How to Survive a HRSA Audit & Take Corrective Action William von Oehsen, Principal Powers Pyles Sutter & Verville, PC
Statement of Conflicts of Interest William von Oehsen represents 340B providers and 340B provider groups This presentation is not to be construed or relied upon as legal advice 2
Today s Agenda HRSA audit program Typical findings, sanctions and areas of improvement Corrective action plans (CAPs) When to self-disclose and assessing materiality Elements of a CAP Manufacturer repayment issues Closing out a CAP Manufacturer inquiries 3
CE Question True or False: A covered entity is only required to initiate corrective action if the non-compliance is material? 4
HRSA Audit Program Health Resources and Services Administration (HRSA) began auditing covered entities (CEs) in 2012 As of last month, HRSA audit reports posted: 51 audits for FY 2012 94 audits for FY 2013 99 audits for FY 2014 200 audits for FY 2015 198 audits for FY 2016 Another 200-300 audits expected in 2017 To date, HRSA has completed six manufacturer audits 5
HRSA Audit Program (cont d) Audit Process Engagement Letter Teleconference with auditor Data request Onsite audit Audit report Post-Audit Process Appeal? Notice of Disagreement filed Final audit report Audit findings posted on OPA website CAP submitted CAP approval CAP Implementation CAP initiated Periodic CAP implementation updates CE attests CAP is completed HRSA closes out audit 6
Typical Findings and Sanctions Database errors Finding GPO prohibition violations after 8/7/13 Diversion Duplicate discounts and Medicaid billing violations Failure to replenish at NDC 11 level in virtual inventory systems Inadequate oversight of contract pharmacies Sanction Improved policies and procedures (P&Ps) CE termination if violation is ongoing and manufacturer repayment Manufacturer repayment Manufacturer repayment Manufacturer repayment? Termination of contract pharmacies Inauditable records CE termination if violation is ongoing and repayment 7
Typical Areas of Improvement CE needs comprehensive P&Ps CE should review and update its database record Contract pharmacy P&Ps need to be strengthened CE should remove inactive contract pharmacy registrations from OPA database CE should develop policies for notifying HRSA when it must purchase covered outpatient drugs through a group purchasing organization in the absence of 340B pricing availability 8
Two Kinds of CAPs CEs must initiate correction action in two situations: As a result of an adverse audit by HRSA or manufacturer As a result of discovering a use of the 340B program that is noncompliant There are both differences and similarities between these two kinds of CAPs 9
HRSA Audit CAP CAP is generally due within 60 days of either an uncontested adverse audit report or any unsuccessful appeal, called a Notice of Disagreement HRSA is generally willing to grant one extension Audit results are posted on the website of the Office of Pharmacy Affairs (OPA) and manufacturers are invited to contact the CE if they believe they are owed repayment 10
HRSA Audit CAP (cont d) In January 2016, OPA provided an update on its website announcing changes to the audit process Discontinuance of public letter requirement Electronic submission of audit documents using email address 340baudit@hrsa.gov CAPs remain open until settlements have been finalized and CE submits letter attesting that corrective action is complete CEs must receive written confirmation from state Medicaid agencies that manufacturers were not subject to duplicate discounts 11
HRSA Audit CAP (cont d) HRSA has developed a CAP template CAP preparation simply involves filling in the boxes in the template chart The template appears to have fewer elements for example, it does not seek information about performing targeted self-audits to validate that the non-compliance will not reoccur Question is HRSA seeking less information? We have found use of the template to be awkward because it does not provide sufficient room to describe a CAP fully A detailed CAP can provide protection against future allegations that the CE failed to take adequate corrective action 12
Self-Audit CAP Pursuant to the annual recertification process, the CE s Authorizing Official must certify, among other things, the CE s responsibility to: Self-disclose to HRSA as soon as possible if there is any change in eligibility and/or breach of program requirements Take corrective action which may include repayment to manufacturers, payment of interest and/or removal from the program Corrective action is always required even if self-disclosure is not 13
Self-Audit CAP (cont d) HRSA does not require a specific format, including use of the new CAP template, for describing its proposed corrective action Nonetheless, CEs would be well advised to address all of the CAP elements required by HRSA in response to a HRSA audit HRSA expects CAP implementation updates and notification when a CAP is complete, but again the process if less formal Results of a self-disclosure, in contrast to a HRSA audit, are not posted on the OPA website CEs are always better off addressing compliance issues through the selfdisclosure process than waiting for a HRSA audit Self-disclosures made after a CE receives its audit notice are typically included in the audit report as a finding 14
When Are Self-Disclosures Required? Question are there some instances of non-compliance that still do not need to be reported if, for example, they are minor in nature and/or easily corrected? Although HRSA eliminated the materiality language in the recertification statement, a materiality threshold for self-reporting is still referenced on the OPA website and in Apexus materials We recommend that CEs establish a materiality threshold in their 340B policies and procedures 15
Assessing Materiality Apexus tool suggests three steps: 1. Establish threshold (may vary by setting) 2. Determine how and by whom materiality will be assessed 3. Maintain records of materiality assessments Threshold examples: % of total 340B purchases (or by manufacturer) Fixed dollar amount for all non-compliant purchases (or by manufacturer) % of total 340B inventory (units) % of audit sample 16
Elements of a CAP Manufacturer repayment (if necessary) Strengthened policies and procedures Targeted self-audits with description of audit process, sampling, frequency, etc. Ongoing compliance oversight activities Implementation dates Responsible individuals Internal communication and education strategy 17
Manufacturer Repayment - Statute 42 U.S.C. 256b(a)(5)(D) If the Secretary finds, after audit as described in subparagraph (C) and after notice and hearing, that a covered entity is in violation of the anti-diversion or duplicate discount requirements, the covered entity shall be liable to the manufacturer of the covered outpatient drug that is the subject of the violation in an amount equal to the reduction in the price of the drug..... 18
Manufacturer Repayment Statute (cont d) Enhanced sanctions under 42 U.S.C. 256b(d)(2)(B)(v): If covered entity knowingly and intentionally diverts 340B drugs, the HRSA may impose an interest penalty on the amount of the discount to be repaid If the diversion is also systematic and egregious, HRSA may remove the covered entity from the 340B program These sanctions are NOT exclusive HRSA could also refer a covered entity to other authorities if it suspects that the covered entity has violated other provisions, like the False Claims Act, anti-kickback statute, or Prescription Drug Marketing Act 19
Manufacturer Repayment - Remedies Credit and rebill Offer refund check If repayment is due as a result of over-purchasing 340B drugs: Return to supplier Keep separate from non-340b inventory and only use for 340B eligible patient Destroy If using a replenishment-based virtual inventory system, adjust accumulator (i.e., under-purchase NDC to negate over-purchases), but need manufacturer transparency and/or permission 20
Repayment Challenges Quantifying the amount to refund The 340B price changes over time, as does the non-340b price For hospitals subject to GPO prohibition, consider using Apexus wholesale acquisition cost (WAC) file because historical WAC is difficult to retrieve Contract pharmacies often refuse to reveal what they pay for drugs so CE will have to estimate non-340b price consider using the NADAC price file Ask manufacturer to calculate repayment amount? Contacting manufacturer who is proper contact person? How to handle unresponsive manufacturers? 21
Repayment Tips 1. Give manufacturers different options for repayment credit-and-rebill, refund check, or accumulator adjustment 2. Be transparent with OPA and manufacturers show how repayment amount was calculated 3. Do not just mail out checks or initiate credit-and-rebills or accumulator adjustments 4. Set a deadline for manufacturer responses 5. Specify default remedy if manufacturer fails to respond and send closeout letter when corrective action completed 6. Cooperate with manufacturers that have questions or take issue with the proposed remedy 22
Other CE Corrective Actions Updating 340B policies and procedures; Updating 340B inventory management systems; Increasing the frequency of CE self-audits; Implementing 340B compliance training programs; Correcting/updating database entries and Medicaid Exclusion File; Working with state Medicaid agencies; and Improving internal controls in mixed-use areas. 23
Closing Out a CAP To close out the CAP, HRSA expects an attestation letter stating that the CAP is fully implemented, settlements have been finalized and CE is willing to work towards repayment with unresponsive manufacturers Spreadsheet identifying repayments made are typically included Question how long must a CE be willing to work towards repayment for unresponsive manufacturers? A three-year repayment obligation is defensible in light of the manufacturer audit guidelines and HRSA s dispute resolution regulation 24
Manufacturer Inquiries CE should be cooperative Failure to cooperate could lead to formal manufacturer audit and serve as reasonable cause that violation occurred CE must balance its own interests Compliance with federal and state privacy laws No fishing expeditions need specific NDCs, time period, general explanation of why data is being requested Issues Old data is difficult to retrieve retrieval fees, wholesalers change, manual processes often involved, etc. Evolving HRSA guidance cannot apply current standards to past practices Attorney-client privilege 25
CE Question True or False: A covered entity is only required to initiate corrective action if the non-compliance is material? 26
CE Question & Answer True or False: A covered entity is only required to initiate corrective action if the non-compliance is material? Answer: False 27
Additional Questions? Bill von Oehsen Principal Powers Pyles Sutter & Verville, PC 1501 M Street, NW 7 th Floor Washington, DC 20005 Phone: 202-872-6765 William.vonOehsen@PowersLaw.com www.powerslaw.com 28