There has been some debate regarding which patients are entitled to drug discounts under the 340B program. Section 340B prohibits covered entities from selling (or otherwise transferring) medications that are purchased under the 340B program to persons who are not considered "patients" of the covered entity (Section 340B(a)(5)(B) of the Public Health Service Act [PHS]). Although Congress used the word "patient" in this restriction, it did not define this term. In initial program guidance, the Health Resources and Services Administration (HRSA) also did not define the term, but rather advised entities to "develop and institute adequate safeguards to prevent the transfer of discounted outpatient drugs to individuals who are not eligible for the discount" to prevent diversion of the discounted drugs (Federal Register, May 13, 1994). 

In September 1994, a final notice published in the Federal Register regarding the 340B program included a public comment that took issue with this lack of a definition of "patient": "There is no definition of the term 'patient,' thereby permitting a DSH to distribute discounted drugs to virtually anyone it can argue is a patient without running afoul of the drug resale prohibition of Section 340B(a)(5)(B) of the PHS Act." HRSA responded by publishing a definition of "patient" in 1996 (Federal Register, October 1996). HRSA defined "patient" for purposes of the 340B program as follows:

An individual is a "patient" of a covered entity (with the exception of state-operated or funded AIDS drug purchasing assistance programs) only if:

  1. The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual's health care
  2. The individual receives healthcare services from a healthcare professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity; and
  3. The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or federally-qualified health center look-alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement.

An individual will not be considered a "patient" of the entity for purposes of 340B if the only health care service received by the individual from the covered entity is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting (ibid).

In 2007, HRSA proposed significant changes to this definition of "patient" (Federal Register, Jan. 12, 2007). In particular, under the new definition, the individual receiving 340B drugs under the program must receive outpatient services "from a healthcare provider who is employed by the coveredentity, or provides health care to patients of the covered entity under a valid, binding, and enforceable contract" (ibid [emphasis added]). In the preamble comments to the proposed rule, HRSA explains its belief that a provider's merely having privileges at a DSH does not constitute a "valid, binding, and enforceable contract," because the provider is under no obligation to provide health care services to the DSH (ibid).

In the preamble, HRSA also noted that it intends to look at whether an outpatient facility is "provider-based" under Medicare rules in assessing whether patients are covered under the 340B program. More specifically, HRSA will determine if the facility is sufficiently integrated into the hospital's main campus for individuals who receive care from the hospital outpatient facilities to be considered hospital "patients." Under the new guidelines, the facility would be required to prove its provider-based status either through its Medicare cost report, or, if the provider-based facility is not yet listed on the cost report, through a copy of the provider-based attestation form it submitted to its fiscal intermediary pursuant to 42 C.F.R. §413.65. The facility would also be under an obligation to "promptly notify" the Office of Pharmacy Affairs  if its provider-based status is "rejected or otherwise called into question" (ibid).  

Comments on these proposed changes were due March 13, 2007, and many covered entities wrote to disagree with various aspects of the new guidelines. For example, hospitals expressed concern that the proposed requirement that the prescribers of 340B medications be employed by or under contract with the covered entity fails to recognize the standard operating practice of most hospitals, where physicians are only granted staff privileges. Commenters also questioned HRSA's proposal that outpatient disproportionate share facilities must be provider-based to qualify for the program, because becoming provider-based may not make financial sense for some facilities. However, the proposed guidelines have not yet been finalized.



Christopher L. Keough, JD, is a partner, King & Spalding, Washington, D.C., and a member of HFMA's Virginia Chapter (ckeough@kslaw.com).

Stephanie A. Webster is counsel, King & Spalding, Washington, D.C., and is a member of HFMA's Virginia Chapter (swebster@kslaw.com).

Publication Date: Sunday, November 01, 2009

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