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340B Drug Discount Program 2013

May 16, 2013

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Agenda

340B Program Overview Covered Entities Covered Drugs Covered Patients Why HRSA Audits How to Prepare for HRSA Audit Questions/Answers

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340B Overview

The 340B drug discount program is a section of the Veterans Health Care Act of 1992, which requires pharmaceutical manufacturers whose drugs are covered by Medicaid to provide discounts on outpatient covered drugs purchased by 340B covered entities

Covered entities can receive discounts based on the utilization of pharmaceuticals by covered outpatients. Retrospective procurement is used to realize the discounts based on this utilization

The program is administered by the Office of Pharmacy Affairs (OPA). The OPA and drug manufacturers have the right to conduct compliance audits of participating facilities. A clear audit trail must be created to remain in compliance with the regulations of the program

The purpose of the 340B program is to enable covered entities to stretch scarce federal resources, reaching more eligible patients and providing more comprehensive services

Estimated savings are 25%-50% of a drug’s average wholesale price (AWP)

Approximately $6 billion in 340B purchases in 2010

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340B Program Implementation

Hospitals must file application for 340B status with the Office of Pharmacy Affairs (OPA)

Separate 340B account (s) is established with existing drug wholesaler

Purchasing system remains the same New account contains 340B prices (“Cost Minus” is applied to 340B

purchases) Wholesaler delivers drugs from both purchase orders (separate

invoices for each account) Drugs purchased direct from manufacturer can be obtained at

340B prices Annual recertification is required of all participating 340B covered

entities.

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340B Inventory Virtual Inventory Process

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Hospital Covered Entities

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Other Covered Entities

Federally Qualified Health Centers Federally Qualified Health Center Look-Alikes Black Lung Clinics Ryan White HIV/AIDS Program Grantees Native Hawaiian Health Centers Tribal/Urban Indian Health Centers Comprehensive Hemophilia Diagnostic Treatment

Centers Title X Family Planning Clinics Sexually Transmitted Disease Clinics Tuberculosis Clinics

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HRSA Clarification of Hospital Covered Entity

Based on 1994 guidance, any outpatient facility which is an integral component of a DSH will be included on the Medicare Cost Report and therefore eligible for 340B pricing

Included means: HRSA = As-filed cost report Federal Register language = included on

the Medicare cost report Statutory language = hospital and patient

of entity

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Covered Drugs

Program covers only covered entity’s outpatient drugs: FDA-approved prescription drug Prescribed OTC drug Biological drugs that can be dispensed only by

prescription FDA-approved insulin Excludes vaccines Orphan drug exclusion and proposed regulations

Permitting orphan drug purchases on 340B for patients treated for a non-orphan disease (i.e. Remicaide for use with rheumatoid arthritis)

Prohibiting orphan drug purchases on 340B for patients treated for the orphan disease (i.e. Remicaide for Chrohn’s disease)

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Patient Definition Overview

1996 – Final guidance of a patient 2007 – Proposed revisions to definition July 18, 2012 – Members of Congress ask

HRSA for further clarification on definition of eligible patient

Program isn’t limited to Medicare, Medicaid or low income patients

Any patient of covered entity may received covered OP drugs purchased under the 340B program

Patient must be treated at a facility that is provider-based to the covered entity. All new sites must be enrolled with OPA

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Definition of a Patient

An individual is a patient of the 340B covered entity if: 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; and

The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or Federally-qualified health center look-alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement.

If all 3 requirements are not met, the person is not eligible for 340B drugs

An individual will not be considered a patient of the covered entity if the only health care services received by the individual is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting

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GPO Exclusion

Can a 340B hospital that is subject to the group purchasing organization (GPO) prohibition (Disproportionate Share Hospital, Children's Hospitals, Free Standing Cancer Hospitals) continue to purchase items from a GPO that are at a lower cost than 340B pricing?

Answer Hospitals that participate in the 340B Program for covered

outpatient drugs and are subject to the GPO prohibition cannot purchase any covered outpatient drugs through a group purchasing organization or other group purchasing arrangement

This “GPO prohibition” is found in the 340B statute, at section 340B(a)(4)(L) and applies even if items are available at a lower price through the GPO

Hospitals can continue to purchase all products for inpatient operations through a GPO, even if the outpatient departments participate in the 340B Program

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Hospital Covered Entities Summary

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GPO Exclusion

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Medicaid Billing: Carve in/Carve out

HRSA guidelines allow covered entities to comply with the statute in different ways: Bill Medicaid at acquisition cost plus the state

allowable dispensing fee and the state does not request a rebate (“Carve In”)

“Carve out” Medicaid drugs from 340B program and allow state to collect rebates

Follow state guidelines for applicable billing limits Covered entities are responsible for working with

their state Medicaid agency to ensure that the agency can identify drugs purchased through the 340B program and avoid obtaining rebates on those drugs

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Contract Pharmacies

No distance or proximity limitation No longer a limit on number of contract pharmacy

arrangements Covered entity responsibility to comply, this is important

to remember for contract pharmacy arrangements Challenges:

Diversion tracking Audits & records Discount Management and tracking Data exchange Inventory management Business terms (payment risk, dispensing fees Advertising/marketing approval

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Contract Pharmacy Audit Requirements

All covered entities are required to maintain auditable records

Expected to conduct annual audits of contract pharmacies

To be performed by an independent outside auditor as a way to fulfill their ongoing obligation of compliance

To the extent that any compliance activity or audit performed by a covered entity indicates that there has been a violation of 340B Program requirements, such finding should be disclosed to HRSA along with the covered entity's plan to address the violation

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WHY HRSA AUDITS?

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Covered Entity Growth

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Increased Scrutiny Continued

Letter to HRSA on July 18, 2012

Letter to UAB on May 10, 2012

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HRSA 340B Integrity Audits

Nearly 20 years after creation of 340B, HRSA exercising authority to audit covered entities. On February 10, 2012, 340B participants received notice from HRSA that audits would occur

HRSA had been under pressure from Congress and federal oversight groups to prove that only those parties eligible for the program’s benefits receive them

According to HRSA, they will make its audit results public after the agency ensures its methods are consistent and audited entities have an opportunity to respond to the findings

Focused compliance problems: Diversion – Refers to a covered entity providing drugs bought through

the 340B program to people not eligible for the program’s prices. Duplicate Discounts – These occur when a state obtains Medicaid

rebates for a drug that a covered entity bought through the 340B program.

Group Purchasing Organization (GPO) prohibition

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340B Audits

According to Safety Net Hospitals for Pharmaceutical Access, HRSA has already completed 51 audits, most involving hospitals

HRSA has planned as many as 400 for 2013 2012 audits included covered entities that included

hospitals and retail pharmacies The audits will include pharmacy contracts between

340B covered entity and any outside pharmacy 2013 and forward:

Easily retrievable data All covered entities audited in the future Regulations will be tightened, not sure when

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Audit Process

According to HRSA, the first question asked is, “Do you have policies and procedures in place to define who is and who is not a patient?”

Required standard information in pharmacy data file, such as: Prescriber Patient NDC number Fill date Billing amount Acquisition cost Encounter dates

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HRSA Audit Example Timeline

2/4/13 - Email from HRSA Director informing Pharmacist in Charge of the audit

2/8/13 - Email from auditor to make arrangements foron-site visit on 2/28-3/1/13

2/9/13 - Email with data requests forwarded to Director of Pharmacy and Pharmacist in Charge

2/11/13 - Received site visit agenda from auditor 2/15/13 - Conference call with both auditors to

review data requests (request electronic files by 2/18/13)

2/28-3/1/13 - HRSA On site visit 3/15/13 - Exit conference call

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Audit Sample

Small number of encounters sampled Selected from recent 6 months 28 – 50 encounters

Prescription Number NDC Product Name Quantity dispensed Date prescription written Date prescription filled Provider name NPI Patient name Medical record number/Patient ID number Payer The wholesale price paid (acquisition price) The amount billed for the drug The amount actually paid by the payer and patient

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Findings/Penalties

According to March 5, 2012 program release, findings may be referred to the Office of Inspector General or the U.S. Department of Justice

On February 8, 2013 HRSA has released a document by hospital with OPA findings, Sanction and Corrective Action with Completion Date

The file is very basic and states that information on corrective action plans will be updated once approved by HRSA.

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Audit Tips

Conduct mock audits Develop effective policies and procedures

Patient eligibility Duplicate discounts Appropriate Medicaid billing

Create 340B task force for program oversight Multidisciplinary: Representation from pharmacy, administration, legal

and finance Group should meet periodically to review organizations operations

against the 340B program standards and opinion letters Keep current on developments/updates

Be prepared for 340B integrity audit Risk Assessment HRSA Website

http://www.hrsa.gov/opa/ http://www.hrsa.gov/opa/faqs/index.html

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How can Arnett Foster Toothman help?

Arnett Foster Toothman has assisted multiple clients with 340B mock audits, pharmacy policy and procedure compliance assistance and 340B benefit calculations

Conduct a mock HRSA 340B Integrity audit Review of policies and procedures regarding the procurement,

inventory, distribution, dispensing, and billing for covered outpatient drugs

Documentation of internal controls applicable to the policies and procedures identified above

Review of policies and procedures to prevent the resale or transfer of drugs to a person or persons who are not patients of the covered entity

Review records of drug procurement and distribution and test whether hospital has obtained a discount only for those programs authorized to receive discounts by section 340B of the PHS Act

Arnett Foster Toothman follows HRSA data request and audit protocol in order to mock actual HRSA Integrity Audit

This will provide the organization with a corrective plan of action, if necessary, and readiness when the actual HRSA audit occurs

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Q&A

Questions ?

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Thank You!

Brenda Christman, MemberArnett Foster Toothman PLLC155 E Broad Street, Suite 2100Columbus, OH 43215614-223-9209brenda.christman@afnetwork.com

Brian Bell, ManagerArnett Foster Toothman PLLC155 E Broad Street, Suite 2100Columbus, OH 43215614-223-9209brian.bell@afnetwork.com