Health Reform WK-EDGE Audit disclosed several weaknesses in HRSA oversight of nongovernmental hospitals
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Tuesday, January 21, 2020

Audit disclosed several weaknesses in HRSA oversight of nongovernmental hospitals

By Jeffrey H. Brochin, J.D.

The Health Resources and Services Administration (HRSA) needs to conduct reviews to determine whether the documents submitted by nongovernmental hospitals are actually binding contracts for the provision of services and supplies.

Contract documentation from 258 hospitals for 2017 and 2018 purporting to show 340B Drug Discount Program contracts with state and local governments were based primarily on the hospitals’ self-attestations, according to a U.S. Government Accountability Office (GAO) report to Congress. According to the report, the HRSA’s contract reviews did not always include assessments of whether the contracts were 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 (GAO Report, GAO-20-108, January 10, 2020).

The 340B Drug Pricing Program. The program requires drug manufacturers to sell outpatient drugs at discounted prices to covered entities—certain hospitals and recipients of certain federal grants—in exchange for having their drugs covered by Medicaid. To be eligible for the 340B Program, hospitals must meet certain requirements intended to ensure that they perform a government function to provide care to low-income, medically underserved individuals. Hospitals must be: (1) owned or operated by a unit of state or local government; (2) nonprofit corporations that have been formally granted state or local governmental powers; or (3) private, nonprofit hospitals that have contracts with state or local governments to provide health care services to low-income individuals who are not eligible for Medicaid or Medicare.

Why GAO conducted the study. To participate in the 340B Program, hospitals must register with, and be approved by, the HRSA, the agency within the Department of Health and Human Services (HHS) responsible for administering and overseeing the 340B Program. Hospitals also must recertify their eligibility annually to continue participating in the program. Hospital participation in the 340B Program has grown significantly, more than tripling since 2009, due, in part, to the enactment of the Patient Protection and Affordable Care Act in 2010 (ACA), which expanded the types of hospitals that could qualify for the program.

How the study was conducted. The GAO was asked to provide information on 340B-participating hospitals’ contracts with state and local governments. The report: (1) described any obligations in selected nongovernmental hospitals’ contracts to serve low-income individuals, and (2) examined 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.

What the study found. The GAO’s review of contract documentation for 258 nongovernmental hospitals found that most contracts obligated the 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 study found that HRSA’s processes did not provide reasonable assurance that participating nongovernmental hospitals met eligibility requirements. For example, HRSA primarily relied on hospitals’ self-attestations to verify the existence of contracts with state and local governments, and, the agency reviewed contract documentation for less than 10 percent of nongovernmental hospitals per year in 2017 and 2018.

The GAO also identified several weaknesses in HRSA’s review of the nongovernmental hospital contracts, including that:

  • HRSA did not conduct reviews to determine whether the documents submitted by nongovernmental hospitals were actual contracts; specifically, that they were mutually binding agreements to provide services or supplies in exchange for something of value. The 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.
  • Where audits identified hospitals that did not have contracts in place throughout the audits’ periods of review, the HRSA nevertheless allowed hospitals to avoid audit findings by, for example, entering into new contracts with retroactive start dates. That practice undermined the integrity of HRSA’s audits.
  • HRSA’s contract reviews did not always include assessments of whether contracts were consistent with the statutory requirement to provide health care services to the 340B-specified low-income population. In addition, the agency’s guidance for conducting such assessments, when it was required, lacked detailed instructions. As a result, the GAO found that contracts for 13 hospitals reviewed did not appear to require hospitals to serve the 340B-specified low-income population. Despite this, those 13 hospitals were permitted to participate in the program.

Given the cited weaknesses, some nongovernmental hospitals that did not appear to meet the statutory requirements for program eligibility were allowed to participate in the 340B Program and receive discounted prices for drugs for which they may not have been eligible.

What the GAO recommends. As a result of the study, the GAO made six recommendations, including that the 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. The GAO continues to believe this action is needed to ensure that only eligible hospitals are allowed to participate in the 340B Program.

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