By Elena Eyber, J.D.
The GAO recommended that HRSA strengthen guidance related to ensuring the appropriateness of nongovernmental hospitals’ contracts with state and local governments.
The 340B Drug Pricing Program (340B Program) requires drug manufacturers to sell outpatient drugs at a discount to covered entities. Covered entities can realize substantial savings through 340B Program price discounts, enabling them to stretch federal resources to reach more patients and provide more comprehensive services. HHS’ Health Resources and Services Administration (HRSA) administers the program and oversees covered entities' compliance with 340B Program requirements through annual audits and other efforts. The Government Accountability Office (GAO) has issued a report describing (1) the audit findings that HRSA issued to address covered entity noncompliance with 340B Program requirements; and (2) other efforts HRSA uses to help ensure that covered entities comply with 340B Program requirements (GAO Report, GAO-21-107, December 14, 2020).
Findings of noncompliance. HRSA reported that the agency issued a total of 1,536 findings to address covered entity noncompliance found in the 1,242 finalized audits conducted from fiscal years 2012 through 2019 as of September 2020. These findings, which address violations of statutory requirements and a failure to follow guidance that HRSA developed to clarify these requirements, were in the areas of eligibility, diversion, and duplicate discounts.
HRSA officials told the GAO that, beginning in fall 2019, the agency started issuing findings only when audit information presents a clear and direct violation of the requirements outlined in the 340B Program statute. HRSA officials explained that guidance, which is used to interpret provisions of the 340B statute for the purposes of promoting program compliance among covered entities, does not provide the agency with appropriate enforcement capability. For example, HRSA officials reported that there were instances among fiscal year 2019 audits in which the agency did not issue findings for a failure to comply with guidance related to contract pharmacies in part because the 340B statute does not address contract pharmacy use and, therefore, there may not have been a clear statutory violation.
Efforts to prevent and correct noncompliance. In addition to audits, HRSA provides education to covered entities about 340B Program requirements and has implemented other efforts to identify noncompliance. For example, HRSA requires all covered entities to recertify their eligibility to participate in the 340B Program annually and uses a self-disclosure process through which covered entities can disclose and correct self-identified instances of noncompliance.
Recommendations. First, the GAO previously recommended that 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." HHS concurred with this recommendation, and the agency indicated that HRSA had updated its audit guidance to specify that auditors should contact HRSA if any required contract elements are not easily identified. However, this updated guidance does not describe how auditors are to identify whether contracts actually require these services. Rather, it cautions them not to dive too deeply to identify this information. Reliance on the initiative of individual auditors to contact HRSA with questions does not ensure uniform or adequate application of this statutory eligibility requirement. Therefore, the GAO remains concerned that HRSA lacks reasonable assurance that the audits are appropriately identifying nongovernmental hospitals that may be participating in the 340B Program based on contracts that are inconsistent with program requirements or HRSA’s guidance. Thus, the GAO considers this recommendation open.
Second, the GAO previously recommended that 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." HRSA updated its draft audit procedures for fiscal year 2020 audits to specify that auditors should look for effective dates that cover the entire audit period. However, HRSA must also demonstrate that it has ceased accepting retroactive contract documentation and applies consistent and appropriate consequences when auditors find that nongovernmental hospitals did not have contracts in effect prior to the beginning of their audit periods. In its written comments, HHS indicated that HRSA had not taken these actions. The GAO continues to believe that allowing hospitals that fail to demonstrate that they meet the statutory requirement of having contracts in place that cover the audit’s period of review to continue to participate in the 340B Program without consequences undermines the effectiveness of HRSA's audit process and increases the risk that ineligible hospitals will receive discounts under the program. Thus, the GAO considers this recommendation open.
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