340B Drug Program Compliance:
Focus on Disproportionate Hospitals
Part III:
340B Drug Program Compliance:
Audits by the Office of Pharmacy Affairs and
Manufacturers: Focus on Diversion, Duplicate
Discounts and GPO Prohibition
February 5, 2014
©2014 Aegis Compliance & Ethics Center, LLP
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1
Faculty
Stephen J. Weiser, JD, LLM
Director
312-403-4284
[email protected]
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2
Today’s Agenda:
Part II:

Recertification

OPA and Manufacturer Audits

Auditing Administration and Dispensing to
Eligible Patients

Auditing DSH’s Relationships with Physicians

Challenges in compliance with the GPO
Prohibition (Discussion of Policy Release Policy
Release 2013-1)

When 340B Compliance impacts Tax Exempt
Status and Fraud and Abuse Compliance?

Penalties for Non-Compliance with 340B
Requirements
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Questions
During the session, please email
general questions to:
[email protected]
We will do our best to address all of your
questions within the allotted time.
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Annual Recertification Statement
1.
2.
3.
All information listed in the 340B program database
for that covered entity is complete, accurate, and
correct.
The covered entity meets all 340B program eligibility
requirements, including (if applicable) the statutory
prohibition and HRSA Policy Release guidance on
GPO purchasing.
The covered entity is complying with all requirements
and restrictions of the 340B program statute 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 the 340B program to anyone other than a
patient of the entity.
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Annual Recertification Statement
4.
5.
6.
The covered entity maintains auditable records
demonstrating compliance with 340B program
requirements.
The covered entity has systems/mechanisms in
place to reasonably ensure ongoing compliance with
340B program requirements.
If the covered entity uses contract pharmacy
services, that the contract pharmacy arrangement is
performed in accordance with the HRSA Office of
Pharmacy Affairs (OPA) requirements and guidelines
including, but not limited to, that the hospital obtains
sufficient information from the contractor to ensure
compliance with applicable policy and legal
requirements, and the hospital has utilized an
appropriate methodology to ensure compliance (e.g.,
through an independent audit or other mechanism).
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Annual Recertification Statement
7.
8.
The covered entity acknowledges its responsibility to
contact OPA as soon as reasonably possible if there
is any material change in 340B program eligibility
and/or a material breach by the covered entity of any
of the foregoing.
The covered entity acknowledges that if there is a
breach of 340B program requirements, the covered
entity may be liable to the manufacturer of the
applicable covered outpatient drug and, depending
on the circumstances, may be subject to the
payment of interest and/or removal from the list of
eligible 340B entities.
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Obligations to report “material breach”
FAQ ID: 1665 (APEXUS)
Q: How does HRSA define the term
"material breach" that is used in the
recertification statements? (Ref: "the
covered entity acknowledges its
responsibility to contact OPA as soon as
reasonably possible if there is any
...material breach by the covered entity of
any of the foregoing.")
A: The term material breach in this context
refers to an instance of non-compliance with
any of the 340B Program requirements.
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OPA and Manufacturer Audits
OPA Audit Procedures
Audit Number
Only one audit of a covered entity will be permitted at any
one time. When HRSA has received a request from a
manufacturer to conduct an audit, HRSA will determine
whether an audit should be performed by the
Government or the manufacturer.
Audit Duration
Audits will be performed in the minimum time necessary
with the minimum intrusion on the covered entity’s
operation.
Audit Scope
HRSA’s 340B Program audits review covered entity
compliance with respect to eligibility status, including
compliance with the Group Purchasing Organization
(GPO) prohibition; duplicate discounts, and
diversion.
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OPA and Manufacturer Audits
OPA Audit Procedures
Audit Process
HRSA regional auditors conduct audit field work for the HRSA
Office of Pharmacy Affairs (OPA).
Pre-Audit
 Covered entities selected for audit receive an engagement
letter explaining what to expect and how to appropriately
prepare.
 HRSA regional auditors conduct an introductory
teleconference with the entity to request and obtain specified
documents, including policies, procedures, and internal
controls.
 HRSA regional auditors work with the entity to schedule an
entrance conference with key entity management to discuss
expectations for the onsite audit.
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OPA and Manufacturer Audits
Onsite Audit



HRSA regional auditors obtain and review select program
data and internal controls.
Audit procedures include, at a minimum:

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.
HRSA regional auditors conduct an exit interview, sharing
areas of concern and preliminary findings.
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OPA and Manufacturer Audits
Post Audit




HRSA regional auditors forward preliminary
findings to OPA for review.
OPA reviews the preliminary findings and works
directly with the covered entity to obtain any
necessary additional information, address any
concerns and discuss the appropriate remedy
and required corrective action(s), including
potential removal from the 340B Program and/or
repayment to manufacturers.
Once an audit report is finalized by OPA, the
findings and the entity’s response will be
summarized on the OPA public website.
OPA will pursue further follow up with the entity
as needed.
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OPA and Manufacturer Audits
Guidelines for Manufacturer’s Audit may be
found at:
http://www.hrsa.gov/opa/programrequirements/
policyreleases/manufacturerauditclarification11
2111.pdf
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Auditing Administration and
Dispensing to Eligible Patients
Audit trail for dispensing 340B Drugs:
Are you able to demonstrate that at the time the 340B
drug was dispensed that the pharmacy received:
1.
2.
3.
4.
a prescription bearing the covered entity’s name;
the eligible patient’s name,
a designation that the patient is an eligible patient of
the covered entity,
and the signature of a legally qualified health care
provider affiliated with the covered entity; or
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Auditing Administration and
Dispensing to Eligible Patients
Audit trail for dispensing 340B Drugs:
Are you able to demonstrate that at the time the 340B
drug was dispensed that the pharmacy:
1.
2.
3.
received a prescription ordered by telephone or other
means of electronic transmission that is permitted by
State or local law;
on behalf of an eligible patient;
by a legally qualified health care provider affiliated
with the covered entity who states that the
prescription is for an eligible patient.
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Auditing DSH’s Relationships with
Physicians
Review: Definition of an eligible patient:
1.
2.
the covered entity has established a
relationship with the individual, such that the
covered entity maintains records of the
individual's health care; and
the individual receives health care services
from a health care professional who is
either employed by the covered entity or
provides health care under contractual or
other arrangements (e.g. referral for
consultation) such that responsibility for the
care provided remains with the covered entity.
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Auditing DSH’s Relationships with
Physicians
DSH must be able to demonstrate:
Health care practitioner is an:

Employee

Under Contract with DSH (however DSH maintains
medical records and responsibility for patient)

“Other Arrangements”
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Auditing DSH’s Relationships with
Physicians
What constitutes “other arrangements”? Do medical staff
privileges meet the definition of “other arrangements”?
“APEXUS FAQ ID: 2121
Q: Are prescriptions written by providers that have
admitting privileges at our 340B participating hospital
allowed to be filled with 340B drugs?
A: The fact that a non-covered entity provider has
privileges to treat persons at an entity hospital is, alone,
not sufficient to demonstrate that any person treated by
that provider is a 340B patient of the covered entity
hospital. Merely having a ‘contract’ for admitting
privileges in place is not necessarily indicative of a
covered entity-to-patient relationship. More critical is the
actual nature of that relationship.
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Auditing DSH’s Relationships with
Physicians
DSH may be able to establish requisite “other
relationship absent an employment or contractual
arrangement:
1.
physician has admitting privileges or has been
credentialed by the DSH under which physician may
treat patients and prescribe 340B drugs to patients at
the DSH’s outpatient clinic:
2.
The DSH outpatient clinic is a reimbursable clinic
above line 96 on Worksheet A of the hospital’s most
recently filed Medicare cost report;
3.
maintains records of the individual’s health care; and
4.
the responsibility for the care provided remains with
the covered entity.
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Auditing DSH’s Relationships with
Physicians
Providing 340B drugs to Patients Referred to other clinics
A DSH Outpatient Clinic may fill prescriptions for 340B drugs
for its patients that are referred to an outside clinic as long as
the covered entity:
has a contract referral agreement with the outside clinic;
2. under such contract the covered entity retains responsibility
for the care given by the outside clinic;
3. the physician providing services at the outside clinic is doing
so as an employee of the covered entity or under an
enforceable contract under which the physician is required
to provide services to patients of the covered entity.
(Emphasis added). Please note that in the context of
referral arrangements from other clinics, the physician must
be an employee of the DSH or under an enforceable
contract.
1.
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Auditing DSH’s Relationships with
Physicians
Dispensing 340B Drugs at Unaffiliated
Outpatient Clinics
1. Only on prescription of physician employed or
under contract with DSH.
2. DSH and outside provider have a contract
referral agreement in place under which
responsibility for the care given by the outside
provider remains with the DSH.
3. The patient may receive a prescription from
the outside provider and return with that
prescription to be filled by the DSH .
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Auditing DSH’s Relationships with
Physicians
Dispensing 340B Drugs at Unaffiliated Outpatient Clinics
(continued)
DSH must maintain health record documentation and
responsibility for care provided must remain with the
covered entity.
5. A physician, under contract with a covered entity, may see
an individual and provide care for a medical indication.
However, if care is provided outside the contractual
arrangement with the covered entity, the individual would
not be considered a patient of the entity.
6. DSH must have an official agreement in place to provide
specific services with the outside/contracted provider for
auditing purposes.
4.
The covered entity is responsible for demonstrating that referral
arrangements meet the terms of the 340B patient definition
guidelines.
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Auditing DSH’s Relationships with
Networks
Dispensing 340B Drugs Through Network Affiliations
HRSA will be auditing loose affiliations for outpatient health
care services intended to expand the sale of 340B drugs by
DSHs.
HRSA does not consider an affiliation created by “one-page
documents that do not create contractually enforceable duties
or obligations for either the health care provider or covered
entity”
In order to further clarify the definition of “Patient”, HRSA
published a Notice Regarding Section 602 of the Veterans
Health Care Act of 1992 Definition of ‘‘Patient’’ in the Federal
Register on January 12, 2007. 72 Fed. Reg. 1543 (Jan. 12,
2007)
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Auditing DSH’s Relationships with
Networks
Dispensing 340B Drugs Through Network Affiliations
(continued)
In reviewing networks HRSA will examine:



Is the treatment plan followed determined by the affiliated
health care provider and not the DSH?
Does the ongoing responsibility for the individual’s health
care reside with the affiliated health care provider and not
the DSH?
Are the patients enrolled in these Networks treated by health
care providers too loosely affiliated with the DSHs for the
ongoing responsibility to rest with the DSH for the patient’s
health care resulting in the use of, or prescription for, 340B
drugs.
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Challenges in Compliance with the
GPO Prohibition
(Discussion of Policy Release Policy Release 2013-1)
The GPO prohibition is violated when DSHs engage in a
replenishment model in which the DSHs purchases covered
outpatient drugs through a GPO and subsequently either
engages in
1) “replenishing” through accounting by “replacing” the GPO
purchased drug with a drug purchased under 340B; or
2) otherwise reclassifying the method of purchase after
dispensing.
The GPO prohibition is violated upon use of a GPO to obtain
covered outpatient drugs and cannot be fixed or cured by
subsequently changing the characterization through accounting
or other methods.
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Challenges in Compliance with the
GPO Prohibition
(Discussion of Policy Release Policy Release 2013-1)
(continued)





DSHs must maintain a separate 340B inventory. The
inventory may be kept on either a virtual or actual basis.
Only DSHs using the contract pharmacy arrangement for
their 340B program have the option of maintaining a virtual
inventory using 340B split billing software to appropriately
manage inventory to ensure compliance.
The pharmacy must also be able to provide records tracking
340B utilization separately from the pharmacy’s non- 340B
business.
DSHs also have the option of purchasing all drugs at WAC
pricing and retrospectively replenish inventory with 340B
product for its eligible patients.
Virtual separation via an accumulator is acceptable.
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340B Drug Split-billing Solution
1. 340B eligible patients generate accumulation for orders on the 340B outpatient account
2. Inpatients generate accumulation for orders on the inpatient GPO account
3. 340B ineligible outpatients (or situations where 340B is not available) generate
accumulation for orders on an outpatient non-GPO (i.e., Non-340B) account
Mixed-Use
Inventory
Drug
Administration
Drug Order
Accumulator
GPO
Non
GPO/WAC
340B
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Challenges in Compliance with the
GPO Prohibition
To determine if a DSHs is compliant with GPO prohibition, DSH
must answer “NO” to the following questions. Does DSH:
1.
2.
3.
4.
5.
Use GPO purchased covered outpatient drugs for 340B
ineligible outpatients in OPA-registered participating clinics?
Have systems (or vendor systems) set up to use GPO
purchased covered outpatient drugs for 340B ineligible
outpatients?
Obtain GPO purchased covered outpatient drugs via a
contract pharmacy for 340B ineligible outpatients?
Use GPO purchased covered outpatient drugs within the
four-walls of our registered parent hospital for 340B
ineligible outpatients?
Use a GPO to purchase any covered outpatient drugs
unavailable at a 340B price without notifying OPA in writing?
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Definition of 340B
“Covered Outpatient Drugs” Revisited
Drugs covered by the Medicaid Drug Rebate Program
include only:
“Covered Outpatient Drugs”
1927(k) (2) of the Social Security Act (SSA) which
include:
1.
approved prescription drug by the Food and Drug
Administration (FDA)
2.
an over-the-counter (OTC) drug that is written on a
prescription
3.
a biological product that can be dispensed only by a
prescription (other than a vaccine)
4.
FDA-approved insulin.
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Definition of 340B
“Covered Outpatient Drugs” Revisited
Limitation on Definition of
“Covered Outpatient Drug”
(continued)
More simply stated, the term “covered outpatient
drugs” does not include drugs provided in the
outpatient departments and for which Medicare,
Medicaid, and other governmental third party
payers subject to the SSA, reimburse on the basis
of a “bundled payment” or flat fee, or pursuant to
the prospective payment system (PPS) or a
Ambulatory Procedures Listing (APL), or similar
payment system.
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Definition of Covered Outpatient
Drugs and the GPO Prohibition
DSHs may interpret drugs subject to a bundled payment
as:
1) not meeting the definition of a “covered outpatient
drug” and thus, may be purchased through a GPO or
2) meeting the definition of “covered outpatient drug”
and may purchased only through a 340b drug or
WAC account.
The DSH’s interpretation must be consistently applied in
all areas of the entity and document in policy/procedures,
and auditable.
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Financial Considerations in Determining
Definition of “Covered Outpatient Drug”
1.
Are there significant cost savings to the DSH if it purchases
and dispenses 340B drugs which are reimbursed by
Medicaid pursuant to a flat fee or “bundled” rate incident to
outpatient services?
2.
Are there significant cost savings to the DSH if it purchases
and dispenses 340B drugs which are reimbursed incident to
outpatient services by Medicare pursuant to an all-inclusive
rate under the outpatient prospective payment system?
3.
Depending on your answers to Questions above, how does
the total number of Medicaid beneficiaries and Medicare
beneficiaries impact the financial considerations considered
above.
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Financial Consideration in Determining
Definition of “Covered Outpatient Drug”
4.
5.
6.
Will the DSH have 340B procedures in place to continue to realize
cost savings of 340B drugs dispensed to patients of commercial
payors? Does the DSH have a mechanism in place to insure that
340B drugs dispensed to eligible commercial patients are not
purchased through a GPO?
How difficult and expensive will it be to establish a three split billing
system in which DSHs in a mixed use setting may purchase and
replenish 340B drugs from only a 340B account or WAC without
permitting the purchase of “covered outpatient drugs” from a GPO?
How does this expense impact any of the cost savings and benefits
that may accrue from participation in the 340B program? Given that
Illinois DSHs are statutorily required to participate in the 340B
Program, how do the answers in Questions 1-3 impact the decision
to include or exclude “bundled” drugs from GPO purchases?
What does DHS stand to lose in revenue if it materially fails to
comply with the 340B guidelines?
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When 340B Compliance impacts Tax
Exempt Status and Fraud and Abuse
Compliance?
Compliance relating to 501(c)(3) status relating
to private inurement or private benefit and/or
the federal anti-kickback statute may arise in
connection with:



arrangements with contract pharmacies.
contracts and agreements with
prescribing health care practitioners
contracts and agreements with Networks
for treatment and referral of eligible
patients.
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Penalties for Material Breach of 340B
prohibitions
Current Penalties for Diversion, Duplicate
Discounts and GPO Prohibition Violations


HRSA’s suspension or termination of DSH
from program.
Manufacturer may recover amount of
discount plus any contractual remedies.
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Penalties for Material Breach of 340B
prohibitions
Under Section 7102(a) of Affordable Care Act HRSA has
been authorized to develop the following penalties:
 monetary penalty to a manufacturer or manufacturers
in the form of interest on sums for which the covered
entity is found liable such interest to be compounded
monthly and equal to the current short term interest
rate as determined by the Federal Reserve for the
time period for which the covered entity is liable.
 Violations determined to be systematic and egregious
as well as knowing and intentional, removing the
covered entity from the drug discount program under
this section and disqualifying the entity from re-entry
into such program for a reasonable period of time to
be determined by the Secretary.
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Questions?
We hope you have enjoyed the Webinar
Series. Please feel free to email general
questions or comments about the series to:
[email protected]
Should you wish to join our monthly
Compliance Round-Up Series, please contact:
[email protected]
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