New GAO report: Some hospitals participating in 340B may not be eligible for the program

The Government Accountability Office (GAO) released a new report on 340B hospital eligibility compliance and made a number of alarming observations that underscore the need for more accountability in the 340B program. The key takeaway: It is likely that there are nongovernmental hospitals participating in 340B that are not eligible for the program but have taken advantage of the lax oversight of 340B so they can reap the financial benefits of the program.

To participate in the 340B program, hospitals must meet several criteria set out in the 340B statute. Private nonprofit hospitals (“nongovernmental hospitals”) must demonstrate to the Health Resources and Services Administration (HRSA) that they are nonprofit and have a contract in place with a state or local government to provide health care services to low-income individuals not eligible for Medicare or Medicaid. GAO took a closer look at the “contracts” 258 hospitals used to qualify for 340B and concluded that “HRSA’s current processes and procedures do not provide reasonable assurance that nongovernmental hospitals seeking to participate and benefit from the 340B Program meet the program’s eligibility requirements.” Some of the problems GAO identified include:

1. Contracts lack clarity on care provided to needy patients: GAO states that “Less than one-third of the contracts we reviewed defined ‘low-income’ or included detailed requirements for the amount or type of services to be provided.” This calls into question the intent of the program if hospitals participating in 340B are no longer treating a large number of needy patients. GAO noted that when the amount of services was reported, the reporting varied significantly and, in some cases, made only a small commitment. For example, one contract only “required a hospital to administer influenza vaccines at two clinics on two Fridays each year during influenza season.” Yet the hospital can receive 340B discounts 365 days a year.
   
   
2. Questions on reliability of nonprofit status self-reporting: GAO also observed that HRSA relies on hospitals’ self-reported data to verify the nonprofit status of hospitals. This raises a number of questions on the reliability of the information provided by hospitals. As GAO explains, “Without ensuring that the information it uses on hospitals’ nonprofit status is reliable, HRSA cannot effectively determine if nongovernmental hospitals participating, or seeking to participate, in the 340B Program meet the statutory eligibility requirements, creating a risk that for-profit hospitals could receive discounted pricing for which they are not eligible.”
   
   
3. Concern with overreliance on hospitals’ self-attestations for 340B eligibility: Despite the 340B statute requiring that private nonprofit hospitals have a contract with a state or local government, GAO found 18 of the hospitals participating in 340B did not appear to have real contracts. In fact, GAO found that even when HRSA identified some hospitals that did not have valid contracts, “HRSA has allowed hospitals to avoid audit findings by, for example, entering into new contracts with retroactive start dates.” GAO notes that this practice of trusting that hospitals have contracts “increases the risk that nongovernmental hospitals that do not have the statutorily required contracts and are thus ineligible may register for, and participate in, the program.”

These findings are especially alarming considering all the studies that have been released in recent years raising concerns with the 340B program and its market-distorting effects on the U.S. health care system. For example, the Berkeley Research Group found the amount hospitals and other 340B entities retained from the sale of brand medicines purchased through the 340B program was nine times larger in 2018 than in 2013. And in December, Milliman released data showing 340B hospitals are reimbursed on average three times what they pay for physician-administered medicines.

There are far too many hospitals participating in 340B simply to abuse the program in order to generate additional revenue, and vulnerable, low-income patients are the ones paying the price. Many of these same hospitals use questionable billing practices that target poor and needy patients. In fact, a Kaiser Health News analysis found that 45% of nonprofit hospitals routinely bill low-income patients that qualify for charity care. Enough is enough. Lawmakers need to take action and stop patients from getting caught in profit-driven hospital practices. HRSA could start by reviewing the six recommendations GAO made in their new report.