GAO Calls for More Oversight of 340B Drug Pricing Program

January 15, 2020 - Weaknesses in HRSA oversight of the 340B drug pricing program may result in some hospitals receiving discounts when they are not eligible to participate, a new report from The Government Accountability Office (GAO) found.

The 340B Drug Pricing Program provides discounts on outpatient drugs to safety-net hospitals and other covered entities. Safety-net hospitals owned or operated by state or local governments automatically qualify for the discounted drug prices. But nongovernmental hospitals are able to participate if the facilities have contracts with state or local governments to provide healthcare services to low-income individuals who do not qualify for Medicaid or Medicare.

HRSA oversees the participation of 1,700 nongovernmental hospitals in the 340B Drug Pricing Program. But a new GAO investigation into oversight processes found that the agency does not have processes in place to determine with confidence that nongovernmental hospitals have contracts with state and local governments that meet program requirements. 

GAO uncovered that out of 258 hospitals reviewed, 18 submitted documents that did not appear to be contracts, yet all of the hospitals were able to participate in the 340B Drug Pricing Program. In addition, 13 hospitals reviewed did not appear to serve the low-income population as defined in program rules. 

“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 which they may not be eligible,” GAO said. 

HRSA lacked guidance in specifying the criteria under which hospitals that are not government owned can qualify for the program, GAO stated. And there was no process to provide adequate instruction to auditors on how to determine if contracts included requirements to provide healthcare services to low-income individuals not eligible for Medicare or Medicaid. 

HRSA also allowed hospitals to avoid audit findings by entering into new contracts with specific start dates. Three out of eight hospitals that submitted contracts that did not cover the audit’s period of review entered into contracts while the audit was still ongoing. 

The federal watchdog stated that HSRA oversight is lacking due to the reliance on self attestations to verify existence of contracts with state and local governments. HRSA should implement a more comprehensive process to verify hospital contracts, GAO advised.

HRSA did not comply with this recommendation and explained that, “There are other potential options, such as obtaining confirmation from the state or local government that they indeed have a contract with the hospital to provide services to the 340B-specified low-income population,” HHS commented in the report. 

But the HRSA did agree to the additional GAO recommendations which included:

• Ensuring the use of reliable data to verify hospitals’ nonprofit status
• Including a review of whether hospitals’ contracts require the provision of healthcare services to the required low-income population in integrity check procedures
• Providing more guidance to auditors on how to determine that hospital contracts require the provision of care to low-income individuals not eligible for Medicare or Medicaid

• Offering better guidance on contract reviews to its auditors and require them to document their assessments of the completeness of hospital contracts 
• Requiring nongovernmental hospitals demonstrate they have contracts with state or local governments in effect before the beginning of their audit periods

“Although HRSA has initiated some efforts to strengthen its processes for assessing hospitals’ eligibility, continued growth in the number of participating hospitals and 340Bpurchased drugs highlights the need for HRSA to improve its oversight processes. This is critical to safeguarding the integrity of the 340B Program,” GAO concluded.

340B Health, an organization representing over 1,000 public and private non-profit hospitals and health systems in the program, disagreed with GAO’s findings.

“The systems in place to identify and verify hospitals that are eligible to participate in the 340B drug pricing program work, and they work well,” Maureen Testoni, president and CEO of 340B Health, stated on the organization’s website. “Hospitals are always ready and willing to answer such questions. The fact is, 340B hospitals provide 60 percent of all uncompensated care in the US while representing 38 percent of acute care hospitals. Patients served included those who have no insurance and those with public or private coverage, including Medicaid.” 

However, HHS is seeking additional oversight of the program.

In 2018, HHS Secretary Alex Azar promised greater transparency and oversight of the 340B Drug Pricing Program in order to look at concerns that hospitals were using discounts for profit. Azar also emphasized that reducing the care gap between discounted prices and hospital reimbursement in various programs would further this goal. 

In late 2017, The Trump Administration also finalized a rule which altered the 340B payment formula for specific covered outpatient drugs from the average sales price of the drug plus six percent to the average sales price minus 22.5 percent. It expected to reduce hospital reimbursement by $1.6 million. 

A federal judge later overturned the 340B payment cuts, ruling that HHS overstepped its statutory authority by issuing the 2017 policy.