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Long-Awaited Proposed 340B Omnibus Guidance Narrows “Patient” Definition

on Monday, 12 October 2015 in Health Law Alert: Erin E. Busch, Editor

In late August 2015, the Health Resources and Services Administration (HRSA) released highly anticipated proposed guidance for its 340B Drug Pricing Program, which has caused uncertainty for the program’s thousands of participants—including Critical Access Hospitals—if it finalizes the proposed Omnibus Guidance.

The 340B Program traces its roots to the Veteran’s Health Care Act of 1992 and it permits hospitals and other health care providers—known as 340B “covered entities”—to purchase outpatient drugs at a significant discount in order to use the savings to expand its services to more patients using the additional revenue received by virtue of being Program participants. At an approximated discount that exceeds 20 percent per drug, the over 2,000 participating covered entities saved nearly $4 billion in fiscal year 2013 alone.

A significant portion of the nearly $4 billion spent in FY2013 was due to the passage of the Patient Protection and Affordable Care Act in 2010, which added Critical Access Hospitals to the ranks of those eligible to participate as covered entities. But despite its growth in popularity, the program has remained relatively unchanged since its inception in 1992.

Arguably, the August 28, 2015 proposed Omnibus Guidance’s most significant change to the Program’s current hodgepodge of guidance is the definition of “patient.” 340B covered entities are prohibited from transferring or selling drugs purchased at a 340B discount to individuals who are not considered “patients.” For the definition of “patient,” HRSA has relied on a 1996 three-part test, the first two components of which are relevant for hospitals:

(1) The hospital and individual have a health care relationship such that the hospital maintains a record of the care; and

(2) The hospital retains responsibility for the care provided to the individual and either employs or has a contractual arrangement with a health care professional whom provides health care services to the individual.

In the Omnibus Guidance, the HRSA proposed to expand the elements of “patient” from three to six, one of which is not applicable for the majority of participating hospitals. In introducing the definition—whose practical effect is to potentially limit individuals eligible for 340B drugs—U.S. Department of Health and Human Services alluded to learning through Program audits of the wide array of covered entities and how the existing definition of “patient” is applied in those settings. The expanded elements are designed to address the “diverse set” of 340B covered entities.

Under the new test, the individual must:

(1) Receive a health care service at a “covered entity site” (i.e., hospital or child site) which is registered for the Program and listed on the 340B database;

(2) Receive a health care service from a covered entity provider. The provider must be either employed by the covered entity or an independent contractor, such that the covered entity may bill for services on behalf of the provider;

(3) Receive a drug that is ordered or prescribed by the provider as a result of the service described in (2) above (here, an individual is not a “patient” if the only health care service is the infusion or dispensing of a drug);

(4) NA.

(5) Be classified as an outpatient when the drug in (3) is ordered or prescribed, which will be determined based on how that service is billed to the insurer; and

(6) Have his or her patient records accessible and auditable by the covered entity and demonstrate that the covered entity is responsible for care. The record must be able to demonstrate compliance with all applicable elements of the proposed definition of “patient.”

The practical effect is to narrow the realm of individuals eligible to receive drugs purchased at the 340B discount. Under the 1996 definition of “patient,” individuals qualified for 340B discount drugs by meeting both prongs, or all three if the covered entity or child site was providing service under a federal grant. If a patient received care at the hospital and a health care professional that provided services was employed or had a contractual arrangement with the hospital, he or she was eligible to receive a drug purchased by the hospital at the discounted 340B price. Some industry commenters have noted HRSA’s new definition is designed to more closely align individuals receiving 340B eligible drugs with the program’s original intent.

Although the Omnibus Guidance introduces significant changes to the 340B Program, it should be stressed that at this point the guidance is only proposed and is not yet final. Covered entities and are still able to provide comments on specific provisions of the proposals on or before October 27, 2015. Anyone can provide comment by either: visiting the Federal eRulemaking Portal ( and searching “340B Omnibus Guidance; emailing with “RIN 0906-AB08” in the email’s subject line; or mailing an official comment to Krista Pedley, Director, Office of Pharmacy Affairs (OPA), Health Resources and Services Administration (HRSA), 5600 Fishers Lane, Mail Stop 08W05A, Rockville, Maryland 20857.

Zachary J. Buxton

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500