Hospitals and health systems across the country are grappling with changes in Medicaid eligibility brought on by recent industry shifts, including regulatory changes, the end of the public health emergency (PHE), Medicaid redetermination, and the halt of continuous enrollment.

These seismic shifts have created a significant financial crisis for many health organizations: the loss of 340B Drug Pricing Program (340B) eligibility and access to beneficial drug pricing under the 340B program.

The 340B loss is costing organizations tens-of-millions of dollars in savings—for larger systems it can be in the hundreds of millions of dollars, annually. Health systems already suffering negative or thin margins can face bankruptcy.

Safeguard access to 340B pricing—as well as solve other challenges—with the following insights into actionable strategies.

Background

Many safety-net health care organizations rely on savings generated from participation in the 340B program to stretch federal funding and other resources, reach more eligible patients, and provide more comprehensive services to their communities.

For hospitals, the ability to access the beneficial 340B drug pricing is based on the Medicare DSH calculation comprised of the ratio of inpatient services provided to Medicaid patients as compared to all patients, and the latest available Social Security Income (SSI) ratio comparing the patients at the hospital who are Medicare Part A or C and SSI eligible compared to all Medicare Part A and C eligible patients treated in the hospital.

To be eligible for the 340B Drug Pricing Program, a hospital must meet a certain DSH patient percentage threshold. The specific threshold for eligibility is to be greater than 11.75% with the exception of hospitals classified as sole community or a rural referral center. Sole community or rural referral center hospital classes have a DSH percentage threshold of 8.00% to qualify for 340B with the incentive to have DSH percentage greater than 11.75% for orphan drug discounts.

This means that a hospital must have a minimum of 8.00% or above 11.75% of its patient population coming from low-income or Medicaid-eligible individuals—which is reflected in the DSH calculation—to participate in the 340B program based on the hospital classification.

Some hospitals, such as children’s hospitals and freestanding cancer hospitals, may have different requirements or may be exempt from this threshold if they meet other eligibility criteria.

Reimbursement Strategy

340B qualification is determined by the latest filed CMS 2552 Medicare cost report, which is a summary of the hospital’s yearly financial activity. The hospital has five months after the close of the fiscal year to submit the cost report and alert the Health Resources and Services Administration (HRSA) of its 340B eligibility status. By the time the hospital submits this cost report, it can be too late to initiate actions that result in a qualifying DSH percentage.

The savings afforded by qualifying for the 340B program have such a large impact that any uncertainty year to year can create a tremendous financial burden. Understanding in real time the multiple factors that contribute to the qualifying Medicare DSH percentage allows management to anticipate how current calculations and decisions can affect the hospital for years to come.

The following are short- and long-term initiatives that can help hospitals increase their DSH percentage.

• Use real time Medicaid eligibility matching on an interim basis to get a sense of your DSH percentage before the fiscal year ends
• Research and understanding Medicaid programs and insurances in your state and bordering states to leverage the population included in the numerator of the DSH calculation
• Isolate and review individual portions of the Medicare DSH calculation, such as Medicaid days, total acute inpatient days, and SSI fraction
• Work with a vendor or create external outreach and community programs at the hospital to help patients who may qualify for Medicaid complete the application process.
• Perform analysis of high Medicaid utilization exempt units to determine if 340B savings outweigh the current reimbursement mechanisms
• Perform mileage analysis as a health system to determine potential relicensing of units to other health system providers to maximize reporting for the Medicare DSH calculation
• Analyze the population of Medicare eligible patients and Medicare eligible SSI entitled patients as a predictor for SSI fraction used in the Medicare DSH calculation in future years; the SSI fraction is on a two-year delay from the latest published year to the calendar year

Service Line Strategy

In addition to reimbursement-focused tactics, hospitals should evaluate broader operational levers—particularly through service line strategy—to safeguard 340B eligibility.

Service lines are specialty-specific subdivisions of health care that are organized around types of clinical service, such as cardiovascular, orthopedics, and labor and delivery. Service line strategy involves the development or refinement of specialty care delivery within the acute setting, coordinated with ambulatory care in a way that’s organized, efficient, and drives high quality and physician and patient satisfaction, thereby increasing marketability and attracting more patients.

Increasing effectiveness involves developing processes and structures that foster high-quality, efficient care supported by dedicated administrative capabilities. From a conceptual standpoint it’s quite simple. From a practical standpoint, success can be extremely elusive.

Proven tactics that can have a positive impact include:

• Analysis to identify and study the root causes of challenges and the impact of levers that can improve operations that impact qualification
• Organization of modalities in a logical manner that harnesses specialty knowledge and experience
• Coordination with pre- and post-acute providers, such as physicians, physician groups, ancillary service providers, social service agencies, to develop an organized and thoughtful approach to care and effectuate care transitions
• In-house clinical processes that move patients through their care episode as effectively and efficiently as possible starting with intake including the emergency room, and hyper-effective discharge planning (throughput)
• Business processes that facilitate functions, such as care coordination, administrative components of care episodes
• Connectivity between the inpatient and ambulatory ecosystems that prioritizes effective treatment of patients, organized around service lines
• Structural and licensing considerations to logically leverage opportunity
• Strategy that drives growth and market share

The chassis design must incorporate all the above to have meaningful and lasting impact.

Once the basic framework is developed, approach can be customized to prioritize whatever is most important. If financial losses are significant enough, a complete system overhaul might be the answer. If the loss or potential loss of 340B pricing is going to be a big problem, focusing on those areas that drive Medicaid volumes may be the priority.

Again, this isn’t a simple challenge to overcome, but the environmental reality is giving leaders minimal options. It’s either adopt strategies that support 340B participation, barely muddle along, or experience severe financial hardship.

Organizations who are struggling with 340B or have declining ratios approaching the qualification thresholds need to act now as operational mitigation strategies take time to implement and generate results.

We’re Here to Help

To learn how your organization can leverage strategies to maintain 340B participation, contact your Moss Adams professional.

Additional Resources

• Health Care Practice
• Health Care Consulting Services
• Provider Reimbursement Services