The 340B Drug Pricing Program requires drug manufacturers that participate in Medicaid to provide covered outpatient drugs at a discounted rate to enrolled healthcare facilities. When it created the 340B Program, Congress intended it to be used by covered entities “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”1 Covered entities must enroll with the Health Resources & Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA) and comply with all 340B Program rules and expectations.
Covered entities are subject to audits by both manufacturers and HRSA.Throughout the existence of the 340B Program, HRSA’s expectations during 340B Program integrity audits, currently outsourced by HRSA to the Bizzell Group, have evolved. One constant, though, is the expectation for covered entities to self-monitor all aspects of the program. Covered entities must continually strive to comply with 340B Program regulations, make improvements to program operations, and notify manufacturers – and possibly HRSA – when compliance concerns are identified.
The key areas of HRSA’s focus during a 340B audit are eligibility, diversion, and duplicate discounts. Purchasing and inventory management also play key roles in 340B Program compliance. Each area of compliance presents unique challenges to covered entities, and a comprehensive self-monitoring program is fundamental to ensuring program integrity. The ability to operate compliantly in these areas requires a comprehensive net of operational structures working together to accurately define key program functions, implement supporting software solutions, and provide adequate oversight.
Eligible covered entity types
The initial requirement for participation in the 340B Program is being an eligible covered entity type and maintaining relevant supporting documentation of such eligibility.
Eligible covered entity types include:
- Disproportionate share hospitals
- Children’s hospitals
- Free-standing cancer hospitals
- Critical access hospitals
- Rural referral centers
- Sole community hospitals
- Nonprofit healthcare organizations with certain federal designations or funding from specific federal programs
Each eligible covered entity type has a unique subset of eligibility criteria and must be able to document that the criteria have been met. An assessment of the documentation to support eligibility should identify the covered entity type, as registered on the 340B Office of Pharmacy Affairs Information System (OPAIS), and should demonstrate compliance with all criteria. This information should be maintained in a readily accessible location and should be easily retrievable in the event of an audit.
Necessary documents should be reviewed annually. They vary by entity and might include:
- State or local government contract or ownership information
- Hospital charter or bylaws
- Internal Revenue Service documentation
- Law(s) creating the healthcare entity
- Issuance of governmental powers
- Notice of grant award or notice of award
- Federally qualified health center or federally qualified health center look-alike documentation or agreement
- HRSA Electronic Handbook
- Medicare Cost Report(s) (MCR) and associated trial balance(s)
- Disproportionate share adjustment percentage calculation
Hospitals with off-site locations purchasing drugs through the 340B Program must confirm each location is reimbursable to the covered entity.
Required documents should be reviewed quarterly and include:
- Trial balance(s)
- Revenue usage reports
- Location directories
Services that occur at varying locations but that report outpatient revenue and expenses to the same cost center code must be separately registered. Although cost reports are filed annually, departments and locations might be added or removed throughout the year. For this reason, quarterly review of off-site location eligibility is recommended.
Another area of compliance under the umbrella of eligibility is a covered entity’s ability to maintain auditable records. Entities can gauge preparedness with the maintenance of auditable records by taking these actions:
- Obtain the current HRSA audit data request list at the start of the government’s fiscal year of Oct. 1.
- Outline where each data request list item would be generated and who would be responsible for gathering the data.
- Complete a walk-through with staff of the data collection process to understand where gaps might exist.
HRSA requires covered entities to maintain records for a minimum of three years. Covered entities also should verify their organization’s record maintenance policy, as it might require record retention for a longer amount of time than HRSA’s policy.
The last component of eligibility, applicable to only a subset of hospital covered entity types, is prevention of group purchasing organization prohibition violations. Due to the size and potential complexity of this eligibility component, it is addressed in a future part of this series.