340B Program self-monitoring: Purchasing and inventory management

Sarah Cole, CPA; Melany C. Aylor, C.Ph.T., 340B ACE; and Susan E. Brankin, R.Ph., 340B ACE 
| 8/24/2021
Healthcare Connection Featured Image

Along with covered entity eligibility and drug diversion and duplicate discounts, purchasing and inventory management compliance is the final area of 340B Drug Pricing Program self-monitoring in preparation for a 340B Program integrity audit by the Health Resources & Services Administration (HRSA). The 340B Program allows eligible healthcare organizations to purchase covered outpatient drugs at a discounted price. By using these drug discounts from manufacturers, 340B participating covered entities are able to stretch scarce federal resources as far as possible, reaching more eligible patients and providing additional comprehensive services. Two components of purchasing and inventory management compliance are:

  • Minimizing group purchasing organization (GPO) prohibition risk for applicable covered entities
  • Monitoring inventory management practices for accurate purchasing

GPO prohibition

Covered outpatient drugs available for 340B pricing from manufacturers are defined in Section 1927(k)(2) of the Social Security Act. Per Section 340B of the Public Health Service Act, disproportionate share hospitals, children’s hospitals, and freestanding cancer hospitals participating in the 340B Program may not obtain covered outpatient drugs through a GPO or other group purchasing arrangement. If a covered entity violates GPO prohibition, it would be considered ineligible for the 340B Program for the time period in which it violated the rule. This ineligibility can result in significant financial loss to the covered entity or removal from the 340B Program. Covered entities removed from the 340B Program for GPO prohibition violations must demonstrate the ability to comply with the GPO prohibition to be considered eligible to reenter the 340B Program during the next regular enrollment period.

Covered entities rely on various strategies to prevent GPO prohibition, including the following:

  • Using split-billing software to manage eligibility determinations and accumulations in a virtual replenishment model
  • Maintaining a separate inventory for inpatients and outpatients in a physical inventory model
  • Defining certain drugs as exclusions to the covered outpatient drug definition

Regardless of the inventory management system used, covered entities should include the following in their self-monitoring processes:

  • Analysis of drugs purchased exclusively on the GPO account to assess if utilization practices support purchasing each drug only on the GPO account
  • Review of the manual invoice upload process (for virtual replenishment models) to confirm accumulations are decremented appropriately for purchases made outside the split-billing software
  • Assessment of consignment inventory purchasing practices to ensure 340B-eligible patients are not receiving covered outpatient drugs purchased on a GPO account
  • Evaluation of drugs purchased outside the pharmacy (material management, surgery, etc.) to confirm compliance with GPO prohibition

Exclusions to the covered outpatient drug definition are not subject to 340B requirements, allowing them to be purchased on a GPO account. Covered entities may interpret the covered outpatient drug definition and define exclusions to their definition. All exclusions should be:

  • Defensible
  • Consistently applied in all areas of the entity
  • Noted in policy and procedures
  • Auditable

If a drug is considered an exclusion to the covered outpatient drug definition, it may not be purchased under the 340B Program in one location and at GPO pricing in another location. It is best practice to flag the specific national drug codes (NDCs) excluded from the covered outpatient drug definition in the 340B split-billing software to consistently prevent them from being purchased on the 340B account for all purchasing areas. Labeler codes of manufacturers without a pharmaceutical pricing agreement with the Centers for Medicare & Medicaid Services are not subject to 340B pricing requirements. Exclusions and settings within the 340B split-billing software to confirm GPO prohibition adherence, if applicable, should be reviewed at least annually to assess if exclusions are still appropriate and that all 340B requirements are met.

Other areas to review when monitoring for GPO prohibition compliance include:

  • Policies and procedures
  • Purchasing accounts to confirm the appropriate accounts (340B, wholesale acquisition cost, or GPO) are set up for each pharmaceutical vendor based on population served
  • Loan-borrow or buy-sell policies and transactions to confirm GPO prohibition adherence
  • Ineligible, off-site clinic drug purchasing processes to confirm the appropriate accounts are set up and drugs are not transferred from an ineligible location to an eligible location
  • Initial inventory purchasing processes
Sign up to receive updates on the latest healthcare industry trends, developments, and business needs.

Inventory management

Split-billing software is often used by 340B covered entities to help manage drug inventories that are physically comingled but kept virtually separate using a replenishment model. When using a virtual replenishment model, the covered entity should accumulate 340B purchases for the exact 11-digit NDC that was originally administered or prescribed to the 340B-eligible patient. The covered entity should have auditable records to demonstrate this accumulation. When monitoring for compliance with inventory management using a virtual inventory model, entities should review the following in the split-billing software:

  • Match of the 11-digit NDC administered compared to NDC accumulated for 340B-eligible transactions
  • Negative and large positive accumulation balances to identify potential issues with drug setup in the 340B software and inappropriate purchasing practices
  • Conversion factors to confirm accurate mapping of accumulation quantities to package sizes
  • Unmapped NDCs and charge description masters

Covered entities using a physical or hybrid (physical and virtual) inventory model should consider including the following in their self-monitoring processes for inventory management:

  • Review of processes to separate 340B inventory from non-340B inventory
  • Reconciliation of physical inventory counts to perpetual inventory documentation
  • Assessment of inventory adjustments and reconciliation of variances

Conclusion

Areas of self-monitoring needed to comply with 340B Program regulations include eligibility criteria, diversion and duplicate discount prevention, and purchasing and inventory management practices. Covered entities should focus on building a self-monitoring plan that addresses high-risk areas and optimizes resources while attaining the best audit coverage possible. Monitoring and maintaining 340B Program compliance will allow organizations to continue serving their communities and providing critical healthcare services to those most in need.

Contact us

Learn more about how Crowe can provide industry-specific financial, regulatory, and technology expertise for your healthcare organization.
Sarah Cole
Sarah Cole
Office Managing Partner, St. Louis, Healthcare Risk Consulting Leader
people
Melany Aylor
Susan Brankin
Susan Brankin