William Wood
James Jorgenson
William Kelly

At a Glance

Key action steps hospitals and health systems can take to prepare for a 340B Drug Pricing Program integrity audit include the following:

  • Conduct mock audits.
  • Develop policies and procedures that specifically address the issues of patient eligibility, duplicate discounts, and appropriate Medicaid billing.
  • Create a multidisciplinary team for 340B program oversight.

If your organization participates in the 340B Drug Pricing Program, which requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations at significantly reduced prices, you may already be aware that the Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs has been instructed by the Government Accountability Office to conduct both random and targeted audits of 340B programs.

Often referred to as a 340B integrity audit, these reviews have already begun to take place-at a rate of six per month at hospitals and health systems across the country, according to a speaker at the 340B Coalition Winter Conference this past January, using a protocol that is specific to the 340B program. According to Safety Net Hospitals for Pharmaceutical Access, HRSA already has completed 51 of these audits-most involving hospitals-with as many as 400 planned for 2013. Something new to the 340B integrity audits will be a review of pharmacy contracts between a 340B covered entity and any outside pharmacies.

According to HRSA, an agency of the U.S. Department of Health and Human Services, initial random audits are targeting covered entities with potentially higher program risk due to their volume of drug purchases, the level of complexity of their program administration, and their use of contract pharmacies. Following these assessments, HRSA will conduct a series of random audits of organizations determined to have a lower level of program risk.

HRSA also will conduct targeted audits of entities where allegations of 340B reporting violations exist. Sources of these allegations may come from whistleblowers, manufacturers, or self reports from the entities themselves. These reviews will necessarily require a more thorough investigation, and any findings may be referred to the Office of Inspector General or the U.S. Department of Justice ("Clarification of HRSA Audits of 340B Covered Entities," HRSA 340B Drug Pricing Program Notice Release No. 2012-1, March 5, 2012).

As healthcare leaders across the country contemplate what a 340B integrity audit could mean for their organizations, there are three key action steps they should take to prepare for an integrity audit.

Conduct Mock Audits

Initial random and targeted 340B audits are focusing on the following:

  • A review of policies and procedures specific to 340B program operations
  • Examination of relevant auditable records
  • Evidence of system compliance that specifically prevents drug diversion and duplicate discounts for pharmaceuticals administered to patients who qualify for Medicaid
  • Evidence of compliance with the required group purchasing exclusion for covered entities

Mock audits that simulate a review of these four areas are an excellent means of evaluating a hospital or health system's overall audit readiness.

In examining the organization's 340B transactions, keep in mind the following key terms and how these terms are defined and applied by HRSA.

Patient. HRSA has established the following test to determine which patients are eligible to receive discounted drugs purchased through the 340B program. An individual is considered a patient of a 340B-covered entity (with the exception of state-operated or state-funded AIDS drug assistance programs) only if the following criteria are met:

  • The covered entity has established a relationship with the individual, which includes maintaining records of the individual's health care.
  • The individual receives healthcare services from a healthcare 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 individual's care remains with the covered entity.
  • For Federally Qualified Health Centers (FQHC) and FQHC look-alikes, there must be evidence the patient is receiving care that is consistent with the service or range of services for which grant funding was provided to the FQHC or on which the FQHC look-alike's status is based.

Drug diversion. This occurs when a drug purchased at the 340B price is sold or transferred to anyone other than a patient of the covered entity (as defined previously).

Duplicate discounts. Under the 340B statute, organizations participating in the program are prohibited from billing to Medicaid a drug purchased under 340B if the state also can seek a rebate on that drug; doing so would constitute a duplicate discount. The covered entity is obligated to ensure that the state's Medicaid program does not claim rebates from manufacturers on drugs purchased by the covered entity through the 340B program.

Carve in/carve out. Each covered entity decides whether it will use 340B purchased outpatient drugs when billing Medicaid. This decision must be applied consistently. However, some sites within a covered entity may decide to uniformly "carve in" billed amounts, while others choose to "carve out" these payments.

If a site decides to bill Medicaid for drugs purchased under 340B with a Medicaid provider number/ National Provider Identifier (NPI), then all drugs billed under that number must be purchased under 340B and the provider number must be listed on the Office of Pharmacy Affairs exclusion file. This is referred to "carving in" the Medicaid patients into the 340B program. If the entity decides at the time of program enrollment that it will purchase drugs outside of the 340B program for its Medicaid patients, this is referred to as "carving out" this group, and 340B drugs will not be used for this group. Under this option, the Medicare provider number/NPI should not be listed on the Office of Pharmacy Affairs exclusion file database.

Group purchasing organization (GPO) exclusion.Certain hospitals, such as disproportionate share hospitals, children's hospitals, and freestanding cancer hospitals, are prohibited from purchasing covered outpatient drugs through a GPO or GPO-like arrangement.

Develop Policies Related to Medication Billing

Demonstrating compliance with the 340B Drug Pricing Program begins with a set of policies and procedures that specifically addresses the issues of patient eligibility, duplicate discounts, and appropriate Medicaid billing. These policies and procedures should detail how the covered entity will bill 340B drugs in accordance with state law or guidance and how the entity will validate that its Medicaid billing system is accurate and effective.

There also should be a policy and procedure describing how the organization will dispense or administer drugs to the Medicaid population. Problems can arise in audit when there is insufficient detail describing how the "carve in" or "carve out" is handled when dispensing or administering these drugs.

Create a Multidisciplinary Team for Oversight

Experts who have dealt with 340B discounted drugs across many healthcare organizations, both large and small, suggest a multidisciplinary approach be applied to program set up and administration, with representation from pharmacy, administration, legal, and government affairs. This group should meet on a monthly or bimonthly basis to review the organization's program operations against 340B program standards and opinion letters. This information is available on the HRSA website.

Protecting the Health of 340B for Hospitals

Hospitals should maintain a conservative approach as they prepare for a 340B integrity audit, with a careful eye toward risk assessment at all times. Such an approach will help maintain the benefits of 340B-lower drug costs, protection against pharmaceutical price increases, and more-while providing patients with increased access to pharmaceuticals.

William Wood, RPh, is senior consultant and 340B specialist, Visante Inc., Eden Prairie, Minn., and a trustee, Aspirus Ontonagon Hospital, Ontonagon, Mich. (bwood@visanteinc.com).

James A. Jorgenson, RPh, MS, FASHP, is vice president and chief pharmacy officer, Indiana University Health, Indianapolis (jjorgens@iuhealth.org).

William N. Kelly, PharmD, FISPE, is vice president, scientific affairs, Visante Inc., Eden Prairie, Minn. (wkelly@visanteinc.com).


How Hospitals and Health Systems Benefit from 340B  

Suzanne Herzog  

For nearly 20 years, healthcare organizations have used the 340B Drug Discount Program to buy patient medications at reduced prices. Hospitals reported savings averaging $5 million in 2010, based on a report commissioned by the Safety Net Hospitals for Pharmaceutical Access (SNHPA), a not-for-profit organization representing hospitals and health systems nationwide that participate in 340B.

Established in 1992 and managed by the Health Resources and Services Administration Office of Pharmacy Affairs, the 340B Drug Discount Program requires that drug manufacturers provide discounts on outpatient drugs to participating eligible organizations, including qualifying hospitals and clinics that are deemed safety net providers. (Click here for a full list of eligible organizations).  

Hospitals responding to the SNHPA survey reported spending 27 percent less, on average, on outpatient drugs as a result of participating in the 340B program. The range of savings reported varied greatly-from less than 1 percent to 67 percent-suggesting varying levels of program optimization.

For single-source brand-name drugs, the 340B program offers, on average, a more than 50 percent discount when compared with pricing offered by group purchasing organizations (GPOs) during the last half of 2010, based on a recent analysis for a regional health system. Although the overall gap between the GPO price and the 340B price has traditionally been tracked at around 30 percent, the discount available on brand-name 340B drugs may have increased between the second and third quarter of 2010 as a result of increased minimum rebate percentages mandated in the Affordable Care Act.

A large majority (83 percent) of SNHPA survey respondents also reported using 340B savings to maintain hospital operations. For example, some respondents used 340B savings to offset low payment for general, nonpharmacy care. Respondents also reported that 340B savings helped their organizations achieve their missions and provide uncompensated care to disadvantaged hospital patients.

Suzanne Herzog is founding director, Rx|X Consulting, Baltimore (sherzog@rxxconsulting.com).

This sidebar is excerpted from Herzog's article "4 Extra Ways Hospitals Can Benefit from the 340B Program," Healthcare Cost Containment, December 2011.

Publication Date: Monday, December 03, 2012

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