Legal and Regulatory Compliance

Concerns Raised Over Changes to 340B Program

January 6, 2016 11:44 am

Henry Ford Health System’s 340B Drug Pricing Program compliance efforts focus on related policies and procedures, relationships with contracted pharmacies, split billing systems, prevention of duplicate discounts, and the accuracy of their physician files.

Every federal health program comes with ambiguities, the potential for audits, and occasional changes to the rules. A case in point is the 340B Drug Pricing Program and the U.S. Department of Health and Human Services’ (HHS) recent proposal to make significant changes to the program. Many in the hospital sector have underscored the harmful effect these changes may have on providers and the vulnerable patients they serve.


The 340B program—part of the Veterans Health Care Act of 1992—requires drug companies, as a precondition for their drugs being covered under Medicare Part B and Medicaid, to give healthcare providers discounts on certain outpatient drugs. According to the congressional report that accompanied the original bill, the program is designed to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” Eligible entities include six categories of hospitals and numerous non-hospital healthcare facilities, many of which provide safety-net services to the poor.

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In early 2012, the HHS Health Resources and Services Administration (HRSA), which administers the program, began conducting compliance audits of participating hospitals. The hospitals were chosen based on the volume of purchases, complexity of program administration, use of contract pharmacies, and any specific allegations of 340B violations. The audit findings prompted some of the changes now being proposed.

Proposed 340B Program Changes

HRSA issued those changes last August in the form of omnibus guidance. The changes could affect many fundamental aspects of the program such as patient eligibility and use of the discounted drugs in offsite clinics. Of particular concern are proposed rules relating to the following areas.

  • Prescriptions given to patients upon discharge from the hospital (even though such prescriptions play a significant role in reducing readmissions)
  • Infusions administered to many hospital outpatients
  • Outpatient drugs furnished to patients who are ultimately admitted to the hospital
  • Vague language about the hospital not being able to use 340B unless the hospital may bill on behalf of the prescriber (which many hospitals may not be able to do)
  • Many drugs paid by Medicaid, even though the 340B program is intended for hospitals that treat high percentages of Medicaid patients
  • Referrals for follow-up care of hospital patients

According to Greg Doggett, legal counsel to 340B Health, a membership organization of program participants, the draft provisions are highly problematic to hospitals’ patient care missions. “We found that nearly one third of the hospitals we surveyed said they would consider dropping out of the program if the proposal is not altered,” he said. “This would have a serious effect on the goals of the 340B program itself.”

In its comments to HRSA on the proposed rules, 340B Health made the following points, among others:

  • Asked HRSA to preserve hospitals’ abilities to use 340B drugs for patients treated on hospital premises and in connection with referrals
  • Explained how some provisions would present significant financial, operational, and compliance burdens
  • Provided examples of how certain provisions would lessen safety-net hospitals’ abilities to treat the uninsured, underinsured, and other vulnerable patient populations
  • Asked HRSA to clarify whether the guidance is intended to replace or supplement current policies
  • Requested a one-year implementation period after the guidance is finalized

HRSA has not indicated when it will issue final rules.

Self-Audits, Preparation Encouraged

While changes to the rules are pending, HRSA is continuing its audits of 340B participants for past compliance, said Alex Mansour, director of finance and 340B compliance officer for Henry Ford Health System, a large integrated delivery system in southeastern Michigan. “Because we are a complex organization with a prominent teaching hospital, we decided we needed to be prepared for a possible HRSA audit.”

Mansour and his staff, along with a committee representing all affected areas of the system, focused on such items as 340B-related policies and procedures, relationships with contracted pharmacies, split billing software, prevention of duplicate discounts, and the accuracy of their physician file and its list of eligible providers. They also kept in mind the following key points that HRSA auditors are known to look for when auditing for 340B compliance.

  • Patients were qualified at the time 340B drugs were dispensed/administered.
  • Prescriptions were written at qualified facilities.
  • Drugs were prescribed/administered by providers having proper relationships to the hospitals.
  • Use of the drugs supports the clinical diagnoses (some auditors).
  • State-specific Medicaid billing rules were followed, if applicable.
  • Drugs are replenished based on their 11-digit National Drug Codes.
  • For covered outpatient drugs, disproportionate share hospitals, freestanding cancer centers, and freestanding children’s hospitals comply with group purchasing organization exclusions.
  • Appropriate processes are in place to monitor contract pharmacies.
  • The orphan drug exclusion was met.

Note: Orphan drugs are drugs used for rare diseases and conditions and for which manufacturers receive financial and marketing incentives from the federal government. A recent federal trial court decision— PhRMA v. HHS —invalidated an HRSA rule concerning orphan drugs. The decision, if upheld, means that some hospitals on the list of eligible entities will not receive the 340B discount for orphan drugs, no matter the drugs’ intended use.

Mansour said 340B compliance is extraordinarily complex and it’s an ongoing challenge to monitor and educate staff. “We update that file at least once a month because the list of 340B-eligible physicians is constantly changing,” he said. And he notes that as many as 40 percent of the physicians in the entire state of Michigan have had some training in the Henry Ford system, so the database is huge.

“We have 10 full-time employees dedicated to 340B compliance because we’re such a large organization and the 340B program affects both the hospital and about 30 clinics that are hospital outpatient departments,” Mansour says. He is especially vigilant about this program “because the savings help offset the continued burden of uncompensated care and allow us to keep clinics open in parts of the area that serve the neediest populations.” Currently, the City of Detroit has no public hospital and very few private practice physicians.

Mansour strongly recommends self-audits by in-house staff and/or third-party auditors. These should include physical visits to pharmacies—both those of the system and contracted—and to clinics. There must be desk audits of prescriptions and billing plus concurrent monitoring between those audits, he says.

“When we eventually got a notice that HRSA was going to audit us, we were prepared,” Mansour says. “They requested copies of all of our relevant policies, all contracts with outside pharmacies, the most recent cost report, our physician credentialing file, all purchases made on 340B accounts, all 340B drugs dispensed, and other materials.”

He says that the auditor then chose a number of inpatient and outpatient claims, some claims from contract pharmacies, and accounts involving high-cost drugs. The health system was ready with all documentation, appropriate space and equipment for the auditors, and necessary in-house staff to be available on the dates of the audit.

“It was a lot of work, but during the exit conference the lead auditor commented on how committed Henry Ford Hospital was to maintaining the integrity of the 340B program, and he was pleased with how many individuals from various levels of the organization were involved in our compliance efforts,” Mansour says. The audit did not identify any adverse findings regarding eligibility issues or drug diversion, but it did uncover areas for improvement of internal controls. A corrective action plan was developed to address the auditors’ suggestions.

A Model for Others

Mansour says that Henry Ford’s experience can serve as a model for others, and he recommends providers become proactive by implementing the following actions.

  • Form a high level, multi-disciplinary committee.
  • Update policies and procedures.
  • Revise processes as necessary.
  • Conduct self-audits.
  • Measure compliance.
  • Educate on an ongoing basis.
  • Contest any adverse HRSA findings, as appropriate.

Mansour and Doggett call on the government to revise the proposed rules changes so that providers can continue to benefit from the program and stretch resources to treat the underserved in their communities.

Additional Resources

J. Stuart Showalter, JD, MFS, is a contributing editor for HFMA.

Interviewed for this article:

Greg Doggett, counsel, legal and policy affairs, 340B Health, Washington, D.C.

Alexander Mansour, director of finance and 340B compliance officer, Henry Ford Ambulatory Pharmacies, Bingham Farms, Mich.

Discussion Starters

Forum members: What do you think? Please share your thoughts in the comments section below.

  • How does your organization monitor 340B compliance?
  • Do you have any “lessons learned” to share with others?


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