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“Site Neutral Payments Put 340B Child Sites in Jeopardy”

To Be or Not to 340B By Alyce C. Katayama and Elizabeth R. Gebarski

Just when you thought you understood all the threats facing the 340B Drug Pricing Program (“340B Program”), along comes the Bipartisan Budget Act of 2015 (“BBA 2015). BBA 2015 changes the way in which new off-campus hospital outpatient departments (“HOPDs”) will be paid come January 1, 2017. This change could have a substantial impact on 340B Program child site eligibility.

First, a little history. Before November 2, 2015, Medicare generally paid more for diagnostic and therapeutic services furnished in HOPDs than for the same services performed in freestanding facilities.

By regulation, to be an HOPD, the facility has to meet Medicare’s requirements for provider-based entities. These requirements included shared licensure (if permitted by State law), financial integration, and clinical integration, as evidenced by, in part, the fact that the main hospital maintains the same monitoring and oversight of the facility as for any other department of the provider. Once a facility is provider-based, it appears on a line of the hospital’s Medicare cost report that is reimbursable under Medicare.

Since provider-based facilities can claim both a facility fee and a professional fee, there has been a trend, for some years now, for hospitals to gobble up freestanding facilities and stuff them into the provider-based mold.

Bipartisan Budget Act of 2015

Freestanding facilities criticized this unequal payout, urging Medicare to pay the same amount for the same services, regardless of where the services are furnished. The Medicare Payment Advisory Commission (“MedPAC”) also endorsed this site neutral payment concept. These efforts came to fruition in section 603 of the BBA 2015, which mandates that Medicare payments for most items and services furnished at an off-campus HOPD established after November 2, 2015 be paid, effective January 1, 2017, under the applicable Medicare fee schedule. There are several exceptions, including emergency departments, departments that are “on-campus” to a “remote location” of the hospital, rural health clinics (“RHCs”), and certain federally qualified health centers (“FQHCs”) or FQHC look-alikes.

Affect on 340B Drug Pricing Program

Why does this matter to the 340B Program? As discussed in earlier posts, all off-site outpatient facilities not located at the same physical address as the “parent” covered entity must be registered in the 340B Program, if the off-site facilities intend to purchase and use 340B drugs for their eligible patients. Hospitals demonstrate child site eligibility by showing that each off-site outpatient facility is listed on a line of the parent hospital’s Medicare cost report that is reimbursable under Medicare and that the services provided at each of the facilities have associated outpatient costs and charges on the cost report.

Wait a minute – if current child site eligibility in the 340B Program depends on the off-site outpatient facility being on a Medicare cost report, and the use of the Medicare cost report for new off-site outpatient facilities may be unavailable in the future, how does a parent hospital prove child site eligibility in the 340B Program? Exactly.

The Centers for Medicare & Medicaid Services (“CMS”) has not yet disclosed how it intends to implement Section 603, but two of the more disastrous options for 340B child sites are:

  • CMS ceases making provider-based determinations.
  • CMS requires entities created after November 2, 2015 to report their charges in a manner different than grandfathered provider-based entities.

Granted, CMS may take other tacks, such as requiring certain coding, use of a modifier, or that entities disclose their off-campus outpatient departments in the Medicare provider enrollment process.

It is possible that a new child site could be viewed as provider-based for 340B purposes, even though not eligible, due to section 603 of BBA 2015, for provider-based reimbursement. However, note that the Health Resources and Services Administration (“HRSA”), in its proposed 340B Drug Pricing Program Omnibus Guidance, requested comment regarding how to determine child site eligibility. So, we know this is a topic already in flux. There is no indication that section 603 was meant to impact 340B eligibility. But, CEs should watch how this plays out. It is our guess that HRSA will end up following CMS’ lead in ways that limit the growth of child sites. This blog will keep you informed of developments