DRUG DISCOUNT 

PROGRAM

Status of Agency Efforts to 

Improve 340B Program 

Oversight

Statement of Debra A. Draper 

Director, Health Care

Testimony 

Before the Committee on Health, 

Education, Labor & Pensions, U.S. 

Senate

For Release on Delivery 

Expected at 10:00 a.m. ET

Tuesday, May 15, 2018

GAO-18-556T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-18-556T, a testimony 

before the Committee on Health, Education, 

Labor & Pensions, U.S. Senate

May 15, 2018

DRUG DISCOUNT PROGRAM

Status of Agency Efforts to Improve 340B Program 

Oversight

What GAO Found

The 340B Drug Pricing Program requires drug manufacturers to sell outpatient 

drugs at discounted prices to covered entities—eligible clinics, hospitals, and 

others—in order to have their drugs covered by Medicaid. Covered entities are 

only allowed to provide 340B drugs to certain eligible patients. Entities dispense 

340B drugs through in-house pharmacies or contract pharmacies, which are

outside pharmacies entities contract with to dispense drugs on their behalf. The 

number of contract pharmacies has increased significantly in recent years.

In its September 2011 report, GAO found that the Health Resources and 

Services Administration’s (HRSA) oversight of the 340B Program was 

inadequate to ensure compliance with program rules, and GAO recommended 

actions that HRSA should take to improve program integrity, particularly given 

significant growth in the program in recent years. HRSA has taken steps to 

address two of GAO’s four recommendations:

• HRSA initiated audits of covered entities. GAO found that HRSA’s 

oversight of the 340B Program was weak because it primarily relied on 

covered entities and manufacturers to ensure their own compliance with 

program requirements and HRSA engaged in few oversight activities. GAO 

recommended that HRSA conduct audits of covered entities and in fiscal 

year 2012, HRSA implemented a systematic approach to conducting annual 

audits of covered entities. HRSA now audits 200 covered entities a year, 

which is less than 2 percent of entities participating in the 340B Program.

Audits conducted to date have identified instances of non-compliance with 

program requirements, including the dispensing of drugs to ineligible 

patients. GAO currently has work underway reviewing HRSA’s efforts to 

ensure compliance at contract pharmacies, which includes an examination 

of HRSA’s audits of covered entities.

• HRSA clarified guidance for manufacturers. GAO found a lack of 

specificity in guidance for manufacturers for handling cases in which 

distribution of drugs is restricted, such as when there is a shortage in drug

supply. GAO recommended that HRSA refine its guidance. In May 2012, 

HRSA clarified its policy for manufacturers that intend to restrict distribution 

of a drug and provided additional detail on the type of information 

manufacturers should include in their restricted distribution plans.

• HRSA has not clarified guidance on two issues. GAO also found that 

HRSA guidance on (1) the definition of an eligible patient and (2) hospital 

eligibility criteria for program participation lacked specificity and 

recommended that HRSA clarify its guidance. HRSA agreed that clearer 

guidance was necessary and, in 2015, released proposed guidance that 

addressed both issues. However, in January 2017, the agency withdrew 

that guidance in accordance with recent directives to freeze, withdraw, or 

postpone pending federal guidance. In March 2018, HRSA indicated it was 

in the process of determining next steps related to guidance on the patient 

definition, but would need additional authority to further clarify guidance on 

hospital eligibility; rulemaking authority for the 340B Program was requested 

in the administration’s fiscal year 2019 budget proposal.

View GAO-18-556T. For more information, 

contact Debra A. Draper at (202) 512-7114 or 

draperd@gao.gov.

Why GAO Did This Study

According to HRSA, the purpose of the

340B Program, which was created in 

1992, is to enable covered entities to 

stretch scarce federal resources to 

reach more eligible patients, and 

provide more comprehensive services. 

Covered entities can provide 340B 

drugs to eligible patients regardless of 

income or insurance status and 

generate revenue by receiving 

reimbursement from patients’

insurance. The program does not 

specify how this revenue is to be used 

or whether discounts are to be passed 

on to patients. The number of 

participating covered entity sites—

currently about 38,000—has almost 

doubled in the past 5 years and the 

number of contract pharmacies 

increased from about 1,300 in 2010 to 

around 18,700 in 2017. In recent 

years, questions have been raised 

regarding oversight of the 340B

Program, particularly given the 

program’s growth over time.

In September 2011, GAO identified 

inadequacies in HRSA’s oversight of 

the 340B Program and made 

recommendations for improvement. 

Among other things, this statement

describes HRSA actions in response to 

GAO recommendations to improve its 

program oversight.

For this statement, GAO obtained 

information and documentation from 

HRSA officials about any significant 

program updates and steps they have 

taken to implement the 2011 GAO 

recommendations. More detailed 

information on the objectives, scope, 

and methodology can be found in 

GAO’s September 2011 report. 
Letter

Page 1 GAO-18-556T Drug Discount Program

Chairman Alexander, Ranking Member Murray, and Members of the 

Committee:

I am pleased to be here today as you examine the 340B Drug Pricing 

Program (340B Program), including issues concerning its oversight. The 

program, created in 1992 and named for the statutory provision 

authorizing it in the Public Health Service Act (PHSA), requires drug 

manufacturers to sell outpatient drugs at discounted prices to eligible 

clinics, hospitals, and other entities—commonly referred to as covered 

entities—in order to have their drugs covered by Medicaid.1 According to 

the Health Resources and Services Administration (HRSA), the agency 

within the Department of Health and Human Services (HHS) responsible 

for administering and overseeing 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 recent years, questions have been raised regarding HRSA’s 

oversight of the 340B Program, particularly given growth in the program 

over time. According to HRSA, as of January 2017, covered entities had 

more than 38,000 sites participating in the 340B Program—almost double 

the number reported just 5 years earlier.3

Participation in the 340B Program is voluntary for both covered entities 

and drug manufacturers, but there are strong incentives to participate:

• Covered entities can realize substantial savings through 340B price 

discounts—an estimated 20 to 50 percent of the cost of the drugs, 

according to HRSA. In addition, covered entities can generate 340B 

revenue. For example, they can purchase drugs at 340B prices for all 

eligible patients regardless of the patients’ income or insurance status 

and generate revenue, such as by receiving reimbursement from a 

patient’s insurance that may exceed the 340B price paid for the drugs. 

The 340B Program does not dictate how covered entities should use 

 1

42 U.S.C. § 256b. 

2

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 

PHSA. 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 PHSA). 

3

Data represent both unique covered entities and all their eligible sites, such as satellite 

clinics. According to HRSA, there were 12,340 unique organizations participating in the 

program as of January 1, 2017.

Letter
Page 2 GAO-18-556T Drug Discount Program

this revenue or require that discounts on the drugs be passed on to 

patients.

• Incentives for participation by drug manufacturers also are strong 

because they must participate in the 340B Program to receive 

Medicaid reimbursement for their drugs. According to HRSA, most 

manufacturers that produce outpatient drugs have participated in the 

program since its inception.

HRSA also requires program participants to meet certain conditions set 

forth both in law and agency guidance. For example, covered entities are 

prohibited from diverting 340B drugs—that is, transferring 340B drugs to 

individuals who are not eligible patients of the entities.4 Similarly, to help 

ensure covered entities receive discounts to which they are entitled, 

HRSA has issued guidance (referred to as “HRSA’s nondiscrimination 

guidance” throughout this statement) prohibiting drug manufacturers from 

distributing drugs in ways that would discriminate against covered entities 

compared to non-340B health care providers, such as by imposing 

minimum purchase requirements or other restrictive conditions.5

In a September 2011 report, we identified inadequacies in HRSA’s 

oversight of this program and recommended actions that should be taken 

to improve oversight and ensure appropriate use of the program.6 Since 

then, we have been monitoring HRSA’s progress in addressing our 

recommendations and have testified about this at hearings before the 

House Committee on Energy and Commerce on March 24, 2015, and 

July 18, 2017.

7 My statement today will describe HRSA actions in 

response to GAO recommendations to address (1) weaknesses in 

oversight of the 340B Program and (2) the lack of clarity in program 

guidance. The statement will also (3) describe ongoing GAO work 

regarding the 340B Program and HRSA oversight.

 4

42 U.S.C. § 256b(a)(5)(B).

5

Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Entity Guidelines, 

58 Fed. Reg. 68922 (Dec. 29, 1993). 

6

See GAO, Drug Pricing: Manufacturer Discounts in the 340B Program Offer Benefits, but 

Federal Oversight Needs Improvement, GAO-11-836 (Washington, D.C.: September 23, 

2011). 

7

See GAO, Drug Discount Program: Status of GAO Recommendations to Improve 340B 

Drug Pricing Program Oversight, GAO-15-455T (Washington, D.C.: March 24, 2015) and 

GAO, Drug Discount Program: Update on Agency Efforts to Improve 340B Program 

Oversight, GAO-17-749T (Washington, D.C.: July 18, 2017).
Page 3 GAO-18-556T Drug Discount Program

For this statement, we obtained information and documentation from 

HRSA officials about any significant program updates, and steps they 

have taken to implement our 2011 recommendations. More detailed 

information on the objectives, scope, and methodology for our 2011 

report can be found in that report.8 We conducted our work for the 2011 

report from September 2010 to September 2011, and updated this work 

in February and March 2015, in June and July 2017, and again in March 

2018. The work upon which this statement is based was conducted 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.

The 340B Program was created following the enactment of the Medicaid 

Drug Rebate Program and gives 340B covered entities discounts on 

outpatient drugs comparable to those made available to state Medicaid 

agencies.9 HRSA is responsible for administering and overseeing the 

340B Program.

Eligibility for the 340B Program, which is defined in the PHSA, has 

expanded over time, most recently through the Patient Protection and 

Affordable Care Act (PPACA), which extended eligibility to additional 

types of hospitals.10 Entities generally become eligible by receiving 

certain federal grants or by being one of six hospital types. Eligible 

grantees include clinics that offer primary and preventive care services, 

such as Federally Qualified Health Centers, clinics that target specific 

conditions or diseases that raise public health concerns or are expensive 

to treat, and AIDS Drug Assistance Programs, which serve as a “payer of 

last resort” to cover the cost of providing HIV-related medications to 

 8

GAO-11-836. 

9

The Medicaid Drug Rebate Program was established through the Omnibus Budget 

Reconciliation Act of 1990 and requires drug manufacturers to pay rebates to states as a 

condition of having their drugs covered by Medicaid. Pub. L. No. 101-508 § 4401, 104 

Stat. 1388, 1388-143 (adding 42 U.S.C. § 1396r-8).

10See Pub. L. No. 111-148, § 7101, 124 Stat. 119, 821 (2010), as amended by the Health 

Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, § 2302, 124 Stat. 

1029, 1082. 

Background

Program Participants
Page 4 GAO-18-556T Drug Discount Program

certain low-income individuals. Eligible hospitals include certain children’s 

hospitals, free-standing cancer hospitals, rural referral centers, sole 

community hospitals, critical access hospitals, and general acute care 

hospitals that serve a disproportionate number of low-income patients, 

referred to as disproportionate share hospitals (DSH).11 To become a 

covered entity and participate in the program, eligible entities must 

register with HRSA and be approved. Entity participation in the 340B 

Program has grown over time to include more than 38,000 entity sites, 

including more than 21,000 hospital sites and nearly 17,000 federal 

grantee sites (see fig. 1).

Figure 1: Growth in Covered Entity Sites, 2013 to 2017

Note: Numbers are as of January 1 of each year.

 11Medicare DSH hospitals receive an additional Medicare payment based on their DSH 

patient percentage, which is a statutory formula created to identify hospitals that treat a 

significantly disproportionate number of low-income Medicare and Medicaid patients. 
Page 5 GAO-18-556T Drug Discount Program

To be eligible for the 340B Program hospitals must meet certain 

requirements intended to ensure that they perform a government function 

to provide care to the medically underserved. First, hospitals generally 

must meet specified DSH adjustment percentages to qualify.12

Additionally, they must be (1) owned or operated by a state or local 

government, (2) a public or private nonprofit corporation that is formally 

delegated governmental powers by a unit of state or local government, or 

(3) a private, nonprofit hospital under contract with a state or local 

government to provide health care services to low-income individuals who 

are not eligible for Medicaid or Medicare.13

All drug manufacturers that supply outpatient drugs are eligible to 

participate in the 340B Program and must participate in order to have 

their drugs covered by Medicaid. To participate, manufacturers are 

required to sign a pharmaceutical pricing agreement with HHS in which 

both parties agree to certain terms and conditions.

The 340B price for a drug—often referred to as the 340B ceiling price—is 

based on a statutory formula and represents the highest price a 

participating drug manufacturer may charge covered entities.14 Covered 

entities must follow certain requirements as a condition of participating in 

the 340B Program. For example

• covered entities are prohibited from subjecting manufacturers to 

“duplicate discounts” in which drugs prescribed to Medicaid 

beneficiaries are subject to both the 340B price and a rebate through 

the Medicaid Drug Rebate Program.15

• covered entities are also prohibited from diverting any drug purchased 

at the 340B price to an individual who does not meet HRSA’s 

definition of a patient. This definition, issued in 1996, outlines three 

criteria that generally state that diversion occurs when 340B 

 12Critical access hospitals are exempt from this requirement. 

13According to HRSA, a hospital is said to be “formally granted governmental powers” 

when the state formally delegates to the hospital a type of power(s) usually exercised by 

the state, for the purpose of providing health care services to the medically indigent 

population of the state. 

14Manufacturers may sell a drug at a price that is lower than the ceiling price. As such, 

covered entities may negotiate prices below the ceiling price. 

1542 U.S.C. § 256b(a)(5)(A). 

Program Structure, 

Operation, and Key 

Requirements
Page 6 GAO-18-556T Drug Discount Program

discounted drugs are given to individuals who are not receiving health 

care services from covered entities or are only receiving non-covered 

services, such as inpatient hospital services.16 (See table 1 for more 

information on HRSA’s definition of an eligible patient.) Covered 

entities are permitted to use drugs purchased at the 340B price for all 

individuals who meet the 340B Program definition of a patient 

regardless of whether they are low-income, uninsured, or 

underinsured.

Table 1: Health Resources and Services Administration’s (HRSA) Definition of a 

Patient Eligible for Discounted Drugs under the 340B Program

Criteria for patient eligibility:a

1. The covered entity has established a relationship with the individual such that the 

covered entity maintains records of the individual’s health care.

2. The individual receives health care services from a health care professional who is 

either employed by the covered entity or provides health care under contractual or 

other arrangements (e.g. referral for consultation) such that responsibility for the 

care provided remains with the covered entity.b

3. The individual receives a health care service or range of services from the covered

entity which is consistent with the service or range of services for which grant 

funding or Federally Qualified Health Center look-alike status has been provided.c

Source: GAO analysis of HRSA guidance. | GAO-18-556T

Notes: HRSA guidance on the definition of a patient eligible for discounted drugs under the 340B 

Program was issued in 1996. See Notice Regarding Section 602 of the Veterans Health Care Act of 

1992 Patient and Entity Eligibility, 61 Fed. Reg. 55156 (Oct. 24, 1996).

a

These criteria do not apply to AIDS Drug Assistance Programs; rather an individual enrolled in an 

AIDS Drug Assistance Programs will be considered a patient of that program.

b

An individual is not considered a patient if the only health care service received from the covered 

entity is the dispensing of a drug or drugs for subsequent self-administration or administration in the 

home setting.

c

According to HRSA, hospitals are exempt from this requirement. Not all federally qualified health 

centers receive federal grants. Providers that meet all of the requirements for the health center 

program but do not receive federal grants are referred to as look-alikes and are eligible to participate 

in the 340B Program.

A covered entity typically purchases and dispenses 340B drugs through 

pharmacies—either through an in-house pharmacy, or through the use of 

a contract pharmacy arrangement, in which the covered entity contracts 

with an outside pharmacy to dispense drugs on its behalf. The adoption 

and use of contract pharmacies in the 340B Program is governed by 

HRSA guidance. HRSA’s original guidance permitting the use of contract 

pharmacies limited their use to covered entities that did not have in-house 

 16See Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Patient and 

Entity Eligibility, 61 Fed. Reg. 55156 (Oct. 24, 1996). 
Page 7 GAO-18-556T Drug Discount Program

pharmacies and allowed each covered entity to contract with only one 

outside pharmacy.17 However, March 2010 guidance lifted the restriction 

on the number of pharmacies with which a covered entity could 

contract.18 Since that time, the number of unique contract pharmacies has 

increased significantly, from about 1,300 at the beginning of 2010 to 

around 18,700 in 2017 (see fig. 2); and, according to HRSA data, in 2017, 

there were more than 46,000 contract pharmacy arrangements.19 HRSA 

guidance requires a written contract between the covered entity and each 

contract pharmacy. Covered entities are responsible for overseeing 

contract pharmacies to ensure compliance with prohibitions on drug 

diversion and duplicate discounts. HRSA guidance indicates that covered 

entities are “expected” to conduct annual independent audits of contract 

pharmacies, leaving the exact method of ensuring compliance up to the 

covered entity.

 17Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contract 

Pharmacy Services, 61 Fed. Reg. 43549 (Aug. 23, 1996).

18Notice Regarding 340B Drug Pricing Program—Contract Pharmacy Services, 75 Fed. 

Reg. 10272 (March 5, 2010).

19Contract pharmacies may have arrangements to dispense drugs for more than one 

entity. HRSA data indicates that there were 46,174 contract pharmacy arrangements—

arrangements between a covered entity site and a pharmacy—as of January 1, 2017. 

However, the total number of contract pharmacy arrangements is likely higher, as HRSA 

does not require entities to report all arrangements to the agency. 
Page 8 GAO-18-556T Drug Discount Program

Figure 2: Growth in Contract Pharmacy Participation, 2010 to 2017

Note: Data represent the number of unique contract pharmacies participating in the program as of 

January 1 of each year. Contract pharmacies may have arrangements to dispense drugs for more 

than one entity.

Drug manufacturers also must follow certain 340B Program requirements. 

For example, HRSA’s nondiscrimination guidance prohibits 

manufacturers from distributing drugs in ways that discriminate against 

covered entities compared to other providers. This includes ensuring that 

drugs are made available to covered entities through the same channels 

that they are made available to non-340B providers, and not conditioning 

the sale of drugs to covered entities on restrictive conditions, which would 

have the effect of discouraging participation in the program.
Page 9 GAO-18-556T Drug Discount Program

In our September 2011 report, we found that HRSA’s oversight of the 

340B Program was weak because it primarily relied on covered entities 

and manufacturers to police themselves and ensure their own compliance 

with program requirements.20 Upon enrollment into the program, HRSA 

requires participants to self-certify that they will comply with applicable 

340B Program requirements and any accompanying agency guidance, 

and expects participants to develop the procedures necessary to ensure 

and document compliance, informing HRSA if violations occur. HRSA 

officials told us that covered entities and manufacturers could also 

monitor each other’s compliance with program requirements, but we 

found that, in practice, participants could face limitations to such an 

approach.

Beyond relying on participants’ self-policing, we also found that HRSA 

engaged in few activities to oversee the 340B Program and ensure its 

integrity, which agency officials said was primarily due to funding 

constraints. Further, although HRSA had the authority to conduct audits 

of program participants to determine whether program violations had 

occurred, at the time of our 2011 report, the agency had never conducted 

such an audit.

In our 2011 report, we concluded that changes in the settings where the 

340B Program was used may have heightened the concerns about the 

inadequate oversight we identified. In the years leading up to our report, 

the settings where the 340B Program was used had shifted to more 

contract pharmacies and hospitals than in the past, and that trend has 

continued in recent years. We concluded that increased use of the 340B 

Program by contract pharmacies and hospitals may have resulted in a 

greater risk of drug diversion to ineligible patients, in part because these 

facilities were more likely to serve patients that did not meet the definition 

of a patient of the program.

To address these oversight weaknesses, we recommended that the 

Secretary of HHS instruct the Administrator of HRSA to conduct selective 

audits of covered entities to deter potential diversion. In response to that 

recommendation, in fiscal year 2012, HRSA implemented a systematic 

approach to conducting annual audits of covered entities that is outlined 

 20GAO-11-836.

HRSA Has 

Implemented GAO’s 

Recommendation to 

Improve Its Oversight 

of the 340B Program 

by Conducting Audits
Page 10 GAO-18-556T Drug Discount Program

on its website.21 HRSA audits include entities that are randomly selected 

based on risk-based criteria (approximately 90 percent of the audits 

conducted each year), and entities that are targeted based on information 

from stakeholders (10 percent of the audits conducted). HRSA currently 

audits a total of 200 entities per year, which accounts for less than 2 

percent of covered entities. (See table 2.)

Table 2: Number and Percent of 340B Covered Entities Audited by the Health 

Resources and Services Administration (HRSA), fiscal years 2012-2017

Fiscal 

year

Number

of audits

Percent of covered 

entities auditeda

2012 51 0.5%

2013 94 0.9%

2014 99 0.9%

2015 200 1.7%

2016 200 1.7%

2017 200 1.6%

Source: HRSA. | GAO-18-556T.

a

Determined using the number of covered entities as of January 1 of each fiscal year.

As a result of the audits already conducted, HRSA has identified 

instances of non-compliance with program requirements, including 

violations related to drug diversion and the potential for duplicate 

discounts. The agency has developed a process to address noncompliance through corrective action plans. The results of each year’s 

audits are available on HRSA’s website, and we currently have work 

underway reviewing HRSA’s efforts to ensure compliance with 340B 

Program requirements at contract pharmacies that includes an

examination of HRSA’s audits of covered entities.

 21See https://www.hrsa.gov/opa/programintegrity/index.html, accessed May 2, 2018. 
Page 11 GAO-18-556T Drug Discount Program

In our 2011 report, we found that HRSA’s guidance on three key program 

requirements lacked the necessary level of specificity to provide clear 

direction, making it difficult for participants to self-police or monitor others’ 

compliance, and raising concerns that the guidance could be interpreted 

in ways that were inconsistent with its intent.22

First, we found that HRSA’s nondiscrimination guidance was not 

sufficiently specific in detailing practices manufacturers should follow to 

ensure that drugs were equitably distributed to covered entities and non340B providers when distribution was restricted.23 Some stakeholders we 

interviewed for the 2011 report, such as covered entities, raised concerns 

about the way certain manufacturers interpreted and complied with the 

guidance in these cases. We recommended that HRSA further clarify its 

nondiscrimination guidance for cases in which distribution of drugs is 

restricted and require reviews of manufacturers’ plans to restrict 

distribution of drugs at 340B prices in such cases. In response, HRSA 

issued a program notice in May 2012 that clarified HRSA’s policy for 

manufacturers that intend to restrict distribution of a drug and provided 

additional detail on the type of information manufacturers should include 

in such restricted distribution plans.24

In addition, we found a lack of specificity in HRSA’s guidance on two 

other issues—the definition of an eligible patient and hospital eligibility for 

program participation. Specifically, we found that

• HRSA’s guidance on the definition of an eligible patient lacked the 

necessary specificity to clearly define the various situations under 

which an individual was considered eligible for discounted drugs 

through the 340B Program. As a result, covered entities could 

interpret the definition either too broadly or too narrowly. At the time of 

our report, agency officials told us they recognized the need to 

provide additional clarity around the definition of an eligible patient, in 

part because of concerns that some covered entities may have 

interpreted the definition too broadly to include non-eligible 

 22GAO-11-836.

23Restricted distribution may occur when there is a shortage in drug supply or when 

shortages are anticipated. 

24HRSA Drug Pricing Program Notice, Release No. 2011-1.1 (May 23, 2012).

HRSA Implemented 

One of Three GAO 

Recommendations to 

Clarify Program 

Guidance
Page 12 GAO-18-556T Drug Discount Program

individuals, such as those seen by providers who were only loosely 

affiliated with a covered entity.

• HRSA had not issued guidance specifying the criteria under which 

hospitals that were not publicly owned or operated could qualify for 

the 340B Program.25 For example, we found HRSA guidance lacking 

on one of the ways hospitals could qualify for the program, namely by 

executing a contract with a state or local government to provide 

services to low-income individuals who are not eligible for Medicaid or 

Medicare. Specifically, we found that HRSA did not outline any criteria 

that must be included in such contracts, such as the amount of care a 

hospital must provide to these low-income individuals, and did not 

require the hospitals to submit their contracts for review by HRSA.26

As a result, hospitals with contracts that provided a small amount of 

care to low-income individuals not eligible for Medicaid or Medicare 

could claim 340B discounts, which may not have been what the 

agency intended.

Given the lack of specificity in these areas, we recommended that HRSA 

(1) finalize new, more specific guidance on the definition of an eligible 

patient, and (2) issue guidance to further specify the criteria that hospitals 

not publicly owned or operated must meet to be eligible for the 340B 

Program. HRSA agreed with these recommendations and had planned to 

address them in a comprehensive 340B Program regulation that it 

submitted to the Office of Management and Budget for review in April 

2014. However, HRSA withdrew this proposed regulation in November 

2014 following a May 2014 federal district court ruling that the agency had 

not been granted broad rulemaking authority to carry out all the provisions 

of the 340B Program.

27 After this ruling, the agency issued a proposed 

Omnibus Guidance in August 2015 to interpret statutory requirements for 

the 340B Program in areas where it did not have explicit rulemaking 

authority, including further specificity on the definition of a patient of a 

 25We use the term “hospitals that are not publicly owned or operated” to refer to public 

and private nonprofit corporations as well as private, nonprofit hospitals that may be 

eligible for the 340B Program. The term does not include private, for-profit hospitals as

these hospitals are not eligible for the 340B Program.

26HRSA officials we interviewed for the September 2011 report told us that contracts were 

selectively reviewed if further clarification was necessary.

27See Pharm. Research & Mfrs. of Am. v. United States HHS, No. 13-1501, 2014 U.S. 

Dist. LEXIS 70894 (D.D.C. May 23, 2014).
Page 13 GAO-18-556T Drug Discount Program

covered entity and hospital eligibility for 340B Program participation.28

However, in January 2017, the agency withdrew the guidance following 

the administration’s January 20 memorandum directing agencies to 

withdraw or postpone regulations and guidance that had not yet taken 

effect.29 In March 2018, HRSA indicated that it was working with HHS to 

determine next steps regarding the proposed Omnibus Guidance, which 

included the patient definition, but that it was unable to further clarify 

guidance on hospital eligibility without additional authority. HRSA also 

noted that the administration’s fiscal year 2019 budget proposal requests 

rulemaking authority, which, if enacted, would provide the agency with the 

authority to regulate hospital eligibility for the 340B Program.

GAO has ongoing work related to 340B contract pharmacies and the 

characteristics of hospitals participating in the program. Specifically, 

given the increase in the number of contract pharmacies in the 340B 

Program and concerns that contract pharmacy arrangements present an 

increased risk to the integrity of the program, we were asked to review 

contract pharmacy use under the 340B Program. In our forthcoming 

report, we plan to

• describe the extent to which covered entities contract with pharmacies

to distribute 340B drugs, and the characteristics of these pharmacies;

• describe financial arrangements selected covered entities have with 

contract pharmacies and third-party administrators related to the 

administration and dispensing of 340B drugs; 30

• describe the extent to which selected covered entities provide 

discounts on 340B drugs dispensed by contract pharmacies to lowincome, uninsured patients; and

• examine HRSA’s efforts to ensure compliance with 340B Program 

requirements at contract pharmacies.

 28See 340B Drug Pricing Program Omnibus Guidance, 80 Fed. Reg. 52300 (Aug. 28, 

2015).

29See Memorandum for the Heads of Executive Departments and Agencies, Regulatory 

Freeze Pending Review, 82 Fed. Reg. 8346 (Jan. 24, 2017).

30Third-party administrators are private companies that some covered entities contract 

with to manage systems for patient eligibility, program finances, and 340B inventory. 

GAO Has Ongoing 

Work Related to the

340B Program
Page 14 GAO-18-556T Drug Discount Program

In addition, with the growth in the number of hospitals participating in the 

340B Program and Medicaid coverage expansions as a result of PPACA, 

we were asked to review how hospitals that participate in the 340B 

Program compare to other hospitals. In our forthcoming report, we plan to 

address

• how hospitals that participate in the 340B Program compare to non340B hospitals in terms of certain characteristics; and 

• how, if at all, the characteristics of 340B and non-340B hospitals 

changed after state Medicaid coverage was expanded under PPACA. 

We expect to issue these reports this summer. 

Chairman Alexander, Ranking Member Murray, and Members of the 

Committee, this concludes my statement. I would be pleased to respond 

to any questions you may have.

For further information about this statement, please contact Debra A. 

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