GAO: 340B hospitals, outside pharmacies need more oversight

generic drugs
The GAO is calling for additional oversight of 340B hospitals and their contracted pharmacies. (The Photographer/CC BY-SA 4.0)

The 340B drug discount program is in need of a major overhaul including additional oversight by the Department of Health and Human Services (HHS), a government watchdog said. 

The nonpartisan Government Accountability Office made seven recommendations in a report to that Health Resources and Services Administration (HRSA) on how to prevent duplicate discounts and ensure compliance with outside pharmacies. Of the 55 covered entities reviewed by the GAO, 25 did not pass savings to low income, uninsured patients. 

"These entities are increasingly contracting with pharmacies to dispense 340B drugs," the watchdog said. "Doing so can make it harder to ensure compliance with 340B rules."


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RELATED: Watchdog officials say ambiguity, lack of transparency plagues 340B program

The 340B program mandates that drug manufacturers provide discounts for outpatient Medicaid drugs for low-income hospitals. While hospitals praise the program for making certain drugs affordable in safety-net areas, the drug industry says it leads to higher drug spending

Despite its flaws around transparency and oversight, the program has grown tremendously over the last eight years, from 1,300 contracted pharmacies in the program to nearly 20,000. Furthermore, those entities provide discounts in varying ways either on a case-by-case basis, a flat rater or depending on the beneficiary's income. 

The full recommendations to HRSA include:

  • requiring covered entities to register contract pharmacies for each site of the entity for which a contract exists;
  • issuing guidance to covered entities on the prevention of duplicate discounts under Medicaid managed care;
  • incorporating an assessment of covered entities' compliance with the prohibition on duplicate discounts into its audit process;
  • issuing guidance on the length of time covered entities must look back following an audit to identify the full scope of noncompliance identified during the audit;
  • requiring all covered entities to specify their methodology for identifying the full scope of noncompliance identified during the audit as part of their corrective action plan;
  • requiring all covered entities to provide evidence that their corrective action plans have been successfully implemented prior to closing audits;
  • providing more specific guidance to covered entities regarding contract pharmacy oversight.

HHS agreed with most, but not all of the recommendations. 

One advocacy group warned that the additional requirements and documentation could put more burden on safety-net hospitals.

"We are concerned that some of these recommendations could make program participation significantly more cumbersome for hospitals without improving transparency or compliance," 340B Health, an organization that supports the policy, said in a statement. 

RELATED: 340B hospitals may not invest drug discount savings in improving care, study finds

The GAO report isn't the first time components of 340B have been scrutinized, as transparency issues and questionable savings amounts have plagued the program. 

Republicans say the program has grown too rapidly in recent years and that eligibility requirements are too lax. 

"Oversight has not kept pace with program growth—lacking rigorous oversight, meaningful reporting requirements, and reliable data," Reps. Greg Walden, R-Ore., and Michael Burgess, R-Texas, said in a statement. "Now this new report by the nonpartisan GAO shows that oversight is fundamentally lacking when it comes to important compliance issues for contract pharmacies within the program."

Walden is chairman of the Committee on Energy and Commerce, which requested the report, and Burgess is chairman of the Health subcommittee. 

The report could increase lawmakers' motivation to overhaul the program.

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