On January 10, 2020, the U.S. Government Accountability Office (GAO) released a report (the Report) analyzing HRSA’s oversight of 340B eligibility requirements for nongovernmental hospitals.  The Report concludes that HRSA should improve its oversight process to ensure that nongovernmental hospitals are nonprofits and have a contract with state or local governments to provide health care services to low-income populations that are not eligible for Medicare or Medicaid.  The Department of Health and Human Services (HHS) generally disagreed that HRSA needed to implement additional oversights, but the Report may lead HRSA to impose additional registration and recertification requirements for nongovernmental hospitals.  A summary of the Report’s recommendations and HRSA’s response is below.

• The GAO recommended that HRSA ensure that the information that it uses to verify a hospital’s nonprofit status is reliable.   The Report stated that HRSA relies on information reported by hospitals in the Medicare cost report to verify a hospital’s nonprofit status and does not independently verify the reliability of the Medicare cost report data.   HHS agreed with this recommendation and stated that it has requested approval from the Office of Management and Budget (OMB) for a process to request additional documentation to confirm a hospital’s nonprofit status at registration.  HRSA also stated that it has the right to ask any nongovernmental hospital for additional documentation to verify nonprofit status at any time.
• The GAO recommended that HRSA implement a process to verify that all nongovernmental hospitals have a contract with a state or local government to provide indigent care.  The Report stated that HRSA primarily relies on hospital attestations made during registration and recertification to verify the existence of indigent care contracts with state and local governments.  Of the 258 hospitals that GAO reviewed, the Report stated that 18 did not have contracts.  HHS rejected GAO’s recommendation to review the indigent care contract for all nongovernmental hospitals, citing insufficient resources and stating that it would impose an undue burden on covered entities.  HRSA stated that it has requested OMB approval to require that nongovernmental hospitals that are registering for the first time to submit a copy of their contract to HRSA.  (Currently, HRSA reviews a random sample of 20% of nongovernmental hospitals that are registering for the first time.)  It also stated that it currently requests a copy of the contract during audits and if a hospital changes its eligibility status.
• The GAO recommended that HRSA revise its current contract review procedures to ensure that contracts include a requirement to provide health care services to indigent populations not eligible for Medicare or Medicaid and HRSA should train staff to conduct these reviews.  The Report stated that, of the 240 contracts that it reviewed, 16 did not require hospitals to provide services to low-income individuals and others did not specify that care must be provided to indigent populations or the amount of care to be provided.  HHS expressed concern that it lacks the resources to implement this recommendation and that the 340B statute does not require specific contractual terms.  HHS stated that it will consider the feasibility of this recommendation and whether it has authority to implement it.
• The GAO recommended that HRSA provide more specific guidance to 340B Program auditors on how to determine if contracts require the provision of healthcare services to indigent patients who are not eligible for Medicare or Medicaid.  The Report stated that HRSA’s guidance to auditors did not specify how to determine if contracts included a requirement for the provision of indigent care.  Of 202 contracts that HRSA audited, 11 did not appear to require hospitals to provide care to indigent populations without Medicare or Medicaid.  Of 38 contracts submitted by hospitals before registering in the 340B program, 2 did not contain such requirements, but were still permitted to register.  HHS agreed with GAO’s recommendation and noted that its draft audit procedures for 2020 requires auditors to review whether contracts include a requirement to provide care to indigent patients who are not Medicare or Medicaid beneficiaries.     
• The GAO recommended that HRSA revise its 340B Program audit procedures to require auditors to assess and document whether contracts contain party names, are signed, cover audited time periods, and require hospitals to serve indigent populations not eligible for Medicare or Medicaid.  The Report stated that HRSA audit procedure did not require auditors to document whether key contractual elements were included in audited contracts.  Of 202 audited contracts, 16 lacked signatures, 7 lacked effective dates or were expired, and 8 lacked dates that covered audited periods.  HHS agreed with GAO’s recommendation and noted that its draft audit procedures for 2020 require auditors to specify whether contracts contain these requirements.
• The GAO recommended that HRSA require audited hospitals to demonstrate that their contracts were in effect before the beginning of audited periods and to apply appropriate consequences to hospitals that are unable to do so.  The Report stated that 8 hospitals submitted retroactive contracts to HRSA that were not effective during the audited period.  HRSA permitted these hospitals to execute new contracts with retroactive start dates and applied no penalties.  HHS agreed with GAO’s recommendation to require hospitals to show that their contracts were in effect during audit periods but disagreed that it should impose penalties.  HHS noted that HRSA will continue to assess audit findings on a case-by-case basis.

Although GAO recommendations do not bind HHS or Congress, the Report lays a foundation for HRSA to start setting new standards on the adequacy of indigent care contracts and the level of indigent care required to qualify for the 340B Program.  HRSA has declined to take such steps, citing its lack of regulatory authority.  Notwithstanding, nongovernmental hospitals may want to take this opportunity to review their state or local contracts to ensure compliance with the 340B statute.