Effect of Patient Protection and Affordable Care Act on Hospital Pharmacies

This edition of IMA Insights explores some of the effects the Patient Protection and Affordable Care Act (PPACA) will have on hospital pharmacies. The article does so in the context of continuing healthcare reform focusing on reducing waste from within the healthcare system.   
The PPACA affects several aspects of hospital Pharmacy operations and financial performance. Three aspects addressed in this edition include: the purchase of medications through 340B Drug Pricing Program, transitional care activities, and the increasingly important role of clinical pharmacists in a Medication Therapy Management Program.
Challenges and Insights

340B Drug Pricing Program

The 340B Drug Pricing Program resulted from enactment of Public Law 102-585, the Veterans Health Care Act of 1992, so called because it is codified as Section 340B of the Public Health Service Act. Section 340B limits the cost of covered outpatient drugs to certain federal grantees, federally-qualified health center look-alikes, and qualified disproportionate share hospitals. The program allows covered entities to purchase medications at substantially reduced prices, with cost savings approximating 25 percent from participating pharmaceutical manufacturers. The manufacturers must adhere to established ceiling prices in sales of their drugs to 340B participants and must comply with detailed reporting of medications purchased through the program.

The current program covers only the purchase of medications used in an outpatient area, many of those branded and expensive. Further, participating hospitals can no longer purchase covered outpatient medications from their group purchasing organization. 

Many anticipated that the PPACA would expand the program to include inpatient drugs, as well. The final version of the bill did not include inpatient drugs. It did, however, modify the eligibility criteria for participation. PPACA lowered the eligibility requirements for children's hospitals, cancer hospitals, and critical access hospitals. Projections estimate that an additional 1,500 hospitals are eligible under the new provisions. 

The current legislation has one downside for those considering enrollment. It does not include "orphan drugs" - a pharmaceutical agent developed specifically to treat a rare medical condition. Generally, orphan drugs are high-cost medications provided by select few manufacturers.  


The reduced threshold requirements are significant enough to warrant review of a hospital's eligibility. Facilities must examine their disproportionate share percentage to determine if they meet or exceed the required threshold. Additionally, facilities should verify that their targeted outpatient clinics maintain Medicare provider-based status. The cost benefits of performing this review of systems and determining eligibility may substantially outweigh the required efforts.

Transitional Care Activities

PPACA recognizes the gaps in care coordination and communication that often occur when patients transfer from one setting to another (e.g., nursing home to hospital, hospital to home). Confusion over medications and inappropriate medication administration are often cited as primary reasons for hospital readmissions. To encourage increased focus on curtailing inappropriate hospital readmissions, PPACA establishes a hospital readmission reduction program that reduces hospitals' DRG payments for excessive hospital readmissions.  


Such impetus calls for hospitals to increase their focus on medication management across the continuum of care. The implementation of a proactive pharmacist-driven Medication Therapy Management Program provides an appropriate response to the call for action. This type of initiative requires a structured approach to medication reconciliation, both upon admission and at discharge. In turn, such a structured approach will be facilitated by improved use of personal medication records. 

In addition, Pharmacy must coordinate its efforts with those responsible for discharge planning to assure continuity. This is especially important with patients on high-impact medications (e.g. warfarin, low molecular weight heparin, insulin, blood glucose monitoring, IV antibiotics, anti-hypertensives). This enhanced program of patient-focused education at the point of care will improve patient outcomes and reduce readmission rates.

Effect of PPACA on Pharmacy Budget

The potential impact of the PPACA on inpatient admissions is well-documented elsewhere. Hospitals will likely experience increases in the number of inpatients seen. Increased inpatient utilization will inevitably lead to increased pharmaceutical consumption. Such increased pharmaceutical consumption leads to increased operational costs. And, this will occur in an environment of reduced reimbursement. 


Pharmacy Directors need to continuously review purchases and dispensing practices within the hospital. If not in place, establish a Clinical Pharmacist Program, ideally providing decentralized pharmacy services at the point of care. Develop guidelines to maximize the services of clinical pharmacists and contain medication costs through therapeutic interchange, intravenous to oral (IV-to-PO) conversion, and restricted medication protocols. Further, educate medical staff on cost comparisons of similar medications across therapeutic class with impacted savings for the hospital.
The expansion of eligibility criteria for the 340B Drug Pricing Program offer those hospitals that qualify for participation the opportunity to substantially reduce their outpatient medications expense. Increased focus on medication management and the contribution improved management systems can make to reducing potential readmissions will affect Pharmacy operations in multiple ways. These two actions, resulting from the PPACA, position the Pharmacy to refine its role, engage practitioners in positive change, and help improve both clinical care and financial performance.  
The changes included in the PPACA will have a significant impact on medication management systems and the role Pharmacy must lead to improved performance. If you have any comments or questions about this disproportionate share percentage, please call IMA Consulting at 484-840-1984. 

Best Regards,

Michael D. Alfano, RPh, JD

Senior Consulting Manager
IMA Consulting

Bob Gift
IMA Consulting