Information about Hospitals That Received an Eligibility Exception as a Result of COVID-19 (GAO-23-106095)
Summary
A GAO report, GAO-23-106095, dated May 11, 2023, to Cathy McMorris Rodgers, Chair of the House Committee on Energy and Commerce, on the 340B Drug Pricing Program. It explains that the program requires drug manufacturers to sell outpatient drugs at discounted prices to covered entities, including certain types of hospitals, for the manufacturers' drugs to be covered by Medicaid. According to the Health Resources and Services Administration, which administers it, the program's purpose is to enable covered entities to stretch scarce federal resources. The report gives information about hospitals that received an eligibility exception as a result of COVID-19.
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Full text
441 G St. N.W.
Washington, DC 20548
May 11, 2023
The Honorable Cathy McMorris Rodgers
Chair
Committee on Energy and Commerce
House of Representatives
340B Drug Discount Program: Information about Hospitals That Received an Eligibility
Exception as a Result of COVID-19
Accessible Version
Dear Madam Chair:
The 340B Drug Pricing Program (340B Program) requires drug manufacturers to sell outpatient
drugs at discounted prices to covered entities (including certain types of hospitals) for the
manufacturers’ drugs to be covered by Medicaid.1 According to the Health Resources and
Services Administration (HRSA), the agency that administers the 340B Program, the purpose of
the program is to enable covered entities to stretch scarce federal resources to reach more
eligible patients and provide more comprehensive services.2
In addition to realizing savings through 340B price discounts, covered entities can generate
revenue when purchasing 340B drugs for eligible patients whose insurance reimbursement
exceeds the 340B price paid for the drugs. The statute authorizing the 340B Program does not
dictate how covered entities should use this revenue or require discounts on the drugs to be
passed along to patients. More than 2,600 hospitals were participating in the 340B Program as
of January 2023.
To be eligible for the program, hospitals must meet various criteria, which may include treating a
disproportionate number of low-income Medicare and Medicaid patients, as measured by the
hospital's disproportionate share hospital (DSH) adjustment percentage.3 Enacted in March
142 U.S.C. § 256b. Medicaid is a joint federal-state program that finances health care for certain low-income and
medically needy populations.
2Because the statute does not explicitly state the purpose of the 340B Program, HRSA bases this view on language
in a House Energy and Commerce Committee Report pertaining to language similar to what eventually became
section 340B of the Public Health Service Act. See H. Rep. No. 102-384, Pt. 2, at 12 (1992) (discussing bill to amend
the Social Security Act). See also Veterans Health Care Act of 1992, Pub. L. No. 102-585, § 602(a), 106 Stat. 4943,
4967 (adding section 340B to the Public Health Service Act).
3A hospital’s DSH adjustment percentage is generally based on its DSH patient percentage, which is determined by a
calculation of the sum of two other percentages: (1) the low-income Medicare patient percentage, calculated as the
ratio of Medicare Supplemental Security Income inpatient days to total Medicare inpatient days; and (2) the Medicaid
patient percentage, calculated as the ratio of Medicaid, non-Medicare inpatient days to total inpatient days.
Medicare is the federal program that provides coverage of health care services for individuals age 65 and older,
certain individuals with disabilities, and individuals with end-stage renal disease.
Page 1 GAO-23-106095 340B Drug Discount Program
2022, the Consolidated Appropriations Act, 2022, allowed hospitals that were covered entities
participating in the 340B Program on January 26, 2020, to request from HRSA a temporary
exception to the 340B Program’s DSH percentage eligibility requirement and continue
participating in the program if they were unable to meet the requirement because of factors
related to the COVID-19 public health emergency.4 For example, a hospital could request an
exception if, as a result of the pandemic, it treated fewer Medicaid patients and more non-
Medicaid COVID-19 patients, thereby causing its DSH percentage to fall below the required
threshold. The exception applied to DSH percentages from hospital cost-reporting periods that
began during fiscal year 2020 (or a subsequent fiscal year) and that ended no later than
December 31, 2022, which would allow some hospitals to request the exception in 2023.5
In light of this temporary exception, you asked us to review the exception process and provide
information on hospitals that received the exception. This report answers a series of questions
related to hospitals that requested a 340B DSH percentage eligibility exception from HRSA as
of May 31, 2022, and that were subsequently approved. (We refer to these approved hospitals
as “excepted hospitals” in this report.) These questions are generally related to the following five
areas:
1. HRSA’s administration of the 340B DSH percentage eligibility exception process;
2. characteristics of excepted hospitals;
3. amount of 340B drug purchases and discounts that excepted hospitals indicated they
had in 2020 and 2021;
4. extent to which excepted hospitals indicated providing discounts on 340B drugs to low-
income, uninsured patients; and
5. results of HRSA’s previous audits and other oversight activities to assess 340B Program
compliance by excepted hospitals.
To answer these questions, we reviewed documents from HRSA and excepted hospitals about
the exception process and about the results of HRSA’s previous oversight of these hospitals.
For example, we reviewed HRSA standard operating procedures, materials provided by
hospitals requesting an exception, and HRSA audit reports. We evaluated HRSA’s steps to
administer the exception process against relevant federal laws related to the 340B Program and
that process. We also interviewed agency officials about the exception process and HRSA’s
oversight activities conducted since fiscal year 2012, the year HRSA began conducting audits of
covered entities.
In addition, we examined data from HRSA’s 340B Office of Pharmacy Affairs Information
System (referred to in this report as the “340B database”) as of November 2022—the most
4Pub. L. No. 117-103, div. P, tit. I, subtit. C, § 121, 136 Stat. 49, 792. The statute refers to the COVID-19 public
health emergency, which, for the purposes of this report, we refer to as the “pandemic.”
5Hospitals that render services to Medicare beneficiaries are required to submit cost reports to the Centers for
Medicare & Medicaid Services annually (generally, within 5 months of the end of their cost-reporting periods). Among
other things, these reports contain information on facility characteristics, utilization data (including DSH percentages),
and financial statement data.
Page 2 GAO-23-106095 340B Drug Discount Program
recent data available at the time of our analyses.6 We also reviewed the excepted hospitals’
Medicare cost reports from fiscal years 2017 through 2020—the most recent 4 years for which
complete data were available at the time of our review.7 Cost report data reviewed included
geographic and other information, such as hospital location and size, as well as the hospitals’
reported DSH percentages before and during the pandemic. To assess the reliability of the data
we used in our analyses, we reviewed related documentation, interviewed officials from HRSA
and the Centers for Medicare & Medicaid Services, and performed appropriate electronic data
checks. We determined that the data were sufficiently reliable for the purposes of our reporting
objectives. Finally, we administered a questionnaire to excepted hospitals requesting
information about their 340B drug purchases in 2020 and 2021 and any discounts they provided
on 340B drugs to low-income, uninsured patients.
We conducted this performance audit from June 2022 to May 2023 in accordance with generally
accepted government auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the evidence obtained provides
a reasonable basis for our findings and conclusions based on our audit objectives.
Background
Hospital Eligibility for the 340B Program
Entities eligible to participate in the 340B Program include six types of hospitals that generally
perform a government function to provide care to low-income, medically underserved
individuals.8 Eligibility criteria for most types of hospitals include meeting specified minimum
DSH percentages (see table 1). In addition, to be eligible to participate in the 340B Program,
hospitals must be: (1) owned or operated by a unit of state or local government; (2) 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—which we
refer to as “nongovernmental hospitals”; or (3) nonprofit corporations that have been formally
granted state or local governmental powers. Proprietary, for-profit hospitals are not eligible to
participate in the program.
Table 1: Types of Hospitals Eligible to Participate in the 340B Program
Disproportionate share hospital
adjustment percentage
Hospital type Description requirementa
Children’s hospitals Hospitals with inpatients predominantly age 18 or >11.75%
younger
Critical access Small, rural hospitals with no more than 25 inpatient N/A
hospitalsb beds
6The 340B database contains information on hospitals, including each hospital’s 340B identification number, hospital
type, and participation history, such as start and termination dates.
7Our analyses were based on the most recent cost report data available as of September 2022.
8Other entities eligible to participate in the program include federal grantees that receive one of 10 types of federal
grants, as specified in statute. See 42 U.S.C. § 256b(a)(4)(A)-(K). All such grant programs are administered by
agencies within the Department of Health and Human Services.
Page 3 GAO-23-106095 340B Drug Discount Program
Disproportionate share hospital
adjustment percentage
Hospital type Description requirementa
Disproportionate General acute care hospitals that serve a >11.75%
share hospitals disproportionate number of low-income Medicare
and Medicaid inpatients
Freestanding cancer Independent, nonprofit hospitals that treat patients >11.75%
hospitals with cancer
Rural referral centersc High-volume acute care rural hospitals that treat a >8%
large number of complicated cases
Sole community Geographically isolated hospitals >8%
hospitalsd
Source: Federal law and information from the Health Resources and Services Administration. | GAO-23-106095
a
Among other criteria, to be eligible for the 340B Program, certain hospitals must treat a disproportionate number of low-income
Medicare and Medicaid patients, as measured by each hospital's disproportionate share hospital adjustment percentage.
b
Critical access hospitals are certified by the Centers for Medicare & Medicaid Services in accordance with 42 U.S.C. § 1395i-4(e).
c
Rural referral centers are classified by the Centers for Medicare & Medicaid Services in accordance with 42 U.S.C. §
1395ww(d)(5)(C)(i).
d
Sole community hospitals are classified by the Centers for Medicare & Medicaid Services in accordance with 42 U.S.C. §
1395ww(d)(5)(D)(iii). A hospital may generally qualify for this status if it is determined that because of factors such as isolated
location, weather conditions, travel conditions, or absence of other like hospitals, it is the sole source of inpatient hospital services
reasonably available in a geographic area.
340B Program Registration and Participation
To register for the 340B Program, covered entities (including hospitals) must first submit an
application through the online 340B database. They must provide specific information about
themselves, including their affiliated pharmacies, and may be asked to provide other supporting
documentation during registration. For example, certain hospitals must certify that they meet the
applicable statutory DSH percentage requirement for participating in the program.
Once approved by HRSA and listed in the 340B database, covered entities can begin
purchasing drugs from manufacturers at 340B discounted prices. These entities may provide
340B drugs to patients through one or more dispensing methods. For example, they may
dispense these drugs through pharmacies—either through (1) in-house pharmacies they own;
(2) contract pharmacy arrangements, in which covered entities contract with and pay outside
retail pharmacies (contract pharmacies) to dispense drugs on their behalf; or both.
Covered entities that choose to have contract pharmacies are required to register with HRSA
the names of each of the pharmacies with which they contract. These contract pharmacies must
be listed as active in HRSA’s 340B database before they dispense 340B drugs. Covered entities
may register an unlimited number of contract pharmacy arrangements with HRSA.9
340B Program Requirements
Covered entities (including hospitals) must maintain compliance with 340B Program statutory
requirements in three areas to continue participating in the program. HRSA is responsible for
overseeing the 340B Program, including compliance with these requirements, and historically
has issued interpretive guidance and statements of policy to assist with compliance.
9See Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. Reg. 10,272 (Mar. 5,
2010).
Page 4 GAO-23-106095 340B Drug Discount Program
Eligibility. As previously discussed, certain hospitals must meet specified DSH percentages,
along with other eligibility requirements. Certain types of hospitals are also prohibited from
procuring outpatient drugs through a group purchasing organization.10 In addition, all covered
entities must ensure that they have contracts in place for all contract pharmacy locations and
maintain auditable records. They must also ensure that contact and eligibility-related information
for themselves and their contract pharmacies is accurate and kept up to date in the 340B
database.
Diversion of 340B Program drugs to ineligible patients. Covered entities cannot divert any
drugs purchased at the 340B price to individuals not eligible to receive them. The 340B statute
does not define an eligible patient. In the absence of a statutory definition, HRSA guidance
states that diversion occurs when 340B drugs are given to individuals who are not patients of
the covered entity.11
Duplicate discounts. Covered entities cannot subject drug manufacturers to duplicate
discounts, which may occur when drugs prescribed to Medicaid beneficiaries are subject to both
the 340B price and a rebate through the Medicaid Drug Rebate Program.12
HRSA’s 340B Program Integrity and Oversight Measures
To oversee covered entities’ (including hospitals’) continued compliance with 340B Program
requirements, HRSA has implemented several program integrity and oversight measures.
These include audits, a self-disclosure process to identify noncompliance, quarterly DSH
percentage integrity checks, nongovernmental hospital contract reviews, and contract pharmacy
integrity checks.
Audits. HRSA began implementing a systematic approach for auditing covered entities in fiscal
year 2012 and began its current practice of auditing 200 covered entities per year in fiscal year
2015. HRSA issues findings of noncompliance with 340B Program requirements based on
information gathered through its audit process. Audited entities must then address any findings
through corrective action plans. In addition to issuing findings, through the audits, HRSA officials
may recommend areas for improvement based on failures to follow best practices that may
10Hospitals buy drugs at prices negotiated directly with manufacturers or at prices negotiated by buying
intermediaries, known as group purchasing organizations, which pool the purchasing power of multiple providers to
bargain for lower prices from manufacturers. Disproportionate share hospitals, children’s hospitals, and freestanding
cancer hospitals participating in the 340B Program may not obtain covered outpatient drugs through a group
purchasing organization or other group purchasing arrangement. See 42 U.S.C. § 256b(a)(4)(L)(iii) (incorporated by
reference into 42 U.S.C. § 256b(a)(4)(M)).
11HRSA generally defines patients of a covered entity as individuals whose health care records are maintained by the
covered entity, for whom the covered entity maintains responsibility for care, or who are receiving services that are
consistent with the type of services for which the covered entity qualified for 340B eligibility. See Notice Regarding
Section 602 of the Veterans Health Care Act of 1992 Patient and Entity Eligibility, 61 Fed. Reg. 55,156 (Oct. 24,
1996).
1242 U.S.C. § 256b(a)(5)(A). The Medicaid Drug Rebate Program, established under the Omnibus Budget
Reconciliation Act of 1990, requires drug manufacturers to pay rebates to states as a condition of having their drugs
covered by Medicaid. See Pub. L. No. 101-508, § 4401, 104 Stat. 1388, 1388-143 (adding 42 U.S.C. § 1396r-8). To
determine whether duplicate discounts have occurred, a covered entity must check with its state Medicaid agency to
see if it has received rebates for the same drugs for which the entity received a discounted price.
For more information on duplicate discounts, see GAO, 340B Drug Discount Program: Oversight of the Intersection
with the Medicaid Drug Rebate Program Needs Improvement, GAO-20-212 (Washington, D.C.: Jan. 21, 2020).
Page 5 GAO-23-106095 340B Drug Discount Program
reflect applicable guidance but not statutory requirements. Audited entities are not required to
submit corrective action plans to address areas for improvement.
Self-disclosure to identify noncompliance. Following the implementation of HRSA’s audit
process, officials said that the agency began a self-disclosure initiative to allow covered entities
to report and correct self-identified instances of noncompliance with 340B Program
requirements. Covered entities are required to prepare and submit corrective action plans
related to any self-disclosed noncompliance.
Quarterly DSH percentage checks. In fiscal year 2015, HRSA began conducting quarterly
checks of the Medicare cost reports of all hospitals for which 340B Program eligibility is
dependent on maintaining a statutorily defined DSH percentage threshold. According to HRSA,
officials review the hospital’s cost report for the most recent fiscal year available at the time of
the quarterly checks.
Nongovernmental hospital contract reviews during registration. In 2017, HRSA began
conducting contract integrity checks for a random sample of 20 percent of nongovernmental
hospitals during registration. In January 2020, this was expanded to include all
nongovernmental hospitals registering for the program. As part of these reviews, HRSA officials
verify that the contract document provided by the hospital is signed by both hospital and
government officials, is in effect, and does not expire before program participation would begin.
In July 2020, following a GAO review, HRSA officials implemented an additional analysis of the
contracts collected during registration to determine whether they provided for the provision of
health care services to low-income individuals not eligible for Medicare or Medicaid as required
for 340B Program eligibility.13
Quarterly program integrity checks of contract pharmacy arrangements. Beginning in
fiscal year 2017, HRSA began conducting quarterly checks of a random sample of 5 percent of
new contract pharmacy arrangements to verify various elements of each contract.
In administering and overseeing the 340B Program, HRSA has also been responsible for
developing and implementing the process through which hospitals could request an exception to
the 340B DSH percentage eligibility requirement as authorized in the Consolidated
Appropriations Act, 2022.
HRSA’s Administration of the 340B DSH Percentage Eligibility Exception Process
What steps did HRSA take to develop and implement the 340B DSH percentage eligibility
exception process?
HRSA took a variety of steps to develop and implement the 340B DSH percentage eligibility
exception process. According to HRSA officials, within 3 days of the Consolidated
Appropriations Act, 2022, becoming law in March 2022, the agency
· developed and implemented an attestation form for hospitals to use to request
exceptions;
· developed a standard operating procedure to guide its review and approval process;
13See GAO, 340B Drug Discount Program: Increased Oversight Needed to Ensure Nongovernmental Hospitals Meet
Eligibility Requirements, GAO-20-108 (Washington, D.C.: Dec. 11, 2019).
Page 6 GAO-23-106095 340B Drug Discount Program
· shared information about the provision with stakeholder associations, including the
American Hospital Association, the National Rural Health Association, America’s
Essential Hospitals, and 340B Health;
· identified hospitals that were potentially eligible for the exception and notified them about
the process for submitting a request; and
· posted a notice on its website to make other potentially-eligible hospitals aware of the
process for requesting an exception.
The attestation form HRSA developed for hospitals requesting an exception required each
requesting hospital to provide information about itself, such as its 340B identification number,
applicable cost-reporting period, applicable DSH percentage, and the name of the hospital
executive responsible for its 340B Program (known as the authorizing official). In addition, the
form included a justification section for each requesting hospital to describe how the pandemic
affected its ability to meet its applicable required DSH percentage for 340B participation,
including any actions the hospital may have taken in response to the pandemic.
HRSA’s standard operating procedure for the exception process instructed agency officials to
review hospital attestation forms to determine if the hospital’s
· DSH percentage was below the eligible threshold for the hospital type;
· cost-reporting period in question began no earlier than October 1, 2019 and ended no
later than December 31, 2022;
· form was signed by the hospital’s authorizing official;
· form was submitted prior to statutory deadlines;14 and
· justification provided information on actions taken by or other impact on the hospital in
response to, or as a result of, the COVID-19 pandemic that may have affected the
hospital’s ability to meet the 340B DSH percentage.
In addition, according to the standard operating procedure, officials were to review information
from HRSA’s 340B database to verify that the hospital was a covered entity as of January 26,
2020—the day before the beginning of the COVID-19 public health emergency.15
What were the results of HRSA’s review of 340B hospitals’ requests for an exception?
Our review of HRSA documentation found that of the 61 hospitals that requested an exception
as of May 31, 2022, HRSA approved 53 hospitals for the exception and denied eight.16 All of the
denials were for technical reasons based on statutory requirements, and none were related to
14Hospitals terminated from the 340B Program prior to March 15, 2022—the day the Consolidated Appropriations
Act, 2022, was enacted—due to their DSH percentage were required to submit their attestation forms within 30 days
(by April 14, 2022). Other hospitals were required to submit their forms within 30 days of filing a Medicare cost report
with a DSH percentage that made the hospitals ineligible.
15On January 31, 2020, the Secretary of Health and Human Services declared a public health emergency for the
United States, retroactive to January 27, 2020.
16As of January 31, 2023, 94 hospitals requested an exception. Of those, 82 hospitals were approved (including 13
hospitals that received a second exception), and 12 were denied. All of the denials were for technical reasons based
on statutory requirements; none were related to the COVID-19 justification section of the hospitals’ attestation forms.
Page 7 GAO-23-106095 340B Drug Discount Program
the COVID-19 justification section of the hospitals’ attestation forms. Specifically, five hospitals
were denied exceptions because they were not covered entities on January 26, 2020, which
was a statutory requirement for receiving the exception; two because they requested an
exception after the statutory deadline; and one because its DSH percentage was above the
eligibility threshold and thus did not require the exception for participation in the 340B Program.
Of the 53 excepted hospitals, 33 received an exception to participate as disproportionate share
hospitals, 14 as sole community hospitals, and six as rural referral centers.17 According to
HRSA, nine of the 53 excepted hospitals requested, as part of the exception process, to change
their hospital type from either a sole community hospital or rural referral center to a
disproportionate share hospital.18 According to our analysis of data from HRSA and hospital
cost reports, all nine had previously participated in the 340B Program as disproportionate share
hospitals but had changed hospital type earlier in the pandemic. The hospitals generally could
no longer meet the DSH percentage requirement for disproportionate share hospitals, but had
met the lower DSH percentage requirements for sole community hospitals or rural referral
centers.
HRSA officials told us that to change hospital type, hospitals were required to submit a “hospital
entity type change” request, in addition to submitting their exception requests. HRSA officials
reviewed all hospital entity type change requests to ensure that each requesting hospital met all
340B eligibility requirements for the requested hospital type (aside from the DSH percentage).
HRSA only permitted hospitals to change to a hospital type they had used in previous
participation in the 340B Program.
Hospitals may have chosen to change hospital type for a number of reasons. For example, drug
manufacturers are not required to provide certain drugs—known as orphan drugs—at the 340B
discounted price to sole community hospitals and rural referral centers, among other covered
entities. In contrast, drug manufacturers are required to provide these drugs at the 340B
discounted price to those participating in the 340B Program as disproportionate share
hospitals.19
As part of its review of hospitals’ requests for exceptions, HRSA identified program compliance
issues with two hospitals. Specifically, HRSA determined that prior to the exception, two
hospitals had continued participating in the program after filing cost reports with DSH
percentages below the 340B eligibility threshold for their hospital types (in July 2021 and
January 2022, respectively). HRSA officials told us that these hospitals requested and received
the exception, but were required to work with manufacturers to repay any 340B discounts
received during their period of ineligibility.
17None of the 53 excepted hospitals were cancer hospitals or children’s hospitals.
18Officials explained that hospitals may choose to participate in the 340B Program as types other than their
Medicare-designated types. For example, a Medicare-designated sole community hospital may choose to participate
in the 340B Program as a disproportionate share hospital as long as the hospital meets the 340B eligibility
requirements for that hospital type.
1942 U.S.C. § 256b(e). Orphan drugs are drugs designated by the Secretary of the Department of Health and Human
Services as treating a rare disease or condition.
Page 8 GAO-23-106095 340B Drug Discount Program
What information did the excepted hospitals provide in their attestation forms to explain the
impact of the COVID-19 pandemic on their ability to meet their required DSH percentage
thresholds?
Excepted hospitals’ explanations regarding the impact that the pandemic had on their ability to
meet the DSH percentage requirement for participating in the 340B Program varied. Based on
our review of the hospital attestation forms, the DSH percentages of excepted hospitals ranged
from 0.2 to 9.0 percentage points below their required DSH percentage thresholds for the
hospital types for which they later applied and were approved for exceptions. In their attestation
forms, some hospitals noted that their overall lower DSH percentages could have been affected
by changes in the key components used to calculate those percentages.20
· One hospital reported that its Medicare Supplemental Security Income patient days had
decreased during the pandemic and 23 hospitals reported that they had more overall
Medicare inpatient days. Either of these changes could have resulted in a decrease in
the hospitals’ low-income Medicare patient percentages.
· Twenty-nine hospitals reported that they had fewer Medicaid inpatient days, and 29
hospitals reported that they had more overall inpatient days. Either of these changes
could have resulted in a decrease in the hospitals’ Medicaid patient percentages.21
Some hospitals also noted other impacts that the pandemic had on their operations that may
have affected their DSH percentages. For example, 36 hospitals reported staffing shortages,
bed capacity issues, or deferred, delayed, or forgone care because of the pandemic. In some
cases, hospitals reported that their states issued moratoriums of certain elective procedures and
surgeries to allow hospitals to focus limited resources and staff on treating the high volumes of
COVID-19 patients. According to these hospitals, the moratoriums to delay these elective
procedures disproportionately affected their ability to care for Medicaid patients, which may
have led to a decrease in their Medicaid patient percentages and in turn, their DSH
percentages. (For more examples of the pandemic’s effect on DSH percentages, see text box.)
The COVID-19 Pandemic’s Effects on 340B Disproportionate Share Hospital (DSH) Adjustment Percentages,
as Noted by Excepted Hospitals
20As noted earlier, a hospital’s DSH percentage is generally based on its DSH patient percentage, which is
determined by a calculation of the sum of two other percentages: (1) the low-income Medicare patient percentage,
calculated as the ratio of Medicare Supplemental Security Income inpatient days to total Medicare inpatient days; and
(2) the Medicaid patient percentage, calculated as the ratio of Medicaid, non-Medicare inpatient days to total inpatient
days.
Supplemental Security Income is a federal assistance program administered by the Social Security Administration
that provides cash benefits to certain individuals who are elderly, blind, or have a disability. It acts as a safety net for
individuals who have limited resources and little or no income.
21Hospitals could have experienced and reported more than one of these changes.
Excepted hospitals also reported similar trends in response to our questionnaire. For example, 18 hospitals reported
changes that would have resulted in a decrease in their low-income Medicare patient percentage, and 24 hospitals
reported changes that would have resulted in a decrease in their Medicaid patient percentage. These changes may
have contributed to a lower overall DSH percentage.
Page 9 GAO-23-106095 340B Drug Discount Program
The following are examples of the reported effects that the pandemic had on excepted hospitals’ DSH percentages.
(Excepted hospitals are those that requested exceptions to the 340B DSH percentage eligibility requirement as of
May 31, 2022, and that were subsequently approved.)
“As COVID-19 cases surged… Medicare lengths of stay sharply increased while Medicaid days simultaneously
declined. These outcomes are a result of longer COVID-related patient stays, especially among older Medicare
beneficiaries, and fewer non-COVID visits. This is partly due to [state-] mandated limitations on the provision of non-
urgent services.”
“[The public health emergency] has impacted additional operational areas of the hospital including the emergency
department.… The emergency department typically furnishes services to a large number of Medicaid patients, so
the diversion resulting from COVID patients filling the emergency department and hospital has contributed to the
overall decrease in Medicaid inpatient days at the hospital. During the public health emergency, [the hospital]
cancelled elective overnight surgeries… due to a high number of COVID patient admissions. This resulted in the
loss of… patient admissions, some of which would have been Medicaid admission[s]. Lack of elective overnight
surgeries contributed to an increase in average length of stay at the hospital as well as an overall decrease in
Medicaid inpatient days.”
“[Among others,] the following items impacted the total number of Medicaid inpatient days or total patient days,
[and] therefore affected [the hospital’s] DSH percentage:
· Capacity—Total system capacity in fiscal year 2021 was reduced due to increased testing requirements
for patients, increased employee absences due to COVID testing and quarantines, isolation requirements,
reduced efficiency caused by increased PPE [personal protective equipment] usage, and a focus on
patients with COVID-19. Due to lack of capacity, many patients that would have traditionally been admitted
into the hospital were treated in an outpatient setting by their primary care provider or home health. This
change in treatment patterns dramatically decreased the number of younger patients with Medicaid that
were admitted to the hospital.
· Patient days—Many patients hospitalized with COVID-19 were critically ill resulting in prolonged lengths of
stay. This, along with difficulty in transferring patients to skilled nursing and other facilities due [to] COVID-
19 outbreaks and lack of staffing at the facilities, resulted in greater total patient days.
· Reduction in pediatric admissions—Community-wide use of masking, social distancing, and school and
daycare closures reduced the incidence of Influenza and Respiratory Syncytial Virus infections and
subsequent hospitalizations, which disproportionately impacted the Medicaid population.”
Source: GAO’s review of excepted hospitals’ attestation forms. | GAO-23-106095
Characteristics of Excepted Hospitals
What are the geographic and other non-financial characteristics of the excepted hospitals?
Our review of HRSA data found that the 53 excepted hospitals were geographically dispersed
among 27 states. While most of the 27 states had three or fewer excepted hospitals, two states
had more. North Carolina had the highest number of excepted hospitals (six), followed by
Mississippi (four) (see fig. 1).
Page 10 GAO-23-106095 340B Drug Discount Program
Figure 1: Number of Excepted Hospitals, by State
Page 11 GAO-23-106095 340B Drug Discount Program
Accessible Data for Figure 1: Number of Excepted Hospitals, by State
Number of
State excepted hospitals
AL 1
CO 1
DE 1
GA 3
IL 2
KS 2
KY 1
MA 1
MD 1
MN 1
MO 1
MS 4
MT 1
NC 6
NE 1
NY 3
OH 3
OK 3
PA 2
SC 3
SD 2
TN 3
UT 2
VA 1
VT 1
WI 2
WY 1
Page 12 GAO-23-106095 340B Drug Discount Program
Note: This analysis is of the 53 hospitals that requested an exception to the 340B disproportionate share hospital adjustment
percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as “excepted hospitals.”
According to data from HRSA and hospital cost reports, the excepted hospitals varied in terms
of: hospital type and classification, whether they were located in urban or rural areas, and size
as measured by the number of beds (see table 2). For example, 11 of the hospitals were
government owned or operated, while the remaining 42 were nongovernmental hospitals or
hospitals granted governmental powers. Most (35) of the hospitals were in rural areas, and most
(31) had 100 or fewer beds.
Table 2: Characteristics of Excepted Hospitals
Category Characteristic Number of hospitals
(N=53)
340B hospital typea Disproportionate share hospital 33
340B hospital typea Sole community hospital 14
340B hospital typea Rural referral center 6
340B hospital classificationa Government owned or operated 11
340B hospital classificationa Nongovernmental hospitals 40
340B hospital classificationa Granted governmental powers 2
Locationb Rural 35
Locationb Urban 18
Number of bedsb <50 16
Number of bedsb 51−100 15
Number of bedsb 101−300 17
Number of bedsb 301−400 4
Number of bedsb >400 1
Source: GAO analysis of data from the Centers for Medicare & Medicaid Services and Health Resources and Services Administration (HRSA). | GAO-23-106095
Notes: This analysis is of the 53 hospitals that requested an exception to the 340B disproportionate share hospital adjustment
percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as “excepted hospitals.”
There are three classifications for 340B hospitals: (1) hospitals owned or operated by a unit of state or local government; (2) 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—referred to as “nongovernmental hospitals”; or (3) nonprofit corporations that have been
formally granted state or local governmental powers.
a
Data on hospital types and classifications are from HRSA as of July 2022. The hospital type reflects the type for which the hospital
was approved for the exception.
b
Data on location and number of beds are as of fiscal year 2020, as reported in the hospitals’ Medicare cost reports.
What are the financial characteristics of the excepted hospitals?
The financial characteristics of the 53 excepted hospitals varied, according to our analysis of
their cost reports, and included the following specific characteristics:
· Most (33) hospitals consistently operated with a positive total facility margin in each year
from fiscal years 2017 through 2020 (meaning that their revenues exceeded their
costs).22 Of the remaining hospitals, four operated with a negative total facility margin
each year (meaning that their costs exceeded their revenues), and 16 fluctuated
between positive and negative margins.
· Most hospitals saw year-to-year fluctuations—both increases and decreases—in the
amounts of charity care, uncompensated care, and total unreimbursed and
22Total facility margin was calculated as total revenue minus total costs divided by total revenue.
Page 13 GAO-23-106095 340B Drug Discount Program
uncompensated care they provided as a percentage of total facility revenue.23 However,
for a few hospitals, the amounts either consistently increased each year or decreased
each year, without fluctuations (see fig. 2). For example, for 42 of the 53 excepted
hospitals, the amounts of total unreimbursed and uncompensated care as a percentage
of total facility revenue fluctuated from year to year. For the remaining 11 hospitals, the
amounts either increased each year (four hospitals) or decreased each year (seven
hospitals).
Figure 2: Trends in Amounts of Charity, Uncompensated, and Total Unreimbursed and Uncompensated Care
Provided by Excepted Hospitals, as a Percentage of Each Hospital’s Total Facility Revenue, Fiscal Years
2017–2020
Accessible Data for Figure 2: Trends in Amounts of Charity, Uncompensated, and Total Unreimbursed and
Uncompensated Care Provided by Excepted Hospitals, as a Percentage of Each Hospital’s Total Facility
Revenue, Fiscal Years 2017–2020
Fluctuated from year to year Increased each year Decreased each year
Charity care 43 4 6
Uncompensated care 43 4 6
Total unreimbursed and uncompensated care 42 4 7
Notes: This analysis is of the 53 hospitals that requested an exception to the 340B disproportionate share hospital adjustment
percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as “excepted hospitals.”
Charity care generally represents services for which a hospital demonstrates that a patient is unable to pay, and is based on a
hospital’s policy to provide all or a portion of services free of charge to patients who meet certain financial criteria. Uncompensated
23Charity care generally represents services for which a hospital demonstrates that a patient is unable to pay, and is
based on a hospital’s policy to provide all or a portion of services free of charge to patients who meet certain financial
criteria. Uncompensated care includes charity care and bad debt, which generally represents services for which a
hospital determines that a patient has the financial capacity to pay, but is unwilling to do so. Total unreimbursed and
uncompensated care includes charity care, bad debt, and costs not reimbursed by public payers.
Page 14 GAO-23-106095 340B Drug Discount Program
care includes charity care and bad debt, which generally represents services for which a hospital determines that a patient has the
financial capacity to pay, but is unwilling to do so. Total unreimbursed and uncompensated care includes charity care, bad debt, and
costs not reimbursed by public payers.
· Across the 4 years we reviewed, only one of the 53 excepted hospitals (a sole
community hospital) had increases each year in the amounts of charity care,
uncompensated care, and total unreimbursed and uncompensated care the hospital
provided, as a percentage of total facility revenue. In contrast, two hospitals (both
disproportionate share hospitals) had decreases each year in all three types of care over
the same time period.
What were the DSH percentages of the excepted hospitals in recent years?
Our review of cost report data from fiscal years 2017 through 2020 found that the DSH
percentages—which, among other things, is a measure of the proportion of low-income
Medicare and Medicaid patients treated by a hospital—for most excepted hospitals fluctuated in
these years. Specifically, 39 of 52 excepted hospitals saw year-to-year fluctuations—both
increases and decreases—in their DSH percentages.24 The DSH percentage consistently
decreased each year for 10 of the remaining hospitals and did not change for three hospitals.
During the 2 years prior to the pandemic, most, but not all, of the 53 excepted hospitals met or
exceeded the required DSH percentage thresholds for the hospital types for which they later
applied and were approved for the exceptions.25
· Forty-one hospitals had DSH percentages that met or exceeded the required thresholds
in both years. The DSH percentages for 10 of these 41 hospitals were within 0.5
percentage points of the required thresholds in both years.
· In contrast, 12 hospitals had DSH percentages that were below the required thresholds
in either one or both years.26 Nine of the 12 had DSH percentages that were below the
required thresholds in one of the 2 years and three had DSH percentages that were
below the required thresholds in both years.
According to HRSA officials and our review of agency documentation, of the 12 hospitals with
DSH percentages below the required thresholds in one or both years before the pandemic, two
hospitals either did not participate in the 340B Program during the time for which their DSH
percentages were below the required thresholds, or were participating as other hospital types
and met the DSH percentage requirement for those types. In addition, one hospital was
terminated from the 340B Program after submitting a cost report in which its DSH percentage
was below the required threshold.
24One hospital was excluded from this analysis because its cost report did not include a value for the DSH
percentage for fiscal year 2017; it did not participate in the 340B Program during that year.
25The cost reports in this analysis all predated the pandemic, meaning that the end of the hospital’s cost-reporting
period was prior to and did not include January 27, 2020—the first day of the COVID-19 public health emergency.
These cost reports may have included files from the Centers for Medicare & Medicaid Services’ 2017, 2018, or 2019
fiscal years, depending on the hospital’s cost-reporting period.
26Nine of the 12 hospitals were disproportionate share hospitals and three were sole community hospitals at the time
of our review.
Page 15 GAO-23-106095 340B Drug Discount Program
The other nine hospitals submitted cost reports that, according to HRSA officials, included DSH
percentages that met or exceeded the required thresholds at the time HRSA conducted its
quarterly DSH percentage check. As a result, HRSA determined that these hospitals were
eligible for 340B participation at that time. HRSA officials said that the data in these hospitals’
cost reports subsequently changed (for example, because of settlement), and the lower DSH
percentages included in our analysis were the result of these changes.27 According to officials,
the lower DSH percentages were not identified during a subsequent quarterly DSH percentage
check because the hospitals had filed cost reports for more recent years. As noted earlier,
HRSA officials review the hospital’s cost report for the most recent fiscal year available at the
time of the quarterly checks, as that is what HRSA uses to determine a hospital’s current 340B
eligibility.
Excepted Hospitals’ 340B Drug Purchases
How much did excepted hospitals indicate they paid to purchase drugs through the 340B
Program in 2020 and 2021, and what were their estimated 340B drug discounts?
The amount excepted hospitals reported paying for 340B drugs in 2020 and 2021 varied
considerably (see table 3). For example, the 39 excepted hospitals that provided complete
payment data for 2021 reported paying between about $42,000 and $70.9 million for 340B
drugs in that year.28 The median amount paid for 340B drugs was about $6.9 million.
Table 3: Amount Excepted Hospitals Reported Paying to Purchase Drugs through the 340B Program, 2020
and 2021
2020 (n=31) 2021 (n=39)
Minimum $99,842 $42,000
Median $7,881,205 $6,880,000
Maximum $74,625,003 $70,899,182
Source: GAO analysis of questionnaire responses from excepted hospitals. | GAO-23-106095
Notes: This analysis was based on data reported by 48 of the 53 hospitals that requested an exception to the 340B disproportionate
share hospital adjustment percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to
as “excepted hospitals.” The analysis for each year (2020 and 2021) includes responses from excepted hospitals that provided
dollar amounts for both (1) what they paid to purchase drugs through the 340B Program, and (2) what they would have paid to
purchase the same drugs if they were not participating in the 340B Program in that year. In some cases, hospitals explained that
they were unable to provide these requested dollar amounts because, for example, the drug purchase data available to them only
covered part of the year, or they did not have access to historical drug pricing data.
The data for each year may include data for the calendar or fiscal year, depending on how excepted hospitals collected and
reported data for the purposes of our questionnaire.
Excepted hospitals may have experienced lapses in enrollment in the 340B Program during 2021, which may have affected their
340B drug purchases.
27Our analyses were based on the most recent cost report data available as of September 2022.
Data in cost reports may change after their original submission in several circumstances. For example, data may
change because of a settlement, which is a reconciliation between the Centers for Medicare & Medicaid Services and
hospitals regarding hospitals’ payments during the relevant cost-reporting periods. It may take up to a year or more
for a cost report to be settled and finalized.
28To be included in the analysis for each year (2020 and 2021), excepted hospitals had to provide complete payment
data for the entire year, meaning that they had to provide total dollar amounts for both (1) what they paid to purchase
drugs through the 340B Program, and (2) what they would have paid to purchase the same drugs if they were not
participating in the 340B Program for the year. In some cases, hospitals explained that they were unable to provide
these requested dollar amounts because, for example, the drug purchase data available to them only covered part of
the year, or they did not have access to historical drug pricing data.
Page 16 GAO-23-106095 340B Drug Discount Program
Based on excepted hospitals’ estimates of what they would have paid to purchase drugs if not
participating in the 340B Program in these years, the median discount percentage that the
hospitals received on the 340B drugs they purchased was 42.4 percent in 2020 and 43.5
percent in 2021.29
Discounts on 340B Drugs Provided by Excepted Hospitals to Patients
How many excepted hospitals reported providing low-income, uninsured patients with
discounts on 340B drugs at contract pharmacies?
Of the 48 excepted hospitals that responded to our questionnaire, 30 reported having one or
more active contract pharmacies that dispensed 340B drugs at the time they responded to the
questionnaire.30 Of the 30 hospitals, 16 reported providing discounts to low-income, uninsured
patients at some or all of those pharmacies (see fig. 3).
Figure 3: Number of Excepted Hospitals That Reported Providing Low-Income, Uninsured Patients with
Discounts on 340B Drugs at Contract Pharmacies, 2022
29We determined the discount percentage that an excepted hospital received on 340B drugs it purchased in each
year by: (1) subtracting the amount a hospital reported paying to purchase drugs through the 340B Program in that
year from what it estimated it would have paid that year if not participating in the program, and (2) dividing by what it
estimated it would have paid. This percentage only includes drug costs and does not account for any costs a hospital
may have incurred as a result of participating in the 340B Program, such as software or other costs to ensure
compliance with program requirements.
30For the purposes of this study, we defined a contract pharmacy as a pharmacy not owned by the covered entity, but
under contract with and listed on the covered entity’s 340B database record. Some of the excepted hospitals that had
pharmacies listed in the 340B database reported in our questionnaire that they did not have active contract
pharmacies that dispensed 340B drugs at the time of the questionnaire. We previously reported that a covered entity
that contracts with a pharmacy may not actually use the pharmacy to dispense 340B drugs. See GAO, Drug Discount
Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement, GAO-18-480
(Washington, D.C.: June 21, 2018).
Page 17 GAO-23-106095 340B Drug Discount Program
Accessible Data for Figure 3: Number of Excepted Hospitals That Reported Providing Low-Income,
Uninsured Patients with Discounts on 340B Drugs at Contract Pharmacies, 2022
Category Number of excepted hospitals
Provide discounts at all contract pharmacies 6
Provide discounts at some contract pharmacies 10
Do not provide discounts at contract pharmacies 14
Note: This analysis was based on data reported by hospitals that requested an exception to the 340B disproportionate share
hospital adjustment percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as
“excepted hospitals.” Of the 53 excepted hospitals, 48 responded to our questionnaire. Of the 48 that responded, 30 reported having
contract pharmacies that dispensed 340B drugs at the time they completed the questionnaire in September through November
2022.
Of the 16 excepted hospitals that reported providing low-income, uninsured patients with
discounts at some or all of their contract pharmacies, the majority (10 hospitals) reported that
the price patients pay for these drugs varies based on the specific pharmacy or on patient
circumstances, such as patient need or their ability to pay. See table 4 for more information on
the prices that hospitals reported their patients pay for 340B drugs at contract pharmacies.
Table 4: Prices Low-Income, Uninsured Patients Pay for 340B Drugs, as Reported by 16 Excepted Hospitals
with Contract Pharmacy Discounts, 2022
Price Number of excepted
hospitals
Free/at no cost to the patient 0
More than $0 but less than the 340B price (i.e., the price the hospital paid for the drug) 1
The 340B price 0
More than the 340B price but less than the wholesale price or what the pharmacy 2
would charge a self-paying patient
Other price: Number of excepted
hospital
Price varies based on pharmacy or patient circumstances 10
Other specific amount (e.g., copayment) 3
Source: GAO analysis of questionnaire responses from excepted hospitals. | GAO-23-106095
Notes: This analysis was based on data reported by hospitals that requested an exception to the 340B disproportionate share
hospital adjustment percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as
“excepted hospitals.” Of the 53 excepted hospitals, 48 responded to our questionnaire. This analysis includes the 16 hospitals that
reported providing patients with discounts on 340B drugs at some or all of their contract pharmacies at the time they completed the
questionnaire in September through November 2022.
The wholesale price is the price that a wholesaler charges a pharmacy for a drug.
How many excepted hospitals reported providing low-income, uninsured patients with
discounts on 340B drugs at in-house pharmacies?
Of the 48 excepted hospitals that responded to our questionnaire, 23 reported having one or
more in-house pharmacies that dispensed 340B drugs for patients’ home use at the time they
Page 18 GAO-23-106095 340B Drug Discount Program
responded to the questionnaire.31 Of the 23 hospitals, 19 reported providing discounts to low-
income, uninsured patients at some or all of these pharmacies (see fig. 4).
Figure 4: Number of Excepted Hospitals That Reported Providing Low-Income, Uninsured Patients with
Discounts on 340B Drugs at In-House Pharmacies, 2022
Accessible Data for Figure 4: Number of Excepted Hospitals That Reported Providing Low-Income,
Uninsured Patients with Discounts on 340B Drugs at In-House Pharmacies, 2022
Category Number of excepted hospitals
Provide discounts at all in-house pharmacies 17
Provide discounts at some in-house pharmacies 2
Do not provide discounts at in-house pharmacies 4
Note: This analysis was based on data reported by hospitals that requested an exception to the 340B disproportionate share
hospital adjustment percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as
“excepted hospitals.” Of the 53 excepted hospitals, 48 responded to our questionnaire. Of the 48 that responded, 23 reported having
in-house pharmacies that dispensed 340B drugs for patients’ home use at the time they completed the questionnaire in September
through November 2022.
Of the 19 excepted hospitals that reported providing low-income, uninsured patients with
discounts at some or all of their in-house pharmacies, five reported that low-income, uninsured
patients pay nothing for 340B drugs, and others reported that their patients pay various amounts
(see table 5).
Table 5: Prices Low-Income, Uninsured Patients Pay for 340B Drugs, as Reported by 19 Excepted Hospitals
with In-House Pharmacy Discounts, 2022
Price Number of excepted
hospitals
Free/at no cost to the patient 5
31For the purposes of this study, we defined an in-house pharmacy as a pharmacy owned by, and a legal part of, the
340B covered entity that dispenses drugs for patients’ home use. It does not include a contract pharmacy that is
listed on the covered entity’s HRSA 340B database record, even if that contract pharmacy is located in the covered
entity’s facility.
Page 19 GAO-23-106095 340B Drug Discount Program
Price Number of excepted
hospitals
More than $0 but less than the 340B price (i.e., the price the hospital paid for the 0
drug)
The 340B price 1
More than the 340B price but less than the wholesale price or what the pharmacy 2
would charge a self-paying patient
Other price Number of excepted
hospitals
Price varies based on pharmacy or patient circumstances 9
Other specific amount (e.g., copayment) 2
Source: GAO analysis of questionnaire responses from excepted hospitals. | GAO-23-106095
Notes: This analysis was based on data reported by hospitals that requested an exception to the 340B disproportionate share
hospital adjustment percentage eligibility requirement as of May 31, 2022, and that were subsequently approved—referred to as
“excepted hospitals.” Of the 53 excepted hospitals, 48 responded to our questionnaire. This analysis includes the 19 hospitals that
reported providing patients with discounts on 340B drugs at some or all of their in-house pharmacies at the time they completed the
questionnaire in September through November 2022.
The wholesale price is the price that a wholesaler charges a pharmacy for a drug.
What other benefits did excepted hospitals report providing to their patients as a result of
participating in the 340B Program?
Apart from providing low-income, uninsured patients with discounts on 340B drugs, 46 of the 48
excepted hospitals that responded to our questionnaire described other benefits to patients and
communities from the hospitals’ participation in the 340B Program. For example, some
excepted hospitals reported that the 340B Program allowed them to expand or offer additional
health services and provide services to underserved populations, such as
· expanding chemotherapy infusion clinics, without which patients would have to travel
long distances—often to another state—to receive care;
· adding primary care providers in their service area or retaining specialists to provide
care in rural areas;
· conducting outreach to underserved communities, such as providing annual influenza
vaccinations, COVID-19 testing and vaccination events, and health and wellness
education; and
· providing mobile charity care to community members who are unhoused or living in rural
areas.
In addition, some hospitals reported using 340B savings to offset costs or financial losses, thus
indirectly benefiting their patients and communities by keeping the hospitals operational. For
example, one excepted hospital noted that savings from the 340B Program helped it to absorb
shortfalls from Medicaid reimbursements and other programs for low-income patients. Another
hospital said its 340B savings feed into its overall operating budget, which helps keep its
hospital afloat. A different hospital reported that the 340B Program allows it to keep clinics open
that may otherwise be too costly to maintain.
Page 20 GAO-23-106095 340B Drug Discount Program
Results of HRSA’s Previous Audits and Other Oversight Activities of Excepted Hospitals
How many excepted hospitals did HRSA audit since fiscal year 2012, and what issues did
HRSA identify?
According to HRSA, as of July 2022, the agency had audited 25 of the 53 excepted hospitals.
Our review of HRSA documentation found that the agency issued a total of 19 findings related
to noncompliance for 14 of these hospitals as a result of these audits. Five of the hospitals had
more than one finding of noncompliance. The most common finding among the excepted
hospitals that were audited related to the potential for duplicate discounts (see table 6). The
remaining 11 hospitals had no audit findings.
Table 6: Findings from 340B Program Audits of Excepted Hospitals, as of July 2022
Audit findings related to noncompliance of 340B Program requirements Number of findings
Duplicate discounts: Inaccurate information on the Medicaid Exclusion Filea 7
Duplicate discounts: Billing contrary to information on the Medicaid Exclusion Filea 2
Diversion of 340B Program drugs to ineligible patients 5
(e.g., individuals prescribed drugs at an ineligible site, individuals who did not meet
patient definition set in the Health Resources and Services Administration (HRSA)
guidance)
Eligibility 5
(e.g., incorrect record in HRSA’s 340B Office of Pharmacy Affairs Information System)
Total findings 19
Source: GAO analysis of information received from the Health Resources and Services Administration. | GAO-23-106095
Note: Fifty-three hospitals requested an exception to the 340B disproportionate share hospital adjustment percentage eligibility
requirement as of May 31, 2022, and were subsequently approved—referred to as “excepted hospitals.” This analysis is based on
the 25 excepted hospitals that were audited by HRSA from fiscal year 2012 (when the agency began conducting audits) through
July 2022.
a
Federal law prohibits subjecting drug manufacturers to duplicate discounts in which drugs provided to Medicaid beneficiaries are
subject to both the 340B Program discounted price and a Medicaid rebate. HRSA has issued guidance for the prevention of
duplicate discounts, which included establishing and clarifying the use of the Medicaid Exclusion File as a mechanism to assist in
the identification of 340B drugs provided to certain Medicaid beneficiaries.
Our review of HRSA documentation found that the 14 hospitals for which HRSA had audit
findings all submitted corrective action plans to address these findings, as required by HRSA.
However, as we previously reported, HRSA does not require all covered entities (including all
hospitals) to provide evidence of successful implementation of the corrective actions prior to
closing audits and instead relies on the entities to self-attest that the audit findings have been
addressed.32
Of the 25 hospitals that were audited, HRSA also issued a total of 39 areas for improvement for
22 of the hospitals. Areas for improvement are based on a covered entity’s failure to follow best
32See GAO-18-480. While HRSA does not require all audited covered entities to provide evidence that that their
corrective action plans have been implemented, HRSA does expect that corrective action plans will be implemented
within 6 months of being approved by the agency. Covered entities unable to meet this expectation may be subject to
termination from the 340B Program. In GAO-18-480, we also found that while HRSA requires covered entities that
have noncompliance issues identified during audits to assess the full extent of noncompliance, the agency does not
require all entities to explain their methodology for doing so. Thus, HRSA does not know if covered entities have
effectively identified the full extent of noncompliance. We made seven recommendations to HRSA to address these
and other issues. As of March 2023, those recommendations remain open (see enclosure I).
Page 21 GAO-23-106095 340B Drug Discount Program
practices that may reflect applicable guidance, but not statutory requirements and do not require
corrective action plans. These areas for improvement for the 22 hospitals included the following:
· Twenty-eight related to hospitals developing, updating, or implementing their 340B
Program policies and procedures. For example, five of these areas for improvement
involved reviewing and updating hospitals’ 340B Program policies and procedures
related to procuring drugs and preventing duplicate discounts. There were also five
areas for improvement related to engaging with an independent organization to perform
annual audits of hospitals’ contract pharmacies.
· Eleven related to hospitals maintaining accurate and complete documentation of their
compliance with 340B requirements. For example, eight of these areas for improvement
involved accurately identifying all contract pharmacy locations by name and address
within the contracts.33
In addition to HRSA’s oversight, drug manufacturers may conduct audits in certain
circumstances. (See text box below.)
Drug Manufacturers’ Oversight of 340B Hospitals
With approval from the Health Resources and Services Administration (HRSA), a drug manufacturer is permitted to
conduct audits of covered entities (including hospitals) if it has documentation that indicates reasonable cause of a
violation (e.g., transferring or otherwise reselling 340B discounted covered drugs to ineligible recipients). According
to HRSA, no drug manufacturers have requested to audit any of the 53 hospitals in our review since the beginning
of the 340B Program in 1992.
Source: GAO analysis of information received from HRSA and 61 Fed. Reg. 65,406 (Dec. 12, 1996). | GAO-23-106095
How many excepted hospitals have self-disclosed noncompliance to HRSA since 2012, and
what issues did they report?
According to HRSA, as of July 2022, 10 of the 53 excepted hospitals have self-disclosed 11
noncompliance events, as part of HRSA’s self-disclosure initiative. Our review of HRSA
documentation found that most of the self-disclosed noncompliance related to the diversion of
340B drugs to ineligible patients (see table 7).
Table 7: Self-Disclosures of Noncompliance Issues by Excepted Hospitals, as of July 2022
Type of self-disclosed noncompliance issue Number of self-
disclosures
Duplicate discounts 1
(e.g., failure to follow state Medicaid requirements)
Diversion of 340B Program drugs to ineligible patients 7
(e.g. individuals prescribed drugs at an ineligible site, individuals who did not meet patient
definition set in HRSA guidance)
Eligibility 3
(e.g., obtaining covered outpatient drugs through a group purchasing organization)a
Total self-disclosed noncompliance issues 11
Source: GAO analysis of information received from the Health Resources and Services Administration (HRSA). | GAO-23-106095
Note: Fifty-three hospitals requested an exception to the 340B disproportionate share hospital adjustment percentage eligibility
requirement as of May 31, 2022, and were subsequently approved—referred to as “excepted hospitals.” This analysis is based on
33According to HRSA guidance, covered entities are required to have written contracts in place with each pharmacy
through which they intend to dispense 340B drugs.
Page 22 GAO-23-106095 340B Drug Discount Program
the 10 excepted hospitals that self-disclosed noncompliance issues to HRSA from 2012 (when the agency began its self-disclosures
of noncompliance initiative) through July 2022.
a
Hospitals buy drugs at prices negotiated directly with manufacturers or at prices negotiated by buying intermediaries, known as
group purchasing organizations, which pool the purchasing power of multiple providers to bargain for lower prices from
manufacturers. Disproportionate share hospitals, children’s hospitals, and freestanding cancer hospitals participating in the 340B
Program may not obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.
See 42 U.S.C. § 256b(a)(4)(L)(iii) (incorporated by reference into 42 U.S.C. § 256b(a)(4)(M)).
How many excepted hospitals were subject to other HRSA oversight efforts?
According to HRSA officials, three of the 53 excepted hospitals were flagged for having a DSH
percentage below the statutory eligibility threshold for their hospital type from fiscal year 2015
through July 2022 as part of HRSA’s quarterly DSH percentage checks of all 340B participating
hospitals. One of these hospitals was flagged prior to the pandemic, and another during the
pandemic. HRSA officials told us that both hospitals submitted amended Medicare cost reports
showing they met or exceeded the DSH percentages and were allowed to remain active in the
340B Program.
HRSA flagged the third hospital during the pandemic and contacted the hospital in February
2022. The hospital later submitted a request for an exception that HRSA subsequently reviewed
and approved. HRSA officials told us that the hospital was required to work with manufacturers
to repay any 340B discounts received during their period of ineligibility, namely the period of
time between when the hospital filed its cost report and when the exception was granted.
According to HRSA, as of July 2022, no issues had been identified in its additional oversight
activities of the excepted hospitals in recent years. These oversight activities included
· nongovernmental hospital contract reviews for six of the excepted hospitals during
registration;34 and
· contract pharmacy integrity checks for four of the excepted hospitals.35
Agency Comments
We provided a draft of this report to the Department of Health and Human Services for review.
The Department provided technical comments, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional committees, the Secretary
of Health and Human Services, and other interested parties. In addition, the report will be
available at no charge on the GAO website at https://www.gao.gov.
If you or your staff have any questions about this report, please contact me at (202) 512-7114 or
RosenbergM@gao.gov. Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors to this report included
34HRSA began conducting reviews of nongovernmental hospital contracts in 2017. We previously reported on
HRSA’s oversight of nongovernmental hospitals in the 340B Program and made six recommendations to HRSA
related to ensuring that participating nongovernmental hospitals meet eligibility requirements. As of March 2023, four
of these recommendations had not been implemented (see enclosure I and GAO-20-108).
35HRSA began conducting contract pharmacy integrity checks in fiscal year 2017. We previously reported on the use
of contract pharmacies in the 340B Program and made recommendations related to HRSA’s oversight of contract
pharmacies’ compliance with 340B Program requirements. As of March 2023, these recommendations had not been
implemented (see enclosure I and GAO-18-480).
Page 23 GAO-23-106095 340B Drug Discount Program
Gerardine Brennan (Assistant Director), Melissa Trinh-Duong Ostergard (Analyst-in-Charge),
Jennie F. Apter, Mallory Kennedy, Cynthia Khan, Daniel Lee, Ethiene Salgado-Rodriguez,
Jeffrey Tamburello, Emily Wilson Schwark, and Jacob Wu.
Sincerely yours,
Michelle B. Rosenberg
Director, Health Care
Enclosure(s) – 1
Page 24 GAO-23-106095 340B Drug Discount Program
Enclosure I: Status of GAO Recommendations Related to the Health Resources and
Services Administration’s (HRSA) Oversight of the 340B Program
GAO has made 20 prior recommendations related to HRSA’s oversight of the 340B Program.
Five of these recommendations have been fully implemented, and 15 have not. Table 8
describes the 15 recommendations that have yet to be implemented and any actions HRSA has
taken to implement them as of March 2023.
Table 8: Status of 15 GAO Recommendations Related to the Health Resources and Services Administration’s
(HRSA) Oversight of the 340B Program That Had Not Been Fully Implemented, as of March 2023
Recommendations from: Agency Progress toward implementation
Drug Pricing: Manufacturer Discounts in the concurrence with
340B Program Offer Benefits, but Federal recommendation
Oversight Needs Improvement (GAO-11-836) (Y/N)
Published: Sept. 23, 2011
Recommendation 2: The Patient Protection Y Subsequent to the issuance of GAO-11-836,
and Affordable Care Act contained several HHS indicated that it believed that guidance
important program integrity provisions for the did not provide HRSA appropriate
340B Program, and additional steps can also enforcement capability. In March 2023,
ensure appropriate use of the program. HRSA stated that, since fiscal year 2017, the
Therefore, the Secretary of Health and Human agency has requested that Congress
Services (HHS) should instruct the provide the agency regulatory authority for
administrator of HRSA to finalize new, more all aspects of the 340B Program. In its fiscal
specific guidance on the definition of a 340B year 2024 budget request, HRSA again
patient. requested additional regulatory authority.
HRSA officials told us that they believe
having this authority would ensure the
agency’s ability to implement this
recommendation.
Recommendation 4: The Patient Protection Y Subsequent to the issuance of GAO-11-836,
and Affordable Care Act contained several HHS indicated that it believed that guidance
important program integrity provisions for the did not provide HRSA appropriate
340B Program, and additional steps can also enforcement capability. In March 2023,
ensure appropriate use of the program. HRSA stated that, since fiscal year 2017, the
Therefore, the Secretary of HHS should agency has requested that Congress
instruct the administrator of HRSA to issue provide the agency regulatory authority for
guidance to further specify the criteria that all aspects of the 340B Program. In its fiscal
hospitals that are not publicly owned or year 2024 budget request, HRSA again
operated must meet to be eligible for the 340B requested additional regulatory authority.
Program. HRSA officials told us that they believe
having this authority would ensure the
agency’s ability to implement this
recommendation.
Page 25 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
Drug Discount Program: Federal Oversight of concurrence with
Compliance at 340B Contract Pharmacies recommendation
Needs Improvement (GAO-18-480) (Y/N)
Published: June 21, 2018
Recommendation 1: The Administrator of N In March 2023, HRSA reiterated that it did
HRSA should require covered entities to not agree with this recommendation and
register contract pharmacies for each site of noted that as long as the contract with a
the entity for which a contract exists. pharmacy says it includes all of the covered
entities’ sites, HRSA does not require the
entity to register the pharmacy for each
individual site.
If HRSA audits a covered entity, its draft
audit protocols call for the auditor to verify if
the pharmacy contract specifies it includes
all entity sites, and, if it does not, the auditor
is to verify whether the pharmacy is
registered for each entity site that is included
in the contract. However, since HRSA only
audits 200 covered entities per year, such
procedures do not provide HRSA with
complete data on entities’ contract pharmacy
arrangements.
Complete data on contract pharmacy
arrangements are also important for
manufacturers to help ensure that 340B
discounted drugs are only provided to
pharmacies on behalf of a covered entity site
with a valid 340B contract with that site.
Thus, we continue to believe that HRSA
needs more complete information on
contract pharmacy arrangements to best
target its oversight of covered entities with
the most complex 340B programs.
Recommendation 2: The Administrator of Y Subsequent to the issuance of GAO-18-480,
HRSA should issue guidance to covered HHS indicated that it believed that guidance
entities on the prevention of duplicate did not provide HRSA appropriate
discounts under Medicaid managed care, enforcement capability.
working with the Centers for Medicare & In March 2023, HRSA stated that, since
Medicaid Services as HRSA deems necessary fiscal year 2017, the agency has requested
to coordinate with guidance provided to state that Congress provide the agency regulatory
Medicaid programs.a authority for all aspects of the 340B
Program. In its fiscal year 2024 budget
request, HRSA again requested additional
regulatory authority. HRSA officials told us
that they believe having this authority would
ensure the agency’s ability to implement this
recommendation.
Page 26 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
Drug Discount Program: Federal Oversight of concurrence with
Compliance at 340B Contract Pharmacies recommendation
Needs Improvement (GAO-18-480) (Y/N)
Published: June 21, 2018
Recommendation 3: The Administrator of Y Subsequent to the issuance of GAO-18-480,
HRSA should incorporate an assessment of HHS indicated that it believed that guidance
covered entities’ compliance with the did not provide HRSA appropriate
prohibition on duplicate discounts, as it relates enforcement capability.
to Medicaid managed care claims, into its audit
process after guidance has been issued and In March 2023, HRSA stated that, since
ensure that identified violations are rectified by fiscal year 2017, the agency has requested
the entities.a that Congress provide the agency regulatory
authority for all aspects of the 340B
Program. In its fiscal year 2024 budget
request, HRSA again requested additional
regulatory authority. HRSA officials told us
that they believe having this authority would
ensure the agency’s ability to implement this
recommendation.
Recommendation 4: The Administrator of Y Subsequent to the issuance of GAO-18-480,
HRSA should issue guidance on the length of HHS indicated that it believed that guidance
time covered entities must look back following did not provide HRSA appropriate
an audit to identify the full scope of enforcement capability.
noncompliance identified during the audit. In March 2023, HRSA stated that, since
fiscal year 2017, the agency has requested
that Congress provide the agency regulatory
authority for all aspects of the 340B
Program. In its fiscal year 2024 budget
request, HRSA again requested additional
regulatory authority. HRSA officials told us
that they believe having this authority would
ensure the agency’s ability to implement this
recommendation.
Page 27 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
Drug Discount Program: Federal Oversight of concurrence with
Compliance at 340B Contract Pharmacies recommendation
Needs Improvement (GAO-18-480) (Y/N)
Published: June 21, 2018
Recommendation 5: The Administrator of N In March 2023, HRSA reiterated that it did
HRSA should require all covered entities to not agree with this recommendation. As
specify their methodology for identifying the full noted in our published report, HRSA
scope of noncompliance identified during the requires covered entities with audit findings
audit as part of their corrective action plans, to determine the full scope of
and incorporate reviews of the methodology noncompliance, and requires certain
into their audit process to ensure that entities entities—those subject to targeted audits
are adequately assessing the full scope of (which includes reaudits)—to provide to
noncompliance. HRSA their methodology for such
assessments.b However, targeted audits
represent a small portion of the audits HRSA
conducts.
To implement this recommendation, HRSA
should require all audited covered entities—
not just those subject to targeted audits—to
provide a written description of
methodologies for HRSA review. HRSA
stated that such requirements would create
a significant burden for covered entities.
However, these entities are already required
to formulate and implement these
methodologies; therefore, providing HRSA
with documentation of the methodologies
should not impose a significant burden for
covered entities. Without this information,
HRSA does not have reasonable assurance
that the majority of covered entities have
adequately identified all instances of
noncompliance.
Recommendation 6: The Administrator of N In March 2023, HRSA reiterated that it did
HRSA should require all covered entities to not agree with this recommendation. As
provide evidence that their corrective action noted in our published report, HRSA
plans have been successfully implemented requires certain covered entities—those
prior to closing audits, including documentation subject to targeted audits (which includes
of the results of the entities’ assessments of reaudits)—to provide evidence that their
the full scope of noncompliance identified corrective action plans have been
during each audit. successfully implemented.b However,
targeted audits represent a small portion of
the audits HRSA conducts.
To implement this recommendation, HRSA
should require all audited covered entities—
not just those subject to targeted audits—to
provide evidence that their corrective action
plans have been successfully implemented.
HRSA stated that such requirements would
create a significant burden for covered
entities. However, these entities are already
required to develop and implement these
plans; therefore, providing HRSA with
evidence of successful implementation
should not impose a significant burden for
covered entities. Without such evidence,
HRSA does not have reasonable assurance
that the majority of covered entities audited
have corrected the issues identified in the
audit, and are not continuing practices that
could lead to noncompliance.
Page 28 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
Drug Discount Program: Federal Oversight of concurrence with
Compliance at 340B Contract Pharmacies recommendation
Needs Improvement (GAO-18-480) (Y/N)
Published: June 21, 2018
Recommendation 7: The Administrator of Y Subsequent to the issuance of GAO-18-480,
HRSA should provide more specific guidance HHS indicated that it believed that guidance
to covered entities regarding contract did not provide HRSA appropriate
pharmacy oversight, including the scope and enforcement capability.
frequency of such oversight. In March 2023, HRSA stated that, since
fiscal year 2017, the agency has requested
that Congress provide the agency regulatory
authority for all aspects of the 340B
Program. In its fiscal year 2024 budget
request, HRSA again requested additional
regulatory authority. HRSA officials told us
that they believe having this authority would
ensure the agency’s ability to implement this
recommendation.
Page 29 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
340B Drug Discount Program: Increased concurrence with
Oversight Needed to Ensure Nongovernmental recommendation
Hospitals Meet Eligibility Requirements (GAO- (Y/N)
20-108)
Published: Dec. 11, 2019
Recommendation 1: The Administrator of Y In March 2023, HHS reiterated that HRSA
HRSA should ensure that the information it believes that the information it uses to
uses to verify nonprofit status for all determine nonprofit status is reliable
nongovernmental hospitals that participate in because hospital administrators attest to its
the 340B Program is reliable—for example, by accuracy, and requested that the
requiring and reviewing the submission of recommendation be closed as implemented.
official documentation hospitals must already However, as noted in our published report,
maintain or by ensuring the reliability of the neither HRSA nor the agency that collects
data the agency uses. the data has evaluated the reliability of the
data for verifying nonprofit status.
In addition, although HRSA requires newly
registering nongovernmental hospitals to
submit documentation of their nonprofit
status, such as Internal Revenue Service
forms, this does not affect the
nongovernmental hospitals that are already
participating in the 340B Program, for which
it continues to rely on Medicare cost report
data.
Without ensuring it is using reliable
information, HRSA cannot effectively
determine if nongovernmental hospitals
participating in the 340B Program meet the
statutory eligibility requirements.
Recommendation 2: The Administrator of N As of March 2023, HRSA stated that it
HRSA should implement a process to verify requires nongovernmental hospitals to
that every nongovernmental hospital that certify the existence of such contacts and
participates in the 340B Program has a reviews contracts from certain
contract with a state or local government as nongovernmental hospitals—those that are
required by statute. newly registering, changing classification
during recertification, or undergoing program
audits.
To implement this recommendation, HRSA
should verify the existence of such contracts
for all nongovernmental hospitals. As noted
in our published report, HRSA stated that
such requirements would create a burden for
both the agency and covered entities.
While we understand that verifying the
existence of such contracts for all
participating nongovernmental hospitals
would require additional effort on HRSA’s
part, we maintain that relying on hospitals’
attestations is not sufficient to ensure
hospitals’ eligibility. In addition,
nongovernmental hospitals are already
required to maintain copies of their state or
local government contracts; therefore,
HRSA’s verification of such contracts should
not impose a significant burden for covered
entities. Without this information, HRSA
does not have reasonable assurance that
nongovernmental hospitals have the
statutorily required contracts to participate in
the 340B Program.
Page 30 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
340B Drug Discount Program: Increased concurrence with
Oversight Needed to Ensure Nongovernmental recommendation
Hospitals Meet Eligibility Requirements (GAO- (Y/N)
20-108)
Published: Dec. 11, 2019
Recommendation 4: The Administrator of Y In March 2023, HHS reiterated that HRSA
HRSA should provide more specific guidance updated its audit guidance and procedures
for 340B Program auditors on how to to more clearly specify that contracts must
determine if nongovernmental hospitals' contain requirements for the provision of
contracts with state and local governments health care services to low-income
require the provision of health care services to individuals, and requested that GAO close
low-income individuals not eligible for Medicaid this recommendation as implemented.
or Medicare. Specifically, in October 2019, prior to the
issuance of our report and its associated
recommendation, HRSA added language to
its audit guidance directing auditors who had
questions concerning nongovernmental
hospitals’ contracts to contact HRSA.
However, to implement this
recommendation, HRSA should update its
audit guidance to include information on how
auditors are to determine whether contracts
include any kind of requirement to provide
services to low-income individuals not
eligible for Medicaid or Medicare. For
example, the guidance could provide
examples of population and service
descriptions that would likely meet, or not
meet, the statutory requirement.
Without more specific guidance for auditors'
review of contracts, HRSA lacks reasonable
assurance that the audits are appropriately
identifying deficiencies in nongovernmental
hospitals' contracts with state or local
governments.
Recommendation 6: The Administrator of Y As of March 2023, this recommendation has
HRSA should require nongovernmental been partially implemented as HRSA
hospitals participating in the 340B Program to updated its draft audit procedures to specify
demonstrate that they have contracts with state that auditors should ensure that the contract
or local governments in effect prior to the effective dates cover the entire audit period.
beginning of their audits' periods of review and In addition, HRSA stated that it collects,
should apply consistent and appropriate reviews, and confirms that contracts are
consequences for hospitals that are unable to active for certain nongovernmental
do so. hospitals—those that are newly registering
or changing classification during
recertification. However, to fully implement
this recommendation, HRSA also must show
that it has ceased accepting retroactive
contract documentation, and it has applied
consistent and appropriate consequences
when auditors find that nongovernmental
hospitals did not have contracts in effect
prior to the beginning of their audit periods.
Allowing hospitals that are unable to
demonstrate that they have contracts in
place that cover their audits’ periods of
review to continue to participate without
consequences undermines the effectiveness
of HRSA’s audit process, and it increases
the risk that ineligible hospitals will receive
discounts under the program.
Page 31 GAO-23-106095 340B Drug Discount Program
Page 32 GAO-23-106095 340B Drug Discount Program
Recommendations from: Agency Progress toward implementation
340B Drug Discount Program: Oversight of the concurrence with
Intersection with the Medicaid Drug Rebate recommendation
Program Needs Improvement (GAO-20-212) (Y/N)
Published: Jan. 21, 2020c
Recommendation 2: The Administrator of N In March 2023, HRSA reiterated that it did
HRSA should incorporate assessments of not agree with this recommendation. HRSA
covered entities' compliance with state stated that through its audit process, if the
Medicaid programs' policies and procedures agency finds that a hospital is not compliant
regarding the use and identification of 340B with the state’s Medicaid billing requirements
drugs into its audit process, working with and thus creating the potential for a
Centers for Medicare & Medicaid Services as duplicate discount, it issues an area for
needed to obtain states' policies and improvement (as opposed to an audit
procedures. finding). However, as we previously
reported, covered entities are not required to
address areas for improvement.
In addition, as noted in our report, HRSA
does not require its auditors to review state
Medicaid programs’ actual policies, but
instead relies on covered entities’
descriptions of these policies if available,
which are not always accurate.
Without considering states’ actual policies
and procedures and ensuring that covered
entities are following them, HRSA’s audits
cannot effectively identify compliance. Our
recommendation suggests that HRSA work
with the Centers for Medicare & Medicaid
Services to obtain states’ policies and
procedures.
Recommendation 3: The Administrator of N As of March 2023, HRSA reiterated that it
HRSA should require covered entities to work did not agree with this recommendation.
with affected drug manufacturers regarding When duplicate discounts are identified in
repayment of identified duplicate discounts in Medicaid fee-for-service, HRSA requires
Medicaid managed care. covered entities to work with manufacturers
to remedy them.
HRSA has stated that covered entities'
obligations for preventing duplicate
discounts are the same for Medicaid fee-for-
service and managed care. Thus, as noted
in our published report, we believe the steps
for addressing identified duplicate discounts
in managed care should be similar. As a
result, to implement this recommendation,
HRSA should require—not just encourage—
covered entities to work with manufacturers
to remedy any duplicate discounts related to
managed care as they do for those related
to fee-for-service.
Source: GAO analysis of information received from HRSA. | GAO-23-106095
a
This is a priority recommendation, which are those that GAO believes warrant priority attention from heads of key departments or
agencies. They are highlighted because, upon implementation, they may significantly improve government operation—for example,
by realizing large dollar savings; eliminating mismanagement, fraud, and abuse; or making progress toward addressing a high-risk
or duplication issue.
b
HRSA audits include covered entities that are randomly selected based on risk-based criteria (approximately 90 percent of all
audits conducted each year), and covered entities that are targeted based on information from stakeholders such as drug
manufacturers (10 percent of the audits conducted). These targeted audits also include covered entities selected for a follow-up
audit by HRSA as a result of findings from a prior audit (referred to as reaudits).
c
GAO-20-212 also included one recommendation (Recommendation 1) to the Centers for Medicare & Medicaid Services.
Page 33 GAO-23-106095 340B Drug Discount Program
Related GAO Products
Drug Pricing Program: HHS Uses Multiple Mechanisms to Help Ensure Compliance with 340B
Requirements. GAO-21-107. Washington, D.C.: December 14, 2020.
340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate
Program Needs Improvement. GAO-20-212. Washington, D.C.: January 21, 2020.
340B Drug Discount Program: Increased Oversight Needed to Ensure Nongovernmental
Hospitals Meet Eligibility Requirements. GAO-20-108. Washington, D.C.: December 11, 2019.
Drug Discount Program: Improvements Needed in Federal Oversight of Compliance at 340B
Contract Pharmacies. GAO-18-646T. Washington, D.C.: July 11, 2018.
Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs
Improvement. GAO-18-480. Washington, D.C.: June 21, 2018.
Drug Discount Program: Characteristics of Hospitals Participating and Not Participating in the
340B Program. GAO-18-521R. Washington, D.C.: June 18, 2018.
Drug Discount Program: Status of Agency Efforts to Improve 340B Program Oversight. GAO-
18-556T. Washington, D.C.: May 15, 2018.
Drug Discount Program: Update on Agency Efforts to Improve 340B Program Oversight. GAO-
17-749T. Washington, D.C.: July 18, 2017.
Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs
at Participating Hospitals. GAO-15-442. Washington, D.C.: June 5, 2015.
Drug Discount Program: Status of GAO Recommendations to Improve 340B Drug Pricing
Program Oversight. GAO-15-455T. Washington, D.C.: March 24, 2015.
Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but Federal
Oversight Needs Improvement. GAO-11-836. Washington, D.C.: September 23, 2011.
Page 34 GAO-23-106095 340B Drug Discount Program
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