Why 340B Covered Entities Should Take Annual Audits Seriously?

Congress came up with the 340B Drug Discount Program in 1992 as a way to ostensibly improve healthcare access among low-income and uninsured patients. The program helps patients directly through lower drug prices while helping healthcare providers through cost savings on the prescription drugs they purchase. Providers are supposed to reinvest what they save in improving healthcare access among the poor and uninsured.

To make sure that healthcare providers are complying with all the program’s rules, annual audits are conducted. More importantly, The Health Resources and Services Administration (HRSA) doesn’t audit only providers. It also audits drug manufacturers.

Program providers, also known as covered entities (CEs), often contract with companies like Florida-based Ravin Consultants to conduct HRSA mock audits in advance of the real thing. Mock audits uncover potential problems that need to be addressed as quickly as possible. There is no doubt that the genuine audits conducted by the HRSA are serious business.

Two Purposes for Auditing

The HRSA has legal authority to conduct audits as it sees fit. There are two main reasons for auditing CEs and drug manufacturers:

  1. To ensure that CEs are still eligible to remain in the program.
  2. To guarantee that both CEs and drug manufacturers are abiding by all program rules.

It is in the best interests of each CE to make sure all its T’s are crossed and I’s dotted in advance of an HRSA audit. Otherwise, program eligibility could be in jeopardy. A CE that loses its eligibility status no longer has access to the discounted drugs on which the 340B program is built.

An Audit in Two Phases

According to the HRSA website, CE audits can be conducted by either the government or drug manufacturers for the purposes of ensuring program compliance. Why would the government give drug manufacturers such authority? Because the companies stand to receive financial reimbursements if it is discovered that a CE has not been abiding by the rules.

It is worth noting that an HRSA audit is conducted in two phases. The first phase is the pre-audit phase in which the HRSA or its contracted representative contacts the CE to set up an initial meeting. That meeting can be conducted remotely or on-site.

The purpose of the initial meeting is to gather documentation and inform the CE of what to expect throughout the audit process. Monitors also work with the CE to set up dates for future meetings during which they will go through documentation with CE representatives. Those subsequent meetings constitute the second phase.

Audit Procedures Are Extensive

Ravin Consultants explains that HRSA audit procedures are rather extensive. At a minimum, auditors must:

  • Review CE policies and procedures.
  • Verify continued eligibility.
  • Verify internal controls designed to ensure compliance.
  • Review compliance over the audit period.
  • Test 340B drug transaction records.

Auditors will ultimately make their final recommendations based on the documentation they have to work with. This is why CEs undertake mock audits. They need to know they have the proper documentation to support their actions under the 340B program. Without proper documentation, they cannot prove either eligibility or compliance.

As Serious As It Gets

Despite a lack of transparency within the 340B program, HRSA audits are as serious as it gets for CEs. The audit represents that moment when the proverbial rubber meets the road. If an audit ends up not being good for a CE, the organization does have time to respond and take remedial action. Nonetheless, that doesn’t change the fact that a negative outcome could mean being removed from the program and having to pay back drug company discounts.