1. GREG DOGGETT ASSOCIATE COUNSEL SAFETY NET HOSPITALS FOR PHARMACEUTICAL ACCESS (SNHPA) NASTAD NATIONAL ADAP TA MEETING WASHINGTON, DC JULY 30, 2014 The Intersection between ADAP and the 340B Drug Pricing Program: 340B Pharmacy Update

2. Disclaimer This presentation is not to be construed or relied on as legal advice.

3. Today’s Agenda Patient Definition and Contract Pharmacy Developments HRSA & Manufacturer 340B Audits 340B Compliance

4. Who Is SNHPA? Non-profit organization representing and supporting over 1,000 340B hospitals Took lead role in including hospitals in the 340B law Advocates on federal legislative and regulatory issues related to the 340B program Educates members on 340B policy developments and compliance issues

5. Patient Definition 1996 HRSA Patient Definition Guidelines  Covered Entities (CEs) Other Than ADAP  CE maintains records of individual’s health care and  Individual receives health services from health care professional employed by CE or under contract or other arrangements such that responsibility for care provided remains with CE Service must be more than dispensing of a drug for self-administration or administration in the home setting  Additional Criterion for Non-ADAP HRSA Grantees  Individuals receives health care service(s) from CE which is consistent with range of services covered by HRSA grant  ADAPs Only  An individual registered in state-operated or funded ADAP that receives Ryan White funding is considered a patient of the ADAP if registered as eligible by the State program.

6. Patient Definition Cont’d HRSA intended to address patient definition in “mega- reg” Widely differing perspectives on future of patient definition  SNHPA  Basic construct of current definition is sound  Specific terms should be defined to avoid confusion by stakeholders  HRSA should release new guidance or regulation in proposed form, so that the public has opportunity to comment  PhRMA  Limit to “uninsured individuals”  Physician must be employee or independent contractor  Patient must receive “ongoing care”

7. Contract Pharmacy 1996: HRSA permitted a CE to enter into an arrangement with one pharmacy to dispense 340B drugs to CE’s qualifying patients if CE did not have own pharmacy 2010: HRSA allowed CEs to enter into arrangements with multiple contract pharmacies Key 340B program requirements (i.e., patient definition and duplicate discount prohibition) apply to contract pharmacies CE is responsible for 340B contract pharmacy compliance and must monitor contract pharmacy  HRSA recommends, but does not require, independent audits

8. Contract Pharmacy Cont’d February 2014 HHS OIG report on contract pharmacies  Made no findings of wrongdoing  Found CEs had different understandings of the patient definition test and how to prevent diversion and duplicate discounts  Noted that some CEs do not offer 340B discounts to uninsured patients at their contract pharmacies  Found that CE oversight of contract pharmacies varies

9. Contract Pharmacy Cont’d Criticisms of Contract Pharmacy  Growth in number of contract pharmacy arrangements  Concern about whether uninsured benefit from contract pharmacy HRSA planned to address contract pharmacy in “mega-reg”  Limits on number of contract pharmacy arrangements?

10. Audit Background 340B statute permits HRSA and manufacturers to audit CEs September 2011 Government Accountability Office report recommended selective audits of covered entities HRSA began CE audits in January 2012 HRSA chose entities they believed most likely to be at risk o Risk determination is based on volume of purchases, complexity of program administration, and use of contract pharmacies Also did “targeted” audits based on allegations of 340B violations 51 audits in 2012 and 94 audits in 2013

11. HRSA Audit Results to Date Since 2012: 70 audits posted on website  At least 130 not yet posted  Annual number of audits expected to double Findings  3 types: Inaccurate database record, diversion, duplicate discount  Most audits have no findings or findings of inaccurate database  Repayment obligation  Exists for diversion findings  Exists for duplicate discount only if state collected rebates Areas for Improvement

12. Timeline of HRSA Audit Process Based on Hospital Reports to SNHPA Pre-Audit: Audit notice, coordination call, data request (2-4 weeks) Audit (1-3 days) Preliminary Report (6-15 months from audit – average 10 months) Final Report (8-23 months – average 13 months)  CE agrees with or disputes findings  Corrective action plan required if CE does not dispute findings Final Determination by HRSA (if still challenging findings) (4 months - ? (several are pending)) Judicial Review

13. New Policies for HRSA Audits New policies issued on July 3 No preliminary audit report; just one chance to appeal findings HRSA no longer asking for details about how CE will determine the scope of non-compliance and the remedy Manufacturers notified of repayment obligation via public letter that outlines duplicate discount/diversion finding(s) CE and manufacturer to determine the scope of repayment. If parties do not agree, may pursue voluntary dispute resolution. Audit stays open until CE reports to OPA that all repayment issues have been settled; re-audit within one year

14. General Lessons Learned from HRSA Audits Important to have written policies and procedures Accuracy of information on HRSA website  Example: If using 340B for Medicaid patients, the Medicaid billing numbers/NPIs used to bill those drugs must be listed in OPA’s Medicaid exclusion file

15. Manufacturer Audits Bound by Government Auditing Standards and standards in 1996 guidance (61 Fed Reg. 65406, Dec. 12., 1996) o Must use an independent public accountant o CEs may be subject to only 1 audit at a time o Audit period can be no more than 1 year o Must continue to provide 340B discount during audit o If parties cannot agree on audit findings, may pursue resolution by HRSA through voluntary dispute resolution procedures set forth in 1996 guidance o Limited to duplicate discount and diversion issues only

16. Manufacturer Audits Cont’d Reasonable Cause o “Significant changes in quantities of specific drugs ordered by a covered entity and complaints from patients/other manufacturers about activities of a covered entity may be a basis for establishing reasonable cause” (61 Fed Reg. 65406, Dec. 12, 1996) o To show “reasonable cause,” manufacturers may make inquiries of CEs (e.g., letters) o Important for CEs to respond to manufacturer inquiries

17. Manufacturer Audits Cont’d Slow growth in number of manufacturers audits  8 approved since 2012  Results not publicly available Increasing number of inquiries regarding 340B purchases HRSA may audit based on manufacturer complaint Manufacturer look-back period  So far, negotiated by the parties, without HRSA involvement  No federal guidance permitting unlimited look-back period

18. Audits & Repayment Under 340B statute, violation of diversion or duplicate discount prohibition could require repayment of 340B discount Repayment issues related to audits  More than just the claim identified by HRSA; must identify all claims that were subject to the problem  Up to CE and manufacturer to identify look-back period  HRSA does not dictate actual amount of money to be repaid; determined through manufacturer and provider collaboration  HRSA does not have position on whether repayment can be done via credit or cash payment  Will issue more guidance on how to calculate repayment

19. 340B Compliance and the Current Enforcement Environment 19 Increase in HRSA audits and inquiries Increase in manufacturer inquiries Annual recertification for all CEs HRSA plans to issue new guidance in many program areas

20. Purpose/Benefits of 340B Compliance Plan 20 Helps organization think systematically about implementing and operating 340B program Demonstrates a covered entity’s good-faith commitment to compliance Increases the likelihood of preventing, identifying, and correcting mistakes or improper activity  Set up system to identify and correct errors Minimizes financial loss to 340B participants Note: Having a compliance plan does not ensure perfect compliance 100% of the time!

21. Key Elements of a 340B Compliance Plan 21 Policies and Procedures (P&Ps) Employee Training Senior management involvement Internal monitoring and auditing Proactive response to deficiencies  Corrective action plans  Disclosure to drug manufacturers and government, if warranted

22. 340B Compliance Plan Resources 22 Office of Pharmacy Affairs Website: http://www.hrsa.gov/opa/ http://www.hrsa.gov/opa/  Federal Register notices, policy releases, FAQs, audit information  Regularly review FAQs even if you think you understand the requirements!!! Apexus/Prime Vendor Program (PVP) Website: https://www.340bpvp.com/controller.html https://www.340bpvp.com/controller.html  FAQs, samples P&Ps, self-audit outlines  Regularly review FAQs even if you think you understand the requirements!!!  APEXUS Answers call center – 1-888-340-2787

23. Additional Questions? 23 Greg Doggett Associate Counsel Safety Net Hospitals for Pharmaceutical Access 1101 15th Street, NW, Suite 910 Washington, DC 20005 Phone: 202-552-5859 greg.doggett@snhpa.org