340B Drug Manufacturer Audits: A Q&A with HRSA

A note from 340B Report CEO and Publisher Ted Slafsky: Please join us in welcoming Comprehensive Pharmacy Services to our growing group of 340B Report sponsors! And I hope you enjoy a new column from Trellis Rx’s Jerry Buller about interesting research identifying and providing recommendations for overcoming obstacles to payer relationships in the specialty pharmacy space. Click on the button below or reach me at ted.slafsky@340BReport.com to learn more about the many benefits of becoming a sponsor.

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340B Drug Manufacturer Audits: A Q&A with HRSA

The U.S. Health Resources and Services Administration (HRSA) began auditing drug manufacturers that participate in the 340B program in fiscal year 2015. It started with one company that year and has audited five per year since. HRSA reported no adverse 340B audit findings for manufacturers in fiscal years 2015, 2016, and 2017.

The first adverse 340B audit finding against a manufacturer came in FY 2018. HRSA cited Belcher Pharmaceuticals for not offering covered outpatient drugs to eligible covered entities at the statutory ceiling price, and the company had to repay providers. It’s probably safe to say no one expected what came next.

HRSA published the last of its five 340B manufacturer audit results for 2019 on May 12. For the year, four out of the five manufacturers HRSA audited had adverse findings and had to repay covered entities for overcharges. Drug manufacturers Lupin and Gavis (the former bought the latter in 2016) each were cited for having incorrect records in the 340B program database (340B OPAIS), for charging more than the 340B ceiling price, and for not submitting quarterly pricing data to HRSA. Xspire Pharma was cited for not offering covered outpatient drugs to eligible covered entities at the statutory ceiling price. So was Paddock Laboratories.

What was behind the sudden leap? Was 2019 a statistical fluke for manufacturer audits? Were the adverse findings connected to the opening of OPAIS’s secure pricing component in January 2019? Was HRSA responding to trends or patterns in prior audits? Did HRSA change its manufacturer audit protocol? Did it conduct more targeted manufacturer audits in 2019 than random audits? Also: All of the manufacturers audited last year were relatively small companies; audits in each of the four preceding years included relatively large companies. Was that a factor?

Earlier this month, we sent HRSA our questions about 340B drug manufacturer audit trends, methods, and performance plus questions about OPAIS. HRSA promptly got back to us with answers. We appreciate HRSA’s cooperation and openness.

Here’s our Q&A with HRSA.


Q: There were no manufacturer adverse audit findings in fiscal years 2015-17, then there was one adverse finding in fiscal 2018, followed by four in fiscal 2019. Is there a reason for the increase? What are the lessons for 340B manufacturers and covered entities from the increase? Is this pattern likely to continue in fiscal 2020 and beyond?

A: Robust oversight is a priority for every HRSA program, and that is true of the 340B program as well. As we have gained experience in auditing both covered entities and manufacturers, we have learned along the way, helping to improve our processes year-by-year, bringing greater rigor to our efforts over time. In this way, our approach to auditing has been identical for both manufacturers and covered entities alike, though we started auditing manufacturers more recently by comparison, beginning in 2015. Along with increased experience, the 340B Drug Program and Ceiling Price and Manufacturer Civil Monetary Penalties final rule (CMP rule), which became effective in January 2019 and strengthened HRSA’s ability to enforce the provisions outlined in the final rule, bolstered HRSA’s ability to issue findings in audits of manufacturers.

Q: Has HRSA found patterns or trends since commencing manufacturer audits? If yes, could you elaborate?

A: No.

Q: Has HRSA changed its audit protocol to take account of patterns or trends? Could you give examples?

A: The manufacturer audit protocol, similar to the covered entity audit protocol, is evaluated each fiscal year based on information learned. For example, the implementation of the CMP rule provided clarity on 340B ceiling price calculation and the protocol now includes more detailed information regarding the calculation. The overall goal of a HRSA audit of a manufacturer is to evaluate a manufacturer’s compliance to offer 340B covered entities covered outpatient drugs at or below the 340B ceiling price, which has remained constant since we began conducting audits in FY 2015.

Q: Is HRSA doing educational outreach to manufacturers based on what it has learned from the audits, or from what it has learned since launching the pricing component of OPAIS? Could you give examples?

A: HRSA provides targeted technical assistance and education to manufacturers on compliance requirements. HRSA has several educational resources related to the 340B OPAIS pricing system on its website, in addition to the assistance that the 340B Prime Vendor provides through the call center. Finalized manufacturer audits are posted on the HRSA website to inform manufactures of areas of concern.

HRSA has now completed four full quarters of pricing adjudication (or one year). We continue to learn more and more about the about manufacturer reporting practices and Centers for Medicare & Medicaid Services (CMS) reporting requirements. Over the past year, we have captured important trends and learned important lessons in the pricing system. In addition, communication between HRSA and our external stakeholders in relation to price reporting and price comparison practices has improved significantly.

Since implementation of the 340B OPAIS pricing component, HRSA has had a significant reduction in notifications of potential incorrect 340B prices in the market. The increased transparency in 340B pricing is significant for both covered entities and manufacturers. We continue to use the system internally to monitor manufacturer compliance by performing regular spot checks of prices and any necessary follow-up on pricing errors/discrepancies.


Q: How does HRSA select drug manufacturers for 340B program compliance audits?

A: HRSA conducts random audits of manufacturers by selecting manufacturers from a list generated by all signed Pharmaceutical Pricing Agreements (PPAs). HRSA also conducts targeted audits in instances where potential compliance issues are identified.

Q: Does HRSA use the same selection methodology every year? If it varies, could you explain?

A: The same method for selection of manufacturer audits has been used since HRSA began conducting audits of manufacturers in FY 2015.

Q: For the 22 manufacturer audits reported to date, could you provide the reason or selection criteria for each audit?

A: HRSA does not disclose the selection criteria or reasons for individual audits.


Q: Who performs HRSA’s 340B manufacturer audits?

A: Staff members of the Office of Pharmacy Affairs conduct the manufacturer audits.

Q: How many OPA staff work on manufacturer audits?

A: Currently, there are approximately between 3-8 staff that work on manufacturer audits depending on the scope and complexity of the audit, and other priorities within the Office of Pharmacy Affairs.

Q: Is there a manufacturer audit contractor?

A: No.


Q: Are any 340B manufacturer audits to date the result of manufacturers’ obligation to submit quarterly pricing data to HRSA through 340B OPAIS?

A: Not to date.

Q: How many instances of discrepancies has HRSA found as a result of comparing a manufacturer’s pricing data with the 340B ceiling price HRSA calculates using data obtained from CMS?

A: HRSA has a systematic process of reviewing and reconciling the data it receives from manufacturers. Since the launch of 340B OPAIS there have been varying reasons for these discrepancies and HRSA has worked with manufacturers to address these issues.

Q: Have any discrepancies triggered audits or other enforcement action (spot checks)?

A: HRSA does not disclose the selection criteria or reasons for individual audits.

Q: How many spot checks of manufacturer pricing has HRSA conducted since the pricing component of OPAIS was launched? What have been the results of these spot checks?

A: HRSA has a systematic process of reviewing any issues that may arise and we work with manufacturers to resolve any issues. If through a spot check, it is found that there is an issue regarding repayment, we work with manufacturers to ensure that it occurs.

Q: We understand that 106 labelers did not submit pricing data as required to OPAIS in Q1 2019, 93 in Q4 2019, and 95 in Q1 2020. Could you provide the figures for the two missing quarters in 2019? How many labelers have failed to submit data twice, three times, four times, all five times? Is it largely the same group of labelers each quarter, or does the composition differ from quarter to quarter?

A: [HRSA declined to answer these questions.]

Q: Have any manufacturers been audited as a consequence of failing to submit quarterly pricing data, or for issues related to OPAIS registration and recordkeeping? Short of audits, has HRSA taken any other enforcement action, or engaged in outreach or education, with respect to such manufacturers?

A: HRSA does not disclose the selection criteria or reasons for individual audits. Outside of the educational resources provided on our website, HRSA has not conducted any other education to manufacturers who fail to submit data.

Q: Can HRSA do anything to compel manufacturers to fulfill their obligation to submit data?

A: HRSA will publish ceiling prices based solely on data from CMS in the event a manufacturer does not submit pricing information.

Q: Is it possible that covered entities pay higher prices than they ought to when manufacturers don’t submit their data to OPAIS?

A: HRSA will publish ceiling prices based solely on data from CMS in the event a manufacturer does not submit pricing information. The price published is a reference for covered entities, and not an invoice value, therefore, a manufacturer could charge more than the published price, even if they reported to 340B OPAIS.

Q: Conversely, is it possible manufacturers’ ceiling prices are set lower than they ought to be set?

A: Manufacturers may charge below the published ceiling price, and often do.

Lupin Pharmaceuticals and Gavis Pharmaceuticals

Q: The FY 2019 audit results list Lupin Pharmaceuticals and Gavis Pharmaceuticals as separate manufacturers. Lupin bought Gavis in 2016. Both have the same three adverse audit findings, and the same Lupin executive is listed as the manufacturer contact for both audits. How and why were Lupin and Gavis selected for audits in FY 2019?

A: HRSA does not disclose the selection criteria or reasons for individual audits.

Q: Why did HRSA list them as separate manufacturers in the 2019 audit report?

A: Lupin and Gavis were individually selected for audit. It was decided to treat them as individual reports rather than associated labeler codes, since their selection was independent of each other. At the time of selection, the authorizing official was not the same for both manufacturers.

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A Candid Look at the Barriers Preventing Health System and Payor Partnership Around Specialty Pharmacy

Jerry Buller, Chief Pharmacy Officer, Trellis Rx

This commentary is part one of a two-part series on identifying and overcoming obstacles to payor relationships

For many covered entities with an in-house specialty pharmacy, inability to gain payor network access prevents their health systems from extending specialty pharmacy services to more patients.

To uncover why, Trellis Rx recently commissioned a qualitative study with a third-party market research firm. This first of its kind study included blinded, in-depth interviews with 20 pharmacy leaders from health systems and health plans across the country, as well as unblinded expert interviews with industry thought leaders. The research allowed industry leaders to share their thoughts candidly and unfiltered.

Ultimately, we found that both stakeholder groups agree greater partnership is required to enhance the value of specialty medications for patients and their organizations. Yet, today they remain divided, talking past one another instead of determining how to work together to achieve their common goals.

Here are three of the barriers we identified:

Health system and health plan pharmacy leaders view each other antagonistically.

“Battle,” “hostile,” and “conflicting interests” were some of the terms participants used to describe the relationship between their organizations.

Unfortunately, these negative perceptions stand in the way of meaningful dialogue. The result?

A lack of understanding that leaves patients bearing the brunt of fragmented care. As one health system leader put it: “I don’t understand their picture of the world…many times I’m surprised because they don’t understand what we’re doing. We don’t talk—usually the patient is the ping-pong ball…”

Most health plans do not recognize the potential value health system pharmacies can deliver to their members, customers, and organizations.

Health plan participants largely viewed health system specialty pharmacies as expensive providers of a commodity service. They didn’t believe health systems had the economies of scale to offer the same pricing or services as national specialty pharmacies.

For example, many health plan leaders didn’t think health system specialty pharmacies were capable of providing 24/7 patient support or hiring specialty-trained pharmacists dedicated to specific patient populations. Most also didn’t believe health systems would negotiate on pricing.

In reality, many health system specialty pharmacies do have these capabilities. And the majority of health system pharmacy leaders interviewed indicated they are willing to negotiate on pricing in order to extend specialty pharmacy services to more patients.

Health plan pharmacy leaders also doubted health systems could deliver better results than other specialty pharmacies. As one pharmacy director at a national medical plan explained: “The only place where they could really show us additional value is in the outcomes, meaning patients are having better quality of life or lower health utilization costs. But I don’t know how they could possibly show this.”

Health systems struggle to demonstrate the value of their specialty pharmacy services.

Studies have shown that health system specialty pharmacies can improve clinical outcomes, operational performance, and patient satisfaction. However, many health systems lack the data analytics and reporting capabilities and infrastructure to prove their impact.

Most health systems also continue to track the same operational data points as national specialty pharmacies. Industry thought leaders agreed health systems must begin tracking disease-specific clinical endpoints and cost of care impacts to truly differentiate the value of their medically-integrated specialty pharmacy care model.

Industry thought leaders also advocated for collaboration across health systems to create benchmarks to evaluate health system specialty pharmacy performance.

Strategies to overcome barriers

The study also identified strategies health system and payor pharmacy leaders can leverage to drive patient-centered collaboration. Based on my experience leading a health system specialty pharmacy, I can say firsthand that health system and payor pharmacy leaders can leverage these strategies to overcome these barriers in favor of collaboration.

Ultimately, the organizations that recognize partnership as a strategic opportunity to enhance value for their members, patients and organizations will be the ones positioned to succeed in our changing healthcare landscape.

Learn about other steps health systems and payors can take to build mutually-beneficial specialty pharmacy partnerships by downloading our market research report. Keep an eye in 340B Report for our next installment focused on win-win collaborative strategies. You can also register for our Becker’s Hospital Review webinar on June 30 to hear about the study findings.

CMS Value-Based Drug Purchasing Proposal Might Affect 340B

The U.S. Centers for Medicare & Medicaid Services (CMS) late yesterday posted a notice of proposed rulemaking (NPRM) for public inspection to support value-based purchasing (VBP) for Medicaid covered outpatient drugs, and other purposes. It is scheduled to be formally published tomorrow, June 19.

CMS says the NPRM “proposes changes to the MDRP [Medicaid drug rebate program] price reporting (in particular best price) to address the regulatory challenges manufacturers encounter when structuring and implementing VBP, and therefore, gives manufacturers the ability to offer these programs to commercial payers or Medicaid without the negative impact on best price or the potential for MDRP regulatory compliance.”

Although CMS’s NPRM doesn’t mention the 340B program, changes in manufacturer best price and average manufacturer price reporting could have spillover effects on the calculation of 340B ceiling prices. Drug pricing experts are likely to comment on the proposed rule and its possible effects on 340B in the coming days.

According to a CMS fact sheet:

…the NPRM proposes to allow manufacturers to report multiple “best prices” for a therapy under the MDRP if the prices are tied to a VBP arrangement. To further facilitate VBP arrangements, the NPRM also proposes to define a VBP arrangement in regards to evidence-based and outcomes-based measures, and also include certain VBP arrangements under the definition of “bundled sale”; and, it proposes to permit revisions to AMP and best price reporting beyond the current thirty-six month time limit to allow for revisions to pricing metrics as a result of VBP arrangements.

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340B Report Publisher and CEO: Time to Tackle Racial Disparities in Health Care

As the United States reaches an inflection point on social injustice, “it is time to act on equal access to health care,” starting with the COVID-19 pandemic “that is ravaging communities of color,” 340B Report CEO and Publisher Ted Slafsky writes in his latest blog post for Pharmaceutical Strategies Group (PSG), a 340B Report sponsor.

Slafsky recommends these steps:

Robust data collection. Race and ethnicity data is missing or unspecified for 48 percent of coronavirus cases and 9 percent of deaths. In addition, the Centers for Disease Control’s racial data on hospitalizations includes information only from hospitals representing 10 percent of the country’s population. CDC recently acknowledged these gaps and now will require states to report this information. “This will be extremely helpful targeting resources to the communities that need it most” says Slafsky.

Ensure an equitable distribution of funds to providers. The funding mechanism for the first installment of COVID-19 aid put providers serving high numbers of low-income and minority populations at a significant disadvantage. “It is important that future allocations be targeted to providers serving our most vulnerable,” he says.

Better testing and tracing. Slafsky says we need “a massive increase in testing capacity” to ensure that COVID-19 in patients of color gets detected and the patients get needed treatment. He added that “robust contact tracing will be critical, particularly this fall.”

“Tackling deep-rooted health care and socioeconomic disparities will be more challenging and will take time,” Slafsky writes. “However, we have no excuse but to start now and focus on the most urgent health crisis we have faced in a century.”

In the blog, Slafsky also congratulates the U.S. Health Resources and Services Administration (HRSA) for its recent decision to eliminate “a long-standing barrier that kept hospitals from using 340B pricing for patients at new provider-based offsite locations.” He provides historical context to this important decision and points out that the agency is actually returning to its original, more sensible position on the matter.

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