GAO Report Suggests Increased Oversight of 340B Program

On January 10, 2020, the Government Accountability Office (GAO) released a report which "found weaknesses in the Health Resources and Services Administration’s (HRSA) oversight [of the 340B Program] that may result in some hospitals receiving discounts for which they are not eligible." The GAO report primarily focused on the extent to which HRSA is monitoring and reviewing nongovernmental hospitals' contracts with state or local governments. These contracts, required by statute as a condition of participation in the 340B Program, must be between the nongovernmental hospital and a unit of state or local government, and must indicate that the hospital will provide health care services to low-income individuals not eligible for Medicaid or Medicare.

As a result of its review of these contracts, the GAO recommended that HRSA take a more proactive role in actually reviewing and auditing these contracts. Specifically, the GAO recommended that HRSA take the following steps:

• Ensure that it uses the most reliable data for determining participant hospitals' non-profit status (e.g., official documentation);
• Implement a process to verify that every nongovernmental hospital that participates in the 340B Program has a contract with a state or local government;
• Amend its contract integrity check procedures for the 340B Program to include a review of whether hospitals' contracts with state and local governments require the provision of health care services to low-income individuals not eligible for Medicaid or Medicare;
• Provide more specific guidance for 340B Program auditors on how to determine if nongovernmental hospitals' contracts with state and local governments require the provision of health care services to low-income individuals not eligible for Medicaid or Medicare;
• Revise its 340B Program audit procedures to require auditors to document their assessments of whether nongovernmental hospitals' contracts with state and local governments are appropriately signed, cover the time periods under review, and require hospitals to serve low-income individuals not eligible for Medicaid or Medicare, such as by requiring auditors to separately affirm and record their review of each of these elements; and
• Require nongovernmental hospitals participating in the 340B Program to demonstrate that they have contracts with state or local governments in effect prior to the beginning of their audits' periods of review and should apply consistent and appropriate consequences for hospitals that are unable to do so.

While these recommendations are non-binding, nongovernmental hospitals should take notice and review their existing governmental contracts to confirm compliance with 340B Program requirements. As HRSA does currently request a copy of these contracts as part of its audit processes, such nongovernmental hospitals should ensure they have compliant contracts readily accessible in the event of a HRSA audit.

If you have any questions about these updates and how they might affect your 340B program participation, please contact your Quarles & Brady attorney or:

• Brenda M. Maloney Shafer: (602) 229-5774 / brenda.shafer@quarles.com
• Richard B. Davis: (414) 277-5844 / richard.davis@quarles.com