Todd A. Nova (tnova@hallrender.com) and T. James Junger (jjunger@hallrender.com) are Attorneys in the Milwaukee office of Hall Render Killian Heath & Lyman. Lauren M. Harris (lauren.harris@leehealth.org) is an Associate Attorney at Lee Health in Fort Myers, FL.
Federally Qualified Health Centers (FQHC) are a crucial component of the nation’s healthcare safety net, providing structured access to primary and specialty care in underserved communities. Operating an FQHC is a uniquely challenging endeavor. FQHCs are eligible for numerous federal and state benefits, such as grant funding under Section 330 of the Public Health Service Act, discounted drug pricing under the 340B Drug Discount Program (340B Program), enhanced Medicare payment under the Centers for Medicare & Medicaid Services (CMS) FQHC Prospective Payment System, cost-based reimbursement under the Medicaid program, protections from Anti-Kickback Statute restrictions, and access to various federal and state practitioner recruitment programs. Of course, in exchange for access to these benefits, an FQHC agrees to comply with a wide array of statutory and regulatory obligations.
This article describes contemporary hot topics in FQHC compliance with the goal of helping FQHC executives and compliance professionals update their compliance work plans to identify potential trouble spots before they develop into significant compliance concerns. Each section describes practical steps that a compliance professional can take to address these concerns.
340B Drug Discount Program
FQHCs can secure substantial savings on prescription drugs provided to patients in the office and through third-party retail pharmacies by enrolling in the 340B Program,[1] but doing so carries with it significant compliance obligations. One common challenge to 340B Program compliance is that oftentimes, shifts in program compliance are communicated through nonpublic audit findings rather than publicly available resources. Compliance professionals should be aware of three particular issues that have become prevalent in recent years: tracking of drugs purchased under the 340B Program; enrollment of FQHC-affiliated pharmacies; and ensuring that patients referred to other providers, through FQHC referral arrangements or otherwise, are appropriately accounted for.
A full description of the 340B Program is outside the scope of this article, but certain key concepts are important to the discussion that follows. Under the 340B Program, safety net providers such as FQHCs are eligible to purchase certain drugs at a significant discount. Participation in the 340B Program is elective, and entities that participate (called “covered entities”) are required to attest to 340B Program compliance on an annual basis. 340B covered entity status does not encompass all of a participating provider’s operations; instead, a covered entity is only permitted to dispense covered outpatient drugs[2] to eligible patients.[3] Dispensing or transferring a 340B-purchased drug to any other person or entity is considered diversion, which can lead to significant penalties for the FQHC.
Diversion and floor stock
In recent years, some FQHCs participating in the 340B Program have struggled to document that “floor stock” (i.e., drugs that are stored outside of a central licensed pharmacy) has been administered to FQHC-eligible patients. Although it would stand to reason that all floor stock in an FQHC would be eligible for 340B discounts when administered as part of an FQHC visit, the Health Resources and Services Administration Office of Pharmacy Affairs (HRSA OPA), which oversees 340B Program compliance, has recently required FQHCs to be able to tie specific drug purchases and administrations/dispensations to specific episodes of care as documented in the patients’ medical records. Of course, this is more complicated and important in the setting where an FQHC is co-located with non-FQHC operations.
As a result, covered entities must establish a system to keep track of their inventories of 340B drugs and refrain from dispensing 340B drugs to ineligible patients. The practice of stocking drugs away from a central pharmacy is not itself a violation of 340B Program guidance, but a decentralized system may make it difficult for an FQHC to keep track of 340B inventory. This is especially true where the FQHC maintains a separate physical inventory of 340B drugs, because clinical employees must understand the distinction between 340B and non-340B inventories and have appropriate guidance in determining which to use. This process may be made easier through the use of a virtual inventory system, where the FQHC dispenses drugs from a central stock, then determines whether to replenish the stock under the 340B Program based on the characteristics of the dispensing event, such as the identity of the patient, the eligibility of the drug for inclusion in the 340B Program, and whether the 340B price is the best price available to the FQHC. However, although a software-based virtual inventory may make it easier to track floor stock, inventory control is still crucial, because a virtual inventory system relies on accurate data to identify the patient who receives a drug.
Contract pharmacy and referral partner relationships
FQHC compliance professionals should also be aware of issues that can arise in relationships with affiliated pharmacies. In many cases, an FQHC will wish to dispense its own 340B covered drugs through a separately licensed pharmacy owned by another entity, including both pharmacies located within the four walls of the FQHC and for-profit retail pharmacies located outside of the FQHC. HRSA permits this practice, provided that the relationship between the covered entity and the contract pharmacy is appropriately documented, and the covered entity records the relationship in the HRSA 340B database.
It is common for a retail pharmacy to have a 340B contract pharmacy relationship with a number of 340B covered entities. When this happens, it is often the case that a single patient will qualify as a patient of more than one 340B covered entity, so it can be unclear which entity’s virtual stock is used to supply the patient with their prescription.
Additionally, as described in further detail below, FQHCs are required to provide a pre-defined slate of primary services to their patients. An FQHC can meet this obligation by providing care through employed providers, through providers under contract with the FQHC, or through formal referral arrangements. A patient who receives care from an FQHC-employed provider as part of an eligible on-site visit will typically be an eligible patient of the FQHC.[4] However, when the provider is employed by a different 340B covered entity, the FQHC must consider the relationships between itself, the provider, and the patient to determine whether it may dispense drugs to the patient from its 340B inventory through a contract pharmacy arrangement. It is possible that the patient will be an eligible patient with respect to both the FQHC and the other provider. Additionally, complications can arise when the patient decides to fill their prescriptions with a pharmacy that has a contract pharmacy relationship with both the FQHC and the contracted provider’s employer.
Steps for compliance professionals
Compliance professionals can help their FQHCs by including a review of floor stock practices and contract pharmacy relationships in their work plans. With respect to tracking of 340B-purchased drugs, activities could include a review of applicable policies, audits of records, and conversationswith staff to determine if drugs that are stocked away from the central pharmacy can be attributed to 340B eligible patients. Additionally, if the FQHC keeps separate physical inventories of 340B and non-340B drugs, the compliance professional should consider reviewing the guidelines that are used by staff responsible for choosing which inventory to use when a drug is dispensed. Spot checks may also be conducted to determine if the FQHC is able to determine the source of particular drugs. For FQHCs that maintain virtual 340B inventories, compliance professionals can audit clinicians’ records to ensure that patients who received floor stock drugs can be reliably identified.
With respect to contract pharmacy relationships, compliance professionals should consider reviewing the licensure status of pharmacies operating within the FQHC. If the pharmacy is owned by a different entity or is separately licensed and maintains a retail pharmacy permit, the compliance professional can review the FQHC’s enrollment records in the HRSA 340B database[5] to determine if the pharmacy is appropriately listed as a contract pharmacy and also that a compliant 340B contract pharmacy agreement is in place.[6]
Compliance officers should consider reviewing the agreements between the FQHC and its contract pharmacies and ensuring that contract pharmacies are complying with recordkeeping, diversion, and other operational requirements. If the FQHC has contract pharmacy relationships with retail pharmacies, it is often the case that a pharmacy will also be a contract pharmacy for other 340B covered entities. In this case, the compliance professional should consider reviewing both the contract pharmacy agreement and the referral agreement to determine if 340B patient attribution is addressed in a way that can be (and actually is) implemented by each entity’s workforce.
Notably, when patient attribution is appropriately addressed in a contract pharmacy’s agreements with 340B covered entities, each covered entity may see decreased 340B Program volume, because each dispensed prescription will count only one time for a single provider. However, 340B Program compliance is crucial to continued eligibility to participate in the program. 340B covered entities are ultimately responsible for compliance with HRSA guidelines, so it is incumbent upon them to ensure that contract pharmacies and other affiliates are abiding by 340B Program requirements.
Patient referrals
Patient referrals continue to be an area of concern for providers participating in the federal healthcare programs, and for good reason: The fraud and abuse laws generally prohibit anyone from paying for a referral of federal healthcare program business. Although FQHCs must abide by these restrictions, they face an additional complication not present elsewhere: Section 330 of the Public Health Service Act requires FQHCs to refer patients to other providers, including specialists and providers of substance use disorder and mental health services, as part of the health center’s required primary care services.[7] FQHCs are also required to develop ongoing referral arrangements with one or more hospitals.[8] These requirements create unique challenges for FQHC compliance professionals.
Referral arrangement requirements
HRSA expects that FQHCs will enter into formal referral arrangements with other providers, and it has outlined key considerations for these relationships in its Health Center Program Compliance Manual (Compliance Manual).[9] However, the Compliance Manual deals mostly with the laws that HRSA administers, and its discussion of referral arrangements does not address other authorities that the FQHC must abide by, such as the fraud and abuse laws and HIPAA. Most of the potential concerns under the fraud and abuse laws can be addressed by ensuring that a referral arrangement does not require the referral partner to pay the FQHC for referrals, that remuneration is fair market value, or that the FQHC Safe Harbor elements at 42 C.F.R. § 1001.952(w) are met and documented if the FQHC receives a Section 330 grant, but HIPAA compliance can present significant issues.
Handling protected health information
Recently, FQHCs have encountered difficulties when referral partners use FQHC patients’ protected health information (PHI) for purposes that require patient consent, such as marketing. FQHCs should ensure that their referral arrangements establish a compliant system for handling PHI. HIPAA and its attendant regulations allow HIPAA covered entities to share information with other providers for payment and treatment purposes without obtaining patient consent,[10] but consent is required before the covered entity can use or disclose PHI for marketing activities.[11] A covered entity will often ask a patient for consent as part of the intake process, but that consent will typically not authorize a referral partner to use PHI for marketing.
In that light, issues can arise when an FQHC transfers patient information to a referral partner, especially when the patient ultimately chooses not to obtain services from the partner. The referral partner provider will have access to the FQHC patient’s PHI, but will typically not have an opportunity to obtain the patient’s consent to use that PHI for purposes such as marketing. The FQHC should be confident that the referral partner has appropriate internal controls in place to ensure that the PHI is not used for any purposes requiring patient consent.
Steps for compliance professionals
FQHC compliance professionals should consider including a review of their organization’s referral relationships in their compliance work plans. Pursuant to the Compliance Manual, each referral arrangement should address how referrals will be managed and the process for tracking and referring patients back to the health center for appropriate follow-up care.[12] When assessing fraud and abuse compliance, FQHC compliance professionals should consider not only the referral arrangement, but also all aspects of the financial relationship between the health center and a referral partner. Additionally, referral arrangements should address the referral partner’s appropriate use of PHI and establish expectations for handling PHI of FQHC patients who do not ultimately seek care from the referral partner. In light of HIPAA’s extensive rules regarding patient authorizations, including the general prohibition on compound authorizations, FQHC compliance professionals should be wary of addressing this issue by obtaining a patient’s consent on behalf of the referral partner.
Commingling of FQHC and non-FQHC resources
In 2018, the Centers for Medicare & Medicaid Services (CMS) updated its policy addressing commingling, defined as the sharing of resources between an FQHC and independent Medicare Part B or Medicaid fee-for-service practice that operates out of the same location.[13] CMS generally prohibits commingling as a means of preventing providers from filing duplicate claims or selectively choosing between reimbursement rates that could be available under the FQHC Prospective Payment System as opposed to the Medicare Physician Fee Schedule.[14] To compliance professionals who work with hospitals, the commingling standards will be somewhat familiar, because similar restrictions exist for provider-based hospital departments. As described below, though, the FQHC commingling requirements are both more definite and more flexible than CMS’s stance on colocation of provider-based departments.
Provider-based restrictions: A comparator
One of the difficulties that hospital executives and compliance professionals face in implementing CMS’s restrictions on collocated provider-based departments is that all applicable restrictions are not clearly established in formal policy guidance. As industry groups have noted, this lack of clear guidance has led to significant confusion; in some cases, hospitals have unwound existing collocation and shared services agreements.[15] Despite the lack of published guidance, many commentators have noted that hospitals have been held accountable to these standards when, for example, submitting provider-based attestations.[16] Typically, hospitals are advised to maintain separate, dedicated physical space from any providers operating in the same facility, not to share resources such as registration staff, and to ensure that the provider-based space is not used for other purposes when the department is closed.
Commingling requirements
In contrast to CMS’s approach to provider-based collocation requirements, the FQHC commingling restrictions are established in the Medicare Benefit Policy Manual.[17] In short, they prohibit a provider who receives compensation from an FQHC for professional services from furnishing or separately billing for FQHC-covered services as a Part B provider in the FQHC’s space, or in an area outside of the certified FQHC (such as a treatment room adjacent to the FQHC) during the FQHC’s hours of operation.[18] Applying these restrictions becomes complicated in practice when an FQHC is located in a building with other providers. For instance, if a provider works part-time for an FQHC (either for pay or as a volunteer) and also practices at a site adjacent to the FQHC, the provider may be prohibited from billing Medicare Part B for services provided in their private clinic if the services would be covered FQHC services if they had been provided in the FQHC. Additionally, there is some overlap between the provider-based public awareness requirement[19] and the requirement that space controlled by an FQHC that is located in in a larger facility be clearly defined.[20] If an FQHC is located in a building with other providers, patients should be able to determine which parts of the building are controlled by the FQHC.
Steps for compliance professionals
To address commingling issues, FQHC compliance professionals should consider assessing the FQHC’s relationships with providers who work in the FQHC and in space adjacent to it. Reviewing provider contracts and auditing bills submitted by the FQHC and its employed and contracted providers can help a compliance professional discover potential commingling issues. Additionally, walking the facility can help a compliance professional determine if the FQHC is abiding by CMS’s expectation that the FQHC’s space be clearly defined.[21]
Employment of CEO/project director
Finally, one of the most significant shifts in FQHC program obligations is the requirement that an FQHC “directly employ” its chief executive.[22] Prior to 2018, an FQHC’s independent governing board could decide to contract for the chief executive’s services, subject to the approval of its HRSA project officer. This change will require existing FQHCs to evaluate their relationships with supporting providers and could create difficulties for new health centers.
Implementing the direct employment requirement has proven to be a challenge for FQHCs. Although HRSA updated its Compliance Manual to take account of this change in August of 2018,[23] its revisions do not answer a crucial operational question: What does it mean to “employ” the chief executive?
HRSA guidance
Some guidance can be found in HRSA’s Health Center Program Site Visit Protocol (Site Visit Protocol), which instructs surveyors on how to evaluate new and existing FQHCs. There, the surveyor is instructed to determine whether the FQHC’s chief executive receives W-2 salary compensation from the FQHC.[24] This requirement is notably limited in its scope. For instance, it does not address whether the chief executive must be employed full-time by the health center, or if the executive may instead be employed part-time or be a dual employee of the health center and another organization.
Notably, HRSA’s Compliance Manual updates do provide specific guidance for public entities that operate FQHCs under co-applicant arrangements. Although the public entity and the nonprofit governing board are typically taken together as the “health center” for FQHC compliance purposes,[25] HRSA created a more restrictive standard with regard to the direct employment requirement. In a co-applicant model, the public entity, as the recipient of the Section 330 grant or FQHC look-alike designation, must employ the chief executive.[26]
Steps for compliance professionals
Clearly, FQHC compliance professionals are unlikely to have direct control over the chief executive’s employment relationship with the health center or a supporting organization. However, compliance professionals should ensure that the FQHC’s executive is aware of the new restriction and help facilitate a compliant transition if necessary and appropriate. As noted above, significant questions exist as to how HRSA will expect FQHCs to implement this new requirement. For instance, in situations where a supporting organization employed the chief executive and provided them with services at a discount under the Health Centers Safe Harbor,[27] it may be appropriate to arrange for a dual employment relationship with a supporting organization until the health center is able to bear the financial burden of direct employment. Note that the viability of such an arrangement will be affected by state employment law and the employers’ benefit plan requirements. When changes are necessary, it will be important to work with the FQHC’s HRSA project officer to ensure that the new arrangement is acceptable.
Conclusion
Healthcare regulations are a moving target for any healthcare compliance officer, and perhaps nowhere is this more true than in FQHCs. Due to the significant impact that compliance violations could have on an FQHC’s ability to serve its community, health center executives and compliance professionals must remain vigilant to ensure that their compliance policies and practices are up to date.
Takeaways
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FQHC compliance professionals should understand how routine practices, such as creating a floor stock of pharmaceuticals, can lead to diversion of 340B drugs.
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FQHCs’ relationships with their affiliated and contract pharmacies are a key area of concern, especially if the FQHC participates in the 340B Program.
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Formal referral relationships should be audited for compliance with HRSA guidance and to ensure compliance with HIPAA permitted use rules.
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FQHC compliance professionals should act to make sure the center’s practitioners abide by CMS’s commingling restrictions.
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Complying with the new “direct employment” standard for FQHC CEOs may be a significant challenge for some health centers.
