On October 26, the Health Resources and Services Administration (HRSA) issued a notice clarifying the registration requirements for offsite hospital outpatient facilities under the 340B drug pricing program. The Notice, which will be published in the Federal Register on October 27, addresses confusion among hospitals created by the end of the COVID-19 public health emergency (PHE) in May when HRSA removed a statement on its website suggesting hospitals could use 340B drugs in new clinics that are not yet registered as child sites if they meet the Medicare provider-based rules.

The Notice refers to the pandemic-era statement as a “waiver” specific to the PHE. HRSA announced an end to the “waiver,” a return to HRSA’s prior policy, and a transition period for hospitals to come into compliance. Hospitals that have recently opened or will be opening new clinics that use or plan to use 340B drugs should review the Notice and evaluate compliance implications.

Child Site Registration Policy and HRSA “Waiver”

Historic HRSA guidance instructed hospitals not to use 340B drugs in new clinics until they are registered in the HRSA Office of Pharmacy Affairs Information System (OPAIS) as “child sites” of the hospital. Hospitals could not register a new clinic unless there were costs and charges associated with the clinic appearing on a reimbursable line of the hospital’s most recently filed Medicare cost report. A clinic will appear on a reimbursable line of the cost report if it meets Medicare’s provider-based rules, which require the clinic to be fully integrated with the hospital, both clinically and financially. Because hospitals file cost reports once a year, there is typically a lag time between the date a new hospital provider-based clinic opens and the date the new clinic actually appears on the filed cost report.

In June 2020, HRSA issued a statement on its website outlining flexibilities during the COVID-19 PHE, reiterating that hospitals could not register new offsite facilities as child sites until they appear on a reimbursable line of the most recently filed cost report. However, the statement also noted that, for hospitals unable to register a new clinic because it is not yet on the cost report, individuals treated in the new clinic may still be eligible to receive 340B drugs if they are 340B-eligible patients of the hospital. Hospitals understood this to be a clarification of HRSA policy, not a flexibility or waiver specific to the PHE, confirming hospitals may use 340B drugs in new clinics not yet registered in OPAIS so long as the clinics meet the provider-based rules and will appear on the next filed cost report. HRSA removed this statement from its website upon the expiration of the PHE in May, creating confusion as to HSRA’s policy on the use of 340B drugs in new clinics.

In the Notice, HRSA—for the first time—refers to the June 2020 statement as a “waiver” of the requirement for offsite clinics to be listed on the most recent cost report and registered as child sites to participate in 340B. HRSA announced an end to the “waiver” and a transition period for hospitals to “come into compliance,” given that “some covered entities believed the waiver would continue indefinitely and would not be tied to the end of the PHE.”

Exceptions and 90-Day Transition Period

With the end of the “waiver,” HRSA indicated a return to its prior policy that hospitals may not use 340B drugs in unregistered sites that are not listed on the most recently filed cost report, with two exceptions:

  1. A site that is currently listed on the most recently filed cost report but is not yet registered in OPAIS may continue to use 340B drugs pending registration in OPAIS during the next registration window (January 1-16, 2024).
  2. A site that is not yet listed on the cost report may continue to use 340B drugs if the site was “opened and began using 340B drugs” prior to publication of the Notice. The hospital must email HRSA within 90 days of publication of the Notice (which should be January 25, 2024) with the date the site will be listed on the cost report and registered in OPAIS, and the hospital must register the site “at the soonest possible opportunity.” Given the lag until a new clinic may appear on the next filed cost report and the quarterly registration process, it may be some time until such a hospital is able to register the site.

Hospitals using 340B drugs at unregistered sites that do not meet one of these two exceptions will be “out of compliance and must stop using 340B drugs at these unregistered sites as soon as practically possible, but no later than 90 days after publication of [the Notice].” After the 90-day grace period, non-compliant hospitals “may be subject to audit and compliance action.”

Possible Penalties for Non-Compliance

It is not clear what types of audit findings HRSA may issue for non-compliance after the 90-day grace period. HRSA issues audit findings for incorrect OPAIS entries, which do not have associated financial penalties. Audit findings related to the 340B statute’s prohibitions against diversion and Medicaid duplicate discounts can require repayment to drug manufacturers or state Medicaid agencies. In the Notice, HRSA explicitly references the statutory citation for the prohibition against duplicate discounts, and HSRA also notes that the use of 340B drugs in unregistered sites could lead to “possible diversion” and requiring registration of child sites may “decrease the risk of diversion.” HRSA also issues hospital eligibility findings, and the Notice discusses HRSA’s policy goal of verifying eligibility for offsite outpatient facilities.

Please contact the authors if you have any questions about 340B hospital child site registrations or other 340B program matters.