On October 26, 2023, the Health Resources and Services Administration (HRSA) issued a Notice to “inform and remind” 340B Program covered entities that to be considered eligible for the 340B program, an off-site outpatient facility of a covered entity (commonly referred to as a “child site”) must be reimbursable on the covered entity’s most recently filed Medicare cost report (MCR) and listed in the Office of Pharmacy Affairs Information System (OPAIS) as a child site of the covered entity. HRSA explained it had determined to end the “waiver” of these requirements implemented during the COVID-19 public health emergency (PHE). HRSA is giving hospitals 90 days to come into compliance with the notice’s requirements. Hospitals with unregistered child sites should consider whether it is appropriate to take further action pursuant to the notice at this time.

IN DEPTH

Background

In 1994, HRSA issued guidance on the participation of covered entities’ off-site outpatient facilities in the 340B program. Those guidelines required hospital covered entities to take the following actions before a child site could be considered part of the covered entity:

• List any off-site outpatient facility as reimbursable on the hospital’s most recently filed MCR
• Include associated costs and charges for the facility on the MCR most recently filed with the Centers for Medicare and Medicaid Services (CMS)
• Register the facility in OPAIS as a child site of the covered entity

Under the 1994 guidance, once fully registered in OPAIS, such facilities were eligible for 340B discount pricing because HRSA considered them “an integral component of” the covered entity eligible for participation. However, because cost reporting and OPAIS registration may not occur until almost two years after a child site opens, this policy deprives covered entities of the ability to purchase 340B drugs at these sites for an extended period of time after opening, even though the Medicare program may consider these sites part of the hospital immediately upon opening.

COVID-19 Policy

On June 6, 2020, in response to the COVID-19 PHE, HRSA posted to its website a COVID-19 Resources page that announced “waivers” for certain 340B program requirements, including certain auditable record requirements and volunteer health professionals. Separately, an “FAQs” section of the website addressed “some general frequently asked questions (FAQs) related to COVID-19.” HRSA explained in one such FAQ that “for hospitals who are unable to register their outpatient facilities because they are not yet on the most recently filed Medicare Cost Report, the patients of the new site may still be 340B eligible to the extent that they are patients of the covered entity.” In other words, an outpatient facility was no longer required to be listed as a reimbursable cost on a covered entity’s most recently filed cost report and registered in OPAIS to be considered part of the 340B covered entity. HRSA did not indicate it was temporarily “waiving” the MCR filing requirement, and in subsequent communications, HRSA officials stated that the eligibility approach announced on the COVID-19 resources page reflected a permanent policy change that would extend beyond the PHE.

Notice Purports to Recharacterize COVID-19 Policy

In its October 26 notice, HRSA purports to recharacterize the eligibility approach announced in 2020 as a temporary “waiver.” HRSA noted that the “burden of registration and including a facility in the next filed MCR does not take significant resources, and hospitals making good faith efforts to come into compliance should be able to adjust operations within this transition time period.” The notice did not support this statement with evidence, nor did it acknowledge that the cost report and registration requirements can delay access to 340B drug pricing by almost two years, requiring many covered entities to pay drug manufacturers millions of dollars in higher drug prices during the interim period.

Notice’s Enforcement Delay

Stating that some covered entities “believed the waiver would continue indefinitely,” the notice provided a transition period for covered entities to bring their off-site facilities into compliance with the 1994 requirements. The transition period, requirements for hospitals, and procedures for compliance differ based on the child site’s circumstances:

• Sites currently listed on the hospital’s most recently filed MCR with associated outpatient costs and charges, but not yet registered in OPAIS:
  • May continue to use 340B drugs for patients
  • Must register in OPAIS within the next 340B program quarterly registration (January 1–16, 2024)
• Sites not listed on the hospital’s most recently filed MCR and not registered in OPAIS:
  • May continue to use 340B drugs for patients if:
    • They opened prior to October 27, 2023, and
    • They began using 340B drugs prior to October 27, 2023
  • Must email HRSA at 340Bcompliance@hrsa.gov prior to January 25, 2024, with the following:
    • Name of the child site
    • Date the child site will be listed on the hospital’s MCR (which must be the next filed MCR) with associated outpatient costs and charges
    • Date the hospital will register the child site in OPAIS
• Sites not in compliance with requirements that otherwise do not fall under either of the above categories:
  • Must stop using 340B drugs prior to January 25, 2024

HRSA did not invite comment to the notice.

Analysis

The notice reiterates HRSA’s position on unregistered child site eligibility and provides HRSA’s rationale for reverting to its 1994 policy after the PHE ended. HRSA indicated in May that it would revert to the 1994 policy when the PHE ended by removing the COVID-19 FAQs from its website and subsequently issuing audit findings deeming unregistered child sites noncompliant with the 340B statute’s requirements. However, at that time, HRSA did not set forth its rationale for reverting to the 1994 policy.

The notice does not explain how the 1994 eligibility requirements are consistent with the 340B statute’s covered entity and hospital definitions, as currently interpreted by CMS, nor does it explain how HRSA could have temporarily waived the 1994 registration requirements if the requirements were, in fact, established by statute—the 340B statute does not authorize HRSA to waive statutory requirements. The notice references CMS’s Medicare provider-based standards that interpret the statutory definition of a hospital for enrollment and reimbursement purposes, but the notice does not attempt to reconcile HRSA’s differing interpretation of the same statutory text.

HRSA’s rationale for reverting to its 1994 policy focuses on potential program integrity concerns arising during the PHE, asserting that the 2020 policy “added risk and complexity to HRSA’s ability to effectively oversee ongoing compliance in the 340B program.” HRSA noted that it had “significant challenges” determining compliance for sites that were not reported on a cost report and registered in OPAIS because “it was unclear whether the unregistered sites would ever be eligible and an integral part of a 340B hospital.” HRSA did not consider relying on satisfaction of the Medicare provider-based rules to determine if an unregistered site was an integral part of a 340B hospital, even though such satisfaction is the standard CMS uses to make the same determination. HRSA also did not indicate that any of its program integrity efforts have actually identified an unregistered child site that was not “an integral part of the 340B hospital.”

Covered entities with unregistered child sites that are in a position to comply with the notice’s options and timelines may choose to do so to reduce the risk of audit and adverse audit findings. However, the notice indicates that HRSA is taking the position that covered entities with child sites that will appear on their next MCR are subject to HRSA’s 1994 policy, and under that policy are unable to purchase 340B drugs for these locations before the locations are reported on the MCR and registered in OPAIS.

McDermott Will & Emery law clerk, Jae Hyun Lee, also contributed to this On The Subject.

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