Statement of Conflicts of Interest

Part 1 - Overview Debra A. Muscio, MBA, CHC, CCE, CFE SVP, Chief Audit, Ethics & Officer Community Medical Centers Karolyn Woo-Miles Senior Manager Deloitte & Touche LLP April 22, 2015 Statement of Conflicts of Interest This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Karolyn Woo-Miles has no actual or potential conflict of interest in relation to this presentation. Today s Agenda the Federal the Federal Challenges and -3-1

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Veterans Health Care Act of 1992, Public Law 102-585. http://www.hrsa.gov/opa/programrequirements/publiclaw102585.html. Source: U.S. Department of Health and Human Services Health Resources and Services Administration (HRSA) Office of Pharmacy Affairs (OPA) What is? the Federal Veterans Health Care Act of 1992 requires pharmaceutical manufacturers whose drugs are covered by Medicaid to provide discounts on outpatient covered drugs purchased by specific public health services that serve the nation s most vulnerable patient populations. Eligible entities receive discounts based on the utilization of pharmaceuticals by covered outpatients. Covered entities must enroll in the program to participate. The program sits under the Health Resources and Services Administration (HRSA) and administered by the Office of Pharmacy Affairs (OPA). What is? the Federal 2012 annual drug sales were roughly $7 billion, representing approximately 3% of all U.S. drug purchases. Entity Type Sales FY 2012 % of Total Sales to Entities Critical Access Hospitals $86,580,619 1.25% Free-Standing Cancer Hospitals $33,110,213 0.48% Rural Referral Centers $35,783,389 0.52% Sole Community Hospitals $60,064,532 0.87% Total Sales $6,941,926,458 3.12% Covered Entities the Federal Populations Served and Qualifications Covered Entity Type Non-Profit/Govt. Contract DSH% Disproportionate Share Hospital (DSH) Yes > 11.75% Children s Hospital Yes > 11.75% Free Standing Cancer Hospital Yes > 11.75% Sole Community Hospital Yes 8% Rural Referral Center Yes 8% Critical Access Hospitals Yes No AIDS Clinics and Drug s Yes No Black Lung Clinics Yes No Hemophilia Treatment Centers Yes No Urban Indian Clinics/638 Tribal Centers Yes No Title X Family Planning Clinics Yes No -4- -5- -6-2

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Section of the Public Health Services Act.. 1-3. http://www.hrsa.gov/opa/programrequirements/phsactsection340b.pdf. Source: U.S. Department of Health and Human Services Health Resources and Services Administration (HRSA) Policy Release Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Definition of Patient. 1543-1546. Federal Register Vol.72 No. 8, January 12, 2007. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/definitionofpatient011207.pdf Savings Opportunities the Federal The provides the third deepest discount on pharmaceuticals in the U.S., trailing only the Department of Defense and Veterans Healthcare Administration contracts A typical hospital can expect to save approximately 25% to 35% off of the Group Purchasing Organization (GPO) cost for drugs used for covered outpatients Savings are often most significant for brand name drugs Certain drugs have savings of more than 50% Prohibitions the Federal Duplicate Discount Covered entity is prohibited from accepting a discount for a drug that would also generate a Medicaid rebate to the State. Diversion Covered entity shall not resell or otherwise transfer the drug to a person who is not a patient of the entity. GPO Exclusion DSH hospitals, children s hospitals, and free-standing cancer hospitals may not obtain covered outpatient drugs through a GPO or other group purchasing arrangement. Orphan Drugs Free-standing cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals may not purchase selected rare disease drugs at prices. Qualifying Criteria the Federal Drugs must be administered to a qualified patient: Covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual s health care; and 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 such that responsibility for the care provided remains with the covered entity; and Individual receives health care service(s) from the covered entity which is consistent with the services(s) for which grant funding or federally-qualified health center look-alike status has been provided to the entity. Outpatient use only Drugs must be administered in a hospital point of service that would qualify as a reimbursable cost center on the Medicare cost report: Includes qualified outpatient facilities (e.g., physician clinics, surgery centers) -7- -8- -9-3

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Clarification of s of Covered Entities. 1-2. Notice Release No. 2012-1.1. February 8, 2013. http://www.hrsa.gov/opa/programrequirements/policyreleases/auditclarification020813.pdf Definition of a Qualified Patient the Federal Person is not a patient of a covered entity if the only health care service the individual receives is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting Examples of gray areas: Covered Entity patient returns to the Covered Entity pharmacy to fill a prescription for conditions treated by outside health care providers Outpatient initiatives by a Covered Entity (e.g., provision of care in mobile clinics, at prisons, etc.) Treatment of services referred by the Covered Entity to an outside provider New guidance likely in the future: Government Accountability Office (GAO) has advocated for a new, more specific definition of a patient and Medicaid the Federal Covered entities may not receive a discount for drugs that are subject to a Medicaid rebate: Providers required to inform HRSA (by providing their Medicaid billing number) at the time they enroll if they plan to purchase and dispense drugs for their Medicaid patients and bill Medicaid Follow procedures established by State Medicaid agencies State Medicaid program may: Require Covered Entities to carve out Medicaid patients from so the State can claim the rebate Allow Covered Entities to use drugs for Medicaid patients, and reduce Medicaid payment to the Covered Entity Allow Covered Entities to use drugs for Medicaid patients, and pay an increased dispensing fee and Medicaid the Federal Your turn: What challenges might a covered entity experience with Medicaid billing compliance? State-specific guidelines create multiple implementation models Limited state guidance (i.e. MCO vs. FFS) Developing multiple charge algorithms for hospital-based billing NDC accuracy Price updates Technology limitations Manual process Lack of cohesion amongst hospital departments Lack of monitoring/internal controls -10- -11- -12-4

*Source: ApexusanalysisofHRSA smasterdatabaseofcoveredentities,april2014 290=140disproportionatesharehospitals+120children shospitals+30other Source: US Department of Health and Human Services: Health Resource and Services Administration. Notice Regarding -Contract Pharmacy Services. 10272-10279. Federal Register Notices Vol.75, No 43.. March 5,2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/contractpharmacyservices030510.pdf Contract Pharmacy the Federal Ship-To/Bill-To arrangements: Covered Entity pays for drugs at price under its contacts with manufacturers Drugs are shipped to the contract pharmacy, which maintains inventory Contract pharmacy bills payors/patients on behalf of the Covered Entity: Fees for contract pharmacies subject to negotiation Covered Entity can establish discounts for patients Inventory and cash-flow is usually managed by a software system and/or third party intermediary. Covered Entities must establish a mechanism to screen individuals to determine if they qualify as a patient of the Covered Entity, and track ordering, receipt, and dispensing of drugs: Limited guidance on requirements with program rules is always the responsibility of the Covered Entity Contract Pharmacy the Federal Contract Pharmacies in Network Entities by Number of Contract Pharmacies, July 2014 Entities Share of Entities Total # of Contract Pharmacy Relationships Share of Contract Pharmacy Relationships Average Pharmacy Network Size 0 19,967 80.6% 0 0 0 1 1,931 7.8% 1,931 5.5% 1 2-5 1,574 6.4% 4,659 13.2% 3 6-10 560 2.3% 4,334 12.3% 8 11-25 446 1.8% 7,329 20.7% 16 More than 25 290 1.2% 17,090 48.4% 59 Total 24,768* 100% 35,343 100% HRSA Guidelines 2010 Contract Pharmacy Federal Register Notice the Federal 1. Covered entity must purchase the drug 2. Contract pharmacy agreement must specify that the parties will provide comprehensive pharmacy services 3. Covered entity must inform patients that they are free to choose a pharmacy provider 4. Both parties will adhere to federal, state and local laws 5. Contract pharmacy must provide the covered entity with reports that are consistent with standard business practice 6. Both parties will work together to establish and maintain a tracking system sufficient to prevent diversion and verify patient eligibility 7. Drugs purchased under will not be used to fill Medicaid prescriptions. 8. Both parties will identify information that is necessary for the covered entity to evaluate whether the program is in compliance and the contract pharmacy will make such information available for use in independent audits performed by covered entity 9. Both parties will be subject to outside audits 10. Copy of the contract must be provided to the OPA upon written request -13- -14- -15-5

Source: PPACA 7102(a); Public Health Service Act, 42 U.S.C. 256b(d)(2)(b) Recertification Requirements the Federal The Affordable Care Act requires HRSA to develop and maintain procedures for Covered Entities to regularly update their information Importance of maintaining current and accurate database information Used by manufacturers to screen Covered Entities Publicly available at http://opanet.hrsa.gov/opa HRSA recommends listing all sites that will utilize drugs Requires registration of all contract pharmacy arrangements Timeline for database updates and recertifying compliance: Ryan White programs, STD/TB, family planning clinics completed 2012 Federally Qualified Health Center (FQHCs) completed February 2013 DSH Hospitals completed September 2013 Registration changes may only be submitted the first 15 days of the quarter (October 1-15; January 1-15; April 1-15; July 1-15) Become effective the start of the following quarter Recertification Requirements the Federal Covered Entity will attest to the following: 1. All information listed on the program database for that Covered Entity is complete, accurate, and correct 2. Has continuously met all program eligibility requirements 3. Complying with all requirements and restrictions of Section of the Public Health Service Act and any accompanying regulations or guidelines including, but not limited to, the prohibition against duplicate discounts/rebates under Medicaid, and the prohibition against transferring drugs purchased under to anyone other than a patient of the entity 4. Maintains auditable records demonstrating compliance with the requirements outlined above. Recertification Requirements the Federal Covered Entity will attest to the following: 5. Has systems/mechanisms in place to ensure ongoing compliance with the requirements outlined above 6. If the Covered Entity uses contract pharmacy services, the arrangement is being performed in accordance with OPA requirements and guidelines including, but not limited to, that the Covered Entity obtains sufficient information from the contractor to ensure compliance with applicable policy and legal requirements, and the Covered Entity has utilized an appropriate methodology to ensure compliance (e.g., through an independent audit or other mechanism) 7. Acknowledges its responsibility to contact OPA as soon as reasonably possible if there is any material breach by the Covered Entity 8. If the entity does not notify OPA in a timely fashion, the entity acknowledges that it may be required to remit payment back to manufacturers which would represent the difference between the discounted price and the drug s non- purchase price -16- -17- -18-6

Source: http://www.grassley.senate.gov/news/news-releases/agency-confirms-poor-oversight-federal-discount-drug-program. Source: http://www.gpo.gov/fdsys/pkg/crpt-113srpt71/pdf/crpt-113srpt71.pdf Source: http://www.snhpa.org/files/senate_signon_letters.pdf Source: http://www.snhpa.org/files/_draft_052313.pdf Source: http://www.hrsa.gov/opa/programrequirements/policyreleases/programintegrity021012.pdf Source: US Department of Health and Human Services: Health Resource and Services Administration. Notice Regarding -Contract Pharmacy Services. 10272-10279. Federal Register Notices Vol.75, No 43.. March 5,2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/contractpharmacyservices030510.pdf Active Participants in the Federal GPO s & Buying Groups Contract Pharmacy Drug Manufacturer Wholesaler Covered Entity (CE) 3 rd Party Administrators (Software Vendors) A New Era for the Federal 2010 program was significantly expanded with the passage of the Affordable Care Act and the concurrent release of additional federal guidance Additional expansion included provisions for contract pharmacy partnerships that allowed participating entities to partner with retail pharmacies to help service their patients 2011 Expansion resulted in increased scrutiny from lawmakers and drug manufacturers. 9/23/2011 GAO report and 11/9/2011 press release issued by Senator Chuck Grassley are critical of program oversight. 2012 In response to scrutiny regarding program oversight, OPA briefed the Senate Appropriations Committee in February 2012: Plans to strengthen program to ensure compliance with existing requirements Timetable for issuing new regulations that address compliance concerns raised by both OIG and GAO 2013 Senate Appropriations Committee later reaffirms s intent in July 2013. Bipartisan letters of support are issued from over 100 lawmakers in August 2013. Recent Developments the Federal GPO Prohibition Clarification On February 7, 2013, HRSA issued a policy release to clarify its position regarding the GPO Exclusion. deadline was April 7, 2013 and extended to August 7, 2013: - Hospital subject to the GPO prohibition may not purchase covered outpatient drugs through a GPO for any of its covered locations. - Means opening wholesale acquisition cost (WAC) accounts with their drug wholesalers and overhauling their virtual drug inventory software Covered entities found in violation will be considered ineligible and immediately removed from the. May be subject to repayment to manufacturers: - Covered entities unable comply by the extended deadline must immediately notify HRSA, and will be terminated from the program Non-compliant hospitals identified by HRSA after the extension will be involuntarily terminated Congress Agrees to More than Doubles Funding 2014 HRSA OPA budget rises from $4.4 million to $10.2 million Office of Inspector General (OIG) Releases its first report on contract pharmacy programs Report indicated that there were inconsistencies with contract pharmacy implementations across the country due to unclear program restrictions and requirements -19- -20- -21-7

Source: US Department of Health and Human Services: Health Resource and Services Administration. Notice Regarding -Contract Pharmacy Services. 10272-10279. Federal Register Notices Vol.75, No 43.. March 5,2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/contractpharmacyservices030510.pdf Source: US Department of Health and Human Services: Health Resource and Services Administration. Notice Regarding -Contract Pharmacy Services. 10272-10279. Federal Register Notices Vol.75, No 43.. March 5,2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/contractpharmacyservices030510.pdf Source: US Department of Health and Human Services: Health Resource and Services Administration. Notice Regarding -Contract Pharmacy Services. 10272-10279. Federal Register Notices Vol.75, No 43.. March 5,2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/contractpharmacyservices030510.pdf Recent Developments the Federal Recertification Affordable Care Act requires HRSA to develop and maintain procedures for Covered Entities to regularly update their information: - Hospitals must complete an annual recertification to continue program participation Updated Registration Issued in April 2014 All supporting documents must be sent to OPA on the SAME day that hospitals submit registrations. Registrations without required documents will be deleted without being reviewed and the hospital will be notified. Clarification of qualification criteria for Hospitals: - Owned or operated by a State or Local government, and submit a Certification of Ownership/Operation form. - Private, non-profit hospital with a valid contract with a State or Local government to provide health care services to lowincome individuals who are not entitled to benefits under Medicare or eligible for State Medicaid, and must submit a Certification of Contract form. - Public or private non-profit hospital that has been formally granted governmental powers. Clarification of qualification and registration of outpatient facilities: - All outpatient clinics and services that are located outside of the 4 walls of the hospital and intend to use or purchase drugs for its patients must register in the program. - If there is an off-site location that is a hospital or medical center, or even a small office with several services being provided, each clinic/department/service must be registered separately. -22- Fallout from the Orphan Drug Exclusion Lawsuit the Federal Drug industry lawsuit challenges legality of HRSA s October 2013 regulation that allows certain rural and free-standing cancer hospitals to buy orphan drugs at pricing when prescribed for non-orphan indications: May 2014 - Federal district court ruled that HRSA lacks the authority to legislate on Orphan Drugs July 2014 - HRSA issues an interpretive rule in response to the ruling of the federal district court to uphold their stance on Orphan Drug Exclusion rule Question as to whether the interpretive rule will be challenged again. Answer may lie in future guidance on remaining policy items (i.e., patient definition, managed Medicaid, etc. Additional questions remain as to the enforceability of the interpretive rule. HRSA s actions point to the issuing interpretive rules vs a mega-regulation as originally anticipated. Future Legislative Rules/Regulations the Federal By statute, HRSA may issue program regulations in the following areas: Create a mandatory administrative dispute resolution process for Impose fines on drug makers for knowing and intentional overcharges, and Impose fines on Covered Entities violating the statute knowingly and intentionally and remove them from the program for systematic and egregious misconduct ** The timetable for these regulations is not known at this time -23- -24-8

Unanswered Questions the Federal Covered entities still lack clarity on many critical program components: Patient eligibility Hospital eligibility criteria Medicaid Managed Care Organizations Transparency in price information intent Contracted and employee physicians Contract pharmacy oversight Eligibility of hospital off-site facilities Accurate ceiling pricing Mandatory manufacturer credit or refund process Covered outpatient drug Penny pricing policy Hot Topics for the Rest of the Year the Federal Contract Pharmacy Developments Limited guidance remains on program implementation OIG report highlights inconsistencies with program implementation, which could pave the way for future regulations (most likely in the form of interpretive rule) Many contract pharmacy vendors are tightening prescription capture criteria. Specialty Pharmacy s Covered Entities and Contract Pharmacy vendors looking to create programs concentrating on specialty drugs Questions with regards to how some of the arrangements meet patient definition requirements Managed Medicaid Ambiguity in Managed Medicaid billing within the program and limited guidance on requirements as it relates to Duplicate Discount Although many states do not seek rebates on Managed Medicaid plans, manufacturers still seeking their exclusion from the program Legislative Outlook the Federal What s next? Where has Congress focused to date? Contract pharmacies Use of savings patient definition Hospital eligibility expansion With 22 days left in Congress and multiple issues that take precedence, it is unlikely that will be debated in Congress this year. HRSA has stated they will be coming back in 1 year to re-audit hospitals that have been previously audited and review the sufficiency of the CAP plans More scrutiny = more attention to audits -25- -26- -27-9

Source: Public Health Service Act, 42 U.S.C. 256b(d)(2)(b)(v) Source: US Department of Health and Human Services 42 CFR Chapter I. Manufacturer Civil Monetary Penalties. 57230-57232. Federal Register Proposed Rules Vol 75. No 181. September 20, 2010. http://www.hrsa.gov/opa/programrequirements/federalregisternotices/civilmonetarypenalties092010.pdf Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Statutory Prohibition on Group Purchasing Organization Participation. 1-2. Release No. 2013-1. February 7, 2013. http://www.hrsa.gov/opa/programrequirements/policyreleases/prohibitionongpoparticipation020713.pdf Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Clarification of s of Covered Entities. 1-2. Notice Release No. 2012-1.1. February 8, 2013. http://www.hrsa.gov/opa/programrequirements/policyreleases/auditclarification020813.pdf Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). The Affordable Care Act, Section by Section. http://www.hhs.gov/healthcare/rights/law/index.html Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Audits of Covered Entities. http://www.hrsa.gov/opa/programrequirements/policyreleases/auditclarification020813.pdf Health Reform New Sanction Authority the Federal Historically, relied on self-policing, subject to potential audits by HRSA or by manufacturers Health care reform, as well as inquiries by Congress and the GAO, have led HRSA to take a more active oversight role Expanded access via increased use of contract pharmacies has led to increased risks Potential Sanctions: Forfeiture of discounts to the manufacturer Monetary penalties: applicable interest for being aware of violations and not reporting to the OPA, and intentional violations Disqualification from the program for systematic and egregious violations Possible referral to OIG or other federal agencies for further review Disqualification and prohibited re-entry in the program Health Reform Right to Audit the Federal Patient Protection and Affordable Care Act establishes integrity provisions and auditing expectations. Permits drug manufacturers to perform audits of covered entities where they have reasonable cause to believe that the covered entity is not in compliance with regulations Manufacturer audit activities: Implementation of program monitoring activities to assess and monitor covered entity compliance with requirements and identify reasonable cause to perform audits Submission of a reasonable cause letter and audit work plan to the OPA for approval Retention of an independent auditor to perform audits of covered entities HRSA also plans to audit manufacturers with the new funding they have received External Audits the Federal Entity shall permit the government and manufacturers to audit records that directly pertain to compliance HRSA 1. Eligibility Auditable records GPO prohibition 2. Duplicate discounts 3. Diversion Manufacturers 1. Diversion 2. Duplicate discounts -28- -29- -30-10

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Integrity & Audits. http://www.hrsa.gov/opa/programintegrity/index.html Source: U.S. General Accounting Office (GAO). : Manufacturer Discounts in the Offer Benefits, but Federal Oversight Needs Improvement, GAO-11-836. Washington, DC: General Accounting Office, 2011. http://www.gao.gov Steps the Federal 1. Pre-audit Engagement letter from HRSA 2. Onsite audit Auditors obtain, review, examine data Exit interview, preliminary issues 3. Post-audit Auditors provide preliminary issues to OPA OPA reviews issues found during audit, documents, and addresses concerns Entity presents corrective action plan to HRSA Results are preliminary until reviewed by OPA OPA finalizes report, posts summary on website Scope the Federal Early audits focused on duplicate payments and drug diversion Random audits focus on program types with higher risk due to volume of purchases, complexity of program administration, or use of contract pharmacies Focus areas: Verification of eligibility Review of policies and procedures and how they are operationalized Review of internal controls to prevent diversion and duplicate discounts Review of contract pharmacy compliance Test of drug transaction records on sample basis Initial audits did not test for GPO exclusion HRSA OPA Audit the Federal Audit notification letter received from HRSA OPA Onsite findings will be considered preliminary and a basis for further review Arrangements and workable space for up to 1-2 HRSA staff Pre audit data request: policies and procedures Most recently filed Medicare Cost Report (worksheets S, A, C, and E) Listing of providers eligible to make drug orders or prescriptions Listing of purchase orders (PO) made in the six-month period drug orders and prescriptions over a six-month period Pharmacy service agreements for contract pharmacies Sample of drug orders and prescriptions: Individual records must be available for review in either electronic or paper format -31- -32- -33-11

HRSA OPA Audit the Federal Example interview topics HRSA OPA Audit the Federal Sample selections: policies and procedures For both hospital drug orders and contracted pharmacies (total of 50-100 patient records for each) Sample sizes will vary based on size and complexity of the covered entity Original list of 25-50 samples of patient records with drug use and replenishment Spare list of 25-50 samples Additional samples from the top five high use drugs may be requested Testing: Tracer a sample of individual medication orders/scripts from dispensing or administration through to drug replenishment. Post- the Federal 1. HRSA Notice and Hearing As of 7/3/14, HRSA no longer issued preliminary reports, only final reports. 2. Final report issued - Entity has 30 days to disagree with final report. If agrees, 60 days to submit corrective action plan for HRSA approval. *If entity disagrees with final report, shall notify HRSA in writing within 30 days. If HRSA agrees, final report reissued. 3. Audit summary and corrective action posted on HRSA website Identification of eligible patients Identification of eligible providers Use of drugs Diversion of drugs Transfer of drugs between and non sites Medicaid (carved in/out) specific to your state Type of replenishment practices What wholesaler accounts are used to manage? Use of splitting software Who does the splitting and how often? Where is inventory kept? How do you determine quantity to order? Who reviews invoices for payment? How do you minimize your risk of ordering on the GPO account? -34- -35- -36-12

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Integrity: FY13 Audit Results, Updated 03/21/2014. http://www.hrsa.gov/opa/programintegrity/auditresults/fy13results.html Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Audit Results: Update, May 9, 2014.pdf. http://www.hrsa.gov/opa/updates/140509auditresults.html. Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Integrity: FY13 Audit Results, Updated 03/21/2014. http://www.hrsa.gov/opa/programintegrity/auditresults/fy13results.html External Audits to Date the Federal HRSA Manufacturers FY 2012 51 risk-based: 450 outpatient facilities 400 contract pharmacies 45 risk-based 6 targeted FY 2013 94 audits underway: 700 outpatient facilities 1,930 contract pharmacies OPA has received nine audit work plans Allowed eight audits to be conducted by manufacturers OPA has received seven final audit reports Example: Findings the Federal Diversion drugs dispensed at ineligible sites Not spot checking inventory to check for diversions and correcting them (variance*) drugs dispensed at ineligible site and by an ineligible provider drugs dispensed to non-patient at contract pharmacy * Variance noted by HRSA, not technically a finding. Example: Findings the Federal Billing Medicaid contrary to HRSA Medicaid Exclusion File listing drugs used for Medicaid patients at contract pharmacy, with no arrangement to prevent duplicate discounts Duplicate Discount Medicaid claims incorrectly coded when provided to the State Incorrect Medicaid or NPI in HRSA Medicaid Exclusion File Outpatient sites incorrectly listed on HRSA Medicaid Exclusion File -37- -38- -39-13

Source: US Department of Health and Human Services: Health Resources and Services Administration (HRSA). Integrity: FY13 Audit Results, Updated 03/21/2014. http://www.hrsa.gov/opa/programintegrity/auditresults/fy13results.html Example: Findings the Federal Eligibility, auditable records Incorrect authorizing official Primary location and contact information incorrect Closed child sites remained registered; incorrect name listed for a child site Incorrect address for facility, incorrect shipto address, pharmacy listed as entity with ID No written contract in place for contract pharmacies -40- Challenges the Federal Typically only one individual is well-versed on program requirements Budgeting the necessary time and resources for auditing and monitoring requirements are complex: Interpretation of an eligible patient/provider and covered outpatient drugs Maintenance of an accurate Charge Description Master (CDM) to National Drug Code (NDC) crosswalk used to convert CDM billing quantities to package sizes Conversion of units of drugs administered to patients to the correct Healthcare Common Procedure Coding System (HCPCS) billing units Operational changes, such as new electronic medical record system, addition of new eligible locations, new contract pharmacy arrangements Reliance on split billing software and third party contract pharmacy software vendors to ensure compliant IT systems and accurate drug utilization capture Duplicate Discount prevention requirements are state specific the Federal Develop a resource plan: Identify a project team, including executive support, with defined responsibilities for each team member Develop a project management tool and conduct regular meetings to review project status For larger hospitals, consider hiring a dedicated resource Establish a training program: Ensure all employees involved in the program are trained, well-versed, and understand the rules and compliance requirements Conduct regular staff training and competency assessments Share updates to policies and standard operating procedures with affected staff Annual review of registered eligible services and sites: Review covered entity s compliance prior to recertification Ensure all records and information on the database are kept up-to-date -41- -42-14

the Federal Define auditable prescription capture criteria: Definition for Covered Outpatient Drug should be consistent with section 1927(k) of the Social Security Act Utilize a separate GPO and/wholesaler account to purchase drugs that do not meet the definition. Patient and Provider definitions should ensure appropriate medical record ownership and responsibility of care for captured prescriptions. Validate data after making changes to system configuration: Review accuracy of patient location mapping and status indicators Scrutinize hospital eligible prescriber list against established criteria Identify causes of any accumulation discrepancies (i.e., excessive positive/negative inventory) Conduct testing outside of a production environment the Federal Maintain accurate records documenting compliance: Develop policies, procedures and controls designed to document compliance with the rules regarding diversion, duplicate discounts and GPO exclusion that are regularly reviewed and updated These policies and procedures need to be operationalized and reflect actual practice Maintain a complete audit trail from prescription to pick-up by the patient to replenishment Understand State Medicaid agency s billing requirements: Review hospital billing system compliance Validate accuracy of wholesaler price catalogs Obtain confirmation regarding carving in/ carving out Medicaid Fee for Service (FFS) and Managed Care Organization (MCO) Medicaid prescriptions for both in-house and contract pharmacy programs the Federal Develop specific desktop procedures: Covers drug processing from patient/drug presentation to replenishment Consists of the daily procedures performed by areas such as Pharmacy, Materials Management, IT, Patient Financial Services and Reimbursement Outlines practices at specific locations (i.e., outpatient clinic, mixed-use, contract pharmacy) Conduct routine auditing and monitoring activities: Daily, weekly, monthly, quarterly and annual audits Patient Eligibility Audits Physician Eligibility Audits Inventory Audits Duplicate Discount Audits with State Medicaid billing and reimbursement guidelines Price Changes Changes in purchasing patterns Annual compliance assessment -43- -44- -45-15

New Updates in 2015 the Federal Timeline April and September 2015 Regulations DETAILS CATEGORY June 2015 Omnibus Guidelines April 2015 AMP Q3 2015 February 2015 Final Rule Ceiling Prices Ceiling Prices April 2015 Orphan Drug Update February April June September Lawsuit decision Online system to due. Contract pharmacy, collect information Status of hospital eligibility, offsite facility eligibility, and make celling from manufacturers Manufacturer s Possible effective 60+ days after current orphan drug April release tentatively could covered entity prices available to participation be effective July 1, 2015 recertification, audits, covered entities by published on the duplicate discounts, the end of fiscal HRSA website. Manufacturer civic manufacturer limited year 2015 (which monetary penalties, distribution plans, and ends 9/30 ceiling price, and refunds and credits to dispute resolution covered entities -46- Other Updates in 2015 the Federal Partnering with OIG to audit manufacturers 1 audit performed/on-going More in the planning stages Medicaid Fee For Service (FFS) vs. Managed Medicaid Organization (MCO) Struggles identifying and understanding that not all states are the same and not all MCOs feed into State Medicaid agencies to seek rebates What s next? Additional Questions? Debra A. Muscio SVP, Chief Audit, Ethics & Officer Community Medical Centers Phone: 559-324-4830 dmuscio@communitymedical.org Karolyn Woo-Miles Senior Manager Deloitte & Touche LLP Phone: 714-436-7886 kwoo@deloitte.com -47- -48-16