Legal Update, May 2019

Legal Update

External, Independent Audits of 340B Contract Pharmacies: Where do they come from? What are they? Where are they going?***
By Elizabeth “Issie” Karan

Hemophilia Treatment Centers (HTCs) often ask whether they need to get an external, independent audit of their 340B program contract pharmacies. The short answer is that the Office of Pharmacy Affairs (OPA) expects covered entities to have contract pharmacies audited by an external, independent auditor annually. However, in the 2010 contract pharmacy guidelines, OPA stated that “[t]he precise methodology utilized to ensure compliance and obtain the necessary information is up to the covered entity given its particular circumstances.” Given this flexibility and the expense associated with independent auditors, often HTCs wonder how to practically meet this expectation without breaking the bank every year.

Although OPA wants covered entities “to conduct annual audits of contract pharmacies that are performed by an independent auditor”, more details on the expectation are limited. FAQ 1422 on the Apexus website states that “HRSA expects that covered entities will utilize independent audits as part of fulfilling their ongoing obligation of ensuring 340B Program compliance. 340B Program violations found during internal or independent audits must be disclosed to HRSA along with the covered entity’s plan to address the violation.” (Please note OPA only requires disclosure of material breaches of compliance.) In a memorandum to the then Administrator of the Health Resources and Services Administration (HRSA), the Office of the Inspector General (OIG) at the Department of Health and Human Services emphasized the “expectation” that covered entities will have annual, external independent audits.

Now, during its audit of a 340B program, OPA asks for documentation that the covered entity conducted an external, independent audit of its contract pharmacies that year. (Please note that we recommend obtaining a letter from auditors, stating when the audit was complete, rather than providing OPA with your actual audit report.) If covered entities cannot produce such documentation, it’s a problem. OPA may view the lack of an audit as contributing to inadequate oversight of contract pharmacies by the covered entity. Such evidence can lead to a finding which may result in termination of a contract pharmacy from a covered entity’s 340B program.

HTCs have options when conducting an annual, external, independent audit of its contract pharmacies. We suggest that HTCs seek out auditors who understand their operations or at least have experience with specialty pharmacy operations. Additionally, HTCs could consider less traditional methods for meeting this obligation, such as partnering with a peer HTC to audit each other’s programs. We believe rotating between peer audits and expert audits ensures compliance while saving money.

HTCs also must consider other methods to oversee contract pharmacy arrangements as annual, external audits, in and of themselves, are insufficient to meet compliance obligations. Most commonly, covered entities compare documentation from contract pharmacies with internal records to ensure compliance with prohibitions against duplicate discounts and diversion.

If you have additional questions, please contact Elizabeth (Issie) Karan at ekaran@ftlf.com.

***extra credit to anyone who gets the Gauguin reference!

Also in this Issue…

Notes from Joe
· Hill Day Recap

Washington Update
· CMS Releases New Policy to Limit Co-pay Accumulator Programs

Payer Update

Alliance Update
· Alliance Seeking Director of Community Relations

Notes from the Community
· CDC Division of Blood Disorders Announces Next Public Health Webinar Series on Blood Disorders


Team Alliance Contact Information

We work for you! Please don’t hesitate to contact any of us with any questions or concerns:

Name Email Phone
Joe Pugliese joe@hemoalliance.org 215-439-7173
Sean Singh sean@hemoalliance.org 727-388-7326
Jeff Blake jeff@hemoalliance.org 317-657-5913
Jeff Amond amond@hemoalliance.org 608-206-3132
Johanna Gray, MPA jgray@artemispolicygroup.com 703-304-8111
Elizabeth Karan ekaran@feldsmantucker.com 612-202-3240
Roland P. Lamy, Jr. roland@hemoalliance.org 603-491-0853
Dr. George L. Oestrich, Pharm.D., MPA george@gloetal.com 573-230-7075
Ellen Riker eriker@artemispolicygroup.com 202-257-6670
Mark Plencner mark@hemoalliance.org 701-318-2910
Michael B. Glomb MGlomb@ftlf.com 202-466-8960
Theresa Parker theresa@hemoalliance.org 727-688-2568
Karen Bowe karen@hemoalliance.org 717-571-0266
Joel Bellucci webmaster@hemoalliance.org 727-504-0491