Updated on: September 16, 2015

340B Compliance: Program Hurdles, Technology Essentials, and Best Practices

By Holly Russo, RN MSN, MSECS
Original story posted on: September 2, 2015

The 340B program requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations (known as “covered entities”) at significantly reduced prices, helping these entities stretch scarce federal resources as far as possible to reach more eligible patients and provide more comprehensive services.

For many covered entities, the extra margin helps improve services for uninsured and underinsured patients or supports programs designed to enhance medication adherence and improve access to care. Leveraging the 340B program can help hospitals and health centers ensure positive outcomes, improve patients’ quality of life, prevent complications and comorbidities, and manage care costs. However, covered entities participating in the program must comply with all340B program requirements in order to maintain their covered entity status and realize these benefits for their communities.

After years of debate around grey areas in the program guidelines, the Health Resources and Services Administration (HRSA) released proposed Omnibus Guidance on August 28, 2015, with the intention of clarifying key aspects of the program. The guidance is currently in a 60-day comment period, during which stakeholders may submit comments for review. The comment period ends on Tuesday, Oct. 27, 2015. When the comment period closes, HRSA will review the comments received and determine next steps for moving forward with the proposed program changes – a process expected to take months.

As part of HRSA’s continued efforts around program integrity, the agency has conducted more than 282 audits since 2012, with nearly 75 percent of audits resulting in negative findings for the audited entity—many of which are simple clerical errors. So while this highly-anticipated clarification through the Omnibus Guidance is welcomed, the onus continues to be on providers to ensure their programs are compliant and maintained. 

This article explores how one organization, Rapid City Regional Hospital, leverages its 340B software and other strategies to maintain compliance while coping with continuing 340B program changes.

Making Adjustments 

Covered entities and contract pharmacies must have effective methods to accurately track 340B-purchased drugs, or they risk losing their 340B eligibility. As a 340B participant since 2004, Rapid City Regional Hospital (RCRH), part of the Regional Health system based in Rapid City, S. D., has seen many program changes over the years. 

Dana Darger, RPh, is director of pharmacy and 340B program administrator for RCRH and four other Regional Health hospitals now qualified for the program. He says the most significant change is the group purchasing organization (GPO) exclusion rule, which prohibits some eligible entities, including disproportionate share hospitals (DSH), children’s hospitals (PED), and free-standing cancer hospitals (CAN), from purchasing outpatient drugs through a GPO. A hospital pharmacy, with the GPO exclusion, typically has three accounts on which it can purchase drugs – wholesale acquisition cost (WAC), GPO, or 340B – and the 340B program dictates limitations on the use of each account. 

“The 340B program requires that we buy on our 340B account if the patient qualifies for the program,” he said. “On the other hand, if you have a 340B contract and an outpatient is not qualified for the program, you must buy at wholesaler acquisition cost (WAC) rather than GPO.” 

While the WAC account is associated with the highest drug costs, the cost of noncompliance with 340B regulations, including the GPO exclusion, can be far higher. 

“If you were supposed to buy a drug at WAC, and auditors find that you bought through 340B or GPO, you could potentially incur penalties or be ousted from the program,” Darger noted.

In addition, there’s the exclusion of orphan drugs from 340B purchases for CANs, critical access hospitals (CAH), rural referral centers (RRC), and sole community hospitals (SCH). Orphan drugs are used to treat a rare disease or condition.

In July 2014, HRSA released an interpretive rule regarding the exclusion of orphan drugs. The rule stated that while affected CAN, CAH, RRC, and SCH hospitals are excluded from buying orphan drugs under 340B to treat the rare disease or condition for which the drug received its orphan designation, they are allowed to purchase orphan drugs at 340B pricing when they are used to treat other conditions or diseases. Entities in these categories are required to keep auditable records on diagnostic conditions to demonstrate compliance with the orphan drug exclusion. 

Some manufacturers are working to get more drugs designated with orphan drug status in order to avoid selling them at the 340B price. In addition, a lawsuit filed by the Pharmaceutical Research and Manufacturers of America (PhRMA) challenging HRSA’s orphan drug interpretive rule, is currently pending a final outcome after more than a year of continued legal actions between PhRMA and HRSA.

Internal Auditing Mitigates Risk

As a proactive step toward managing 340B compliance, RCRH formed a compliance committee, including its assistant director of retail operations, business manager, 340B specialist, CFO, VP of compliance, and legal counsel. In preparation for new HRSA guidelines, weekly 340B team meetings are held to address issues and discuss “what-if” scenarios. 

RCRH also hired a private audit consultant to assess its program for HRSA audit readiness. HRSA conducted approximately 200 audits in 2014 and is expected to conduct around 400 audits in 2015. For RCRH, the up-front financial cost to ensure data integrity and system operations required for long-term compliance and 340B program optimization was well worth the investment.

How 340B Software Helps

In response to regulatory requirements, growing numbers of coveredentities are turning to 340B software solutions that provide audit preparation tools, detailed reports, and a documented trail of program compliance.

Given the complexity of current audit requirements, RCRH uses a 340B technology solution that provides pharmacy procurement, utilization, and 340B compliance capabilities for its mixed-use hospital settings, where both inpatient and outpatient services are administered. This type of solution often is generically referred to in the 340B world as a “split-billing solution” because of the way the software separates the 340B-eligible outpatient pharmacy dispensations from the ineligible inpatient ones. In addition, the technology platform also provides RCRH’s contract pharmacy solution, which supports the community pharmacies that partner with RCRH.  

For providers evaluating 340B solutions for either in-house pharmacy or contract pharmacy use, Darger recommends looking for three essential features that help support compliance and maximize drug savings:

  • Detailed audit trails to prove patient eligibility and to tie each prescription or dispensation back to the purchase;
  • Easy interface to the electronic health record (EHR), wholesale vendors/distribution companies,  and contract pharmacy switches where data is captured; and
  • Readily accessible reports, available 24/7/365, that display data in a format that allows for an aggregate review of program effectiveness and cost comparisons across the WAC, GPO, and 340B spending accounts.

Four Best Practices Help Support Compliance and Continued Program Participation

While guidance on the consequences of HRSA audits remains vague, the top risk is being removed from the program. The following best practices can help ensure compliance and avoid potentially damaging outcomes:

  • Create a compliance team, including the CFO, business manager, 340B expert, and representatives from compliance, legal, and retail operations. Meet periodically to identify and address issues.
  • Conduct an external audit, followed by a six-month review. If the review shows improvement and no new issues, proceed with an annual audit schedule. Having an outside set of eyes look at your program is a smart, proactive choice.
  • Attend 340B conferences hosted by The 340B Coalition  for continuing education and assistance with program compliance.
  • Invest in 340B software that helps support compliance and mitigates unintentional misuse of the program by helping determine patient eligibility based on 340B program requirements and facility-specific policies and procedures. 

With these practices in mind, providers should prepare for the long-anticipated changes in 340B guidance. The new guidelines are expected to address key policy issues, including the definition of an eligible patient and a covered drug, compliance requirements for contract pharmacy arrangements, hospital eligibility criteria, and eligibility of off-site facilities.

“We’re hoping for clear guidance, better definitions, and ample time to meet compliance,” Darger said. “Meanwhile, it’s important to take a proactive approach – follow best practices and maintain a strong presence with groups that have HRSA oversight.”

About the Author

Holly Russo, RN, MSN, MSECS - Holly’s healthcare career includes nearly 40 years of experience in the areas of technology integration, client-centered care, clinical outcomes, data analysis, marketing, and business development. In addition, she has an in-depth knowledge of the 340B program. Prior to joining Sentry, Holly provided 340B consulting services for health associations and technology providers and served as chief clinical officer and senior vice president of hospitals and health Systems for a software vendor in the 340B management industry.

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