BALTIMORE, MD 29 June 2012—Nearly 20 years after the passage of the law creating the federal 340B drug discount program, the Health Resources and Services Administration (HRSA) is exercising its authority to audit hospitals that have enrolled in the program.

"This is not a new rule," said Krista Pedley, director of HRSA's Office of Pharmacy Affairs, which oversees the 340B program. "We've had the ability, and manufacturers have as well, to audit covered entities since the beginning of this program."

The 340B program was created in 1992 to allow qualified health care entities to purchase outpatient medications at discounted prices for use by low-income patients. Participants in the 340B program are called covered entities and include safety net hospitals, federally qualified health centers, and AIDS drug assistance programs.

According to HRSA, the 340B program saves its participants an estimated 20–50% on the cost of outpatient drugs, for a total of about $5 billion annually.

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

Pedley, one of several speakers at a June 11 session on 340B program compliance at ASHP's Summer Meeting in Baltimore, said "financial constraints" had previously prevented HRSA from auditing program participants.

She said HRSA has "reprioritized" its limited resources and started auditing this year. In all, she said, the agency has completed 37 audits and expects the total to reach 50 by the end of the 2012 fiscal year.

Pedley said HRSA will make public its audit results after the agency ensures that its methods are consistent and audited entities have an opportunity to respond to the findings.

The big D's. Pedley said HRSA auditors are focusing on two compliance problems: diversion and duplicate discounts.

Diversion refers to a covered entity providing drugs bought through the 340B program to people not eligible for the program's prices. Duplicate discounts occur when a state obtains Medicaid rebates for a drug that a covered entity bought through the 340B program.

Covered entities that violate rules against diversion and duplicate discounts may be required to repay the discount to the drug's manufacturer. Other potential penalties include repayment of interest on the discounted amount and disqualification from participation in the 340B program.

According to HRSA, 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 thus avoid obtaining rebates on those drugs.

Avoiding diversion starts with understanding which patients qualify for the 340B program's discounts.

"In an audit . . . the first question we will ask you is, 'Do you have policies and procedures in place to define who is and who is not a patient?'" Pedley said.

But HRSA's definition of a patient of a 340B-covered entity is not clear, which can lead to confusion.

"The definition of 'patient' is probably the most controversial part of the 340B program," attorney William H. von Oehsen said during a May 22 meeting in Washington, D.C., sponsored by the Food and Drug Law Institute and the American Health Lawyers Association.

Oehsen, general counsel for the Safety Net Hospitals for Pharmaceutical Access (SNHPA), said 340B drugs can be used to fill outpatient prescriptions written "within the walls" of a participating hospital and its ambulatory care units for patients who have an established relationship with the covered entity. He said the relationship must include medical care as well as pharmaceutical care.

SNHPA provides information on a variety of 340B topics for hospitals, including an April 2012 guidance document on compliance with the program's diversion-prevention requirements. SNHPA also offers advice on avoiding duplicate discounts.

But Pedley warned covered entities to be sure that any advice they receive about the 340B program from third parties is sound before acting on it.

"It's the covered entity's responsibility . . . to ensure compliance with the program," she said.

Pedley had a similar warning for hospitals that outsource pharmacy services for patients eligible for 340B prices on drugs.

"Covered entities also have responsibility to ensure that all of the contract pharmacies they put in place are in compliance" with provisions of the 340B program, she said. "If they come up [deficient] in one of our random audits, they can put your entire program at risk."

Audit survival. Jason Atlas, director of outpatient pharmacy services for the 477-bed Denver Health and Hospital Authority, recounted for Summer Meeting attendees his experiences during HRSA's initial round of 340B audits.

His take-home message?

"You need to be in a constant state of audit readiness," Atlas said. "Be confident in your patient definition and your 340B usage."

Atlas said Denver Health was notified about the upcoming audit on February 3, and the audit began 25 days later.

During a preliminary meeting before the audit, the hospital was informed that it would need to produce several 340B-related policies and procedures, a Medicare cost report, a list of the hospital's 340B clinics, and electronic prescription and health care provider data files.

Atlas said creating the prescription data file could be a problem for pharmacy departments that have not previously verified that their information system can handle such requests.

"Once you're in the throes of the audit, you won't have a significant amount of time to ensure that you can produce this file," Atlas said.

Atlas said HRSA's auditors required standard information in the pharmacy data file, such as the prescriber, patient, National Drug Code number, fill date, billing amount, and acquisition cost. HRSA also asked for encounter dates, which the Denver Health system does not capture, he said.

Before supplying the requested file with six months' of prescription data from about 450,000 prescriptions, Denver Health sent HRSA a sample file for validation. Atlas said HRSA's auditors ultimately chose 50 prescriptions and tracked them for compliance from the start of the patient encounter through the time of dispensing.

Denver Health allotted three days for the audit, but it was finished in two days. Atlas said one reason for this was that the health system assigned the auditors to a conference room with multiple projectors and an Internet connection. This allowed easy comparison of records as they were tracked through the episode of care.

Altas recommended making inpatient and outpatient pharmacy staff and information technology personnel available to the auditors to help speed the audit, and he advised meeting attendees not to view the audit as a punitive experience. "Our audit was an educational opportunity for us," he said.