CHA News

DHCS Issues Self-Audit Demand of 340B Providers

For CEOs, CFOs, pharmacy managers, legal counsel, compliance officers

This post has been archived and contains information that may be out of date.

Last month, the Department of Health Care Services (DHCS) sent a letter to every 340B provider/covered entity (hospitals, clinics, and contracted pharmacies) demanding they conduct a self-audit of paid fee-for-service (FFS) claims data from Dec. 1, 2016, through Dec. 31, 2019. The stated purpose of the self-audit is to ensure the provider billed appropriately in the FFS delivery system at the actual acquisition cost and to disclose any overpayment.

In 2009, California enacted a law requiring 340B hospitals to bill for 340B drugs dispensed to Medi-Cal beneficiaries at the actual acquisition cost of the drug plus a statutorily set dispensing fee. A provider challenged the law on the basis that it unfairly discriminated against 340B hospitals, but the law was eventually upheld by the Ninth Circuit Court of Appeals.  

As noted in each letter, DHCS requests hospitals return — within 60 days — their completed self-audit findings and a summary form to However, due to the COVID-19 emergency, DHCS has recognized a need to provide extensions to hospitals unable to meet the 60-day deadline. Hospitals should submit their extension request to the email address included above.  

Over the past few weeks, CHA has heard from several hospitals asking what actions they should take in response to the DHCS letter. While it is unclear whether DHCS has the authority to demand that a 340B provider perform a self-audit or attest to the accuracy of their self-audit, CHA recommends that each 340B hospital carefully review the request and consult with legal counsel to determine next steps. The letter raises important issues involving state and federal False Claims Act liability, various reporting options (including Office of Inspector General self-disclosure), lookback periods, and repayment obligations. It is important to note that these letters are not targeted to specific providers — rather they have been distributed to all known Medi-Cal 340B providers.