The Rise of 340B Audits: Preparing for a Successful Encounter
In 1992, the 340B Drug Pricing Program was created to help safety-net providers “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”1 This program is administered and overseen by the Health Resources and Services Administration (HRSA) via the Office of Pharmacy Affairs, part of the US Department of Health and Human Services (HHS). Benefits for 340B eligible entities include an average savings of 25% to 50% on outpatient drug purchases. These savings allow covered entities to support programs that provide medications at reduced or no cost, allow the entity to continue to offer services or add new services, and expand accessibility to patients.
Entities eligible to participate in the 340B program are either 1 of the 11 federal grantees or designees or 1 of 6 different hospital types (Online Table 1). Eligible hospitals must meet certain criteria, including that the hospital: 1) is owned or operated by a unit of state or local government, is a public or private nonprofit corporation which is formally granted governmental powers by a unit of state or local government, or is a private nonprofit hospital that has a contract with a state or local government to provide health care services to low income individuals who are not entitled to benefits under title XVIII of the Social Security Act or eligible for assistance under the state plan under this title; 2) has a disproportionate share hospital (DSH) adjusted percentage above 11.75% for DSHs, children’s hospitals; and freestanding cancer hospitals, and above 8% for rural referral centers and sole community hospitals; and 3) does not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.2,3
Table 1: Entities Eligible for 340B Program Participation
Federally qualified health center (FQHC)
Title X family planning grantees
State AIDS Drug Assistance Programs
Ryan White Care Act grantees
Black lung clinics
Hemophilia treatment centers
Native Hawaiian Health Centers
Urban Indian organizations
Sexually transmitted disease grantees
Disproportionate share hospitals
Critical access hospitals
Freestanding cancer hospitals
Rural referral centers
Sole community hospitals
According to the statute, there are key program requirements that the covered entity is obligated to abide by in order to remain compliant and a part of the 340B program. These requirements include: maintaining the 340B database information accuracy, recertifying eligibility annually, preventing duplicate discounts, ensuring 340B purchased medications are not diverted to ineligible patients, and preparing for program audits (Online Table 2).4
Table 2: 340B Program Requirements
340B Program Requirements
v Maintain 340B database information accuracy
v Recertify eligibility annually
v Prevent duplicate discounts
v Prevent diversions to ineligible patients
v Prepare for program audits
Ensuring the 340B database is accurate includes (but is not limited to) listing the correct authorizing official, contact information, Medicaid billing information, and list of child sites and contract pharmacies. Entities are required to recertify their information on the HRSA 340B database on an annual basis during the recertification period.5 A duplicate discount occurs when an entity accesses the 340B discount and the Medicaid rebate on the same drug. For example, if a Medicaid patient purchases a 340B drug, and the entity is not listed on the Medicaid exclusion file, Medicaid will then request a rebate on the drug, resulting in a duplicate discount on the transaction. Diversion is the sale of 340B drugs to a person who does not meet the definition of a 340B eligible patient (Online Table 36). Table 3: Definition of 340B Eligible Patient
Definition of 340B Eligible Patient 6
v The covered entity maintains records of the individual’s health care
v Patient receives health care services from a provider who is employed or in a contractual relationship with the covered entity
v The patient receives services within the scope for which the grant funding or federally-qualified health center look-alike status has been provided
o Hospitals are exempt from this requirement
The first 20 years of the 340B program were highly self-regulated. Covered entities were not audited by HRSA or manufacturers and outside of the original legislation, very little guidance was released regarding the 340B program. This, in conjunction with the following events, has led to the initiation and growth in number of audits performed by HRSA and release of guidance documents to clarify regulations.
In 2010, the Patient Protection and Affordable Care Act (PPACA) impacted the 340B program by expanding eligibility to include certain critical access hospitals, sole community hospitals, rural referral centers, and freestanding cancer centers. The PPACA also impacted the 340B program by increasing the number of Medicaid patients, ultimately contributing to the increase in the number of eligible DSHs. Finally, the PPACA directed the US Government Accounting Office (GAO) to prepare a 340B-related report to Congress.7
The GAO, or “congressional watchdog,” investigated the 340B program in 2011 and concluded that manufacturer discounts in the 340B program offer benefits, but that federal oversight needs improvement. Specifically, the report commented on HRSA’s inadequate oversight and guidance in the definition of the 340B program, the rate of increased growth in hospital participation, and the utilization of contract pharmacies. 8 Consecutively, the Office of Inspector General (OIG), which serves to protect the integrity of the HHS and its beneficiaries, issued several reports relating to 340B. In 2011, the report looked at states’ reimbursement policies and oversight related to 340B drugs and found a lack of pricing information and written 340B policies. In 2012, the report assessed states’ collection of Medicaid rebates and found the Medicaid exclusion file was not consistently used. Finally, in 2014, a survey was conducted regarding the use of contract pharmacies and determination of patient eligibility. The OIG found that to prevent diversion in their contract pharmacy arrangements, covered entities used different methods to identify 340B-eligible prescriptions. In some cases, this led to variability in determinations of 340B eligibility among covered entities.9A Time for Audits
In 2012, HRSA began conducting audits regarding compliance with diversion of drugs and duplicate discount rules. Audits are designed to assess whether a covered entity has not sold or diverted 340B covered drugs to ineligible patients, has the proper controls in place to prevent and detect instances of diversion and duplicate discounts, is eligible to participate in the 340B program, and maintains auditable records.
Entities are selected for an audit based on random and targeted processes, with a greater number of random selections coming from groups at higher risk of noncompliance. Entities are grouped based on risk factors such as volume of purchases, complexity of program administration, use of contract pharmacies, historical problems and allegations of diversion and duplicate discounts, and length of time the entity has participated in the program (Online Figure 1). Entities are then randomly selected from these risk groups to be audited.10
Targeted audits may be triggered by allegations of violations of 340B requirements, and are not limited to those made by whistleblowers, manufacturers, or self-reporting by covered entities. Targeted audits include a more thorough investigation of policies and procedures, review of auditable records, and system compliance to prevent diversion and duplicate discounts. The findings from these audits may be reoffered to the OIG or Department of Justice.10
Audit findings assist HRSA and 340B stakeholders in evaluating the status of 340B operations and assessing overall compliance with the 340B program. These audits help HRSA and participating covered entities identify and mitigate program risk as well as identify best practices regarding 340B program compliance.
Over the past 3 years, HRSA has conducted 244 audits: 51 in fiscal year (FY) 2012, 94 in FY2013, and 99 in FY2014. Audits are posted to the HRSA website once the audited entity has agreed to the HRSA final report. As of September 2014, of the 84 published final reports, 56% had 1 to 3 adverse findings (Online Table 4). The most common adverse findings involved drug diversion, duplicate discounts, or database errors. These findings typically resulted in either repayment or correction of database inaccuracy.11
Table 4: Total Adverse Findings of Health Resources and Services Administration Audits (as of September 2014)
Total Adverse Findings of Health Resources and Services Administration Audits (as of September 2014)
Number of Adverse Findings per Entity
Percentage of Total Entities Audited
44% (n = 37)
27% (n = 23)
26% (n = 22)
2% (n = 2)
Entities participating in the 340B program should be confident in their patient definition, 340B usage, and ability to prevent duplicate discounts. They should be prepared with written, comprehensive 340B program policies and procedures outlining their process for maintaining compliance with the 340B program requirements. Covered entities must ensure that all records necessary to audit compliance are readily accessible to program leaders across the organization. Procedures should also be in place to conduct regular self-audits to identify areas of weakness and implement corrections to any errors or oversights. Utilizing a mock self-audit tool, such as the “340B Compliance Self- Assessment” tool from Apexus to conduct an annual self-audit, along with monthly audits to ensure policies/ procedures are being followed and systems are working appropriately, can help ensure a successful HRSA audit. Most sites will find it necessary to have 1 or more dedicated full-time equivalent employees to maintain the 340B program and routinely perform audits.
Halena Leah Sautman, PharmD, BCPS, is a PGY2 health-system pharmacy administration resident at the University of North Carolina Hospitals and Clinics.Sarah Lee, PharmD, MS, is clinical manager of pharmacy support services at UNC Health Care.
1. HR Rep No 102-384(II), at 12 (1992).
2. Section 340B(a)(4)(L) of the Public Health Service Act.
3. 42 USC 256b(a)(4).
4. Health Resources and Services Administration. Program requirements. www.hrsa.gov/opa/programrequirements/index.html. Accessed on November 1, 2014.
5. Health Resources and Services Administration. Annual recertification. www.hrsa.gov/opa/programrequirements/recertification/index.html. Accessed on November 1, 2014
6. 61 Federal Register 55156-55158 (October 24, 1996).
7. Patient Protection and Affordable Care Act § 7101-7103 (2010).
8. US Government Accountability Office. Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement. Washington, DC: US Government Accountability Office; 2011. Publication GAO-11-836.
9. Office of Inspector General. Memorandum Report: Contract Pharmacy Arrangements in the 340B Program. Washington, DC: Office of Inspector General; 2014. Publication OEI-05-10-00431.
10. Health Resources and Services Administration. Clarification of HRSA Audits of 340B Covered Entities. February 8, 2013. 340B Drug Pricing Program Notice Release No. 2012-1.1. www.hrsa.gov/opa/programrequirements/policyreleases/auditclarification020813.pdf.
11. Health Resources and Services Administration. Program integrity and 340B program audits. www.hrsa.gov/opa/programintegrity/index.html. Accessed November 1, 2014.