Protecting Program Income
by Joe Pugliese
This month, we’re trying something new with the Newsletter. Each month, we provide you with a series of articles on different issues that impact your center. This month, we’re running just a single article on one of the most important issues you may be facing: how to use and how to protect your program income so that it can be used in accordance with the grant rules specific to our community.
While the Alliance is first and foremost a group purchasing organization, our members have come to rely on us for many other services, including operational guidance, payer assistance, advocacy and guidance on compliance issues. Recently, centers have been contacting us on a weekly basis with program income questions and issues. I do not see much if any disagreement within the HTC network about what program income is and how it should be used, but it is a very different story when you ask ‘experts” in the 340B world who are not familiar with the grant rules specific to our community.
We do several things when we have a member approach us. First, we always recommend they also include their regional core center in any discussion. We also schedule time with the center to better understand the challenges they are facing. We have a collection of documents that we can provide to highlight the need for program income to be used to further the cause of the grant.
The last center we had a call with asked for a letter to specifically address these issues. We share our redacted response below. We had the appropriate regional administrator join the call and we understand the region is scheduling a virtual site visit to review how program income is used and has already made a couple of suggestions on additional staffing opportunities at the center. I’m sharing this as a reminder – both of what the rules are about use of program income, but also how the Alliance can help its members if we know what issues you’re having. As we often say – we work for you! So don’t hesitate to contact any of us with any questions or concerns.
Sample letter to an institution regarding use or program income:
To Whom It May Concern:
The Hemophilia Alliance is a not-for-profit group purchasing organization that comprises federally funded hemophilia treatment centers (HTCs) that either have, or are seeking to have, pharmacy programs under Section 340B of the Public Health Service Act (“340B Program”). The purpose of the Alliance is to promote the common interests of our member HTCs. In addition to providing support through advocacy, we provide consultant expertise and organizational support.
We are writing to provide background on the restrictions and requirements for recipients of Federal grants awarded through the Maternal Child Health Bureau’s (MCHB’s) Regional Hemophilia Network program and other requirements related to the 340B Program.
To carry out the Regional Hemophilia Network program, MCHB divides the country into eight regions and awards a grant to a single entity in each region. Such regional grantees then subaward funds to HTCs in their area. (“HTC”) receives Federal grant funds from a Regional Core Center as part of the Regional Hemophilia Network (“Subaward”). As indicated in the Subaward, HTC is subject to the Department of Health & Human Services’ (HHS’) grant administrative regulations and Federal Cost Principles at 45 CFR Part 75, the HHS Grant Policy Statement, and MCHB grant guidance. (See Subaward at Program Specific Term 1 and Standard Term 1).
45 C.F.R. Part 75: Program Income and Bad Debt
Under the terms of the Subaward, HTC is subject to program income requirements detailed in 45 CFR § 75.307. Program income is defined as gross income that a grantee or subgrantee receives that is directly generated by a grant supported activity, or “earned as a result” of the award. Under 45 C.F.R. § 75.307, HTC program income must be added to Federal funds and “must be used for the purposes and under the conditions of the Federal award.” As described in the Regional Hemophilia Network Funding Opportunity Announcement, MCHB defines eligible activities to include patient health, education, and supportive services necessary to provide comprehensive care to patients served by HTCs. Consequently, program income generated by an HTC may only be used for certain authorized purposes.
The Health Resources and Services Administration (HRSA) regards any and all revenue that an HTC earns as program income, including for HTCs located within 340B-eligible hospitals and utilizing the hospital’s pharmacy. The HTC Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act (July 2005) states on page 29 that: “In brief, FRP (factor replacement product) revenue, whether or not the HTC is a 340B covered entity, is program income and subject to the rules for that kind of income in the grant regulation and the policy statement.” Thus, all revenue derived from HTC patients filling their prescriptions written by doctors as part of the HTC’s outpatient clinic activities is subject to program income rules. This revenue must be restricted to expenditures that will benefit the HTC and its patients and be reported to the Region.
HTC’s Subaward also is subject to the Cost Principles codified at 45 CFR Part 75, Subpart E. Importantly, 45 CFR §75.426 of the Cost Principles prohibits the use of funds for “bad debts.” 45 C.F.R. §75.426 states that, “bad debts (debts which have been determined to be uncollectable), including losses (whether actual or estimated) arising from uncollectable accounts and other claims, are unallowable. Related collection costs, and related legal costs, arising from such debts after they have been determined to be uncollectable are also unallowable.” As such, HTC may not lawfully use the funds generated by HTC activities to offset inpatient losses.
Best Prices Obligation
HTCs also must obtain drugs at the best available price. Subaward Program Specific Term 2 states, “consistent with Departmental guidance, HRSA grantees that purchase, are reimbursed or provide reimbursement to other entities for outpatient prescription drugs are expected to secure the best prices available for such products and to maximize results for the grantee organization and its patients.”
HTC Utilization of Group Purchasing Organizations
HTCs, which are a part of a 340B-eligible hospital, are allowed to utilize Group Purchasing Organizations (“GPO”) if they meet certain requirements. Apexus FAQ ID: 2653 states,
Q: May a Hemophilia Treatment Center (HTC) that is part of a hospital participate in a GPO for outpatient drugs?
A: The answer depends on how the HTC is registered with respect to the hospital. If the HTC is otherwise an eligible entity and registered as such (with a 340B identification number beginning with HM), then it is not subject to the GPO prohibition and may purchase covered outpatient drugs through a GPO arrangement through its HTC 340B ID and account. This is true whether the HTC is within the four walls of a parent hospital subject to the GPO prohibition or located at an off-site outpatient clinic of a hospital subject to the GPO prohibition. However, in no circumstances may a hospital use the HTC’s GPO to circumvent the GPO prohibition. If the HTC is not registered for the 340B Program as a child site of the hospital, it may use a GPO for covered outpatient drugs provided that it meets all of the following: 1. Is located at a different physical address than the parent; 2. Is not registered on the 340B OPAIS as participating in the 340B Program; 3. Purchases drugs through a separate pharmacy wholesaler account than the 340B participating parent; and 4. The hospital maintains records demonstrating that any covered outpatient drugs purchased through the GPO at the HTC are not utilized or otherwise transferred to the parent hospital or any outpatient facilities registered on 340B OPAIS
As such, for HTC’s HTC to continue to utilize a GPO it cannot be included in the hospital’s 340B OPAIS listing. Accordingly, HTC’s HTC program is eligible for both the 340B Program and use of a GPO because of its receipt of federal grant funds and must utilize all funds in accordance with related federal rules.
The Alliance wants to support all HTCs in operating high-performing and compliant programs. We are here to help. Please contact us with any questions or concerns.
President & CEO
The Hemophilia Alliance
General Counsel, The Hemophilia Alliance
Principal Attorney, Karan Legal Group
(1) Financial Responsibilities of HTCs
(2) HTC Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act (July 2005)
(3) Regional Hemophilia Network Funding Opportunity Announcement, dated October 4, 2016