GAO Flags Lack of 340B Drug Discount Program Oversight

January 14, 2020 - Weakness in the oversight of the 340B Drug Discount Program allowed some hospitals to get discounted drugs they were ineligible for, a Government Accountability Office analysis found. 

Hospitals, such as those contracting with state or local governments that can serve low-income individuals unable to get Medicaid or Medicare coverage, can get certain outpatient drugs at a discounted price under the 340B Drug Discount Program. But GAO flags the lax in oversight that may allow misuse of the program, resulting in recommendations to strengthen oversight in six key areas. 

The federal watchdog’s newly released analysis found that the Health Resources and Services Administration’s processes failed to provide reasonable assurance that nongovernmental hospitals participating in the 340B Program met eligibility requirements. GAO pointed to HRSA’s primary reliance on hospitals’ self-attestation to verity that their contracts with state and local governments even exist as an example of the weaknesses seen in the agency’s oversight. 

GAO conducted the analysis in response to a request for information on the contracts hospitals participating in the 340B Program have with state and local governments. It examined the contract documentation for all the 258 nongovernmental hospitals that HRSA reviewed in 2017 and 2018. HRSA requires hospitals to register and recertify their eligibility on an annual basis. 

Specifically, GAO found that the agency had reviewed the contract documentation for less than 10 percent of nongovernmental hospitals per year in 2017 and 2018. Other findings reported that 18 hospitals submitted documents that did not appear to have been actual contracts and HRSA allowed hospitals to skirt audits findings. The contracts for 13 hospitals did not require the hospitals to serve the low-income population that is required by statute and participated, too. 

Some documents were descriptions of community programs rather than actual contracts. “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,” GAO noted. “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,” it added. 

The findings suggest some hospitals that seemingly fail to meet the statutory requirements for program eligibility are being allowed to participate in the 340B Program and get outpatient drugs at discounted prices that they are not eligible for due to these weaknesses in HRSA’s oversight. 

Yet, as GAO noted, the “number of nongovernmental hospitals participating in the 340B Program has grown over time.” And the 340B Program has come increasingly under scrutiny amid the finger-pointing that the ongoing fight against soaring drug prices has generated. 

PhRMA recently stressed the findings of a 2017 analysis it funded. “The amount hospitals and other 340B entities took in from the sale of 340B brand medicines was 9x larger in 2018 than in 2013,” said PhRMA CEO Stephen Ubl “To fix patient affordability challenges, we need to look at the whole supply chain.” The analysis showed that the amount retained on the sale of brand name drugs had nearly doubled between 2013 and 2018, up from $24.7 billion to $48.6 billion. 

GAO provides a set of six recommendations for HRSA to strengthen its oversight of the 340B Program. Recommendations one through six relate to ensuring that the information the agency uses to verify nonprofit status is reliable and implementing a process to verify that every hospital has the statutorily required contract that requires providing services to the specified population. 

The report also recommends the administrator of HRSA provide “more specific guidance” for auditors on assessing hospitals' contracts with state and local governments, revise its 340B Program audit procedures and require auditors to document their assessments. HRSA should require participating hospitals “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,” GAO added.