1. 340B Drug Discount Program 2013 May 16, 2013 May 16, 2013 1

2. Agenda 340B Program Overview 340B Program Overview Covered Entities Covered Entities Covered Drugs Covered Drugs Covered Patients Covered Patients Why HRSA Audits Why HRSA Audits How to Prepare for HRSA Audit How to Prepare for HRSA Audit Questions/Answers Questions/Answers 2

3. 340B Overview The 340B drug discount program is a section of the Veterans Health Care Act of 1992, which requires pharmaceutical manufacturers whose drugs are covered by Medicaid to provide discounts on outpatient covered drugs purchased by 340B covered entities The 340B drug discount program is a section of the Veterans Health Care Act of 1992, which requires pharmaceutical manufacturers whose drugs are covered by Medicaid to provide discounts on outpatient covered drugs purchased by 340B covered entities Covered entities can receive discounts based on the utilization of pharmaceuticals by covered outpatients. Retrospective procurement is used to realize the discounts based on this utilization Covered entities can receive discounts based on the utilization of pharmaceuticals by covered outpatients. Retrospective procurement is used to realize the discounts based on this utilization The program is administered by the Office of Pharmacy Affairs (OPA). The OPA and drug manufacturers have the right to conduct compliance audits of participating facilities. A clear audit trail must be created to remain in compliance with the regulations of the program The program is administered by the Office of Pharmacy Affairs (OPA). The OPA and drug manufacturers have the right to conduct compliance audits of participating facilities. A clear audit trail must be created to remain in compliance with the regulations of the program The purpose of the 340B program is to enable covered entities to stretch scarce federal resources, reaching more eligible patients and providing more comprehensive services The purpose of the 340B program is to enable covered entities to stretch scarce federal resources, reaching more eligible patients and providing more comprehensive services Estimated savings are 25%-50% of a drug’s average wholesale price (AWP) Estimated savings are 25%-50% of a drug’s average wholesale price (AWP) Approximately $6 billion in 340B purchases in 2010 Approximately $6 billion in 340B purchases in 2010 3

4. 340B Program Implementation Hospitals must file application for 340B status with the Office of Pharmacy Affairs (OPA) Hospitals must file application for 340B status with the Office of Pharmacy Affairs (OPA) Separate 340B account (s) is established with existing drug wholesaler Separate 340B account (s) is established with existing drug wholesaler Purchasing system remains the same Purchasing system remains the same New account contains 340B prices (“Cost Minus” is applied to 340B purchases) New account contains 340B prices (“Cost Minus” is applied to 340B purchases) Wholesaler delivers drugs from both purchase orders (separate invoices for each account) Wholesaler delivers drugs from both purchase orders (separate invoices for each account) Drugs purchased direct from manufacturer can be obtained at 340B prices Drugs purchased direct from manufacturer can be obtained at 340B prices Annual recertification is required of all participating 340B covered entities. Annual recertification is required of all participating 340B covered entities. 4

5. 340B Inventory Virtual Inventory Process 5

6. Hospital Covered Entities 6

7. Other Covered Entities Federally Qualified Health Centers Federally Qualified Health Centers Federally Qualified Health Center Look-Alikes Federally Qualified Health Center Look-Alikes Black Lung Clinics Black Lung Clinics Ryan White HIV/AIDS Program Grantees Ryan White HIV/AIDS Program Grantees Native Hawaiian Health Centers Native Hawaiian Health Centers Tribal/Urban Indian Health Centers Tribal/Urban Indian Health Centers Comprehensive Hemophilia Diagnostic Treatment Centers Comprehensive Hemophilia Diagnostic Treatment Centers Title X Family Planning Clinics Title X Family Planning Clinics Sexually Transmitted Disease Clinics Sexually Transmitted Disease Clinics Tuberculosis Clinics Tuberculosis Clinics 7

8. HRSA Clarification of Hospital Covered Entity Based on 1994 guidance, any outpatient facility which is an integral component of a DSH will be included on the Medicare Cost Report and therefore eligible for 340B pricing Based on 1994 guidance, any outpatient facility which is an integral component of a DSH will be included on the Medicare Cost Report and therefore eligible for 340B pricing Included means: Included means: HRSA = As-filed cost report HRSA = As-filed cost report Federal Register language = included on the Medicare cost report Federal Register language = included on the Medicare cost report Statutory language = hospital and patient of entity Statutory language = hospital and patient of entity 8

9. Covered Drugs Program covers only covered entity’s outpatient drugs: Program covers only covered entity’s outpatient drugs: FDA-approved prescription drug FDA-approved prescription drug Prescribed OTC drug Prescribed OTC drug Biological drugs that can be dispensed only by prescription Biological drugs that can be dispensed only by prescription FDA-approved insulin FDA-approved insulin Excludes vaccines Excludes vaccines Orphan drug exclusion and proposed regulations Orphan drug exclusion and proposed regulations Permitting orphan drug purchases on 340B for patients treated for a non-orphan disease (i.e. Remicaide for use with rheumatoid arthritis) Permitting orphan drug purchases on 340B for patients treated for a non-orphan disease (i.e. Remicaide for use with rheumatoid arthritis) Prohibiting orphan drug purchases on 340B for patients treated for the orphan disease (i.e. Remicaide for Chrohn’s disease) Prohibiting orphan drug purchases on 340B for patients treated for the orphan disease (i.e. Remicaide for Chrohn’s disease) 9

10. Patient Definition Overview 1996 – Final guidance of a patient 1996 – Final guidance of a patient 2007 – Proposed revisions to definition 2007 – Proposed revisions to definition July 18, 2012 – Members of Congress ask HRSA for further clarification on definition of eligible patient July 18, 2012 – Members of Congress ask HRSA for further clarification on definition of eligible patient Program isn’t limited to Medicare, Medicaid or low income patients Program isn’t limited to Medicare, Medicaid or low income patients Any patient of covered entity may received covered OP drugs purchased under the 340B program Any patient of covered entity may received covered OP drugs purchased under the 340B program Patient must be treated at a facility that is provider- based to the covered entity. All new sites must be enrolled with OPA Patient must be treated at a facility that is provider- based to the covered entity. All new sites must be enrolled with OPA 10

11. Definition of a Patient An individual is a patient of the 340B covered entity if: The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual's health care; and The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual's health care; and The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity; and The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or Federally-qualified health center look-alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement. The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or Federally-qualified health center look-alike status has been provided to the entity. Disproportionate share hospitals are exempt from this requirement. If all 3 requirements are not met, the person is not eligible for 340B drugs If all 3 requirements are not met, the person is not eligible for 340B drugs An individual will not be considered a patient of the covered entity if the only health care services received by the individual is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting An individual will not be considered a patient of the covered entity if the only health care services received by the individual is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting 11

12. GPO Exclusion Can a 340B hospital that is subject to the group purchasing organization (GPO) prohibition (Disproportionate Share Hospital, Children's Hospitals, Free Standing Cancer Hospitals) continue to purchase items from a GPO that are at a lower cost than 340B pricing? Answer Answer Answer Hospitals that participate in the 340B Program for covered outpatient drugs and are subject to the GPO prohibition cannot purchase any covered outpatient drugs through a group purchasing organization or other group purchasing arrangement Hospitals that participate in the 340B Program for covered outpatient drugs and are subject to the GPO prohibition cannot purchase any covered outpatient drugs through a group purchasing organization or other group purchasing arrangement This “GPO prohibition” is found in the 340B statute, at section 340B(a)(4)(L) and applies even if items are available at a lower price through the GPO This “GPO prohibition” is found in the 340B statute, at section 340B(a)(4)(L) and applies even if items are available at a lower price through the GPO Hospitals can continue to purchase all products for inpatient operations through a GPO, even if the outpatient departments participate in the 340B Program Hospitals can continue to purchase all products for inpatient operations through a GPO, even if the outpatient departments participate in the 340B Program 12

13. Hospital Covered Entities Summary 13

14. GPO Exclusion 14

15. Medicaid Billing: Carve in/Carve out HRSA guidelines allow covered entities to comply with the statute in different ways: HRSA guidelines allow covered entities to comply with the statute in different ways: Bill Medicaid at acquisition cost plus the state allowable dispensing fee and the state does not request a rebate (“Carve In”) Bill Medicaid at acquisition cost plus the state allowable dispensing fee and the state does not request a rebate (“Carve In”) “Carve out” Medicaid drugs from 340B program and allow state to collect rebates “Carve out” Medicaid drugs from 340B program and allow state to collect rebates Follow state guidelines for applicable billing limits Follow state guidelines for applicable billing limits Covered entities are responsible for working with their state Medicaid agency to ensure that the agency can identify drugs purchased through the 340B program and avoid obtaining rebates on those drugs Covered entities are responsible for working with their state Medicaid agency to ensure that the agency can identify drugs purchased through the 340B program and avoid obtaining rebates on those drugs 15

16. Contract Pharmacies No distance or proximity limitation No distance or proximity limitation No longer a limit on number of contract pharmacy arrangements No longer a limit on number of contract pharmacy arrangements Covered entity responsibility to comply, this is important to remember for contract pharmacy arrangements Covered entity responsibility to comply, this is important to remember for contract pharmacy arrangements Challenges: Challenges: Diversion tracking Diversion tracking Audits & records Audits & records Discount Management and tracking Discount Management and tracking Data exchange Data exchange Inventory management Inventory management Business terms (payment risk, dispensing fees Business terms (payment risk, dispensing fees Advertising/marketing approval Advertising/marketing approval 16

17. Contract Pharmacy Audit Requirements All covered entities are required to maintain auditable records All covered entities are required to maintain auditable records Expected to conduct annual audits of contract pharmacies Expected to conduct annual audits of contract pharmacies To be performed by an independent outside auditor as a way to fulfill their ongoing obligation of compliance To be performed by an independent outside auditor as a way to fulfill their ongoing obligation of compliance To the extent that any compliance activity or audit performed by a covered entity indicates that there has been a violation of 340B Program requirements, such finding should be disclosed to HRSA along with the covered entity's plan to address the violation To the extent that any compliance activity or audit performed by a covered entity indicates that there has been a violation of 340B Program requirements, such finding should be disclosed to HRSA along with the covered entity's plan to address the violation 17

18. WHY HRSA AUDITS? 18

19. Covered Entity Growth 19

20. Increased Scrutiny Continued 20 Letter to HRSA on July 18, 2012 Letter to HRSA on July 18, 2012 Letter to UAB on May 10, 2012 Letter to UAB on May 10, 2012

21. HRSA 340B Integrity Audits Nearly 20 years after creation of 340B, HRSA exercising authority to audit covered entities. On February 10, 2012, 340B participants received notice from HRSA that audits would occur Nearly 20 years after creation of 340B, HRSA exercising authority to audit covered entities. On February 10, 2012, 340B participants received notice from HRSA that audits would occur HRSA had been under pressure from Congress and federal oversight groups to prove that only those parties eligible for the program’s benefits receive them HRSA had been under pressure from Congress and federal oversight groups to prove that only those parties eligible for the program’s benefits receive them According to HRSA, they will make its audit results public after the agency ensures its methods are consistent and audited entities have an opportunity to respond to the findings According to HRSA, they will make its audit results public after the agency ensures its methods are consistent and audited entities have an opportunity to respond to the findings Focused compliance problems: Focused compliance problems: Diversion – Refers to a covered entity providing drugs bought through the 340B program to people not eligible for the program’s prices. Diversion – Refers to a covered entity providing drugs bought through the 340B program to people not eligible for the program’s prices. Duplicate Discounts – These occur when a state obtains Medicaid rebates for a drug that a covered entity bought through the 340B program. Duplicate Discounts – These occur when a state obtains Medicaid rebates for a drug that a covered entity bought through the 340B program. Group Purchasing Organization (GPO) prohibition Group Purchasing Organization (GPO) prohibition 21

22. 340B Audits According to Safety Net Hospitals for Pharmaceutical Access, HRSA has already completed 51 audits, most involving hospitals According to Safety Net Hospitals for Pharmaceutical Access, HRSA has already completed 51 audits, most involving hospitals HRSA has planned as many as 400 for 2013 HRSA has planned as many as 400 for 2013 2012 audits included covered entities that included hospitals and retail pharmacies 2012 audits included covered entities that included hospitals and retail pharmacies The audits will include pharmacy contracts between 340B covered entity and any outside pharmacy The audits will include pharmacy contracts between 340B covered entity and any outside pharmacy 2013 and forward: 2013 and forward: Easily retrievable data Easily retrievable data All covered entities audited in the future All covered entities audited in the future Regulations will be tightened, not sure when Regulations will be tightened, not sure when 22

23. Audit Process According to HRSA, the first question asked is, “Do you have policies and procedures in place to define who is and who is not a patient?” According to HRSA, the first question asked is, “Do you have policies and procedures in place to define who is and who is not a patient?” Required standard information in pharmacy data file, such as: Required standard information in pharmacy data file, such as: Prescriber Prescriber Patient Patient NDC number NDC number Fill date Fill date Billing amount Billing amount Acquisition cost Acquisition cost Encounter dates Encounter dates 23

24. HRSA Audit Example Timeline 2/4/13 - Email from HRSA Director informing Pharmacist in Charge of the audit 2/4/13 - Email from HRSA Director informing Pharmacist in Charge of the audit 2/8/13 - Email from auditor to make arrangements for 2/8/13 - Email from auditor to make arrangements for on-site visit on 2/28-3/1/13 2/9/13 - Email with data requests forwarded to Director of Pharmacy and Pharmacist in Charge 2/9/13 - Email with data requests forwarded to Director of Pharmacy and Pharmacist in Charge 2/11/13 - Received site visit agenda from auditor 2/11/13 - Received site visit agenda from auditor 2/15/13 - Conference call with both auditors to review data requests (request electronic files by 2/18/13) 2/15/13 - Conference call with both auditors to review data requests (request electronic files by 2/18/13) 2/28-3/1/13 - HRSA On site visit 2/28-3/1/13 - HRSA On site visit 3/15/13 - Exit conference call 3/15/13 - Exit conference call 24

25. Audit Sample Small number of encounters sampled Small number of encounters sampled Selected from recent 6 months Selected from recent 6 months 28 – 50 encounters 28 – 50 encounters Prescription Number Prescription Number NDC NDC Product Name Product Name Quantity dispensed Quantity dispensed Date prescription written Date prescription written Date prescription filled Date prescription filled Provider name Provider name NPI NPI Patient name Patient name Medical record number/Patient ID number Medical record number/Patient ID number Payer Payer The wholesale price paid (acquisition price) The wholesale price paid (acquisition price) The amount billed for the drug The amount billed for the drug The amount actually paid by the payer and patient The amount actually paid by the payer and patient 25

26. Findings/Penalties According to March 5, 2012 program release, findings may be referred to the Office of Inspector General or the U.S. Department of Justice According to March 5, 2012 program release, findings may be referred to the Office of Inspector General or the U.S. Department of Justice On February 8, 2013 HRSA has released a document by hospital with OPA findings, Sanction and Corrective Action with Completion Date On February 8, 2013 HRSA has released a document by hospital with OPA findings, Sanction and Corrective Action with Completion Date The file is very basic and states that information on corrective action plans will be updated once approved by HRSA. The file is very basic and states that information on corrective action plans will be updated once approved by HRSA. 26

27. Audit Tips Conduct mock audits Conduct mock audits Develop effective policies and procedures Develop effective policies and procedures Patient eligibility Patient eligibility Duplicate discounts Duplicate discounts Appropriate Medicaid billing Appropriate Medicaid billing Create 340B task force for program oversight Create 340B task force for program oversight Multidisciplinary: Representation from pharmacy, administration, legal and finance Multidisciplinary: Representation from pharmacy, administration, legal and finance Group should meet periodically to review organizations operations against the 340B program standards and opinion letters Group should meet periodically to review organizations operations against the 340B program standards and opinion letters Keep current on developments/updates Keep current on developments/updates Be prepared for 340B integrity audit Be prepared for 340B integrity audit Risk Assessment Risk Assessment HRSA Website http://www.hrsa.gov/opa/ http://www.hrsa.gov/opa/ http://www.hrsa.gov/opa/ http://www.hrsa.gov/opa/faqs/index.html 27

28. How can Arnett Foster Toothman help? 28 Arnett Foster Toothman has assisted multiple clients with 340B mock audits, pharmacy policy and procedure compliance assistance and 340B benefit calculations Arnett Foster Toothman has assisted multiple clients with 340B mock audits, pharmacy policy and procedure compliance assistance and 340B benefit calculations Conduct a mock HRSA 340B Integrity audit Conduct a mock HRSA 340B Integrity audit Review of policies and procedures regarding the procurement, inventory, distribution, dispensing, and billing for covered outpatient drugs Review of policies and procedures regarding the procurement, inventory, distribution, dispensing, and billing for covered outpatient drugs Documentation of internal controls applicable to the policies and procedures identified above Documentation of internal controls applicable to the policies and procedures identified above Review of policies and procedures to prevent the resale or transfer of drugs to a person or persons who are not patients of the covered entity Review of policies and procedures to prevent the resale or transfer of drugs to a person or persons who are not patients of the covered entity Review records of drug procurement and distribution and test whether hospital has obtained a discount only for those programs authorized to receive discounts by section 340B of the PHS Act Review records of drug procurement and distribution and test whether hospital has obtained a discount only for those programs authorized to receive discounts by section 340B of the PHS Act Arnett Foster Toothman follows HRSA data request and audit protocol in order to mock actual HRSA Integrity Audit Arnett Foster Toothman follows HRSA data request and audit protocol in order to mock actual HRSA Integrity Audit This will provide the organization with a corrective plan of action, if necessary, and readiness when the actual HRSA audit occurs This will provide the organization with a corrective plan of action, if necessary, and readiness when the actual HRSA audit occurs

29. Q&A 29 Questions ?

30. Thank You! Brenda Christman, Member Arnett Foster Toothman PLLC 155 E Broad Street, Suite 2100 Columbus, OH 43215 614-223-9209brenda.christman@afnetwork.com Brian Bell, Manager Arnett Foster Toothman PLLC 155 E Broad Street, Suite 2100 Columbus, OH 43215 614-223-9209brian.bell@afnetwork.com 30