GAO recommends increased oversight of hospitals’ 340B drug program contracts

HHS’ Health Resources and Services Administration (HRSA) should step up oversight of hospitals participating in the 340B drug discount program, the U.S. Government Accountability Office (GAO) recommended in a recent report.

The GAO’s report identified weaknesses in HRSA’s oversight, specifically of nongovernmental hospitals, that may lead to some hospitals receiving discounts for which they are not eligible.

Approximately two-thirds of hospitals participating in the 340B program are nongovernmental hospitals. These hospitals enter into contracts with state or local governments to provide services to the 340B-specified low-income population. HRSA requires hospitals participating in the 340B program to register and recertify their eligibility annually. HRSA also conducts annual audits to review participating hospitals’ eligibility. Between 2017 and 2018, HRSA reviewed 340B contract documentation of 258 nongovernmental hospitals, representing less than 10% of nongovernmental hospitals participating in the program.

The GAO examined contract documentation of all 258 hospitals reviewed by HRSA in 2017 and 2018. The agency found that although most of the contracts required hospitals to provide healthcare services to low-income individuals, there is no statutory requirement that contracts specify how this obligation will be fulfilled and few contracts include this information, according to the report.

Nevertheless, HRSA’s audit process is not robust enough to provide a reasonable assurance that nongovernmental hospitals meet eligibility requirements. Specifically, the report pointed out that HRSA primarily relies on hospitals’ self-attestation to verify that contracts with state and local governments exist. In addition, the report identified the following gaps. According to the report, HRSA’s audit process:

• Allows nongovernmental hospitals that do not have contracts to enter into contracts with retroactive start dates to avoid negative audit findings. The report points out that this undermines the integrity of HRSA’s audits.
• Does not always include assessments of whether contracts are consistent with the statutory requirement. According to the report, 13 contracts did not require hospitals to serve the 340B-specified low-income population even though the hospitals were allowed to participate in the program.
• Does not review to determine whether documents submitted by nongovernmental hospitals are actual contracts. The report found that 18 of the audited 258 contract documents did not appear to be contracts; however, these hospitals were allowed to participate in the program.

The GAO recommended that HRSA:

• Amend its contract reviews to assess whether contracts meet statutory requirements
• Provide better guidance on contract reviews
• Verify that all nongovernmental hospitals have contracts in place throughout hospitals’ audit periods

HHS generally agreed with the GAO’s recommendations but disagreed that it should implement a process to verify that nongovernmental hospitals have a contract with state or local governments.

Hospitals participating in the 340B program should review their statutory and contractual obligations and ensure that they are fulfilling them. Hospitals should have a process in place to ensure that contracts are reviewed for renewal prior to expiration. Hospitals should consult internal or external experts, such as compliance officers or legal counsel, to determine whether their contracts meet statutory requirements.