On January 10, 2020, the U.S. Government Accountability Office (GAO) issued a report claiming that the Health Resources and Services Administration (HRSA) does not use adequate controls to confirm the eligibility of private hospitals that participate in the 340B Drug Pricing Program (340B Program). Specifically, the GAO claims vulnerabilities in HRSA’s processes for (1) verifying the nonprofit status of participating private hospitals and (2) confirming that the hospitals have entered into contracts with state or local governments to serve a low-income population. However, GAO’s reviews found that more than 90 percent of audited hospitals met these requirements.

Private hospitals can qualify to participate in the 340B Program if, among other requirements, they are nonprofit and have contracts in place with state or local governments to serve low-income patients who are not eligible for Medicare or Medicaid. Private hospitals account for over two-thirds of current 340B Program participants.

Hospitals seeking to participate in the 340B Program must submit an application to HRSA. At Congress’s request, the GAO examined HRSA’s processes for determining the eligibility of private hospitals that apply for participation in the 340B Program.

The GAO claims that HRSA relies on unreliable data to verify the nonprofit status of private hospitals applying to the 340B Program. HRSA uses Medicare cost report data from CMS to determine nonprofit status. CMS told the GAO that the question on the cost report used to collect this data was not intended to assess nonprofit status, and CMS does not audit the data to confirm that hospitals identified as nonprofit are, in fact, nonprofit.

The GAO also identified weaknesses in HRSA’s process for reviewing the contracts that participating private hospitals must have in place with state or local governments to serve low-income patients. HRSA relies primarily on self-attestations to verify that private hospitals have such contracts, which the GAO observed “is contrary to federal internal control standards.”

GAO claimed that about seven percent of the contracts HRSA reviewed in 2017 and 2018 did not appear to meet what GAO believes is the common definition of contracts. Second, the GAO claims that five percent of the contracts audited by HRSA in 2017 and 2018 did not require the hospital to serve the low-income population. Third, HRSA has allowed hospitals to avoid adverse audit findings by entering into contracts with retroactive effective dates.

Last year, Congress introduced several bills to reform the 340B Program. In 2018, a bill was introduced that would require participating private hospitals to submit reports on low-income individuals’ use of outpatient hospital services. The bill is available here.