340B: Are We Monitoring Compliance
Effectively and Efficiently
Michael Earls, CPA
Senior Manager
BKD East Region 340B Drug Program Leader
mearls@bkd.com
June 11, 2014
Overview of Today’s Presentation
• Todays presentation has three (3) primary learning
objectives:
Discuss recent developments of the 340B drug program (10 15 minutes)
2.
Apply recommended audit procedures to ensure ongoing
compliance (10 - 15 minutes)
3.
Apply recommendations for opportunities to maximize
savings, some of which may have additional reimbursement
opportunities not related to 340B (10 minutes)
Slides providing a quick recap and hot topics included – not
covered today, provided for informational purposes
1.
3
Overview of Today’s Presentation
Please ask questions! Will hold 5 – 10 minutes for Q&A
and available afterword, but feel free to ask
throughout the presentation
3
340B Program: Recent Developments
Several recent communications from HRSA/OPA and
others:
• Orphan drug rule changes – 2013 (see next slide)
• Recertification changes (annual requirement) – 2013
• Program audit results – 2014
• 340B Drug Pricing Program: Important Benefit,
Significant Responsibility – 2014
• Contract pharmacy oversight – 2014
• Hospital registration overview – 2014
9
340B Program: Recent Developments
• HHS Fiscal 2014 Budget and OIG Work Plan
• Charity Care concerns (2014 – Alliance for Integrity
Reform of 340B)
• Continued negative media attention
• Federal Court vacates orphan drug rule - 2014
9
340B Program: Recent Developments
Orphan drug rule changes (2013)
• Orphan drug rule is applicable to covered entities
participating as SCH, RRC, CAH & free-standing
cancer hospitals
• Since 2010, these types of covered entities have
been unable to purchase orphan drugs at 340B price,
regardless of illness the drug was prescribed to treat
• Orphan drugs are defined by§ 526 of Federal Food,
Drug, and Cosmetic Act for rare disease or condition
9
340B Program: Recent Developments
Orphan drug rule changes (2013)
• July 23, 2013, Health Resources Services
Administration (HRSA) published long-awaited final
regulations on orphan drugs
• Based upon issuance of final regulations, the
following changes occurred October 1, 2013
o
10
Covered entities registered as SCH, RRC, CAH & freestanding cancer hospitals will be eligible to receive 340B
pricing on orphan drugs where orphan drugs are not used
to treat rare disease referred to as orphan illness
340B Program: Recent Developments
Orphan drug rule changes (2013)
• Based upon issuance of final regulations:
o
o
o
11
Anticipated result – additional savings for some covered
entities
HRSA makes it clear covered entity has responsibility to
maintain auditable records that demonstrate compliance
with terms of orphan drug exclusion requirements
Rule is expected to continue protecting financial incentives
for manufacturing drugs designated as orphan drugs
340B Program: Recent Developments
Orphan drug rule changes (2013)
• Potential concerns or issues if 340B-covered entity
uses orphan drugs within 340B-eligible patients
o
o
12
Development of auditable tracking system
How to ensure prescriptions filled at covered entity’s retail
pharmacy or through contract pharmacy were not related
to treatment of rare disease (is an eligible dispensation)
340B Program: Recent Developments
2013 Recertification Process Changes
• Some changes to recertification process authorizing
officials should be aware of
• Changes emphasize importance of understanding
qualification requirements
• Some very specific attestations that caused many
covered entities to challenge internally their
understanding of program
13
340B Program: Recent Developments
2013 Recertification Process
• Authorizing official must attest to following eight
statements
• “As an Authorized Official, I acknowledge the 340B
covered entity’s responsibility to abide by & further
certify on behalf of the covered entity that:
1. all information listed on the 340B Program database for
the covered entity is complete, accurate, and correct;
14
continued on next slide
340B Program: Recent Developments
2. the covered entity meets all 340B Program eligibility
requirements, including section 340B(a)(4)(L)(iii) if applicable –
the Group Purchasing Organization prohibition – which ensures
that the covered entity does not obtain covered outpatient
drugs through a group purchasing organization or other group
purchasing arrangement;
3. the covered entity is complying with all requirements and
restrictions of Section 340B of the Public Health Service Act and
any accompanying regulations or guidelines, including, but not
limited to, the prohibition against duplicate discounts/rebates
under Medicaid and the prohibition against transferring drugs
purchased under 340B to anyone other than a patient of the
entity;
continued on next slide
15
340B Program: Recent Developments
4. the covered entity maintains auditable records demonstrating
compliance with the requirements described in paragraph (3)
above;
5. the covered entity has systems/mechanisms in place to ensure
ongoing compliance with the requirements described in (3) above;
6. if the covered entity uses contract pharmacy services, that the
contract pharmacy arrangement is being performed in accordance
with OPA requirements and guidelines, including, but not limited
to, that the covered entity obtains sufficient information from the
contractor to ensure compliance with applicable policy and legal
requirements and the entity has utilized an appropriate
methodology to ensure compliance (e.g., through an independent
audit or other mechanism);
16
continued on next slide
340B Program: Recent Developments
7. the covered entity acknowledges its responsibility to contact
OPA as soon as reasonably possible if there is any material
change in 340B eligibility and/or material breach by the
covered entity of any of the foregoing; and
8. the covered entity acknowledges that if there is a breach of the
requirements described in paragraph (3) that the covered entity
may be liable to the manufacturer of the covered outpatient
drug that is the subject of the violation, and depending upon
the circumstances, may be subject to the payment of interest
and/or removal from the list of eligible 340B entities.”
17
340B Program: Recent Developments
• These attestations are very important!
• Critical to understand where 340B is being
utilized, and compare independently to
database
• What are your systems/mechanisms for
ensuring ongoing compliance?
• Material breach – FAQ ID 1665 (Apexus) –
refers to non-compliance with any 340B
program requirements
17
340B Program: Recent Developments
Compliance trends
• March 2010 – PPACA requires GAO study on use &
oversight of 340B program
• September 2011 – GAO issues report
 Covered entities are effectively using the program
 Oversight is lacking
 Need for clearer guidance evident (specifically regarding
definition of patient)
 Still pending – HRSA is currently drafting omnibus 340B
rule – June 2014?
18
340B Program: Recent Developments
Brief history (continued)
19
o
October 2011 – HRSA OPA issues response to Senator
Grassley’s concerns, similar to GAO report
o
Indicates selected audits will begin in 2012
o
March 2012 – Policy release describing audits
o
Expansion of covered entities & appeal of contract
pharmacy option have created additional attention to
program
340B Program: Recent Developments
Compliance trends
• Common findings from HRSA reviews include
o
Incorrect database information
o
Diversion and duplicate discounts
*Compliance with these requirements remains hospital’s obligation
even in contract pharmacy arrangement
• Expectation of Corrective Action Plan for Findings
o When diversion & duplicate discount findings occur,
timelines & resolution processes are required
21
340B Program: Recent Developments
Compliance trends
•
21
What potential findings/concerns are we seeing:
o
Lack of formal policies and procedures
o
Incorrect database information
o
Evaluation of differing contract pharmacy dispensation fee arrangements
o
Internal processes to review the program
o
Understanding of how to MD election was made and potential effect on Managed Care plans
o
Others
340B Program: Recent Developments
• 340B Drug Pricing Program: Important Benefit,
Significant Responsibility – 1/2014
29
o
Continued emphasis from HRSA and belief 340B Drug
Program is critical in stretching scarce federal resources
o
Notes studies support covered entities using savings to
expand volume of care to vulnerable patient populations
o
HRSA stated “the 340B program provides eligible entities
with an important benefit that comes with significant
responsibility”
340B Program: Recent Developments
• Contract Pharmacy Oversight – 2/2014
29
o
HRSA re-emphasizes commitment to strengthening
340B program integrity
o
Indicates it has renewed focus around contract pharmacy
arrangements
o
Covered entities remain ultimately responsible for
compliance; compliance challenges are unique
o
Stronger language around independent audits expected
o
Indicated no oversight, violation of program requirements
340B Program: Recent Developments
• Hospital Registration Overview – 4/2014
29
o
HRSA releases updated guidance regarding process and
requirements for registration of eligible hospitals and
participating child sites
o
Hospital registration process – requirement of complete
enrollment package or registration will be deleted!
o
For child sites, need to register each service separately
(example provided is an off-site location that provides
radiology, physical therapy, and pediatric)
340B Program: Recent Developments
• HHS Fiscal 2014 Budget and OIG Work Plan
o
$6 million of additional funding for program oversight

o
Endorsed by SNHPA and PhRMA
Work plan includes two program initiatives:
1.
Contract pharmacy arrangements and extent to which covered
entities and HRSA oversee compliance
2.
Determine what steps HRSA has taken to address OIG’s previous
recommendation to provide 340B-covered entities with access to
340B ceiling prices
29
340B Program: Recent Developments
• Negative Media Attention
o
There is an element of reputational risk in addition to
compliance risk!
o
Many articles written by media and other groups
scrutinizing the 340B drug program:

Senator Grassley - letters to HRSA, NC Hospitals, Walgreens

Many other examples
• However, many publications as well defending the 340B
drug program (SNHPA, HRSA, others)
29
340B Program: Recent Developments
• Federal Court vacates Orphan Drug Rule – 5/2014
o
29
PhRMA sued HHS in September 2013 arguing:

Orphan Drug Rule was contrary to meaning in ACA

HHS did not have authority to implement it
o
Court issued ruling on May 23, 2014 agreeing with PhRMA.
o
What does this mean?

Depends – did covered entity elect to carve-in orphan drugs?

What will HHS’ response be?

Will “mega-reg” be delayed?
340B Program: What is HRSA Audit Process
Audit process as described on HRSA.gov:
• Only one audit of a covered entity permitted at any
one time. When HRSA has received request from
manufacturer to conduct an audit, HRSA will
determine whether audit should be performed by
Government or manufacturer
• Audits will be performed in minimum time necessary
with minimum intrusion on covered entity’s
operations
18
340B Program: What is HRSA Audit Process
HRSA Audit process (continued):
• HRSA’s 340B Program audits review covered entity
compliance with respect to eligibility status, including
compliance with the Group Purchasing Organization
(GPO) prohibition as applicable (see 42 USC
256b(a)(4)(L)(iii)), duplicate discounts, and diversion
as defined by42 USC 256b(a)(5)(A) and (B)
• HRSA regional auditors conduct audit field work for
the HRSA Office of Pharmacy Affairs (OPA)
18
340B Program: What is HRSA Audit Process
HRSA Audit process (continued):
• HRSA regional auditors obtain and review select program
data and internal controls.
• Audit procedures include, at a minimum:
o
o
o
o
o
18
review of relevant policies and procedures and how they are
operationalized;
verification of eligibility, including GPO and outpatient clinic eligibility;
verification of internal controls to prevent diversion and duplicate
discounts, including appropriateness of inpatient/outpatient designations
and Medicaid exclusion file designations;
review of contract pharmacy compliance; and
test 340B drug transaction records on a sample basis
340B Program: What is HRSA Audit Process
HRSA Audit process (continued):
• HRSA regional auditors forward preliminary findings
to OPA for review.
• OPA reviews the preliminary findings, drafts a Final
Report and issues the report to covered entity, with a
request for a corrective action plan (if applicable).
18
340B Program: Key Audit Definitions
• Diversion
o
o
o
o
o
o
340B drugs to individuals not meeting outpatient criteria
Drugs relate to services for inpatients/NRCC areas of
hospital
Prohibits resale or transfer of drugs purchased at 340B to
person not a patient of covered entity
Focus on defining “patient” & “covered entity”
Most recent definition of “patient”―1996
Who is “covered entity”?
 Medicare cost report test & where services are provided
o
22
Where finance & pharmacy operations meet
340B Program: Key Audit Definitions
• Duplicate discounts – recent program notice
o
o
340B laws prohibit application of both 340B price discount
(front end) & payment of pharmacy rebate to state
Medicaid (back end) on same drug claim
General options for covered entities
 Carve-out Medicaid from 340B drug purchases (GPO
exclusion needs considered)
 Carve-in Medicaid – Requires verifying Medicaid exclusion
file is accurate
 What about Medicaid managed care or other state programs
with Title XIX funding?
23
340B Program: Key Audit Definitions
• Medicaid duplicate discount
o
o
o
o
Some states slow to establish & communicate Medicaid
billing requirements & potential modifiers
Transition to Medicaid managed care has created confusion
Contract pharmacies should not “Carve-in” unless
arrangement with state Medicaid exists
Recommendation – Engage in ongoing dialogue with
Medicaid pharmacy directors of states where you file
claims―a “win-win” solution may be available
 Responsibility for avoiding duplicate discounts is on the covered entity
24
340B Program: Compliance Concerns
• Consequences of noncompliance
o
Repayment of discount
o
Suspension from 340B program
o
Possible CMPs for knowing & intentional violations
• Does this give rise to false claim liability (ripe for qui
tam actions?)
• Changing landscape of enforcement & audit
25
340B Program: General Audit Considerations
• Audits can be performed internally by a covered entity
or by an outside third party
• What if our third-party administrator is performing selfaudit functions?
• What should be included in an audit?
• How often should an audit be performed?
26
340B Program: General Audit Considerations
• Common findings from HRSA audits: being prepared is
critical
• Performance of internal review procedures throughout
the year is critical (there are free sample audit guides
available, including from APEXUS)
• Is an internal review enough? Covered entities should
consider independent mock reviews performed by
independent third party
• New compliance challenges, including “expectation of”
annual independent audits, especially surrounding
contract pharmacy relationships
26
340B Program: Audit Preparation
• Preparing for an audit – examples internal procedures:
27
o
Gather all policies & procedures related to 340B
o
Obtain data policies for any vendor software
o
Obtain copies of all 340B contracts with pharmacies and/or
other 340B service providers
o
Obtain all Medicaid ID numbers, provider numbers & NPIs
for all entity sites billing Medicaid (including Medicaid
managed care) for 340B drugs & point of contact with State
Medicaid agency (could represent multiple states & MD
contracts)
340B Program: Audit Preparation
Preparing for an audit – examples internal procedures
28
o
Obtain population of all 340B dispensations for specified
period of time (typically six months) & select samples
based on high-cost drugs & Medicaid transactions
o
Additional procedures should be developed around
contract pharmacy relationships
o
Who internally should perform this self-monitoring?
Is internal review enough based on expectation of
independent audits?
340B Program: Audit Preparation
• Other compliance considerations
o
What type of entity did you apply as (DSH, RRC, SCH, CAH,
FQHC, etc.)
o
Who is tracking DSH percentage?
o
GPO exclusion rule
o
Cherry picking (DSH covered entity only)
 340B price is not always best, but OPA expects that you use
340B price for all OP drugs
o
29
Capture correct NDC for OP drug used
340B Program: Audit Performance
• As a covered entity, you will need to decide which is most
effective and efficient approach
• Typical sample size of 50 per 6 month period, can
fluctuate based on how often being reviewed (internally
vs. externally)
• Where should focus be? Main hospital(s) vs. provider
based clinic/RHC vs. contract pharmacy?
• Expectation of an independent audit – how often
performed and what is process?
• Existence of 340B compliance committee (IA)?
29
340B Program: Opportunities
• Consideration of contract pharmacy relationships
o
Don’t jump all in – be mindful of compliance challenges
• Financial performance of contract pharmacy
relationships (not just about compliance)
• Physicians being RCC vs. NRCC (potential for non340B reimbursement, but what about funding cuts)
• Do you qualify as a RRC or SCH vs. DSH?
• Appropriate monitoring of changing NDC’s and
mapping in accumulator
29
340B Program: Conclusion
Questions?
35
340B Program: Conclusion
THANK YOU FOR ATTENDING. LEARN MORE AT BKD.COM
FOR MORE INFORMATION
Michael R. Earls, CPA
Senior Manager
mearls@bkd.com
260.460.4068
:
340B Program: Quick Overview
• Primary stakeholders of 340B Drug Program:
1. Drug Manufacturers
2. Covered Entities
3. Office of Pharmaceutical Affairs
4. Patients
• Patient Protection and Affordable Care Act (PPACA) expanded
definition of covered entity
• Program intent: “stretch scarce Federal resources as far as
possible, reaching more eligible patients and providing more
comprehensive services”
o H.R. Rep. No. 102-384(II), as 12 (1992)
4
340B Program: Quick Overview
• Established by §602 of Veterans Health Care Act of 1992
• Codified as §340B of Public Health Service Act (PHSA)
• Section 340B instructs Department of Health and Human
Services (HHS) to enter into agreements with drug
manufacturers of covered outpatient drugs (required if
participating in Medicaid/Medicare Part B)
• Administered by Office of Pharmacy Affairs (OPA) within the
Health Resources Services Administration (HRSA)
• Prime Vendor Program (PVP) – currently Apexus
4
340B Program: Quick Overview
From 1992 – 2011
• Program growth due to several new laws expanding
the ability to participate
o Medicare Prescription Drug, Improvement and
Modernization Act of 2003
o Deficit Reduction Act of 2005
o PPACA
4
340B Program: Quick Overview
From 1992 – 2011
• As of 2011, number of hospitals participating
reached 1,673, or 1/3 of all U.S. hospitals
• 16,500+ covered entity sites, nearly double the
number reported in 2001 (approximately 8,600)
• In 2011, the GAO issued report on 340B Drug
Program, concluding concerns around HRSA’s
oversight of program
340B Program: Quick Overview
• Provides discounts on outpatient drugs purchased by
“safety net” providers and 11 types of federal
grantees for eligible patients
• Spending on 340B drugs estimated at $6 billion
annually in 2011
• Average savings of 25 – 50% for eligible covered
entities on outpatient drugs
• Manufacturers expressed concerns around savings;
and are they being used in ways consistent with
purpose of program
5
340B Program: Quick Overview
• Provides discounts on outpatient drugs
purchased by “safety net” providers and
certain types of federal grantees for eligible
patients (FQHC, etc.)
• Savings can be used to:
o
o
o
5
Provide discounts on drugs to patients
Expand services by provider to patients
Provide services to more patients
340B Program: Quick Overview
Traditional method (pre-PPACA)
o
Hospital DSH percent exceeding 11.75% payment add-on
 Updated SSI percentages may affect DSH qualifying
percent
 Annual recertification of DSH percent now required
 Not-for-profit (NFP) entity with contract with local
government to care for indigent
o
6
Agree also not to use Group Purchasing Organization
(GPO) for outpatient drugs
340B Program: Quick Overview
Contract pharmacy arrangements
• Retail pharmacies contracted for “Bill To/Ship To”
arrangement
• Multiple contract pharmacy guidelines went into effect
on April 5, 2010 (removed maximum number of
relationships)
• Virtual inventory models (replenishment model)
• Significant opportunity to expand Rx access
• Covered entities remain responsible for 340B
compliance for contract pharmacy transactions
7
340B Program: Quick Overview
PPACA revisions
8
o
All NFP/governmental critical access hospitals
(CAH) are eligible
o
Sole community hospitals (SCH) & rural referral
centers (RRC) eligible if DSH percent exceeds 8%

Many hospitals qualify as a RRC

Does your DSH hospital qualify?
340B Program: Quick Overview
• For the past three years, 340B covered entities
operating in very different world!
• Issuance of GAO report brought forth significant
concerns, and changes were enacted
• Beginning in 2012, HRSA conducting audits of
covered entities
o
(51 completed in 2012; results publicly available)
• HRSA released 51 results of audits, included review
of 410 covered entity sites
9
340B Program: Quick Overview
• Drug manufacturers performing audits (results &
exact number not public record; Commander Pedley
noted 6 submitted through December 2013)
• HRSA vs. drug manufacturer audit
• Covered entities have increased awareness of
340B drug program and concerns around compliance
• Communications increasing of late
9
340B Program: Quick Overview
•
•
•
•
Apexus (Prime Vendor Program) membership
Continues to be liaison for covered entities
No cost to be Apexus member if covered entity
Valuable resources:
o
o
o
o
FAQ section on website
340B University
Example policy and procedure manuals
Call center, etc.
• Other great resources
9
340B Program: Quick Overview
• Participating 340B sites increased (25,000+ as of
March 31 vs. 16,500 in 2011)
• With recent releases of revised SSI percentages,
many covered entities are either removing
themselves from program or changing registration
type (RRC or SCH, if available) – this can result in
compliance concerns as well
• Contract pharmacy arrangements – 18% of covered
entities have these relationships; only 25% have
more than 5
9
340B Program: Other Hot Topics
Other hot topics
• Manufacturer audits & communication increasing
o
o
o
Respond timely to manufacturer requests to resolve
questions without their need to request OPA for approval
for full audit
Manufacturers are performing increasing analytics on data
to identify outliers in drug purchasing
Some initial focus has been seen on duplicate discount
issues
 Manufacturers have access to some Medicaid claims level data
31
340B Program: Other Hot Topics
Other hot topics
• Health care reform & ACA impact?
o
o
o
32
Changes to Medicare DSH formula ― impact on 340B?
What will congressional appetite be for 340B if insurance
expansion is realized as intended?
Caution regarding projections for this program into the
future is recommended
340B Program: Other Hot Topics
Other hot topics
• Congressional intent of the program
o
o
o
o
33
Debated by some members of Congress
Several hospitals challenged to respond on use of funds
generated from program savings
Monitoring this issue in Congress is important
Developing method of tracking 340B savings &
documenting how funds are used for indigent &
underserved patients is current best practice
340B Program: Other Hot Topics
Other hot topics
• 340B Compliance Plan for Outpatient, Mixed-Use &
Contract Pharmacy programs
o
o
o
Demonstrates good-faith commitment to compliance
Increases likelihood of identifying & correcting mistakes
Includes multiple aspects of program & process for
responding to concerns identified
• Reconsideration of provider-based physicians
o
34
Eligible to extend 340B savings to provider-based
physicians
340B Program: Other Hot Topics
• Even with changes that have occurred in past three
years, this is only the beginning
• It is pretty evident with increase of recent
developments, 340B Program will not “go away”
• Mega Reg expected June 2014 for comment
(as of 4/9/14 is under review at OMB)
35
340B Program: Other Hot Topics
• Mega Reg addresses four main items:
35
1.
Off-site outpatient locations – guidance issues on 4/8/14
is clear indication of where this is heading – more
detailed enrollment information to ensure each “suite” is
listed separately
2.
Could NRCC requirement be modified?
3.
What about integration of EMR? Who really “maintains”
the medical record now?
4.
Patient definition (continued next slide)
340B Program: Other Hot Topics
• Mega Reg addresses four main items:
o
Patient definition – currently has three criteria:
1.
Established a relationship and maintains records of care;
2.
Receives health care services from a health care professional
who is either employed or under contractual/other
arrangements
3.
Receives health care service or range consistent with grant
funding received (DSH exempt from this requirement)
• Could EMR integration change this?
35
340B Program: Other Hot Topics
• Mega Reg addresses four main items:
o
Contract pharmacy requirements

Guidance issued early 2014 appears to indicate movement
toward requirement for external audit

o
35
Could be based on number of pharmacies
Hospital eligibility criteria – raising or lowering DSH
threshold to be consistent across the board for PPS
hospitals?
340B Program: Other Hot Topics
• 340B program & related multiple contract pharmacy
relationships can be very beneficial but complicated
to ensure compliance
• Compliance risks are a reality to be monitored
closely
• Regardless of 340B program administrator selected,
make sure hospital is comfortable with definitions &
policies applied to program
• Critical to stay abreast of communications
35
340B Program: Conclusion
THANK YOU FOR ATTENDING. LEARN MORE AT BKD.COM
FOR MORE INFORMATION
Michael R. Earls, CPA
Senior Manager
mearls@bkd.com
260.460.4068
: