340B audits are on the rise while at the same time audit procedures are in flux.  The Office of Pharmacy Affairs (OPA) at the Health Resources & Services Administration (HRSA) oversees the 340B Program.  In 2012, HRSA conducted 51 audits of 340B programs and in 2015 the number of audits conducted increased to 172. The increase in 340B audit activity occurs against the backdrop of ever-changing guidance for the 340B audit process.  In last month’s “News to Use in 2016” on 340B audits, HRSA modified the process for public notice of audits findings. Although HRSA describes the modification as a “tidbit” on the 340B audit process, the change could impact 340B covered entities.  The update can be found on OPA’s website.

Before explaining HRSA’s change to the public notice of audit findings, here’s a brief primer on how audits work.  As you know, the federal government has the authority to audit covered entities for compliance with 340B program requirements.  If HRSA finds that the covered entity failed to comply with 340B program requirements, the covered entity may be liable to manufacturers for refunds of discounts or may even be removed from the 340B Program.

Few details have been provided by HRSA about the 340B audit process, but the general audit process is as follows:

• Based on analysis of covered entity compliance with 340B program requirements with respect to eligibility status, duplicate discounts and diversion, HRSA regional auditors draft a preliminary report and forward the report onto OPA.
• Next, OPA reviews the preliminary report, drafts a final report, issues the report to the covered entity, and, if applicable, requests a corrective action plan (CAP) from the covered entity.
• The covered entity has 30 days to review findings and to consider the request for a CAP. If a covered entity agrees with the report, the covered entity submits a CAP to HRSA for approval.  If a covered entity disagrees with the report, it notifies HRSA and provides supporting documentation of the covered entity’s disagreement.
• OPA reviews the covered entity’s response and, if appropriate, may reissue the report with changes based on the documentation submitted.

Here’s where HRSA’s change comes in:  Once an audit report is finalized by OPA, the findings are summarized on the OPA public website.  In the past, covered entities provided OPA a letter that outlined the findings, described that repayment may be necessary, and provided a contact person for any questions that may arise.  The public letter was posted on OPA’s website and gave covered entities the opportunity to frame and contextualize findings and to speak directly to manufacturers about audit findings.

Now, covered entities will no longer draft the public letter informing manufacturers of audit violations that may involve repayment.  Instead, OPA will post the notice on the 340B Program website to inform manufacturers regarding violations that have occurred.  This notice will include similar elements to what was posted before, but by taking over responsibility for drafting the public letter on 340B audit findings, HRSA is taking away covered entities’ opportunity to begin the dialogue with manufacturers on potential repayment.  While this change may seem minor to HRSA (as suggested by its characterization as a “tidbit”), the alteration to the 340B audit process is emblematic of the problem of heightened scrutiny in a constantly shifting environment.

Covered entities with audit findings should work closely with counsel during the audit and post-audit process. Since covered entities will no longer be able to control the public announcement of the audit findings, all stakeholders must work to ensure the audits are executed fairly.

If you find your audit to be abnormal or want more advice on the audit process, please contact our Health Care practice group at Feldesman Tucker Leifer Fidell LLP, www.ftlf.com or 202-466-8960.