The Health Resources and Services Administration (HRSA) urges 340B drug discount program covered entities to adequately monitor the program compliance of their contract pharmacy partners.[1]  We recently learned that HRSA is sending targeted letters to covered entities affiliated with specific, mail-order pharmacies under contract to the covered entity.  In the letter, HRSA asks the covered entity to explain how 340B-eligible patients are identified at the pharmacy, and to describe how the covered entity oversees the contract pharmacy relationship.  Letters we have seen cite “compliance concerns” at the contract pharmacy as the reason for the inquiry, and give the covered entity very little time to prepare a response.

Such a letter must be taken very seriously.  If you are a covered entity that has received a letter questioning your contract pharmacy oversight, we suggest taking the following steps:

1. Do not ignore the letter. HRSA has the authority to audit covered entities and would be much more likely to audit one that is unresponsive or uncooperative.  Though the contract pharmacy might be to blame for the inquiry, HRSA holds covered entities responsible for any 340B program non-compliance, even one that occurs at a contract pharmacy.[2]  If you cannot respond to the letter in time, you should contact HRSA and obtain an extension.  Not responding at all, even if just to seek an extension is, quite obviously, a red flag for any federal oversight agency.[3]
2. Do not underestimate the potential impact. The letter implicitly is asking you to convince HRSA that 340B drugs are not being diverted to ineligible patients at the contract pharmacy.  If HRSA is not satisfied by the explanation, it might a) hold you accountable for repaying manufacturers for 340B discounts obtained for diverted drugs; b) terminate the contract pharmacy arrangement; or c) take further action, depending on the nature of the non-compliance.
3. Evaluate your processes. Ideally, you are confident that you have implemented a foolproof methodology for determining which contract pharmacy customers are your 340B-eligible patients, and you have conducted sufficient oversight to be confident that the pharmacy is applying it.  Typically, the contract pharmacy or a third-party administrator, not the covered entity, determines eligibility by comparing data from the covered entity and pharmacy.  The outsourcing of eligibility determinations creates risks for the covered entity, though the risks can be mitigated with regular monitoring such as annual independent audits, as HRSA expects, or some other regular intensive oversight.  If you have not monitored your contract pharmacy regularly, there is no time like the present to start.
4. Submit a well-reasoned response. Returning to step 1, you must respond to HRSA.  The fruits of step 3 will help you determine what to say, but you still need to carefully consider how to say it.  Many organizations throw the proverbial “kitchen sink” into their response, answering many more questions than those asked.  This approach detracts from your message and often raises new issues preventing you and HRSA from bringing the matter to closure.  Specific, accurate responses are critical. HRSA might elect to conduct a follow-up on-site visit to verify your response, so ask yourself: “Can I stand behind and prove every word of this response?”

As these letters concern legal requirements and a legal process, you might want to retain an attorney to help you conduct your internal audit and frame your response.  If you have received a letter from HRSA requesting information about a specific 340B contract pharmacy relationship and need assistance evaluating your processes or developing a response, please contact Michael Glomb at mglomb@feldesman.com or 202-466-8960.

[1] See, e.g., HRSA, OPA, Contract Pharmacy Oversight (Feb. 2014), at https://www.hrsa.gov/opa/updates/contractpharmacy02052014.html, and Contract Pharmacies (June 2015), at https://www.hrsa.gov/opa/updates/2015/june.html.

[2] Notice Regarding 340B Drug Pricing Program – Contract Pharmacy Services, 75 Fed. Reg. 10,272, 10,278 (Mar. 5, 2010).

[3] The letters we have seen were sent via e-mail to the covered entity’s Authorizing Official and Primary Contact from a HRSA.gov address.