Sarah Lee, PharmD, MS

Certain institutional providers are required to file a Medicare cost report annually to CMS, which uses that information to set prospective payment rates and determine if Medicare overpaid or underpaid a given institution during the submitted fiscal year.

 These reports are due to CMS 5 months after the institution’s fiscal year ends and include data such as facility characteristics, financial information, costs, and charges.

 Cost report sections are separated as worksheets, with each containing distinct pieces of required information.

For many hospital-covered entity types, the Medicare cost report plays an integral role in the 340B Drug Pricing Program by establishing eligibility for the parent and child sites. Individuals responsible for an organization’s 340B program can ensure appropriate eligibility and registration by learning to interpret certain data within the cost report.

Two of the 3 requirements for eligibility can be found within the Medicare cost report. Hospitals are considered eligible based on their government ownership or operation or contractual arrangements with the government to provide care to low-income individuals, as well as their disproportionate share percentage.

 Line 21 of Worksheet S-2, Part I, shows the ownership and nonprofit status of the hospital necessary to meet these eligibility requirements. With the exception of critical-access hospitals, all hospital-covered entities must also meet or exceed a minimum threshold for disproportionate share adjustment percentage (see Table), found on Worksheet E, Part A, line 33.

All clinics located outside the hospital’s walls must register as child sites if they provide care resulting in 340B drugs for their patients. These locations are eligible if listed as reimbursable on the hospital’s most recently filed cost report. Typically, lines 50 to 118 are potentially reimbursable on Worksheet A. Reimbursable clinics must also show outpatient charges in column 7 of Worksheet C.

: When determining site eligibility, the Health Resources and Service Administration will look at the most recently filed full cost report, found on Worksheet S. New child site registrations and any terminations should be consistent with that report, and covered entities may want to coordinate with their finance departments to ensure that site changes happen at times that appropriately coincide with cost report filings.

If the Medicare cost report serves as the official reference document, a hospital’s trial balance serves as supporting evidence. Some hospital service lines may be aggregated, meaning the financial information for multiple areas is combined into 1 line on the cost report. Worksheet A acts as a summary of the expenses reflected in the trial balance, and Worksheet C summarizes the revenue associated with care areas. The trial balance data populate the Medicare cost report, so it is advisable to obtain this document to perform validation of eligibility for certain areas during registration and subsequent self-audits.

Establishing 340B's Impact on the Community

Although multiple methods exist to demonstrate how the 340B program helps patients and local communities, the Medicare cost report can assist in this endeavor. A lesser-known use of the cost report involves quantifying a hospital’s uncompensated care, including the cost of treating charity care patients, underpayment by public payers, and other potentially relevant information. For example, Worksheet S-10, line 31, details the total unreimbursed and uncompensated care cost. These data may not tell the whole story of how the 340B program supports the institution’s ability to care for underserved populations, but it offers a place to start.

A hospital’s finance department should be able to provide access to all documents and reports mentioned in this article. Establishing a 340B stakeholder within the department will ensure timely access to the Medicare cost report and trial balance, proper interpretation of values, and confirmation of assumptions before taking action, such as registering a hospital or child site. The Medicare cost report holds a wealth of information about an organization’s identity and financial activity. Having a strong grasp of the contents and their meaning can ensure that covered entities maintain compliance while maximizing their 340B programs.

Ashley Mains Espinosa, PharmD, MS, CPHIMS, is the system pharmacy manager at SCL Health in Denver, Colorado. She completed her PharmD degree at Ohio Northern University and the 2-year health system pharmacy administration residency and master’s program at the University of Kansas. Chad Johnson, PharmD, MBA, is the 340B program manager at Froedtert Hospital in Milwaukee, Wisconsin. He completed his PharmD and MBA degrees at Drake University and 2-year health system pharmacy administration residency at Froedtert Hospital. Sarah Lee, PharmD, MS, is a manager within the education compliance and support team at Apexus. She earned her PharmD at the University of Iowa and completed the 2-year health system pharmacy administration residency and master’s program at the University of Kansas.

Asper, F. Introduction to Medicare cost reports. Research Data Assistance Center website. resdac.umn.edu/sites/resdac.umn.edu/files/Introduction%20to%20Medicare%20Cost%20 Reports%20(Slides)_0.pdf. Accessed October 11, 2017.

Centers for Medicaid & Medicare Services Research. Cost reports. www.cms.gov/Research-Statistics- Data-and- Systems/Downloadable-Public- Use-Files/Cost- Reports. CMS website. Updated July 25, 2017. Accessed October 11, 2017.

Legal Information Institute. 43 U.S. Code § 256b—limitation on prices of drugs purchased by covered entities. Cornell Law School website. law.cornell.edu/uscode/text/42/256b. Accessed October 11, 2017.

Apexus 340B University. 340B hospital eligibility criteria. docs.340bpvp.com/documents/public/resourcecenter/Hospital_Eligibility_Criteria.pdf. Published May 6, 2015. Accessed October 20, 2017.

Articles

340B and the Medicare Cost Report

In 1992, the 340B Drug Pricing Program was created to help safety-net providers “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

 This program is administered and overseen by the Health Resources and Services Administration (HRSA) via the Office of Pharmacy Affairs, part of the US Department of Health and Human Services (HHS). Benefits for 340B eligible entities include an average savings of 25% to 50% on outpatient drug purchases. These savings allow covered entities to support programs that provide medications at reduced or no cost, allow the entity to continue to offer services or add new services, and expand accessibility to patients.

Entities eligible to participate in the 340B program are either 1 of the 11 federal grantees or designees or 1 of 6 different hospital types (Online Table 1). Eligible hospitals must meet certain criteria, including that the hospital: 1) is owned or operated by a unit of state or local government, is a public or private nonprofit corporation which is formally granted governmental powers by a unit of state or local government, or is a private nonprofit hospital that has a contract with a state or local government to provide health care services to low income individuals who are not entitled to benefits under title XVIII of the Social Security Act or eligible for assistance under the state plan under this title; 2) has a disproportionate share hospital (DSH) adjusted percentage above 11.75% for DSHs, children’s hospitals; and freestanding cancer hospitals, and above 8% for rural referral centers and sole community hospitals; and 3) does not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.

Table 1: Entities Eligible for 340B Program Participation

				Federally qualified health center (FQHC)

				Sexually transmitted disease grantees

According to the statute, there are key program requirements that the covered entity is obligated to abide by in order to remain compliant and a part of the 340B program. These requirements include: maintaining the 340B database information accuracy, recertifying eligibility annually, preventing duplicate discounts, ensuring 340B purchased medications are not diverted to ineligible patients, and preparing for program audits (Online Table 2).

				v Maintain 340B database information accuracy

				v Prevent diversions to ineligible patients

Ensuring the 340B database is accurate includes (but is not limited to) listing the correct authorizing official, contact information, Medicaid billing information, and list of child sites and contract pharmacies. Entities are required to recertify their information on the HRSA 340B database on an annual basis during the recertification period.

 A duplicate discount occurs when an entity accesses the 340B discount and the Medicaid rebate on the same drug. For example, if a Medicaid patient purchases a 340B drug, and the entity is not listed on the Medicaid exclusion file, Medicaid will then request a rebate on the drug, resulting in a duplicate discount on the transaction. Diversion is the sale of 340B drugs to a person who does not meet the definition of a 340B eligible patient (Online Table 3

Table 3: Definition of 340B Eligible Patient

				v The covered entity maintains records of the individual’s health care

				v Patient receives health care services from a provider who is employed or in a contractual relationship with the covered entity

				v The patient receives services within the scope for which the grant funding or federally-qualified health center look-alike status has been provided

				o   Hospitals are exempt from this requirement

The first 20 years of the 340B program were highly self-regulated. Covered entities were not audited by HRSA or manufacturers and outside of the original legislation, very little guidance was released regarding the 340B program. This, in conjunction with the following events, has led to the initiation and growth in number of audits performed by HRSA and release of guidance documents to clarify regulations.

In 2010, the Patient Protection and Affordable Care Act (PPACA) impacted the 340B program by expanding eligibility to include certain critical access hospitals, sole community hospitals, rural referral centers, and freestanding cancer centers. The PPACA also impacted the 340B program by increasing the number of Medicaid patients, ultimately contributing to the increase in the number of eligible DSHs. Finally, the PPACA directed the US Government Accounting Office (GAO) to prepare a 340B-related report to Congress.

The GAO, or “congressional watchdog,” investigated the 340B program in 2011 and concluded that manufacturer discounts in the 340B program offer benefits, but that federal oversight needs improvement. Specifically, the report commented on HRSA’s inadequate oversight and guidance in the definition of the 340B program, the rate of increased growth in hospital participation, and the utilization of contract pharmacies. 

 Consecutively, the Office of Inspector General (OIG), which serves to protect the integrity of the HHS and its beneficiaries, issued several reports relating to 340B. In 2011, the report looked at states’ reimbursement policies and oversight related to 340B drugs and found a lack of pricing information and written 340B policies. In 2012, the report assessed states’ collection of Medicaid rebates and found the Medicaid exclusion file was not consistently used. Finally, in 2014, a survey was conducted regarding the use of contract pharmacies and determination of patient eligibility. The OIG found that to prevent diversion in their contract pharmacy arrangements, covered entities used different methods to identify 340B-eligible prescriptions. In some cases, this led to variability in determinations of 340B eligibility among covered entities.

In 2012, HRSA began conducting audits regarding compliance with diversion of drugs and duplicate discount rules. Audits are designed to assess whether a covered entity has not sold or diverted 340B covered drugs to ineligible patients, has the proper controls in place to prevent and detect instances of diversion and duplicate discounts, is eligible to participate in the 340B program, and maintains auditable records.

Entities are selected for an audit based on random and targeted processes, with a greater number of random selections coming from groups at higher risk of noncompliance. Entities are grouped based on risk factors such as volume of purchases, complexity of program administration, use of contract pharmacies, historical problems and allegations of diversion and duplicate discounts, and length of time the entity has participated in the program (Online Figure 1). Entities are then randomly selected from these risk groups to be audited.

Targeted audits may be triggered by allegations of violations of 340B requirements, and are not limited to those made by whistleblowers, manufacturers, or self-reporting by covered entities. Targeted audits include a more thorough investigation of policies and procedures, review of auditable records, and system compliance to prevent diversion and duplicate discounts. The findings from these audits may be reoffered to the OIG or Department of Justice.

Audit findings assist HRSA and 340B stakeholders in evaluating the status of 340B operations and assessing overall compliance with the 340B program. These audits help HRSA and participating covered entities identify and mitigate program risk as well as identify best practices regarding 340B program compliance.

Over the past 3 years, HRSA has conducted 244 audits: 51 in fiscal year (FY) 2012, 94 in FY2013, and 99 in FY2014. Audits are posted to the HRSA website once the audited entity has agreed to the HRSA final report. As of September 2014, of the 84 published final reports, 56% had 1 to 3 adverse findings (Online Table 4). The most common adverse findings involved drug diversion, duplicate discounts, or database errors. These findings typically resulted in either repayment or correction of database inaccuracy.

Table 4: Total Adverse Findings of Health Resources and Services Administration Audits (as of September 2014) 