject to the GPO prohibition were enrolled in the 340B program as of April 1, 2013. The prohibition is the result of federal law and applies only to disproportionate-share hospitals, freestanding cancer hospitals, and children's hospitals.
HRSA stated in a February policy memo that some hospitals have been making their initial 340B drug purchases using a GPO account and then replenishing those stocks, once they are exhausted, with 340B-account drugs. According to HRSA, all initial purchases of covered outpatient drugs by hospitals subject to the GPO prohibition must be made using a wholesale acquisition cost (WAC) account or other non-340B, non-GPO account.
The prohibition applies even for medications that are available at a lower price through a GPO. Hospitals can continue to purchase drugs for inpatient use through a GPO, but auditable records must be maintained to ensure that the purchases are properly allocated among the hospital's accounts.
HRSA does allow hospitals that have newly enrolled in the 340B program to use up preexisting stocks of GPO-purchased covered drugs and then replenish those with 340B drugs.
Hospitals may maintain a physically separate inventory of 340B drugs or use a virtual replenishment model that allocates drug purchases among the proper accounts. In either case, hospitals must ensure that 340B drugs are given only to 340B-eligible patients.
HRSA originally gave hospitals until April 7 to comply with the GPO prohibition. That deadline was extended to August 7, but HRSA has stated that no further extensions will be granted.
Pedley said many hospitals were already in compliance with the GPO prohibition before the February policy memo release.
The absolute prohibition against the use of GPO-purchased drugs has been longstanding federal law and agency policy. According to HRSA, compliance with the policy is reviewed during audits of 340B-covered entities, which HRSA started conducting last year [see July 15, 2012, AJHP News].
"HRSA does not know why some hospitals may have interpreted the GPO prohibition in a different manner," Pedley said.
Christopher Topoleski, ASHP's director of federal regulatory affairs, said that before HRSA released its policy memo in February, there had been little specific guidance on the GPO prohibition for participants in the 21-year-old program.
"I would say, in general, most places thought they were in compliance," Topoleski said.
Todd Karpinski, executive director and chief pharmacy officer for Froedtert Health in Wisconsin, said Froedtert Hospital in Milwaukee passed its 340B audit last August with no adverse findings by HRSA.
Thus, he said, "I thought everything was fine" with respect to GPO compliance at the 500-bed hospital, where all outpatients are eligible for 340B drugs.
But after HRSA issued the GPO clarification in February, Karpinski said, the hospital spent tens of thousands of dollars and over 100 labor hours to implement a new virtual inventory system that demonstrably meets OPA's requirements.
"We now have a WAC account, and we now have dual accumulators. So we accumulate all use on the inpatient side and replenish that with GPO. We accumulate all the orders on the ambulatory [care] side, and then we replenish that with 340B. If it's a new product that we've never used, therefore it has no accumulation on either side, we buy it at WAC," Karpinski said.
"It's very complicated," he added.
HRSA uses National Drug Code (NDC) numbers to identify and track the use of specific 340B-covered outpatient drugs. When hospitals replenish drug stocks for a 340B account, the NDC number of the newly purchased item must be identical to the NDC number of the original product.
Karpinski said this NDC-to-NDC replenishment process is a problem for hospitals.
"For a generic drug, if the one NDC you buy or the one NDC you've utilized is no longer available, there's a shortage, whatever, and you have to buy a new NDC, you have to buy the new NDC at WAC," Karpinski explained. "With all of the drug shortages, the generics manufacturers coming and going, it's just really difficult . . . to replace them at the NDC level."
He said that for technical reasons, when Froedtert's new system started accumulating drug-use data, all purchases were made at wholesale cost, including inpatient drugs that had been previously purchased from a GPO. The NDC-to-NDC replenishment was then made using GPO or 340B accounts, depending on the accumulation data, and the whole process monitored for the first 30 days of implementation.
"Over that 30 days, we made over $250,000 in WAC purchases," Karpinski said.
He said the hospital continues to perform weekly audits of the accumulators and has had to take special steps to ensure that the components of compounded admixtures flow properly through the system. He said the issue is a result of the way the hospital's electronic medical record system communicates with the accumulator, and he doesn't know if other hospitals are likewise affected by this technology limitation.
The need to upgrade inventory systems was a sticking point for hospitals in February, when HRSA initially gave them 60 days to comply with the GPO prohibition.
Maureen Testoni, general counsel for Safety Net Hospitals for Pharmaceutical Access, said "a pretty solid majority" of hospitals surveyed after HRSA's February memo was released said they did not know if they would be able to comply by the original deadline.
"It was really helpful to get the breathing room of the extension, because it will allow hospitals to work out the details of how to make sure they're capturing all the drugs in their system in their new replenishment models," Testoni said.
Pedley said HRSA received more than 100 letters from hospitals and organizations representing hospital groups describing their efforts to comply with the GPO prohibition. HRSA also heard from wholesalers about their efforts to set up compliant purchasing accounts.
She said these communications show that hospitals that disclosed to HRSA that they were not in compliance with the policy are "working to come into compliance with the GPO prohibition so that they are not terminated on August 7."
Pedley said "very few" hospitals have asked to withdraw from the 340B program because of the GPO prohibition.