Why You Should Care About 340B and Its Impact

June 28, 2020

An area in which critical access hospitals and health systems are looking for opportunities is the 340B program. The 340B program enables covered entities to reach more eligible patients and provide more comprehensive services by stretching federal resources.

Understanding the 340B program and its impacts may open the door to potential benefits for your healthcare entity.

What is 340B?
Section 340B is part of the Public Health Service Act and requires pharmaceutical manufacturers to enter into a pharmaceutical pricing agreement (PPA) in exchange for having their drugs covered by Medicaid and Medicare Part B. Part of the PPA is an agreement that the manufacturer will provide front-end discounts on covered outpatient drugs to covered entities.

These covered entities are those that serve some of the nation’s vulnerable patient populations. This makes it an ideal opportunity for rural health systems and critical access hospitals.

What types of covered entities can participate in the 340B program?
The 340B program considers the following categories of hospitals to be covered entities:

  1. Disproportionate share hospitals (DSH)
  2. Children’s and cancer hospitals
  3. Sole community hospitals
  4. Rural referral centers
  5. Critical Access hospitals

Specifically, these 340B hospitals must adhere to one of the following:

  • Be owned/operated by state or local government
  • Be a public or private nonprofit corporation granted governmental powers by state or local government
  • Be a private nonprofit organization that contracts with state or local government to provide care to low-income individuals

How do I become part of the 340B program?
If your healthcare entity meets the criteria of a covered entity, you can register online. Once approved for the 340B program, covered entities will receive eligible covered outpatient drugs.

How do I stay compliant with the 340B program?
As a covered entity under the 340B program, you must be proactive and take steps to ensure compliance. Self-audits are a way to accomplish this and can be completed either by internal personnel or an outside vendor.

The majority of HRSA audits are being done at random, with a few conducted due to whistleblowing or self-reporting. While the Federal Register outlines compliance and audit guidance dating back to 1996, most Covered Entities have had little knowledge of what to expect from an HRSA 340B audit.

The Audit Process
A 340B compliance audit generally begins with a notice from HRSA. This is followed by an HRSA auditor contacting the Covered Entity to schedule an “entrance conference” by phone. The auditor then schedules the onsite audit and submits a “data request” asking for multiple documents relating to 340B usage during the six months prior to the audit. Some hospitals have had fewer than 30 days to prepare the required documentation, which is another reason we highly stress regular self-audits to ensure documentation is consistently ready to provide to HRSA if needed.

The onsite audit is then conducted and an “exit interview” held with Covered Entity officials. After the audit, the Covered Entity will receive a Preliminary Audit Report from HRSA, typically within a few months to more than year from the visit. The Covered Entity has the opportunity to contest and resolve the findings, after which a Final Audit Report is issued.

Covered Entities have three major compliance requirements to remain eligible for the program:

  1. 340B drugs must only be dispensed to eligible outpatients of the Covered Entity. This is called “diversion prohibition.” So, every patient that presents at a contracted pharmacy claiming 340B eligibility must be verified to be an eligible patient of the Covered Entity.

  2. 340B drugs cannot be double-discounted by Medicaid rebates. This is referred to as “duplicate discount prohibition.” Covered Entities need to work closely with the state Medicaid program to determine how to appropriately handle Medicaid patients to ensure that duplicate discounts on drugs for Medicaid patients are not happening.

  3. Covered Entities may not obtain any covered outpatient drugs through a group purchasing organization (GPO). This is referred to as “GPO prohibition.”

During an audit, HRSA will examine policies, procedures and processes related to 340B drugs as well as internal controls to prevent diversion and duplicate discounts to ensure compliance with the GPO prohibition. HRSA will also test transactions related to 340B drugs. The audits cover the parent site, as well as any registered outpatient facilities and all contracted pharmacies.

Through the HRSA audit process, Covered Entities have been ordered to pay back discounts to pharmaceutical companies in the event they violate requirements. This becomes a very complicated process, as drug prices generally update quarterly and calculations must be made per quarter. Additionally, refunds must be made to all participating pharma companies, and not paid in one lump sum to one manufacturer. The complexity of the calculations and time spent contacting the individual pharmaceutical companies can be overwhelming, so it is better to avoid the need to refund these discounts.

Additionally, the 340B Drug Pricing Program requires an annual recertification. This needs to be anticipated and monitored so the healthcare organization does not unknowingly drop out of eligibility and compliance. It is important to keep the information related to the 340B Drug Pricing Program, such as the name and email addresses of the key people, current. We have seen several instances where the annual recertification email went to an individual no longer with the healthcare organization, so the recertification did not get completed.

Falling out of compliance can have hefty consequences and cost your facility valuable resources. Self-audits, whether conducted by your internal staff or outsourced to third-party auditors, allow you to track how you are doing and keep you prepared for HRSA audits. In addition, do not be lulled into a false sense of security that your 340B Program will not be audited. With the resources being devoted to monitoring compliance with this program, chances are that you will likely be selected for an HRSA 340B audit at some point.

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