The Federal 340B Drug Discount Program Compliance and Lessons Learned Jason Reddish September 24, 2014
About Me Jason Reddish Attorney Powers Pyles Sutter & Verville PC 1501 M Street NW, 7 th Floor Washington, DC 20005 (202) 872-6764 jason.reddish@ppsv.com
Disclaimer This presentation is for informational purposes only and does not create an attorney/client relationship between the presenter and any other person or party.
Outline Overview of the 340B Program Eligibility and Registration Compliance Major Program Requirements Diversion, Duplicate Discounts, Auditable Records Contract Pharmacies Audits and Lessons Learned The Mega-Reg, Litigation, and Political Issues
Overview of the 340B Program Congress created the 340B program in 1992 to provide certain categories of safety net providers ( covered entities ) relief from high drug prices Stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services Statute updated in Affordable Care Act to add rural hospitals, expand program oversight
How Does 340B Work? Drug manufacturers must agree to offer discounted drugs to covered entities in order for Medicare and Medicaid to cover their drugs Manufacturers can charge no more than the ceiling price Savings average 25-50% Average Manufacturer Price (AMP) minus Medicaid Unit Rebate Amount (URA) specific to each National Drug Code (NDC) Covered entities provide 340B drugs to their patients and use savings to increase patient services
Manufacturers must offer discounts for covered outpatient drugs Prescription Drugs OTC Drugs When Prescribed Biologics Insulin Separately Reimbursable Clinic/Physician-Administered Drugs Other drugs are not discounted Vaccines Drugs that are not directly reimbursed Drugs for which the FDA does not require a NDC Which Drugs?
Who Oversees 340B? The Office of Pharmacy Affairs (OPA) within HRSA OPA is part of the Healthcare Systems Bureau, a sibling of the Bureau of Primary Health Care and HIV/AIDS Bureau Commander Krista Pedley has led OPA since 2010
What Is Apexus? Apexus serves two roles for OPA Prime Vendor Program Technical Assistance Contractor 340B University Apexus Answers
Provider Eligibility Who Can Participate? Certain Public or Non-Profit Hospitals Disproportionate Share Hospitals Critical Access Hospitals Rural Referral Centers Sole Community Hospitals Free-Standing Cancer Hospitals Free-Standing Children s Hospitals Certain Federal Grantees Federally-qualified health centers (FQHCs) and look-alikes (FQHC-LAs) Clinics funded under the Ryan White CARE Act AIDS Drug Assistance Programs (ADAPs) Hemophilia Treatment Centers Family Planning/STD Urban Indian/Native Hawaiian Black Lung/Tuberculosis
FQHCs What Sites Are Eligible? FQHCs deliver care in many ways and often in multiple locations All sites that use 340B drugs must be registered OPA will only register sites that are authorized in the grant Satellite locations? Temporary or part-time clinics? Shared spaces? Mobile units?
Registration OPA only permits new entities and new entity sites to be registered on a quarterly basis: Jan. 1 to 15 to begin Apr. 1 Apr. 1 to 15 to begin July 1 July 1 to 15 to begin Oct. 1 Oct. 1 to 15 to begin Jan. 1 Must provide eligibility information (grant number), Authorizing Official, Primary Contact
OPA 340B Database opanet.hrsa.gov/opa/ OPA maintains a database of covered entities, contract pharmacies, and manufacturers Covered entities responsible for ensuring that all database information is accurate Altered through online change request process in most cases not tied to registration windows If information is inaccurate, critical communications might be missed
Must recertify eligibility annually FQHCs are slated to recertify in February 2015 Ryan White clinics likely will recertify in winter 2014/2015 Failure to recertify = removal from program Dates subject to change Recertification
340B Program Requirements FQHCs and Grantees must comply with: Diversion Prohibition Duplicate Discount Prohibition Auditable Recordkeeping Other requirements are implicated by the 340B program, but 340B audits do not examine them E.g., anti-kickback statute, False Claims Act, patient inducement prohibition, Prescription Drug Marketing Act
Diversion Prohibition [A] covered entity shall not resell or otherwise transfer [a 340B] drug to a person who is not a patient of the entity. Sec. 340B(a)(5)(B) of the Public Health Service Act. Violation of this provision is diversion Most clear-cut diversion would be reselling 340B drugs on the black market
Who Is a Patient? Most often, diversion occurs because 340B drugs are provided to someone other than a patient of the covered entity. HRSA has published guidance on who qualifies as a patient of a 340B covered entity.
1996 Patient Definition Under the 1996 Patient Definition - 61 Fed. Reg. 55,156 (Oct. 24, 1996) an individual is a patient if: 1. The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual s health care. This is called the record maintenance test
1996 Patient Definition 2. The 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 (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity. This is called the professional care test.
1996 Patient Definition 3. The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or federally-qualified health center look-alike status has been provided to the entity. This is the scope of grant test. Two caveats not a patient if only health care service is dispensing of drugs for selfadministration; individuals registered with ADAPs are patients of the ADAP.
Record Maintenance Test What is a record? HRSA declined to define the necessary record as a medical record, though a medical record certainly qualifies Record likely should reflect the patient s drug treatment, any care provided by the covered entity, and any referrals Some have argued that nontraditional records (case management, billing records) could meet this test in some circumstances
Professional Care Test Who is a health care professional? Some say it must be a prescriber Others rely on nurses and even social workers What is a health care service? Open to interpretation What are other arrangements? Guidance gives example of referral for consultation but implies that other types of relationships could qualify
Scope of Grant Test What health care service or range of services are consistent with the service or range of services for which grant funding has been provided? For FQHCs with general primary care responsibilities, could be broad If the grant is limited to specific services, patient scope might be limited Likely limited to treatment that occurs at locations described in the grant
Other Considerations In January 2001, HRSA Deputy Administrator Thomas Morford issued a letter describing circumstances in which care outside a covered entity could still qualify for 340B Letter was specific to hospitals, but current FAQ 1891 from Apexus states: Q: If we refer a patient to an outside clinic, can we fill their prescriptions from our 340B clinic? A: A covered entity may send a patient to an outside clinic not registered with 340B and consider that patient 340B eligible only if the 340B patient receives health care from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity (61 Fed. Reg. 55156 (October 24, 1996)). If the covered entity can document that it retained responsibility for the health care services provided to the patient, then that individual may be eligible to receive 340B drugs from the covered entity. What does it mean to retain responsibility?
Inventory Management Physical Inventory 340B drugs are kept physically separate from any non-340b drugs Eligible patients receive 340B drugs. Ineligible patients receive other stock. Best used in pharmacies that are limited to patients
Inventory Management Virtual Inventory Starting inventory is neutral neither 340B or non- 340B Inventory dispensed to eligible patients is tracked, and re-ordered through 340B accounts Inventory dispensed to ineligible patients is tracked, and re-ordered through regular channels Diversion occurs when 340B drugs go to ineligible patients (physical inventory) or when drugs dispensed to ineligible patients are replenished with 340B drugs (virtual inventory)
Duplicate Discounts A covered entity shall not request payment under [Medicaid] with respect to a drug that is [bought through 340B] if the drug is subject to the payment of a rebate to the state. Sec. 340B(a)(5)(A) of the Public Health Service Act Covered outpatient drugs are rebate-eligible, so covered entities must ensure that manufacturers are not subjected to both a rebate and the 340B discount a duplicate discount.
Medicaid Exclusion File When a covered entity registers, HRSA asks whether it will bill Medicaid for 340B drugs If yes, the covered entity is added to the Medicaid Exclusion File so states know not to claim a rebate for drugs billed by the covered entity If no, the covered entity must not bill Medicaid for 340B drugs
Alabama Requirement Alabama Administrative Code Sec. 560-X-1-.30(1)(b): When an eligible 340B entity, other than a disproportionate share hospital, a children s hospital excluded from the Medicare prospective payment system, a free-standing cancer hospital exempt from the Medicare prospective payment system, sole community hospital, rural referral center, or critical access hospital, submits a bill to the Medicaid Agency for a drug purchased by or on behalf of a Medicaid recipient, the amount billed shall not exceed the entity's actual acquisition cost for the drug, as charged by the manufacturer at a price consistent with the Veterans Health Care Act of 1992, plus the dispensing fee established by the Medicaid Agency.
What About Managed Care? Drugs covered by Medicaid managed care are eligible for rebates Alabama will be moving to Medicaid managed care using Regional Care Organizations (RCOs) The duplicate discount prohibition describes billing Medicaid, and the Alabama regulation describes billing the Medicaid Agency RCOs will be private payers, so covered entities will not be billing Medicaid directly If billing Medicaid in neighboring states, must be wary of managed care-specific 340B requirements
What About ADAPs? AIDS Drug Assistance Programs can participate in 340B in one of two ways: By contracting with pharmacies to dispense ADAPpurchased drug inventory By obtaining a rebate equal to the 340B discount on any drugs it covers What if ADAP covers drug that was purchased by covered entity? Duplicate discount risk. Not addressed in statute, but HRSA says ADAPs must avoid rebates on 340B drugs. Some ADAPs restrict covered entities or reduce reimbursement.
Auditable Records A covered entity shall permit the Secretary and the manufacturer of a covered outpatient drug that is subject to an agreement under this subsection with the entity (acting in accordance with procedures established by the Secretary relating to the number, duration, and scope of audits) to audit at the Secretary s or the manufacturer s expense the records of the entity that directly pertain to the entity s compliance with the diversion and duplicate discount requirements. Sec. 340B(a)(5)(C) of the Public Health Service Act.
Auditable Records HRSA has taken the position that maintenance of auditable records is an eligibility requirement, and has threatened to terminate entities that fail to maintain adequate records
Self-Disclosure As part of annual recertification, the Authorizing Official must attest that the covered entity will inform OPA of any material breaches of program requirements
Self-Disclosure Upon a selfdisclosure of noncompliance, OPA will generally require the covered entity to notify affected manufacturers and, if necessary, offer repayment
Contract Pharmacies A contract pharmacy is a pharmacy that a covered entity uses as its agent for the ordering, dispensing, and billing of 340B drugs
Contract Pharmacy Growth In 2010, HRSA expanded contract pharmacy guidance to permit multiple pharmacies
Contract Pharmacy Basics Voluntary, but essentially required for participation if covered entity does not dispense or administer drugs on site HRSA requires a written contract meeting certain essential compliance elements Covered entity completely and 100% responsible for compliance of contract pharmacy
Creating a Contract Pharmacy Arrangement 1) Identify a partner 2) Negotiate and execute a contract 3) Register the arrangement with OPA during one of the four quarterly enrollment periods January 1 to 15; April 1 to 15; July 1 to 15; October 1 to 15 4) Wait until the registration becomes effective and appears in the OPA database The first day of the quarter following the registration period, if approved. E.g., April 1 if registered during January 1 to 15 window 5) Go live Process requires a minimum of 2.5 months from execution of contract to commencement.
HRSA published contract pharmacy guidelines in the Federal Register on March 5, 2010 75 Fed. Reg. 10,272 The Contract HRSA Guidelines The contract establishing the contract pharmacy arrangement must address 13 essential compliance elements.
Essential Compliance Elements The agreement must address the following elements: 1) Covered entity (CE) purchases each drug, maintains title to each drug, and assumes responsibility for establishing its price; Element is required but somewhat conceptually strained in a virtual inventory model. 2) A ship to, bill to procedure will be used such that the CE purchases the drug, but it is shipped to the pharmacy (Rx); 3) How comprehensive pharmacy services will be provided, and how they will be divided between CE and Rx;
Essential Compliance Elements (cont.) 4) CE will inform patients of their freedom to choose a pharmacy provider; 5) Rx may provide other services to CE or patients (though 340B drugs are restricted to patients); 6) Rx and CE will adhere to all federal, state, and local laws and requirements; 7) Rx will provide CE with reports consistent with customary business practices; 8) Rx and CE will establish and maintain a tracking system suitable to prevent diversion to nonpatients;
Essential Compliance Elements (cont.) 9) Rx and CE will develop a system to develop patient eligibility; 10) Neither party will use 340B drugs for Medicaid prescriptions unless CE, Rx, and state Medicaid agency have a way to prevent duplicate discounts; 11) CE and Rx will identify whatever information is needed for CE to meet its compliance obligations; 12) CE and Rx understand that they may be audited; and
Essential Compliance Elements (cont.) 13) CE and/or Rx will provide a copy of the contract to OPA upon request Compliance with 340B program rules is ALWAYS the responsibility of the CE alone.
Essential Compliance Elements (cont.) An auditor will want to see that the essential compliance elements have all been addressed If your contract would allow it, try to repeat the elements verbatim Otherwise, consider including a crosswalk that shows where each essential compliance element is addressed in your agreement
Other Considerations Compliance with 340B program rules is ALWAYS the responsibility of the CE alone No matter what Even if someone else makes a mistake Even if the pharmacy or an administrator breaches a contractual obligation Indemnification is critical
Other Considerations (cont.) Many topics that are not essential compliance elements should also be addressed: Indemnification Audits Annual independent audits Cooperation with HRSA/Manufacturer audits Shipment verification Periodic inventory reconciliation What happens if over-replenishment (more 340B inventory than expected) or under-replenishment (less 340B inventory than expected) has occurred? What happens if drugs are slow-moving, discontinued, out-of-stock, or otherwise unavailable for replenishment? Record retention
Other Considerations (cont.) OPA Registration Third-party billing and reimbursement Compensation of Rx/Administrator Boilerplate Consequential damages (can you be made whole?) Term and termination Confidentiality and privacy Dispute resolution Wind-down Insurance Intellectual property
Audits and Lessons Learned HRSA and drug manufacturers have always had the authority to audit covered entities, but no audits until 2012 2012 (fiscal year Oct. 1, 2011 to Sept. 30, 2012) 51 audits covering 410 locations (child sites) and 860 contract pharmacy sites 2013 94 audits covering 718 locations and 1,937 contract pharmacy sites 2014 99 audits covering 1,470 locations and 4,000+ contract pharmacies 2015 No more sequester and increased funding, HRSA hoping to double audits
Who Gets Audited? HRSA conducts risk-based and targeted audits Risk factors include purchase volume, increased complexity of administration, number of child sites, and number of contract pharmacies Targeted audits respond to allegations Manufacturers must show probable cause of a violation and obtain approval from HRSA Very few manufacturer audits to date (six or seven) Manufacturers report that audits are expensive and HRSA provides little assistance
Who Gets Audited? 10 of 51 in 2012 were community health centers 2 of the 27 results released thus far for 2013 are community health centers The majority are hospitals
Anatomy of an Audit 1. Notice from HRSA Brief letter informing covered entity that it has been selected for an audit Audit includes all child sites and contract pharmacies 2. Coordination Call HRSA reaches out to coordinate the date and details of the audit
Anatomy of an Audit 3. Data Request HRSA sends the covered entity a list of data that the covered entity must produce to the auditor, including items such as: all 340B prescriptions and related information over a sixmonth time frame starting and ending inventory balances for the same period; a schedule of 340B purchases a list of the covered entity s participating locations a list of the covered entity s physicians eligible to dispense and write 340B prescriptions 340B policies and procedures contact information
Anatomy of an Audit 4. The Audit Typically takes place over one to two days Involves testing certain transactions for compliance with diversion and duplicate discount prohibitions Will include a review of eligibility documentation (grant) Will include a review of policies and procedures No longer concludes with an exit conference (as of October 1)
After the Audit Until very recently, HRSA issued a preliminary audit report and gave the covered entity an opportunity to respond Now, HRSA goes directly to a final audit report Concerns regarding whether this satisfies notice and hearing requirement in statute and constitutional due process.
Final Audit Report If the report contains no adverse findings, the audit is complete If the audit contains adverse findings, the covered entity must either: Submit a notice of disagreement within 30 days; or Submit a corrective action plan and letter to manufacturers within 60 days
Corrective Action Plan The primary sanction available to HRSA is to require repayment of the 340B discount to affected manufacturers How far back? How do you identify all instances? What if you cannot identify all instances? What if you cannot afford repayment? Interest can be assessed if the violation was knowing and intentional; termination if also systematic and egregious
Notice of Disagreement The Notice of Disagreement is the covered entity s one chance to set the record straight HRSA does not grant in-person hearings on the evidence A Notice of Disagreement typically raises factual and legal arguments in opposition to the adverse findings The person was a patient ; No duplicate discounts occurred ; We have not been afforded adequate due process ; HRSA does not have the authority to enforce the standard ; etc.
The FINAL Final Audit Report HRSA might or might not alter its findings before issuing a final Final Audit Report The covered entity s only recourse is to file suit
What Did We Learn?
Lessons Learned HRSA s audit protocol is not published, and has evolved since audits began Many different data requests Many different audit experiences HRSA auditors much more sophisticated than in early audits Government Auditing Standards are not used audits are informal
Lessons Learned The auditor conveys information to HRSA, but does not draft the Final Audit Report An auditor might give the impression that everything is in perfect order, but HRSA could still issue a negative audit finding The exit conference is the last opportunity to present additional evidence or influence the report that the auditor makes to HRSA
Lessons Learned The auditor will expect to see written policies and procedures, and will verify that they are actually followed HRSA has issued adverse findings in more than half of audits, though many relate to inaccurate database entries HRSA will respond to additional evidence submitted with the Notice of Disagreement, and legal assistance is preferable if possible
Lessons Learned Many areas of the 340B program are governed by informal guidance and OPA/Apexus frequently asked questions, and not all are legally enforceable In other words, even accurate findings might not require corrective action If you use an administrator, ensure that the vendor is prepared to assist you Auditors look for flaws they have found before stay abreast of recent findings
Lessons Learned Prior to the audit, responsible individuals should have defined roles. For example, one person might be in charge of retrieving patient records and another might be in charge of navigating pharmacy records
The Mega-Reg, Litigation, and Political Environment
The Mega-Reg In response to pressure from stakeholders, HRSA indicated it would convert some or all of its guidance into legally enforceable regulations Came to be known as the Mega-Reg Drug industry argues that the program has operated without proper oversight and that abuse is occurring Expected to establish updated patient definition, contract pharmacy guidelines, and cover other critical areas
HRSA s First 340B Regulation In August 2013, HRSA issued its first 340B regulation, addressing the circumstances in which certain hospital types could purchase drugs with an orphan designation PhRMA disapproved, and filed suit alleging that HRSA lacked the authority to issue regulations and that the regulation conflicted with the statute
Unintended Consequences A federal judge in the District of Columbia agreed that HRSA lacked the authority to issue regulations Only authorized to regulate in very narrow areas: dispute resolution process, establishment of civil monetary penalties when manufacturers overcharge So Mega-Reg that PhRMA wanted is now indefinitely on hold
Now What? HRSA could go to Congress and ask it to pass a law giving it the authority to regulate in other areas BUT Once Congress takes the lid off of 340B, what other tinkering might program critics do? HRSA could issue the mega-reg as more interpretive guidance BUT Program critics might have leverage to convince Congress that the whole program needs an overhaul
Political Climate & Calculus
Q&A
Jason Reddish Attorney - Powers Pyles Sutter & Verville PC 1501 M Street NW, 7 th Floor Washington, DC 20005 (202) 872-6764 Jason.Reddish@ppsv.com Contact Me
Stay on Fire! APHCA Training Schedule www.alphca.com Request organizational training or assistance: Celeste Drayden 334.386.3980 cdrayden@alphca.com