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340B, Internal Audits and Fable Number 373

I’m willing to bet that very few people know of Fable #373, but most people are familiar with the Aesop Fable known as The Ant and the Grasshopper, and that’s Fable #373 in Perry’s Index

I’m sure some curmudgeons out there (and you know who you are) don’t care about Perry’s Index. Possibly the most curmudgeonly don’t even care about Aesop and his fabled fables. (Personally, I am fonder of Rocky and Bullwinkle’s Fractured Fairy Tales).

But for those who do care, Fable #373 tells the story of an industrious ant who spent summer stocking up supplies for winter, while the irresponsible grasshopper dances the summer away.  Then, when winter hits, the now starving grasshopper begs the ant for food, but is rebuked by the annoyingly superior ant who refuses to donate food and then reportedly tells the grasshopper to ‘dance the winter away’.  What a harsh ant.  Not a socialist bone in his exoskeleton.

As with all Aesop fables, there is a moral to the story. This one is about the virtues of diligence and hard work versus the perils of procrastination and improvidence.


OK:  sometimes these blogs require a lengthy leap to connect the dots. This one is about Internal Audits. Which draw a moderate parallel to Fable #373. Those who Self-Audit tend to survive better.  Those who don’t [fill in the blank __________________].

Those who don’t self audit should consider the wise, old Master in Kung Fu. His name was PO. When Kwai Chang needed enlightenment, Master PO would say “Walk with me, Grasshopper,” then try to impart wisdom while Kwai Chang asked stupid questions.

 In this situation, Master PO would probably say, “Self Audit, Grasshopper, Self Audit.” Or some Yoda-like comment.  Then he would end with something vaguely sage, such as “The seeds of our destiny are nurtured by the roots of our past.” Go figure.

HRSA on Internal Audits. Not only does HRSA say audits are required as part of contract pharmacy oversight, but doing them regularly is just Common Sense. But common sense means different things to different people. David’s Dictionary of Irrelevant Knowledge defines “Common Sense” as that body of knowledge that you know, which you think everyone else also knows. All too often, everyone else does not.

Some audit.  Some procrastinate and plan to audit, eventually.  And, there is an urban legend about a 340B Entity in Hogsmeade who insists that one day the audits will do themselves. When that happens, we promise to do a Blog that links midnight elves, shoe production and puppets to 340B.


Why do internal audits?

  • First, they uncover issues quickly, allowing the CE to not only resolve the issue, but fix the underlying cause before a small issue becomes a major violation.
  • Second, they can show you areas where other compliance issues may prevail, including failures to document. Auditing also uncovers charge issues. The end result includes improvements in many areas.
  • Third, they help avoid a surprise during a HRSA integrity audit, as you’ll know about problems before someone from outside tells you about them, and maybe most important,
  • HRSA insists that, as a minimum, regular audits are performed on your contract pharmacy dispensing as part of the mandatory oversight of contract pharmacies. Common Sense (see definition above) says to audit mixed use as well.
  • Properly planned, internal audits can take less than four hours a month. Call your Comprehensive Pharmacy Services 340B consultant for more advice on this.


Audit the right information! We find some internal audits are worth little as they don’t check the right data.

True Story time.  One of our CE’s pharmacy directors polled other colleagues about the time they took auditing their 340B program each month.  One respondent said “Twenty minutes.”  ‘What,’ she asked, ‘percent do you audit?’  “100%,” he responded.

It turns out that his idea of auditing his records was reading over the monthly report from his Third Party Administrator, then filing it in his internal audit file.  By his calculations, his 340B program was 100% compliant.  I like the analogy comparing this to driving with your eyes closed.  When you run into a problem, it tends to be catastrophic.

You waste time if you perform incomplete audits.  Be certain audits are done appropriately, and on the proper elements. More below.

What and How Many to Audit:

A big question we get all the time is what to audit and how many transactions to audit.  As in any complex situation, the flippant answer is, “It depends.” But in fact, the actual number is not as crucial as how you select the transactions.

Most audit between as few as 10 per ‘universe’ to as many as a few hundred each month.  The proper number for you is somewhere between those two extremes. Again, your Policy and Procedure should become your guide, as well as spelling out the process clearly.

You can be as simplistic as randomly picking 20-30 transactions from your reports, to becoming more sophisticated and doing the following; Use a program such as RAT-STATs to generate random numbers.  Using this random number generator, pick out 20-30 randomized transactions from each ‘universe’ of data at your facility.  At a minimum this needs to include contract pharmacy transactions and a separate audit of mixed use transactions. 

Does HRSA consider 20-30 to be enough? The short answer is Yes.

According to the Office of the Inspector General (OIG), a relatively small number of transactions can adequately test a large set of data.  See the information here.

Review for the following

Check for


Patient Eligibility

Were they an eligible outpatient at the time of Dispense or Administration (depending on your policy)

Provider Eligibility

Was the provider eligible as specified in your P&P?

Drug Eligibility

Was this a ‘Drug’ as defined by HRSA. 2nd – if you are at a facility prohibiting orphan drugs – be sure it’s not an orphan.


Did the prescription come from a registered and eligible child site (if contract RX), or a properly registered child site if mixed use and not within your four walls. Pay particular attention to contract Pharmacy scripts that seem to come from a lab or radiology encounter. It’s more likely the patient got the RX from their doctor’s personal office on the same day they had a lab or radiology test performed.

Eligible Provider

For virtually all Contract Pharmacies, be sure the payer is not Medicaid, or if your state includes MCO’s, not MCO.  For mixed use – does this match your Carve-In or Carve-out status?


One CE we know did a beautiful job of auditing contract pharmacies, then learned during an external audit that an error in the TPA setup allowed contract pharmacy billing to Medicaid. Their otherwise well designed internal audits did not validate the payer, and as such, missed this issue which continued for several months before it was caught and corrected.  Had the internal audit been done properly, the issue could have been resolved in the first month, before the volume became difficult to resolve.

Added Audit Steps

Don’t just look at your transactions.  That is crucial, but a few added steps can provide immense illumination as to the compliance level of your program.

Review your providers, the payers, the specific drugs and the locations.  You can do this in several ways.  The fastest is setting up pivot tables based on the columns for these items, or you can sort your file by the appropriate column and page up and down through the data.

Look for things that don’t belong: A provider you know left six months before, Medicaid on a Contract Pharmacy Transaction, or Medicaid on a mixed use area when you Carve-Out.  Drugs that shouldn’t be there, such as bundled drugs or vaccines.  The few added minutes performing these easy reviews will pay off with 100% compliant audits and transactions. Check with your 340B Consultant for more information on these procedures.

After the Audit

Your staff uncovers a problem in a regular internal audit.  They note this on the audit form and file it away.  Oops.  Be certain your staff knows to alert you or the appropriate manager immediately when an audit issue is found or if there is even a suspicion of a problem.

True story: a 340B Coordinator regularly found RX’s dispensed by their contract pharmacies under the name of a departed provider. The Coordinator noted the problem and stuck the report in the very busy Pharmacy Director’s in-box.  The department secretary took the report and meticulously filed it in the ‘340B Internal Audit’ Notebook.  It was very well organized and very pretty. The department director never saw the reports. It was a communications issue, not a competency issue.

Six months later, an external audit found over four hundred contract pharmacy prescriptions generated at an ineligible physician’s office. The restitution payments were not as expensive as the man-hours required to research and resolve the flaw.

Fix the issue.  Match the incident against your self-disclosure policy to see if it requires self-reporting.  Resolve the issue by understanding the root cause(s) and resolving those. In many cases, catching an issue within a month allows your TPA to simply reverse the item on the mixed use accumulator or reverse the prescription at the contract pharmacy with a process similar to ‘true-up’.  Time frames longer than that may require a lot more planning and work to resolve.  Which serve to emphasize the importance of routine auditing.

Report It

Not only save your reports in a binder (HRSA will ask to see them during their audit), but report your findings in your Oversight Committee on a regular basis.  We know of a few CE’s where the pharmacy uses this as part of their QI program, demonstrating their skill at problem identification and resolution, and gaining TJC points in the process.

Follow a Calendar

In the next few weeks, we’ll publish a blog on what to do when – a calendar based on HRSA suggestions of what to check, and when and how often check it. Don’t just audit transactions, review your providers, your OPA entries, etc.  More to follow.

The Payoff

Following these suggestions pay off big time in high compliance, dramatically reduced (or eliminated) corrective action plans, and perhaps if enough of us follow these suggestions, PhRMA’s complaints about 340B will become completely invalid.

More importantly, your 340B program will perform as you intend, without unpleasant and potentially costly corrective action from missed flaws in the program.

And, we put this last part off to the end for obvious reasons. 

Mark Twain on Procrastination: The Ant Lives to Miss the Grasshopper

Mark Twain once said, “Never put off until tomorrow that which you can do the day after tomorrow”. Watch for our next blog, which will be put off by at least a week.


Posted: Wednesday, June 13, 2018

Tags: 340B, CPS Blog Posts, 340B Audits, HRSA Integrity Audit, CPS, Internal Audits, HRSA Audit