Hospitals Subject to New Standards for Documenting 340B Program Eligibility

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Davis Wright Tremaine LLP

The Health Resources and Services Administration (“HRSA”), which is the branch of the U.S. Department of Health and Human Services that administers the federal 340B Drug Discount Program (“340B Program”), recently announced new, more exacting standards for the documentation hospitals must maintain in order to meet the eligibility criteria to participate in the 340B Program. These new standards impact not only hospitals seeking to register for 340B Program participation for the first time, but also hospitals already in the Program.

Under controlling federal statutes, only certain categories of hospitals are eligible to participate in the 340B Program. Specifically, to be 340B-eligible, a hospital must be: (1) owned or operated by a unit of state or local government; or (2) a public or private non-profit corporation which is formally granted governmental powers by a unit of state or local government; or (3) a private non-profit organization which has a contract with a state or local government to provide healthcare services to low income individuals who are not entitled to benefits under the Medicare and Medicaid programs. In early 2019, HRSA implemented more demanding requirements for the documentation necessary for a hospital to confirm it falls within one of the aforementioned eligibility categories. The new documentation standards are set forth in detail in HRSA’s “340B Program Hospital Registration Instructions,” which are available on the HRSA - Office of Pharmacy Affairs website.

An example of the kind of documentation HRSA is now requiring hospitals to have available is as follows: a facility that is eligible to participate in the 340B Program based on having a contract with a state or local government agency for providing indigent care, must have available both documentation confirming the entity is non-profit, such as Articles of Incorporation, Bylaws or documentation from the IRS, and a copy of the contract between the hospital and government agency. The contract between the agency and hospital must make clear who executed the agreement on behalf of each party, be signed by all parties, and clearly indicate the effective dates of the arrangement. Hospitals do not have to upload these documents onto the HRSA website at the time of registering for 340B Program participation, but must make them available to HRSA upon request.

As mentioned, these new documentation standards pertain to hospitals already participating in the 340B Program as well as to new applicants. HRSA announced on its website that, starting April 1, 2019, the agency will be “conducting additional program integrity reviews” pursuant to which hospitals may be asked to provide the relevant documentation. HRSA further indicates in the new 340B Program Hospital Registration Instructions that the documentation described in the instructions must be in place at the time of “annual recertification” for hospitals already participating in 340B. Given how HRSA intends to implement the new documentation standards, hospitals that already are 340B-covered entities should review HRSA’s new 340B registration instructions and confirm they have all required documents on file and available for HRSA’s review.

In our work with 340B-covered entities, this office has witnessed long-time 340B participants lose or fail to renew government agency indigent care contracts. Under HRSA’s new documentation policies, such oversights could jeopardize a facility’s 340B Program eligibility. Therefore, to ensure continued, uninterrupted 340B Program participation, it is critical that hospitals take steps to confirm they can provide the kind of documentation HRSA now requires to verify program eligibility.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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