Increased Scrutiny on 340B Drug Discount Program and Impacts for Covered Entities

Following the US Government Accountability Office’s (GAO) recently released report—GAO-20-108—on the 340B Drug Discount Program (340B Program), participating organizations (covered entities) should consider taking steps to prepare for increased procedures during a Health Resources and Services Administration (HRSA) program audit as well as the annual recertification process.

Findings in the report identified weaknesses in the HRSA review, which will lead to increased scrutiny to ensure nongovernmental hospitals meet 340B Program eligibility requirements. This means HRSA will likely modify their procedures surrounding all covered entities.

Here are key issues covered in the report as well as steps your health care entity can take to prepare for a 340B Program audit and annual recertification.

Recertifying Eligibility

HRSA, an agency of the US Department of Health and Human Services, requires entities participating in the 340B Program to recertify their eligibility annually. 

Eligibility is determined, in part, by a contract or agreement with a regulatory body, such as the state or local government. The GAO reviewed the contracts of 258 hospitals and found that HRSA’s processes didn’t provide reasonable assurance that participating nongovernmental hospitals met eligibility requirements.  


The GAO identified several weaknesses in HRSA’s review of hospital contracts, including the following:

  • Contract oversights. HRSA doesn’t conduct reviews to determine whether documents submitted by nongovernmental hospitals are valid contracts, which are mutually binding to provide services or supplies in exchange for something of value.
  • Retroactive contracts and unreported findings. When audits identified hospitals that didn’t have contracts in place throughout the review period, HRSA allowed them to enter into new contracts with retroactive start dates and didn’t always note a finding.
  • Assessment inconsistencies. Contract reviews didn’t always include assessments of whether contracts were consistent with the statutory requirement to provide health care services to the 340B-specified low-income population.

HRSA agreed with five of the six GAO recommendations and will make modifications to their audit procedures, which will most likely result in escalated scrutiny of covered entities.

Audit Preparation Steps

If your organization participates in the 340B Program, you can take the following three steps to help prepare for increased scrutiny surrounding eligibility components during an audit:

  1. Carefully and regularly review the contract on which your 340B Program eligibility is based to ensure it’s fully executed, the term is valid, and the agreement includes language required to meet 340B Program eligibility requirements.
  2. Make sure you’re meeting all 340B Program eligibility requirements and maintain documentation to demonstrate compliance.
  3. Establish a monitoring process to verify you’re meeting requirements on a continuous basis.

We’re Here to Help

To understand how the HRSA’s audit responses could affect your 340B Program or for general assistance with your 340B Program, contact your Moss Adams professional.

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