Urban hospital reclassifies as a Rural Referral Center to secure additional $2 million in drug expense savings

This case study highlights how Baker Tilly helped an urban hospital reclassify as a Rural Referral Center to secure additional Medicare reimbursements from the 340B Drug Pricing Program.

Client background

An urban hospital with 1,600 employees that provides inpatient and outpatient care to a rural community of nearly 200,000 people. The hospital has 133 inpatient beds and provides 36,500 patient days with more than 29,000 emergency room visits annually.

The business challenge

The company was classified as an urban hospital and had a Medicare disproportionate share hospital (DSH) payment percentage of less than 11.75%. Because its DSH payment percentage was not above the required 340B Drug Pricing Program threshold of 11.75 %, they did not qualify for 340B drug manufacturer discounts. In addition, it did not originally appear that the hospital qualified for any special rural designation status (e.g., Sole Community Hospital, Rural Referral Hospital, etc.). This would have allowed the provider to qualify for 340B drug manufacturer discounts if its Medicare DSH payment percentage was 8% or higher.

The Baker Tilly approach

Baker Tilly identified that the hospital could be reclassified as a Rural Referral Center if it were located in a rural area rather than the urban center it currently resided. Baker Tilly used the alternative criteria that the hospital was already meeting, as well as its knowledge of the reclassification process and regulations, to reclassify the provider as a rural hospital with a Rural Referral Center status.

The business impact

Because Baker Tilly helped reclassify the hospital as a Rural Referral Center, the company was able to qualify for the 340B Drug Pricing Program since it had a Medicare DSH percentage of greater than 8.0%. This designation, and subsequent 340B Drug Pricing Program eligibility and approval, provided the hospital with an additional $2 million in drug expense savings through the 340B program.

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help with special hospital designations, contact us now.