Enhancing program integrity

(a) Audits (1) In general Section 340B of the Public Health Service Act (42 U.S.C. 256b) is further amended by adding at the end the following new subsection: (g) Audits by the secretary (1) In general In addition to the audits otherwise authorized under this section, the Secretary may audit covered entities, including the contract pharmacies and child sites of such entities, and manufacturers to assess compliance with requirements under this section, including identifying any statutory violations related to: improperly claiming eligibility for the program under this section, drug diversion, duplicate discounts, use of contract pharmacies, claiming of a discount under this section on a drug that is not a covered outpatient drug purchased under this section, or failing to provide an accurate ceiling price. (2) Standards The Secretary shall conduct audits described in this section in accordance with generally accepted standards, as may be prescribed by the Comptroller General of the United States, and shall make the protocol for such audits publicly available. (3) Requirements The Secretary may not close an audit described in paragraph (1) before a corrective action plan required by the Secretary has been fully implemented, as applicable. (4) 340b vendor information To meet the requirements for submission of information for audits under this clause, covered entities shall contract only with vendors agreeing to— (A) submit data to the Secretary and independent auditors contracting with covered entities necessary to determine the covered entity’s compliance with statutory and regulatory requirements under this program, prohibitions on drug diversion and duplicate discounts, use of contract pharmacies, and claims for discounts on covered outpatient drugs purchased pursuant to agreements under subsection (a)(1); and (B) respond to requests from auditors in a timely manner. (5) Consequences of audit The Secretary shall ensure that, in the case of an audit finding that an entity did not meet one or more of the eligibility criteria for being a covered entity, as defined in subsection (a)(4), the full period under review in an audit, the audit results in consequences that are consistent and appropriate with the violation, which may include disenrollment, and that do not treat the failure to meet eligibility criteria as an issue that can be corrected retroactively. Nothing in this subsection shall be construed to limit the authority of the Secretary to impose any remedy or consequence otherwise available under this Section. (6) Regulations Not later than 1 year after the date of enactment of this paragraph, the Secretary shall promulgate regulations to establish the audit and reporting procedures required by this subsection. (h) Independent audits of covered entities and contract pharmacy locations (1) On a biennial basis, each covered entity shall engage an independent auditor to conduct an audit of the covered entity’s and each of its child site’s and contract pharmacy location’s compliance with this section. The independent auditor shall not— (A) have any direct or indirect financial interest in the covered entity or its contract pharmacy; (B) have any decision-making authority with respect to the covered entity; or (C) intervene with the governance of the covered entity. (2) Upon conclusion of each audit, each covered entity shall— (A) review the methodology used by the auditor to identify the full scope of any noncompliance; (B) identify and fully correct all violations that have been identified in such independent audit of the covered entity; (C) take steps to prevent such violations effectively in the future; (D) specifically disclose to the Secretary— (i) the methodology used by the independent auditor described in subparagraph (A); (ii) the nature and extent of any identified non-compliance; and (iii) steps taken to prevent such violations effectively in the future; (E) assign responsibility to certify the audit results make corrections under subparagraph (B) to a corporate officer of the covered entity; and (F) within a reasonable time period, disclose to the manufacturer of the affected covered outpatient drug any purchase made under the drug discount program under this section that, at the time of the purchase of such drug, did not fully satisfy the requirements of the program. If the aggregate amount owed to a manufacturer as a result of an audit under this subsection exceeds the de minimis threshold established by the Secretary through notice and comment rulemaking, the covered entity shall repay the manufacturer an amount equal to the reduction in the price of the affected drugs, plus interest on such amount calculated using the applicable short-term interest rate determined by the Secretary of the Treasury under section 1274(d) of the Internal Revenue Code of 1986 for the period for which the covered entity is liable. In establishing the de minimis threshold, the Secretary shall consider the administrative costs associated with calculating, processing, and receiving repayments. Amounts may not be divided, allocated, or otherwise structured for the purpose of avoiding the repayment requirement under this subparagraph. (3) Not later than 1 year after the date of enactment of this paragraph, the Secretary shall— (A) promulgate regulations governing how auditors engaged by covered entities under this subsection shall determine whether and to what extent a covered entity is meeting its requirements under this section, including requirements regarding nonprofit status and any contract required under subsection (a)(4)(L)(i), as applicable; and (B) promulgate regulations to establish the audit and reporting procedures required by this subsection.. (2) Additional sanctions authority Section 340B(d)(2)(B) of the Public Health Service Act (42 U.S.C. 256b(d)(2)(B)) is amended— (A) in clause (v)(II), by inserting or where the covered entity fails to implement a corrective action plan relating to a violation involving improperly claiming eligibility for the drug discount program under this section, drug diversion, duplicate discounts, compliance with contract pharmacy requirements, or claiming a discount or rebate on a drug that is not a covered outpatient drug, within 6 months of the Secretary notifying the entity of the requirement for such plan after knowing and intentional,; and (B) by adding at the end the following: (vi) Increasing the frequency of audits conducted for entities previously found to be in violation of requirements of the drug discount program under this section that relate to eligibility, drug diversion, duplicate discounts, compliance with contract pharmacy requirements, or claiming a discount or rebate on a drug that is not a covered outpatient drug, and assigning responsibility for making corrections relating to such a violation to a corporate officer of the entity. (vii) Establishing— (I) a process by which the Secretary provides for proper and timely notification of a potential violation by a covered entity, including the specific basis for the potential violation and the information relied upon by the Secretary in identifying such potential violation; (II) a process for a covered entity to develop, submit, and implement a corrective action plan, subject to approval and monitoring by the Secretary, which shall— (aa) provide two months to submit a corrective action plan following notification of a potential violation under subclause (I); (bb) require the Secretary, not later than 2 months after the date of submission of such plan, to approve the plan or request changes to the plan; and (cc) require such plan to identify the specific basis for the finding of noncompliance and the actions the covered entity will take to correct such noncompliance, prevent recurrence, and demonstrate ongoing compliance; (III) standards for timelines for correction and demonstration of compliance that are reasonable and proportionate to the nature, scope, and severity of the violation, including the extent of any affected claims, the risk of diversion or duplicate discounts, and whether the violation reflects isolated error, repeated conduct, or willful disregard of applicable requirements; (IV) circumstances under which, during the period in which a corrective action plan is in effect, the Secretary may temporarily suspend the covered entity’s eligibility to participate in the drug discount program under this section, if the Secretary determines that such suspension is necessary to protect program integrity, including cases involving willful disregard, repeated or egregious noncompliance, failure to respond to a Secretary-approved audit, or failure to implement a prior corrective action plan; and (V) a process for the Secretary to publicly report, in a de-identified manner, on the types and scope of violations found in audits conducted under this section. (viii) Disenrolling from the program covered entities that fail to implement a corrective action plan and correct violations in accordance with the time frame set forth in the Corrective Action Plan pursuant to the process described in subparagraph (B)(vii), related to any statutory violation of this section. (ix) The imposition of civil monetary penalties, which shall be assessed according to standards established in regulations to be promulgated by the Secretary, for covered entities that knowingly or intentionally continue to contract with third-party administrators or contract pharmacies that are not in compliance with the requirements of subsection (a)(13). (x) Notwithstanding the foregoing, if the Secretary determines that a covered entity has engaged in a pattern of noncompliance, as evidenced by: (1) 3 or more separate final audit reports finding violations of the requirements of this section within a 2-year period, or (2) 5 or more such reports within a 5-year period. The Secretary may take any one or more of the following actions with respect to such repeat noncompliant entity: (A) require the entity to implement an accelerated corrective action plan within a timeframe determined appropriate by the Secretary; (B) impose civil monetary penalties without providing an additional period for corrective action; or (C) remove the entity from the drug discount program under this section and disqualify the entity from re-entry into such program for a period of time determined by the Secretary.. (b) Private non-Profit hospital eligibility based on contracts with state or local governments meeting specified criteria Section 340B(a)(5) of the Public Health Service Act (42 U.S.C. 256b(a)(5)), as amended by the preceding sections, is further amended by adding at the end the following: (E) Private non-profit hospital eligibility based on contracts with state or local governments meeting specified criteria In the case of a hospital, whether registered or seeking to register for the drug discount program under this section as a covered entity described under subparagraph (L), (M), (N), or (O) of paragraph (4), that claims to be eligible for the program by virtue of being a private non-profit hospital that has a contract with a State or local government to provide health care services to low-income individuals who are not eligible for Medicaid or Medicare, the Secretary shall take all of the following steps, each of which shall be documented: (i) Prior to registering or approving annual recertification of such a hospital (or while carrying out any program audit of such a hospital), the Secretary shall obtain and review the hospital’s contract with a State or local government and shall verify and document that— (I) the document provided by the hospital is a contract, in that it is a mutually binding agreement for the hospital to provide health care services or supplies in exchange for something of value; (II) the contract clearly lists the name of the hospital and the unit of State or local government that are parties to the contract and is signed and appropriately dated by appropriate officials of the hospital and the unit of State or local government; (III) the contract specifies an effective date; (IV) the contract clearly is in effect and not expired at the time of registration (or at the time of recertification, in the case of annual recertification, or for the full period examined in an audit, in the case of an audit); and (V) the contract explicitly requires that the hospital provide health care services, and that such services must be provided to individuals who are both low-income and not eligible for either the Medicaid program or the Medicare program. (ii) The Secretary shall verify the existence of contracts meeting the requirements of clause (i) for all covered entities described in this subparagraph and registered as of the date of enactment of this clause by no later than 1 year after the date of enactment of this clause. (iii) The Secretary shall not register or recertify any covered entity described in this subparagraph if the entity’s contract with a State or local government does not satisfy subclauses (I) through (V) of clause (i).. (c) Verification of certain covered entities Section 340B(a)(4)(L)(i) of the Public Health Service Act (42 U.S.C. 256b(a)(4)(L)(i)) is amended by inserting (provided that such a private non-profit hospital annually submits to the Secretary verification of such an active contract with a State or local government and verification of its non-profit status) before the semicolon. (d) Amendment Section 340B(a)(7) of the Public Health Service Act (42 U.S.C. 256b(a)(7)) is amended by inserting at the end the following: (F) Non-profit status The Secretary shall verify the non-profit status of any hospital, whether registered or seeking to register for the drug discount program as a covered entity described under subparagraph (L), (M), (N), or (O) of subsection (a)(4), that claims, in connection with drug discount program registration, annual recertification, or an audit, to meet drug discount program eligibility criteria in part by being a private non-profit hospital. The Secretary shall verify the non-profit status of all such hospitals using reliable publicly available information, such as by matching data reported by hospitals against data from the Internal Revenue Service or from the Centers for Medicare and Medicaid Services on the hospital’s Federal tax status. The Secretary shall verify all registered covered entities described under this section are in compliance with these requirements within one year of the enactment of this subparagraph..