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. 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. 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. HRSA Has Implemented GAO’s Recommendation to Improve Its Oversight of the 340B Program by Conducting Audits

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. In response to that  recommendation, in fiscal year 2012, HRSA implemented a systematic  approach to conducting annual audits of covered entities that is outlined  on its website. HRSA currently  audits a total of 200 entities per year, which accounts for less than 2  percent of covered entities. 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 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. 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 non- 340B providers when distribution was restricted. 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. 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. 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. 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  covered entity and hospital eligibility for 340B Program participation. 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. 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. 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; describe the extent to which selected covered entities provide  discounts on 340B drugs dispensed by contract pharmacies to low- income, uninsured patients; and examine HRSA’s efforts to ensure compliance with 340B Program  requirements at contract pharmacies.
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.

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.