Journey to 340B Compliance

Tennessee Society of CPAs 2017 Health Care Conference
Tuesday, November 27, 2017
Presented by:
Shannon Sumner, CPA, CHC,® Principal
Journey to 340B Compliance

Prepared for: Tennessee Society of CPAs
© 2017 PYA (Pershing Yoakley & Associates, PC)
Page 1
Agenda
 Roadmap – 340B introduction, purchasing overview,
prescription eligibility, and contract pharmacy overview
 Potential Roadblocks – Issues identified in recent audits
 Keys to Compliance – Leading practices and internal
controls
 Navigation Systems – Available resources to keep you on
track, and recent industry activity

 Why Is 340B Important?
 Who Is Eligible to Participate?
 Annual Recertification Attestation
 Program Infrastructure
Roadmap: 340B Introduction

Page 3
Why Is 340B Important?
The 340B Program was created in 1992 by President Bush, and requires drug
manufacturers to provide covered outpatient drugs to eligible Covered Entities (CEs) at
significantly reduced prices. The CEs benefit from the difference between the
drug’s reduced cost and the unadjusted reimbursement received from payers.
Many CEs use these savings to provide additional community benefit programs to
patients who are uninsured or underinsured.
“The 340B Program enables Covered Entities to stretch scarce Federal resources
as far as possible, reaching more eligible patients and providing more
comprehensive services.”
-Health Resources and Services Administration (HRSA)
CEs are responsible for ongoing compliance, and
must attest annually to 340B Program requirements
for annual recertification. Non-compliance can
result in repayment to manufacturers and
termination from the Program.

Page 4
Source: SUNRx, Safety Net Hospitals for Pharmaceutical Access.
 On average, 340B pricing
is:
 51% lower than the
Average Wholesale Price
(AWP)
 39% lower than the
Average Manufacturer
Price (AMP)
 15% lower than Group
Purchasing Organization
(GPO) pricing

Page 5
$3.8 Billion
Estimated annual
savings attributed
to 340B in 2013
32,071
Total registered
sites participating
in the 340B
Program as of
October 1, 2015
+ $7 Million in
additional
budgetary funding
for FY 2017
Goal: 100
additional onsite
HRSA audits in FY
2017
HRSA’s increased focus on compliance
1) Source: HRSA Fiscal Year 2017 Budget Justification Document

Page 6
Federal Designees/Grantees:
 Community Health Centers (CHC)
 Federally Qualified Health Centers (FQHCs)
 FQHC Look-Alikes
 Tribal/Urban Indian Health Centers
 Ryan White HIV/AIDs Program Grantees
 Sexually Transmitted Disease Clinics
 Family Planning Clinics
 Tuberculosis Clinics
 Hemophilia Treatment Centers
 Black Lung Clinics
Who Is Eligible to Participate?
 Safety-net healthcare organizations serving vulnerable patient
populations
 Classified into two main categories:
Hospitals:
 Children’s Hospital
 Critical Access Hospital (CAH)
 Disproportionate Share Hospital
(DSH)
 Free-Standing Cancer Center
 Rural Referral Center (RRC)
 Sole Community Hospital (SCH)

Page 7
Hospital Eligibility
 Eligibility requirements for “parent” sites differ depending
on the organization type
 All clinics outside of the four walls of the parent hospital
must be registered as “child” sites if they purchase or
provide 340B drugs
Source: Apexus 340B University.
PED DSH CAH CAN RRC SCH
Subject to GPO Prohibition
Subject to Orphan Drug
Exclusion
DSH % Threshold > 11.75% > 11.75% > 11.75% ≥ 8.0% ≥ 8.0%

Page 8
340B Program Registration
 New covered entities, child sites, and contract pharmacy
arrangements must register with the Office of Pharmacy Affairs
(OPA) Database
Registration Date Start Date
October 1st – 15th January 1
January 1st – 15th April 1
April 1st – 15th July 1
July 1st – 15th October 1
Source: SUNRx, Safety Net Hospitals for Pharmaceutical Access.

Page 9
Eligibility Considerations
 Depending on the entity type, there may be a qualifying
DSH percentage threshold
 Verified through a review of the Medicare Cost Report
 Outpatient facilities are considered eligible child sites if
they are listed as reimbursable (with associated
outpatient charges) on the hospital’s most recently filed
Medicare Cost Report
 If the outpatient facility has its own unique Medicare provider
number, it is not eligible as a participating child site
 Outpatient clinics/departments within the four walls of the
hospital do not need to register as child sites
 Must share same physical address

Page 10
Eligibility Considerations
 Entities must be registered accurately on the OPA
Database
 Summary of entity participation, including organization type,
Medicaid billing decision, listing of child sites and contract
pharmacy relationships
 https://opanet.hrsa.gov/opa/CESearch.aspx

Page 11
Annual Recertification Attestation
 All information on OPA database is accurate
 CE meets all 340B Program eligibility requirements
 CE will comply with all 340B Program requirements
 CE maintains auditable records
 CE has systems in place to ensure ongoing compliance
 All contract pharmacy arrangements are in compliance
 CE will notify OPA with any significant changes
 CE understands they may be liable for any breaches
Source: https://www.hrsa.gov/opa/

Page 12
340B Program Infrastructure
 All policies and procedures should be written and
address compliance with the areas that are noted in the
annual recertification attestation
 A strong 340B Program infrastructure includes the
following internal controls:
 Well-documented and defined
patient definition
 Detailed policies and procedures
 Retention of applicable records
 Appropriate oversight, including
formal auditing & monitoring
processes

 Introduction
 GPO Prohibition
 340B Inventory Models
 Virtual Inventory Process Map
 Split Billing Software Function
 Purchasing Oversight
Roadmap: 340B Purchasing Overview

Page 14
340B Purchasing – Introduction
 Drugs are purchased from multiple accounts, which are
loaded with specific pricing contracts from manufacturers
GPO
Account:
Reduced pricing
through collective
negotiation
Wholesale
Acquisition
Cost
(WAC) Account:
Standard/full price
340B
Account:
Typically results in
25 – 50% savings

Page 15
340B Purchasing – GPO Prohibition
 Group Purchasing Organization allows for
collective negotiation by a group of providers
 Certain hospitals (DSH, Children’s, and Cancer) are prohibited from
purchasing covered outpatient drugs through a GPO
 Hospitals subject to the GPO Prohibition may only utilize
a GPO to purchase drugs for inpatient use
 Covered outpatient drugs which are otherwise ineligible for 340B (e.g.,
Medicaid carve-out) must be purchased through the WAC account1
 CEs found in violation of the GPO Prohibition will be
immediately removed from the 340B Program, and may
be subject to repayment to manufacturers
1) Hospitals not subject to the GPO Prohibition may purchase all non-340B eligible drugs through a GPO account, and are not required to have a WAC account.

Page 16
340B Purchasing – GPO Prohibition
 Entities subject to the GPO Prohibition should always
have at least three purchasing accounts:
 Purchases from each account must be tracked and
monitored for appropriate eligibility requirements
GPO Account:
Inventory for Inpatient
Use Only
WAC Account:
Inventory for Non-
Eligible Outpatients
340B Account:
Inventory for 340B-
Eligible Outpatients
Only

Page 17
340B Inventory Models
 CEs must have inventory controls to ensure that 340B
drugs are not dispensed to ineligible patients
 Separate Physical Inventory model
 Drugs purchased at 340B prices are physically separated from other
drugs, can only be dispensed to eligible patients
 Potentially more costly, requires additional space
 Replenishment model
 Inventory is virtually separated through a software/tracking system
 Drugs are always initially purchased at WAC cost; thus inventory is
“neutral”
 As eligible patients are identified, drug accumulations are
“replenished” from the 340B account

Page 18
Virtual Inventory Process Map
Initial purchase of 1 package
(50 units) of Drug A is made
on WAC account
Another package must be
purchased; however, 340B
and GPO accounts do not
have enough accumulations
to equal full package size
(50)
Full package is dispensed; 25
units are dispensed to 340B-
eligible patients, and 25 units are
for inpatient use (GPO-eligible)
340B acc.
25
GPO acc.
25
for inpatient use (GPO-eligible)
340B acc.
25+40 = 65
GPO acc.
25+10 = 35
purchased; there are enough
accumulations to purchase a
full package on the 340B
account
Third purchase of 1 package
(50 units) of Drug A is made on
340B Account
340B acc.
65-50 = 15
GPO acc.
35
for inpatient use (GPO-eligible);
25 units are for outpatient use,
but not eligible for 340B (WAC)
340B acc.
15+5 = 20
GPO acc.
35+20 = 55
Second purchase of 1 package
(50 units) of Drug A is made on
WAC account
340B acc.
25
GPO acc.
25
purchased; there are enough
accumulations to purchase a
full package on the GPO
account….

Page 19
Virtual Inventory Process Map
 Is there a process for reversal of inaccurate
accumulations when errors are identified?
CE identifies that 30
dispensations for inpatients
were inaccurately
accumulated to the 340B
account
CE needs to purchase 1
package of Drug B
(100 units)
Current account accumulations:
340B acc.
125
GPO acc.
75
CE applies a reversal to correct
accumulation error
340B acc.
125-30 = 95
GPO acc.
75+30 = 105
CE must now purchase a new package on the GPO
account, and must wait to accumulate 5 more 340B-
eligible dispensations to reach a full package size
and access 340B pricing for Drug B; if widespread
errors are identified, the 340B accumulations may
become negative, and necessitate multiple WAC
purchases to resolve the issue

Page 20
Split-Billing Software Function
 Utilized in purchasing process to “split” orders
across accounts based on accumulations
Drug A : need 2 packages
(100 units each)
Updated account accumulations:
340B acc.
150-100 = 50
GPO acc.
85
340B acc.
150
GPO acc.
85
Drug B : need 1 package
(75 units each)
Updated account accumulations:
340B acc.
45
GPO acc.
100-75 = 25
Split-Billing Software builds total order across
all three accounts for each drug:
Drug A: 1 package on 340B, 1 package on WAC
Drug B: 1 package on GPO
340B acc.
45
GPO acc.
100

Page 21
Split-Billing Software Function
 Allows CE to maintain records regarding 340B
drug procurement, dispensing, and replenishment
 Sophisticated split-billing systems may also have mechanisms to
filter and identify 340B-eligible accumulations within the software
based on information received from the Admissions, Discharges,
and Transfers (ADT) feed
 Less-sophisticated split-billing software platforms rely on
external data sources to identify eligibility, and only function to
build purchase orders across multiple accounts
 Despite use of split-billing vendor to facilitate
compliance, the CE alone is ultimately
responsible for ensuring software is
accumulating dispensations correctly

Page 22
340B Purchasing – Oversight
 In a virtual inventory model, eligibility of every drug
dispensed must be tracked to support appropriate
replenishment
 Required to maintain auditable records
that support 340B and GPO purchases
 Regardless of model selected, CEs must show
development of a mechanism to prevent diversion to
ineligible patients and maintain compliance with 340B
requirements

 Patient and Prescriber Definition
 Duplicate Discounts
 Orphan Drug Exclusion
 Determining Prescription Eligibility
Roadmap: Prescription Eligibility – Key
Considerations

Page 24
Patient and Prescriber Definition
HRSA’s Current Guidance on Patient Eligibility:
 The CE must have an established relationship with the
individual and maintain records of the individual’s healthcare
 The individual must receive healthcare services from a
provider who is either employed by the CE or has a
contractual or other arrangement (such as a referral for
consultation) such that responsibility for the care remains
with the CE
 The individual must receive healthcare services that are
consistent with the service or range of services for which
grant funding or FQHC look-alike status has been provided;
hospitals are exempt from this requirement
 An individual will not be considered a patient of the CE if the
only healthcare service received by the individual is the
dispensing of a drug for subsequent self-administration or
administration in the home setting
Diversion:
When a 340B
drug is provided
to an individual
who is not an
eligible
outpatient of
that entity,
and/or is
dispensed in an
area of a facility
that is not
eligible
However, patient eligibility is also impacted by other Program criteria…

Page 25
Duplicate Discounts
 Duplicate discounts occur when manufacturers provide a 340B
discount at point of purchase, and then later pay a Medicaid
rebate on the same drug
 To prevent duplicate discounts, CEs must choose to carve-in (include)
Medicaid patients in 340B program, or to carve-out (exclude) Medicaid
patients
 CEs that carve in must be listed on the Medicaid Exclusion File (MEF) to
notify state agencies not to seek rebates on drug claims
 CEs that carve out must not dispense 340B drugs to Medicaid patients
 Important to understand any state-specific billing requirements
 CEs that do not have processes in
place to prevent duplicate discounts
may be responsible for repaying the
costs to manufacturers

Page 26
Orphan Drug Exclusion
 Orphan drugs are intended for the treatment,
diagnosis, and prevention of rare diseases or
disorders
 Orphan Drug Exclusion specifies that certain CEs (SCH,
Cancer, RRC, and CAH) may not purchase orphan drugs at
340B prices
 HRSA previously issued an interpretive rule that Exclusion applied only to
the orphan drug “indication;” thus, orphan drugs could be purchased under
340B if use is intended for a reason other than the identified rare condition
 On October 14, 2015, a Washington, D.C., district court ruling invalidated
HRSA’s Orphan Drug Interpretive Rule
 Thus, applicable CEs are currently prohibited from purchasing
any orphan drugs on a 340B account, regardless of indication

Page 27
Determining Prescription Eligibility
 Many CEs will utilize their split-billing software
to track and identify eligible accumulations through
a set of rules/filters
 Example: A CE may upload a list of “eligible prescribers” and set a filter
within the software that excludes any drugs prescribed by physicians not
on this list from 340B accumulations
 Typically, CEs will identify eligibility based on one or two
indicators, such as:
 Prescriber status
 Patient status
 Medicaid payer class
 However, CEs should identify eligibility on a prescription-by-
prescription basis
 Otherwise, CEs risk qualifying all prescriptions that meet one criteria
without considering other factors that may render some ineligible

Page 28
Determining Prescription Eligibility
As a best practice, CEs should identify 340B eligibility at the prescription level, and
set rules which take into account each of the following factors:
Prescriber Eligibility:
• CE’s definition of eligible prescriber should
meet current HRSA guidance
• All prescriptions purchased under 340B should
be ordered by prescriber on CE’s eligible listing
Location of Prescription Origination:
• Was the patient seen within the four walls of the
hospital, or at an eligible child site?
• Confirm that encounter where drug was
prescribed is not related to visit to the private
practice of an eligible prescriber
Patient Status:
• Was the prescription dispensed while the patient
was in outpatient or observation status?
• Confirm that an order to admit to inpatient status
was not entered prior to drug dispensation
Drug Eligibility:
• Is the CE subject to the Orphan Drug Exclusion?
• Confirm that orphan drugs have not been
purchased under 340B after October 10, 2015; if
prior to this date, CE must have documentation
of non-orphan indication for 340B eligibility
Patient Eligibility:
• Does the CE maintain records for the patient’s
care?
• Did the patient receive a healthcare service
other than the dispensing of a drug?
Payer Status:
• Medicaid Carve-Out: Confirm that no patients
with a Medicaid payer type received 340B
dispensations
• Medicaid Carve-In: Review Medicaid Exclusion
file for accuracy
1) Note: considerations are based upon current finalized guidance only, and may be impacted by the changes within the Proposed Mega Guidance.

 Introduction
 Contract Pharmacy Process Map
 HRSA’s Essential Compliance Elements
Roadmap: Contract Pharmacy
Overview

Page 30
Contract Pharmacy – Introduction
 A contract pharmacy (CP) provides services to a CE’s
patients on its behalf, acting as an extension of the CE
 CE pays CP a fee for services established in the contract terms
 Allows CE to expand the scope of the 340B Program and
potentially increase access for patients
 Now, the CE may realize savings on a wider range of drugs, to
include those filled outside of the hospital pharmacy
 However, CP relationships create additional complexities
and may be more challenging to monitor compliance
 Must be listed in OPA database
 Must have written contract that addresses
HRSA’s essential compliance elements

Page 31
Contract Pharmacy – Introduction
Source: SUNRx.

Page 32
Contract Pharmacy Process Map
CP dispenses prescriptions from
its neutral inventory
1) Pharmacy Benefits Managers function as third-party administrators responsible for processing and paying prescription drug claims.
2) Note: some CEs may utilize an additional third-party administrator which facilitates the contract pharmacy data capture and reporting in exchange for an administrative fee.
Specific duties related to ensuring appropriate accumulations and eligibility verification are highly dependent on contract terms between the CE, CP, and third-party
administrator, as well as data submitted by the CE. However, ultimate responsibility for compliance with 340B Program requirements lies solely with the CE.
CP submits the claim to a
Pharmacy Benefits Manager (PBM)1
PBM reimburses the CP based on
payer contracts
CE replenishes medication via a
“ship-to, bill-to arrangement” in
which drugs are billed to the CE
and shipped to the Contract
Pharmacy to replenish stock
CE monitors 340B-eligible
accumulations through the split-
billing software2
CP passes on the CE’s total payer
reimbursement, but keeps a
dispensing fee

Page 33
Contract Pharmacy Process Map
Source: SUNRx.

Page 34
Essential Compliance Elements
 Written agreement with a CP
must include the following:
 CE must purchase the drug, maintain title to the
drug, and assume responsibility for the drug
(accomplished via a ship-to, bill-to arrangement)
 Agreement must specify the responsibility of the parties to
provide comprehensive pharmacy services
 CE must inform patients of freedom of choice of a pharmacy
provider
 Regardless of other services provided by CP, access to 340B
drugs will always be restricted to eligible patients of the CE
 CP and CE must adhere to all federal, state, and local laws and
requirements
 CP must provide reports to the CE that are consistent with
customary business practices

Page 35
Essential Compliance Elements
 Written agreement with a CP
must include the following:
 CP must establish and maintain a tracking system
with the CE to prevent diversion, and CE should
establish a process for periodic comparison of prescribing records
to CP’s dispensation records
 CE and the CP must develop a system to verify patient eligibility
 CP may not dispense 340B drugs to Medicaid patients unless the
CE, CP, and state Medicaid agency have established a specific
arrangement
 CEs must maintain auditable records and provide oversight of CPs
 Both parties understand that they are subject to audits by HRSA
and by manufacturers related to 340B Program compliance
 Upon written request to the CE, a copy of the contract pharmacy
service agreement will be made available to the OPA

Potential Roadblocks
 Issues Identified in Recent Audits

Page 37
Issues Identified in Recent Audits
Insufficient auditing and
monitoring
Private physician practice
dispensations
“Generic” policies and
procedures
Employee health plan
dispensations
Incorrect split billing edits Limited staff resources
Decentralized oversight
Limited knowledge of key
systems
Lack of split billing
“downtime” procedures
Replenishments not matching
NDC
Outsourced “responsibility”
for contract pharmacy
Home infusion and patient
eligibility

Keys to Compliance
 Leading Practices and Internal Controls

Page 39
Leading Practices
and Internal Controls
Collaboration with internal audit
and compliance
Internal monitoring work plan
Centralized oversight 340B “Compliance Culture”
Governance and Management
340B Education Plan
Map 340B processes at all
locations and subject matter
expert(s)
“Seat at the Table” during strategic
planning
Assign pharmacy representative to
compliance committee
Relationship between IT and split-
billing vendor
340B committee with appropriate
representation
Understand state Medicaid billing
requirements
Document use of GPO for non-
covered drug purchases

Navigation Systems
 Available Resources
 Recent Industry Activity

Page 41
Navigation Systems:
Available Resources
 340B University on Demand
 340B Peer-to-Peer Program

Page 42
Navigation Systems:
Available Resources
https://www.340bpvp.com/education/340b-tools/
 Apexus 340B Prime Vendor Program

Page 43
Navigation Systems:
Available Resources
 Hospital Self-Assessment Checklist  Clinic Self-Assessment Checklist
Please see handout Please see handout

Page 44
Navigation Systems:
Recent Industry Activity
 OMB withdraws “Mega-Guidance”
 CMS proposes to cut 340B rates
 Congressional scrutiny continues
Image source: Shutterstock

PERSHING YOAKLEY & ASSOCIATES, P.C.
800.270.9629 | www.pyapc.com
Thank You!
Shannon Sumner
CPA, CHC®
Principal
PYA (Pershing Yoakley & Associates, P.C.)
ssumner@pyapc.com

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