4 Red Flag Issues for 340B Drug Pricing Program Participants

Drug Pricing Program


Participants in the government’s 340B Drug Pricing Program are expected to maintain compliance with program rules at all times. HRSA and drug manufacturers rely on routine audits to ensure compliance is maintained. What could trigger an audit? Any number of things that indicate a covered entity may not be keeping things on track. 

Below are four ‘red flag’ issues that could cause either regulators or drug manufacturers to be suspicious of a covered entity’s 340B program. It is in a covered entity’s best interests to make sure that these red flags are never raised. Expert 340B consultants, like Florida’s Ravin Consultants, are available to work with covered entities to maintain compliance.

1. Inadequate Drug Tracking 

Covered entities are required by program rules to document every drug purchased under the program. They must also document who those drugs are ultimately dispensed to and who dispenses them. Not keeping accurate records is a big red flag to both HRSA and drug manufacturers. 

The need to adequately track drugs is even more critical now that the question of who constitutes an eligible patient is being litigated. In addition, it must be understood that the 340B Drug Pricing Program covers outpatient drugs only. Covered entities must demonstrate that none of the drugs they purchase under the program are being used for inpatient care.

2. Excessive Contract Pharmacies 

Although courts have forced the HRSA to loosen up on its restrictions governing contract pharmacies, a covered entity having too many contract pharmacies working underneath it is a cause for suspicion. As a general rule, regulators find it difficult to believe that a covered entity can properly manage more than five contract pharmacies at a time. So having ten pharmacies underneath a covered entity raises suspicion. 

Note that covered entities are required to oversee their contract pharmacies for 340B purposes. Drug manufacturers tend to be very wary of contract pharmacies to whom they must sell drugs directly. It is all the more important for covered entities to keep track of said pharmacies.

3. Inadequate Pharmacy Oversight 

Under the law, a contract pharmacy is an agent of the covered entity. The entity is ultimately held responsible for all compliance issues – including those involving a contract pharmacy. What does all this mean? It means that covered entities must provide oversight of their contract pharmacies in order to ensure compliance.

 Inadequate pharmacy oversight is another red flag. It is not uncommon for manufacturers with questions about oversight to request government audits. They have every right to under the law.

4. Failure to Report All Child Sites 

Covered entities can access discounted drugs for separate facilities that may or may not be located on the same physical property. These additional locations are known as child sites. Every child site a covered entity wants to include in its drug program must be registered. Child sites must be reported every year when a covered entity renews its participation. 

A failure to report all child sites is likely to trigger an audit. Child sights are tricky because there is some ambiguity in defining them. Therefore, it is better to err on the side of caution. The last thing a covered entity wants to do is leave child sights off when registering and reporting. 

The four red flags discussed in this post are known to trigger suspicions among both government regulators and drug manufacturers. In order to avoid audits or any questions of compliance, covered entities would do well to keep an eye on all of them. Maintaining a program of the highest integrity is the best way to keep auditors away.

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