340B Drug Discount Program: Increased Oversight Needed to Ensure Nongovernmental Hospitals Meet Eligibility Requirements
Fast Facts
Certain hospitals can get discounted prescription drugs under the 340B Program. For example, nonprofit hospitals may qualify if they contract with state or local governments to provide services to low-income individuals who can’t get Medicaid or Medicare coverage.
We found weaknesses in the Health Resources and Services Administration’s (HRSA) oversight that may result in some hospitals receiving discounts for which they are not eligible.
We recommended ways for HRSA to increase its oversight to help ensure that hospitals participating in the 340B Program meet eligibility requirements.
Pills spilling out of a prescription bottle
Highlights
What GAO Found
Under the 340B Drug Pricing Program (340B Program), administered by the U.S. Department of Health and Human Services' (HHS) Health Resources and Services Administration (HRSA), drug manufacturers provide discounted prices on outpatient drugs to certain hospitals and other entities. About two-thirds of hospitals participating in the 340B Program (approximately 1,700) are nongovernmental hospitals (private, nonprofit hospitals), which qualify for the program, in part, based on having contracts with state or local governments to provide health care services to the 340B-specified low-income population—low-income individuals not eligible for Medicaid or Medicare. GAO's review of contract documentation for 258 nongovernmental hospitals found that most contracts obligated these hospitals to provide health care services to low-income individuals. However, few of the contracts reviewed included details about those obligations, such as the amount or type of care hospitals were required to provide. The statute does not require the contracts to contain such details.
GAO found that HRSA's processes do not provide reasonable assurance that participating nongovernmental hospitals meet eligibility requirements. For example, HRSA primarily relies on hospitals' self-attestations to verify the existence of contracts with state and local governments. The agency reviewed contract documentation for less than 10 percent of nongovernmental hospitals per year in 2017 and 2018. GAO also identified several weaknesses in HRSA's review of the nongovernmental hospital contracts:
HRSA does not conduct reviews to determine whether the documents submitted by nongovernmental hospitals are actual contracts, namely that they are mutually binding agreements to provide services or supplies in exchange for something of value. GAO found that 18 of the 258 hospitals reviewed submitted documents that did not appear to be contracts, such as descriptions of community programs, yet all of these hospitals were permitted to participate in the program.
When audits have identified hospitals that did not have contracts in place throughout the audits' periods of review, HRSA has allowed hospitals to avoid audit findings by, for example, entering into new contracts with retroactive start dates. This practice undermines the integrity of HRSA's audits.
HRSA's contract reviews do not always include assessments of whether contracts are consistent with the statutory requirement to provide health care services to the 340B-specified low-income population and HRSA's guidance for conducting such assessments, when required, lacks detailed instructions. As a result, GAO found that contracts for 13 hospitals reviewed did not appear to require hospitals to serve the 340B-specified low-income population. Despite this, these 13 hospitals were permitted to participate in the program.
Given these weaknesses, some nongovernmental hospitals that do not appear to meet the statutory requirements for program eligibility are participating in the 340B Program and receiving discounted prices for drugs for which they may not be eligible.
Why GAO Did This Study
The number of nongovernmental hospitals participating in the 340B Program has grown over time. HRSA requires participating hospitals to register and annually recertify their eligibility. HRSA also reviews hospitals' eligibility through audits of a small sample each year.
GAO was asked to provide information on 340B-participating hospitals' contracts with state and local governments. This report (1) describes any obligations in selected nongovernmental hospitals' contracts to serve low-income individuals, and (2) examines HRSA's processes to assess nongovernmental hospitals' eligibility. GAO examined contract documentation from all 258 nongovernmental hospitals HRSA reviewed in 2017 and 2018; and HRSA's policies, procedures, and guidance related to 340B hospital eligibility. GAO also interviewed HRSA officials.
Recommendations
GAO is making six recommendations, including that HRSA implement a process to verify that all nongovernmental hospitals have contracts in place, including throughout hospitals' audit periods; amend its contract reviews to include an assessment of whether contracts meet statutory requirements; and provide better guidance on contract reviews. HHS concurred with all of the recommendations except the one to implement a process to verify that all nongovernmental hospitals have contracts. GAO continues to believe this action is needed to ensure that only eligible hospitals are allowed to participate in the 340B Program.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status Sort descending |
|---|---|---|
| Health Resources and Services Administration | The Administrator of HRSA should ensure that the information it uses to verify nonprofit status for all nongovernmental hospitals that participate in the 340B Program is reliable—for example, by requiring and reviewing the submission of official documentation hospitals must already maintain or by ensuring the reliability of the data the agency uses. (Recommendation 1) |
Open
HHS concurred with this recommendation and , in March 2024, reiterated that HRSA believes that the information it uses to determine nonprofit status is reliable, because hospital administrators attest to its accuracy. However, as discussed in our report, neither HRSA nor the agency that collects the data has evaluated the reliability of the data for verifying nonprofit status. Without ensuring it is using reliable information, HRSA cannot effectively determine if nongovernmental hospitals participating, or seeking to participate, in the 340B Program meet the statutory eligibility requirements.
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| Health Resources and Services Administration | The Administrator of HRSA should implement a process to verify that every nongovernmental hospital that participates in the 340B Program has a contract with a state or local government as required by statute. (Recommendation 2) |
Open
HHS did not concur with this recommendation and, as of March 2024, did not plan to take any actions to implement the recommendation. HHS noted that requiring all covered entities to submit a state or local government contract would create a significant burden for covered entities. However, as we noted in our report, HRSA already requires hospitals to maintain copies of their state or local government contracts. Therefore, it is unclear how implementing a process to verify the existence of those contracts would represent a significant burden. Without this information, HRSA does not have reasonable assurance that nongovernmental hospitals have the statutorily required contracts to participate in the 340B Program.
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| Health Resources and Services Administration | The Administrator of HRSA should provide more specific guidance for 340B Program auditors on how to determine if nongovernmental hospitals' contracts with state and local governments require the provision of health care services to low-income individuals not eligible for Medicaid or Medicare. (Recommendation 4) |
Open
HHS concurred with this recommendation and in March 2024, indicated that HRSA had updated its audit guidance and procedures to more clearly specify that contracts must contain requirements for the provision of health care services to low-income individuals and directing auditors to contact HRSA if there are questions regarding this requirement. However, these documents do not contain any specific guidance on how auditors are to evaluate whether contracts require these services. Without more specific guidance for auditors' review of contracts, HRSA lacks reasonable assurance that the audits are appropriately identifying deficiencies in nongovernmental hospitals' contracts with state or local governments.
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| Health Resources and Services Administration | The Administrator of HRSA should amend its contract integrity check procedures for the 340B Program to include a review of whether hospitals' contracts with state and local governments require the provision of health care services to low-income individuals not eligible for Medicaid or Medicare as required by statute, and should provide guidance for staff to conduct these reviews. (Recommendation 3) |
Closed – Implemented
HHS concurred with this recommendation and in May 2020, HRSA amended the standard operating procedure for hospital registration to include a requirement for staff to review nongovernmental hospitals' contracts with state and local governments to determine whether contracts require the provision of health care services to low-income individuals not eligible for Medicare or Medicaid. On May 7, 2020, HRSA trained the review staff responsible for analyzing the contracts on the new process.
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| Health Resources and Services Administration | The Administrator of HRSA should revise its 340B Program audit procedures to require auditors to document their assessments of whether nongovernmental hospitals' contracts with state and local governments are appropriately signed, cover the time periods under review, and require hospitals to serve low-income individuals not eligible for Medicaid or Medicare, such as by requiring auditors to separately affirm and record their review of each of these elements. (Recommendation 5) |
Closed – Implemented
HHS concurred with this recommendation. As noted in our report, HRSA updated its draft procedures for fiscal year 2020 audits with language consistent with this recommendation in September 2019. As of August 2020, HRSA had finalized these procedures. The updated procedures require auditors to specify if the hospital provided a contract that includes the names and signatures for both the hospital and government agency, has effective dates that cover the entire audit period, and requires the provision of services to the 340B-specified low-income population.
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| Health Resources and Services Administration | The Administrator of HRSA should require nongovernmental hospitals participating in the 340B Program to demonstrate that they have contracts with state or local governments in effect prior to the beginning of their audits' periods of review and should apply consistent and appropriate consequences for hospitals that are unable to do so. (Recommendation 6) |
Open – Partially Addressed
HHS concurred with this recommendation. As noted in our report, HRSA updated its draft audit procedures for fiscal year 2020 audits in September 2019 to specify that auditors should look for effective dates that cover the entire audit period. While this is an important step, to fully implement the recommendation, HRSA must also show that it has ceased accepting retroactive contract documentation, and has applied consistent and appropriate consequences when auditors find that nongovernmental hospitals did not have contracts in effect prior to the beginning of their audit periods. As of March 2024, HRSA had not taken these actions. Allowing hospitals that are unable to demonstrate that they have contracts in place that cover their audits' periods of review to continue to participate without consequences undermines the effectiveness of HRSA's audit process and increases the risk that ineligible hospitals will receive discounts under the program.
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