Talk of 340B Drug Diversion and Audits Heats up Following GAO Study

by Admin | October 28, 2011 7:36 pm

October 28, 2011—Drug manufacturers are pleased that last month’s Government Accountability Office (GAO) report on 340B drug discounts[1] has opened what they feel is a long-overdue conversation about drug diversion in the program, industry attorneys and consultants say.

According to industry advisers, loose program guidance and lax oversight have encouraged 340B hospitals and health centers to push the boundaries of allowable use beyond what Congress intended. It is common, they say, for their clients to see evidence that suggests diversion but they are reluctant to perform audits because they are costly and burdensome. The GAO’s calls for a clearer definition of a 340B “patient” plus government-conducted audits of covered entities are a good start, they say, but even more should be done to keep potential diversion in check.

Meanwhile, Jimmy Mitchell, the former director of the Office of Pharmacy Affairs (OPA), says that in the wake of the GAO report, 340B hospitals should gird themselves for audits and that all covered entities should prepare for congressional hearings that could raise concerns about the 340B program.

“By and large, most covered entities go out of their way to be compliant, but in today’s political climate when does that fact carry the day?” Mitchell observed. “One bad herring can make the whole bundle stink. If there is a political goal to do away the program and if there are hearings to build a public record to support that goal, then yes, the program is at risk.”

Mitchell believes that hospitals would be the first in the crosshairs if there is a push in Congress to curtail 340B. “If there a political move to pare this program back, you would go after the biggest purchasers with greatest opportunity to divert, those that can be most easily accused of diverting or of violating the integrity of program,” he says. “Covered entities need to be alerted to the potential harm that may come to this program.”

“Greater Risk” of Diversion

In its Sept. 23 report to Congress, the GAO concluded that the Health Resources and Services Administration’s (HRSA) oversight of 340B is inadequate to ensure both drug manufacturers’ and covered entities’ compliance with program requirements. On balance, however, its four recommendations for executive action to improve program integrity focused more on covered entities than drug companies.

For example, it called on the Secretary of Health and Human Services (HHS) to audit 340B providers to deter diversion and to further specify the criteria that private, nonprofit hospitals must meet to be eligible for discounts. Its call for more specific guidance on the definition of patient, meanwhile, was motivated by its finding that covered entities could be interpreting the current guidance either too broadly or too narrowly.

Elsewhere in the report, the GAO noted that more hospitals and contract pharmacies are participating in 340B than ever before and that these trends “may result in a greater risk of drug diversion.”

HRSA’s Response

In its written response to the report, HHS said that HRSA would work with manufacturers to identify potential diversion and to develop audit plans where evidence suggests diversion might be occurring. Although it did not expressly state that HRSA would conduct its own audits as the GAO recommended, industry and covered entity stakeholders believe that audits by HRSA are inevitable and could begin as early as next year.

HHS also told the GAO that HRSA would review its draft patient definition guidelines and revise them for publication. The White House Office of Management and Budget completed its review of the guidelines on April 20. At a mid-July meeting of 340B stakeholders, OPA Director Krista Pedley said she was not sure if the guidelines would be published before the end of this year[2].

HHS also said that OPA’s $4.4 million annual budget provides sufficient funds to “allow for the planning of and initiation of a phased approach” to recertifying the eligibility of all 340B covered entities beginning this fall. It is unclear whether OPA has finished its planning and, if so, when and how recertification would commence.

In response to the recommendation that HRSA sharpen its 340B eligibility criteria for private nonprofit hospitals, HHS noted that the recertification initiative will include hospitals and thus enable OPA to verify that they meet statutory requirements.

“It’s Not All Aliquippa”

According to attorney John Shakow, a partner at King and Spalding who represents drug manufacturers, industry’s concerns about 340B are growing in proportion to the program’s expanding enrollment. As more providers become eligible and enroll, he says, manufacturers are paying out more in discounts—all against a backdrop of declining profits and a diminished product pipeline.

“The pressure is mounting for OPA and HRSA to establish smart, enforceable guidelines for many critical aspects of the program,” Shakow says. “The program has matured in terms of dollars and legal risks to participants, both covered entities and manufacturers. It is irrational to not have a well-laid-out playing field in which participants can make the program work. The costs and risks are too great to not have clearly articulated rules.”

Shakow doubts there is an abundance of malign diversion in 340B. “It’s not all Aliquippa,” he explained, an allusion to the high-profile Aliquippa Community Hospital drug diversion case[3]that shook the 340B community in 2006. “It’s much more likely a lack of rigorous separation of inpatient and outpatient drug use. Manufacturers think that it’s probably quite common that 340B covered entities adopt an aggressive interpretation of what it means to be a patient without any fear of enforcement by HRSA or any fear of contradiction by drug manufacturers. That’s the locus of our concern.”

Chris Coburn, vice president for regulatory compliance at Compliance Implementation Services (CIS), has a similar take on the nature and extent of diversion in 340B. “Are manufacturers saying that every entity does it? No. But it is fairly common to see symptoms of it,” he says.

“It has been clear for years what manufacturers need to do to be compliant: get the price right, validate covered entities’ eligibility, and if you find out that you have to make a price correction, make sure to make the covered entities whole,” he continues. “The frustrating part for manufacturers was, what about the entities? We might look at chargeback data and say, hey wait a second, there’s something anomalous here that suggests potential diversion. But the manufacturer was limited on what action it could take.”

CIS, which helps manufacturers comply with federal drug pricing program regulations, sponsored a well-attended Oct. 27 webinar for drug companies on the ins and outs of 340B covered entity audits. Just over half of those who participated said they were “very concerned” about diversion and double-dipping in 340B and another 38 percent said they were “somewhat concerned.”

“We put on this webinar because of the high level of interest,” Coburn says. “There’s been a lot of noise about audits lately from the prime vendor and the agency. Manufacturers are hearing this and want to be updated. They’re saying, ‘If we did have an interest in pursuing an audit, how do we go about it?’ ”

“Going to Get Hammered”

Former OPA Director Mitchell agrees that audits of covered entities are likely in the near future. Hospitals will be in the center of the audit target “because that’s where the money, the complexity, and the opportunity to divert is,” he says. “They need to know that if they are diverting 340B outpatient drugs for inpatient use or for non-patients they are going to get hammered.”

Mitchell also says that Congress is likely to hold hearings on 340B in the near future, noting that on the same day as the GAO report came out, three influential Republican committee chairmen and ranking members asked HRSA for a detailed accounting of its oversight[4] of the program.

Mitchell says that, for their own benefit, covered entities should rally behind the proposed 0.1 percent user fee on 340B drug purchases because the revenues it would generate would enable OPA to oversee the program and demonstrate “that it is within the bounds of integrity.”

In the absence of funding that enables random audits or other periodic forms of testing, “the program will always be subject to assault and allegations of a lack of oversight,” he warns.

Source URL: https://340binformed.org/2011/10/talk-of-340b-drug-diversion-and-audits-heats-up-following-gao-study/

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