Ensuring 340B Program Compliance

June 2015 - Vol.12 No. 6 - Page #6
Category: 340B Software

Q&A with Lloyd J. Guidry, Jr, PharmD, RPh,
director of pharmacy and chief operations officer,
Lady of the Sea General Hospital, Cut Off, Louisiana

Pharmacy Purchasing & Products: In your experience, what are the biggest challenges to ensuring 340B compliance?  
Lloyd J. Guidry, Jr: Remaining abreast of changes to the program is key to continually ensuring the integrity of the covered entity’s 340B practices. Moreover, this must be accomplished without overloading staff with excessive responsibilities or imposing additional costs upon the covered entity. 

To effectively manage the complex dynamics of the 340B program, and address issues as they arise, consider forming a multidisciplinary team of staff directly involved in 340B-related activities. Given that covered entities can gain significant financial savings by exercising the full capacity of 340B, this team should enlist staff from the highest echelons of the hospital. Thus, a comprehensive team should include the CEO, CFO, director of pharmacy, compliance officer, director of revenue cycle, and clinical IT representatives. 

These individuals must be well versed in the tenets of the 340B program. Fortunately, there are numerous resources available, including the Health Resources and Services Administration (HRSA), the Office of Pharmacy Affairs (OPA), the 340B Prime Vendor Program managed by Apexus, and the Safety Net Hospitals for Pharmaceutical Access (SNHPA). 340B University, a product of the Apexus 340B Prime Vendor Program, offers free guides and a sample policy and procedures manual, in addition to 340B compliance self-assessments and sample self-audits. SNHPA is a non-profit advocate for providers of the 340B drug program, and offers 340B resources to members as well as non-members. 

PP&P: What are the operational priorities for establishing an effective 340B program? 
Guidry: After a management team is developed, staff education detailing 340B program tenets and establishing formal, written policies and procedures (P&Ps) for 340B compliance become top priorities. Because covered entities must have inventory controls in place to ensure that 340B drugs are not dispensed to ineligible patients, decide whether the entity will establish a separate 340B drug inventory, utilize a split-billing software program, or identify another way to ensure compliance. In addition, the covered entity should establish and maintain a provider panel that indicates eligible providers. The director of pharmacy, in collaboration with human resources, can determine provider eligibility, according to the organization’s definition, and institute a process to ensure the provider panel is current and accurate. Thereafter, perform periodic self-audits of the program to ensure continuous staff adherence to the P&Ps. Engaging the assistance of an outside auditor to periodically assess the program’s compliance and integrity may be particularly useful. 

PP&P: What is the best approach to developing 340B P&Ps?
Guidry: A covered entity’s formal 340B P&Ps should include a broad overview of 340B program rules and requirements, as well as 340B eligibility definitions and requirements, both for the covered entity and its patients. In addition, be sure P&Ps include rules governing the orphan drug exclusion (for critical access hospitals, free-standing cancer hospitals, sole community hospitals, and rural referral centers).

Equally important is ensuring accurate billing. To comply with the duplicate discount prohibition, the covered entity must specify whether 340B drugs will be used for Medicaid patients (ie, carve-in), or if drugs for Medicaid patients will be purchased through other mechanisms (ie, carve-out).1,2 P&Ps also must describe an entity’s compliance structure, which should encompass 340B medication procurement, inventory management, internal and external audits, the use of contract pharmacies (if applicable), registration and recertification activities, and process flow diagrams.

Certainly, the pharmacy director should maintain primary ownership of these P&Ps; however, the drafting process should involve input and approval from the multidisciplinary team, as well as a committee appointed by the entity’s governing body. 

PP&P: Who should receive 340B training and how should training be presented? 
Guidry: Given the complexities and importance of the program, any staff members whose responsibilities are even tangentially related to 340B activities should receive basic training. More detailed training should be required for all pharmacy personnel and members of the multidisciplinary team, as well as any other staff identified by the director of pharmacy; these may include registration or revenue cycle staff, if the entity works with contract pharmacies. 340B training should begin with a basic overview of the program, emphasizing the overall benefit of the program to the covered entity and to the community it serves. Incorporate an annual competency assessment into training materials for those staff that handle 340B drugs (see Pharmacy Department 340B Proficiencies and Competencies CHECKLIST). 

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PP&P: Can you describe the process for conducting an internal 340B audit? 
Guidry: First, it is important to establish the scope of the audit. Internal auditing should include a date-range sample of patient transactions; medications charged (per 11-digit NDC) including quantity; patient location, date, and time of service; provider ID; medications administered (per 11-digit NDC, if possible); and payer information.

Second, make it clear that the audit is to be taken seriously. It is wise to establish an audit process that mirrors the methods of an actual HRSA audit. For example, make sure the director of pharmacy (or the designated 340B liaison) quickly and clearly can present proper 340B documentation in patient medical records. Involving clinical IT and compliance office representatives may be required. It is best to perform audits quarterly, but certainly not less than twice a year.

Several vital issues should be considered during an internal audit:

  • Patient status at time of service. Was the patient an outpatient?
  • Patient location at time of service. Is the location listed as a reimbursable cost center on the covered entity’s most recent Medicare cost report, and is this report reviewed at least annually?
  • Provider eligibility. Is the provider panel reviewed for accuracy at appropriate intervals?
  • Medication acquisition. How, and from where, was the medication obtained for use?
  • NDC tracking. What is the billed 11-digit NDC number, and does it match what was ordered for inventory replenishment?
  • Exclusions. Is the medication affected by the orphan drug exclusion?
  • CMS status. Is the payer Medicaid, and does the entity carve-in or carve-out?
  • Documentation. Does the medical record contain clear documentation of an eligible medication order and its subsequent administration or dispensing, including a valid reason or diagnosis for use?
  • Cost savings use. Does the entity have written guidelines for the use of 340B savings? Have these guidelines been approved at a Board of Commissioners’ appointed-committee level?

In addition to ensuring peace of mind, performing internal audits protects the integrity of the program and maintains a state of audit preparedness, should the entity be selected for an actual audit. These audits also inspire confidence in all involved with the 340B program so that they ably can answer an auditor’s questions. 

PP&P: What preparation is required for a 340B audit?
Guidry: Our approach (see SIDEBAR for a HRSA 340B Audit Experience) included contracting with a vendor for 340B auditing preparation and compliance services. Many service providers are available; it is best to speak with colleagues at similar facilities who have used such services and completed an audit before selecting a vendor for your facility. 

The services provided by our vendor included a mock audit performed remotely by vendor representatives well versed in the tenets of 340B, as well as guidance on updating our P&P manual. After the mock audit was complete, we were given recommendations to assist in preparing for the actual audit. 

In addition, our pharmacy director and clinical IT director perform mock audits at least quarterly to ensure their own proficiency in navigating through the different types of medical records in our facility. Practicing the audit process made for a smoother experience during the actual compliance audit.

It is indeed important to ensure that all documentation and reports related to 340B activities and compliance are complete. While overall 340B compliance requires more than just data, it is vital that the following elements be easily accessible during an audit:

  • Evidence of internal and external audits, including outcomes/recommendations
  • Committee-approved 340B P&P manuals
  • Process flow charts
  • Current provider panels
  • The most recent Medicare cost report
  • Copies of contract pharmacy contracts
  • Records indicating proper 340B staff training and competency assessment
  • Evidence that 340B drugs are replenished with the same 11-digit NDC codes as the ones used
  • An up-to-date record for the entity, its child sites, and its contract pharmacies on the HRSA.gov Web site, demonstrating accurate information and compliance with Medicaid carve-in/carve-out and the Orphan Drug Exclusion

PP&P: What resource commitments are necessary to ensure ongoing 340B compliance?
Guidry: To ensure perpetual, successful 340B compliance, staff must understand that the task is a collective responsibility. The commitment and involvement of the organization’s CEO, CFO, and compliance officer, as well as the pharmacy director, pharmacy technicians, and ancillary staff, are imperative. Dedication to compliance must include appropriate education for all involved and an understanding that the program requires strict adherence in order to provide continued benefit to the community and the hospital.

Ultimately, the organization should commit to investing the potentially significant financial savings reaped through the 340B program in maintaining, improving, or expanding access to pharmaceuticals and other patient care services that benefit low-income, uninsured, and underinsured populations. 


  1. US Department of Health and Human Services Health Resources and Services Administration. 340B Drug Pricing Program. Medicaid Exclusion/Duplicate Discount Prohibition.http://www.hrsa.gov/opa/programrequirements/medicaidexclusion/. Accessed March 25, 2015.
  2. US Department of Health and Human Services Health Resources and Services Administration. 340B Drug Pricing Program. Program Integrity: Audit Results.http://www.hrsa.gov/opa/programintegrity/auditresults/. Accessed March 25, 2015.

Lloyd J. Guidry, Jr, PharmD, RPh, is the director of pharmacy and chief operations officer at Lady of the Sea General Hospital in Cut Off, Louisiana. He received a BS in pharmacy from the University of Louisiana at Monroe and a doctor of pharmacy degree from the University of Florida. In addition to clinical pharmacy and administrative duties, Lloyd is working to expand the 340B benefit within his community by establishing hospital-owned retail pharmacy locations that provide 340B pricing to augment the limited number of partner pharmacies in this rural area.

A HRSA 340B Audit Experience

In November 2014, our hospital, Lady of the Sea General Hospital in Cut Off, Louisiana, received a letter from the Office of Pharmacy Affairs indicating that we had been selected for an audit. The letter stated that a program integrity analyst from HRSA’s Office of Federal Assistance Management would contact us by phone to coordinate the audit. In January 2015, we had an introductory telephone conference with an auditor, who later sent a data request. We had approximately 2 weeks to compile and return the requested materials. The audit occurred in early February 2015, a month following the initial telephone conference, and was completed over 3.5 days.

Having recently been audited for 340B compliance, we learned a great deal about how such audits are performed and what is expected of the covered entity. 

Pre-Audit Phase 
Accompanying the notification of our impending audit was a list of items to be submitted to the auditor prior to the actual audit, which included:

  • A list of all 340B orders or prescriptions issued (including all child sites and contract pharmacies) for a designated 6-month period
  • Our written 340B P&Ps 
  • Complete names and addresses of all entities associated with the organization 
  • A list of pharmacy settings within the hospital where 340B drugs are ordered, administered, and dispensed
  • Documentation of our entity’s 340B eligibility
  • Our most recently filed Medicare cost report
  • A list of providers eligible to write 340B prescriptions
  • The most current 340B pharmaceutical inventory listing, inventory count, and reconciliation report
  • A list identifying all accounts used for the purchase of both 340B and non-340B drugs, and a description of the drug types ordered
  • A list identifying all child sites
  • A list of all contract pharmacy names and locations
  • Copies of contract-pharmacy contracts
  • Reports indicating oversight or monitoring of the contract pharmacy by the covered entity
  • Our Medicaid provider enrollment verification letter (NPI) or Medicaid number
  • Our organizational chart and a one- to two-page biography of the entity
  • Any software used for the purpose of 340B drug procurement and utilization

Physical Accommodations 
Certain accommodations were requested for the 340B auditor, including an enclosed, lockable work space/office; access to the Internet; a telephone and photocopier; and a facility parking space for the duration of the audit.

Audit Phase
When onsite, the auditor initially asked for a demonstration of our 340B processes and toured our central pharmacy, one of our medical clinics, and one of our contract pharmacies, as well as our dialysis clinic and outpatient rehabilitation unit. 

From the list of previously submitted 340B orders, the auditor then selected 28 outpatient transactions for review (including examples of employee prescriptions, ER visits, OR outpatients, and observation patients). Moreover, the auditor chose an additional 28 transactions that involved contract pharmacies. Finally, the auditor selected to review five high-cost items from various areas of the hospital. 

The auditor spent the next 3 days examining the 61 chosen transactions, in each case reviewing the medication order, the patient’s eligibility to receive the medication and the provider’s eligibility to prescribe it, the location at the time of service, the medication administered, and the payer type. For transactions involving a contract pharmacy, the auditor examined medical record details to ensure the provider encounter related both to the patient’s diagnosis and the medication being dispensed. If the provider was a referral, documentation of the referral in the medical record was required. 

Hot Button Questions Covered in the Audit
The auditor required identification of the payer for all transactions; evidence of the integrity of the ordering process all the way through administration, which established that 340B P&Ps are followed as written; as well as evidence that the patient remained eligible at the time of medication administration. Additional queries from the auditor included:

  • Is the covered entity’s information on the HRSA Web site complete—including the entity, its child sites, and contract pharmacies—and is it accurate and up to date?
  • Are prescriptions written for patients and employees documented in the medical record as originating from a provider encounter that resulted in a diagnosis related to the medication ordered? 
    ■ For example, if an employee or patient receives a prescription from a provider as a non-established patient, during an informal meeting (eg, in the hall of the facility, or from an ER provider without a documented visit), the prescription is not eligible to be filled through the 340B program
    ■ If a medication, such as lidocaine 1%, is used to numb a patient for suturing, the medical record must show documentation of an order for that medication, even if it is considered standard practice
  • Is a patient who presented through the ED but was later transferred to an inpatient area, considered an inpatient or an observation patient?
    ■ Observation patients are considered outpatients, and, therefore are eligible for 340B medications, even if the setting is an inpatient area. Proof must be documented in the medical record, including the date, time, patient type, and location of the patient at the time of medication administration
  • If a name brand drug was ordered, but the drug administration was documented with the generic name, is there proof that it was the same drug?
  • If the drug was ordered retrospectively, was the same 11-digit NDC replaced?
  • If drugs are ordered prospectively, are they segregated from the rest of the pharmacy stock? If so, how? (See Online-Only 340B Medication Receiving and Segregation Process) 
  • What is the process for ordering medications for the entity’s child sites (eg, rural health clinics)?
  • The auditor also inquired about our Medicare cost report, specifically with regard to Worksheet A and the cost centers indicated on the reimbursable section.  

Audit Results
Prior to the audit, the certified onsite auditor made it clear that any findings uncovered during the audit would not be shared with us, as onsite findings are considered preliminary and must be reviewed by HRSA’s Office of Pharmacy Affairs. We were notified that it could take 9 to 12 months before we received a report outlining any findings, at which time we would have the opportunity to respond to the report. In addition, any findings indicating 340B program non-compliance would necessitate corrective action by the facility and may generate follow-up by HRSA prior to completion of the audit. 

However, less than 3 months after this communication, the HRSA Office of Pharmacy Affairs completed its review and issued a final report to our covered entity, constituting notice of 340B audit findings; there were no unexpected findings. If an entity disagrees with the findings, it has a 30-day period during which it can submit written notice of disagreement. Our report did offer opportunities for improvement, which do not identify specific violations of the 340B program requirements and do not require corrective action. 


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