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Although outpatients don’t receive discounts on medication directly through the 340B program, the additional revenue earned by the hospital can be used for opening new programs and service lines.

Federal rebate program offers flexibility for rural hospitals

    It may be complicated, but the federal 340B Drug Pricing Program is offering hospitals the chance to save hundreds of thousands of dollars through rebates on everyday outpatient drugs.
    Melissa Memorial Hospital inpatient pharmacy manager Laurie Lange, LPN, said implementing the program — which includes multiple stages of communication, billing and auditing — took time.
    “It was quite a learning curve, but now we’re actually auditing their auditing, and everything is looking good,” Lange said.
    MMH started participating in the program last year. CFO Wes White said the program saved the hospital more than $300,000 in 2018 and estimated that the hospital will save $450,000 in 2019.
    He said that 340B savings do not mean cheaper drugs for outpatients. Rather, the community benefits by the freeing up of additional resources for new service lines and programs.
    “It’s a very complex program, but we’re fortunate to have it,” White said.
    The 340B Drug Pricing Program was created in 1992 as part of a federal government effort to control the prices of certain outpatient drugs.
    For eligible health care organizations, 340B offers an additional revenue source through rebates received from pharmaceutical suppliers.
    MMH qualifies for the program as a “Critical Access Hospital,” thanks to its rural location and distance from other hospitals, among other reasons.
    Hospitals have two ways of receiving rebates. In the first case, a patient who has an established relationship with a hospital provider is given an outpatient prescription and fills it at a contract pharmacy. MMH contracts with its own Hometown Pharmacy and Walgreens in Sterling.
    Pharmacies order medication as usual from pharmaceutical suppliers. Meanwhile, a continuous auditing process takes place between the hospital, the pharmacy and affiliated consultants. The hospital and some pharmacies use auditing firms to process lists of 340B patients and drugs, which are sent regularly.
    Because hospitals are subject to random audits by the United States Health Resources and Services Administration, which oversees the program, MMH engaged a firm to audit their data, White said.
    340B offers rebates on set quantities of medication. Once enough of a 340B-eligible medication has been ordered by the contract pharmacy, the supplier will bill the hospital for the medication at a discount.
    The hospital can then bill the pharmacy for the medication at the regular price, minus a special dispensing fee, which the pharmacy gets to keep as a financial incentive for contracting with the hospital.
    In other words, hospitals earn money by billing pharmacies for the 340B medication at the standard rate, while the supplier bills the hospital at a reduced rate.
    In the second case, when hospitals administer eligible medication to outpatients, they receive the discounts directly.
    Different drugs offer larger rebates than others, and Lange gave insulin as one example of a medication that saves the hospital a significant amount of money. As part of the hospital’s effort to curb the overprescription of opioids, they decline rebates on drugs that contain Schedule II controlled substances like hydrocodone, oxycodone, hydromorphone and meperidine.
    “Our philosophy is to decrease the use of those drugs as much as possible,” Lange said.
    MMH’s Hometown Pharmacy began participating in the program last March, and the hospital incorporated the outpatient component in August.
    Hospitals serving rural and poor populations are often limited in the scope and variety of care they can offer because of recruiting issues and income.
    Lange and White said program savings are helping fund new services like cataract surgery and post-operation follow-up, as well as the hospital’s dental clinic, which opened in October. The pharmacy and Family Practice of Holyoke are also looking to expand hours, thanks to 340B dollars.
    “It lets us be creative with some of our service,” Lange said.

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