About One-Third of  Covered Entities Had  One or More Contract  Pharmacies, and  Pharmacy  Characteristics Varied We found that as of July 1, 2017, about one-third of the more than 12,000  covered entities in the 340B Program had contract pharmacies. A higher  percentage of hospitals (69.3 percent) had at least one contract  pharmacy compared to federal grantees (22.8 percent). Among covered  entities that had at least one contract pharmacy, the number of contract  pharmacies ranged from 1 to 439, with an average of 12 contract  pharmacies per entity. The number of contract pharmacies varied by  covered entity type, with disproportionate share hospitals having the most  on average (25 contract pharmacies), and critical access hospitals having  the least (4 contract pharmacies). Across all covered entities, the distance between the entities and their  contract pharmacies ranged from 0 miles (meaning that the contract  pharmacy and entity were co-located) to more than 5,000 miles; the  median distance was 4.2 miles. About half of the entities had all their  contract pharmacies located within 30 miles, but this varied by entity type.  Specifically, more than 60 percent of critical access hospitals and  federally qualified health centers, a type of federal grantee, had all of their  contract pharmacies within 30 miles. In contrast, 45 percent of  disproportionate share hospitals had at least one pharmacy that was  more than 1,000 miles away compared to 11 percent or less for critical  access hospitals and grantees. Selected Covered  Entities Used Various  Methods to Pay  Contract Pharmacies  and TPAs Contracts we reviewed between selected covered entities and contract  pharmacies showed that entities generally agreed to pay their contract  pharmacies a flat fee per 340B prescription, with some entities also  paying additional fees based on a percentage of revenue. The flat fees  generally ranged from $6 to $15 per prescription, but varied by several  factors, including the type of covered entity and drug, as well as the  patient’s insurance status. In addition to flat fees, many of the contracts  we reviewed included provisions for the covered entity to pay the  pharmacy a fee based on the percentage of revenue generated by each  prescription. These percentage fees only applied to prescriptions  provided to patients with insurance, and ranged from 12 to 20 percent of  the revenue generated by the prescriptions. Selected covered entities and TPAs included in our review indicated two  main methods entities use to pay for TPA services: 1) per prescription  processed, or 2) per contract pharmacy. Officials with the two TPAs we  interviewed and the covered entities that responded to our questionnaire  reported that agreements between the parties most frequently involved  covered entities compensating their TPAs with a fee for each prescription  processed on behalf of the entity, but the exact method and the amount of  the fee varied. For example, some covered entities reported paying their  TPAs for each prescription regardless of whether it was determined to be  340B eligible, others limited the fees to prescriptions that were 340B  eligible, and some reported paying TPAs for 340B-eligible prescriptions  dispensed to an insured patient. About Half of the  Covered Entities  GAO Reviewed  Provided Low- Income, Uninsured  Patients Discounts on  340B Drugs at Some  or All of Their  Contract Pharmacies Thirty of the 55 covered entities responding to our questionnaire reported  providing low-income, uninsured patients discounts on 340B drugs at  some or all of their contract pharmacies. Federal grantees were more  likely than hospitals to provide patients with discounts on the price of  drugs and to provide them at all contract pharmacies. Of the 30 covered  entities that provided discounts, 23 indicated that they pass on the full  340B discount to patients, resulting in patients paying the 340B price or  less for drugs. In many cases, these covered entities indicated that  patients received drugs at no cost. The 30 covered entities providing 340B discounts to low-income,  uninsured patients, reported using a variety of methods to determine  whether patients were eligible for these discounts. Fourteen of the  covered entities said they determined eligibility for discounts based on  whether a patient’s income was below certain thresholds as a percentage  of the federal poverty level, 11 reported providing discounts to all patients,  and 5 said they determined eligibility for discounts on a case-by-case  basis. Some covered entities that did not provide discounts on 340B drugs at  their contract pharmacies reported assisting patients with drug costs  through other mechanisms. For example, some covered entities reported  providing charity care to low-income patients, including free or discounted  prescriptions; and some reported providing discounts on drugs dispensed  by their in-house pharmacies. Oversight  Weaknesses Impede  HRSA’s Ability to  Ensure Compliance  at 340B Contract  Pharmacies We found weaknesses in HRSA’s oversight that impede its ability to  ensure compliance with 340B Program requirements at contract  pharmacies. Specifically:  Incomplete Data. We found that HRSA does not have complete data  on all contract pharmacy arrangements in the 340B Program to inform  its oversight efforts, including its audits of covered entities—the  agency’s primary method for assessing entity compliance with  program requirements. Although HRSA requires covered entities to  register their contract pharmacies with the agency, it does not require  covered entities to separately register contract pharmacies to each  site of the covered entity with which a contractual relationship exists.  HRSA officials told us that the number of registered contract  pharmacy arrangements increases a covered entity’s chance of being  randomly selected for a risk-based audit. Our analysis of HRSA data  showed that the registration of contract pharmacies for 57 percent of  covered entities with multiple sites only specified relationships  between contract pharmacies and each entity’s main site, as opposed  to all sites contracted to distribute drugs on that entity’s behalf. Thus,  the likelihood of an entity being selected for an audit is dependent, at  least in part, on how an entity registers its pharmacies as opposed to  the entity’s actual number of pharmacy arrangements. We concluded  that without more complete information on covered entities’ contract  pharmacy arrangements, HRSA cannot ensure that it is optimally  targeting the limited number of risk-based audits done each year to  entities that are at a higher risk for compliance issues because they  have more contract pharmacy arrangements. Limited Oversight of Duplicate Discounts. We found that HRSA  audits do not fully assess compliance with the 340B Program  prohibition on duplicate discounts for drugs prescribed to Medicaid  beneficiaries. Specifically, 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.  However, HRSA only assesses the potential for duplicate discounts in  Medicaid fee-for-service and not Medicaid managed care, despite the  fact that the majority of Medicaid enrollees, prescriptions and  spending for drugs were in managed care. HRSA officials told us that  they do not assess the potential for duplicate discounts in Medicaid  managed care as part of their audits because they have yet to issue  guidance as to how covered entities should prevent these duplicate  discounts. We concluded that until HRSA develops guidance and  includes an assessment of the potential for duplicate discounts in  Medicaid managed care as part of its audits, the agency does not  have assurance that covered entities’ efforts are effectively preventing  noncompliance, and manufacturers are at risk of being required to  erroneously provide duplicate discounts for Medicaid prescriptions. Lack of Information on Full Scope of Noncompliance. We found  that HRSA requires covered entities for which it identifies issues of  noncompliance during audits to assess the full extent of the  noncompliance, but it does not provide guidance as to how entities  should make these assessments. Specifically, HRSA does not specify  the time period covered entities must review to see if any related  noncompliance occurred and instead, relies on each entity to make  this determination. Additionally, HRSA does not require most covered  entities that were audited to communicate the methodology used to  assess the full scope of noncompliance, or the findings of their  assessments, including how many or which manufacturers were due  repayment. As a result, we concluded that HRSA does not know the  scope of covered entities’ assessments and whether they were  effective at identifying the full extent of the noncompliance identified in  the audit. Lack of Evidence of Corrective Actions. We found that prior to  closing an audit, HRSA’s audit procedures do not require all covered  entities to provide evidence that they have taken corrective action and  are in compliance with program requirements. Instead, HRSA relies  on the 90 percent of covered entities subject to risk-based audits to  self-attest that all audit findings have been addressed and that the  entity has come into compliance with 340B Program requirements.  We concluded that HRSA, therefore, does not have reasonable  assurance that the majority of covered entities audited have corrected  the issues identified in the audit, and are not continuing practices that  could lead to noncompliance, thus increasing the risk of diversions,  duplicate discounts, and other violations of 340B Program  requirements. Limited Guidance on Contract Pharmacy Oversight. We found that  HRSA’s contract pharmacy oversight guidance for covered entities  lacks specificity and thus, provides entities with considerable  discretion on the scope and frequency of their oversight practices.  Specifically, HRSA’s 2010 guidance on contract pharmacy services  specifies that covered entities are responsible for overseeing their  contract pharmacies to ensure that the drugs entities distribute  through them comply with 340B Program requirements, but states  that, “the exact method of ensuring compliance is left up to the  covered entity.” According to HRSA officials, if a covered entity  indicates that it has performed oversight in the 12 months prior to a  HRSA audit, then HRSA considers the entity to have met its  standards for conducting contract pharmacy oversight, regardless of  what the oversight encompassed. However, due, at least in part, to a  lack of specific guidance, we found that some covered entities  performed minimal contract pharmacy oversight. Additionally, the  identified noncompliance at contract pharmacies raises questions  about the effectiveness of covered entities’ current oversight  practices. For example, 66 percent of the 380 diversion findings in  HRSA audits since 2012 involved drugs distributed at contract  pharmacies, and 33 of the 813 audits for which results were available  had findings for lack of contract pharmacy oversight. We concluded  that as a result of the lack of specific guidance and the numerous  HRSA audit findings of noncompliance occurring at contract  pharmacies, HRSA does not have assurance that covered entities’  contract pharmacy oversight practices are sufficiently identifying 340B  noncompliance. Our June 2018 report contained seven recommendations to HRSA to  strengthen its oversight of the 340B Program. HHS concurred with our  four recommendations that HRSA should 1) issue guidance to covered  entities on the prevention of duplicate discounts under Medicaid managed  care; 2) incorporate an assessment of covered entities’ compliance with  the prohibition on duplicate discounts, as it relates to Medicaid managed  care claims, into its audit process once the guidance is issued; 3) issue  guidance on the length of time covered entities must look back following  audits to identify the full scope of noncompliance identified during audits;  and 4) provide more specific guidance to covered entities regarding  contract pharmacy oversight, including the scope and frequency of such  oversight. HHS did not concur with our three recommendations that HRSA should 1)  require covered entities to register contract pharmacies for each site of  the entity for which a contract exists; 2) require all covered entities to  specify their methodology for determining the full scope of noncompliance  identified during the audit as part of their corrective action plans, and  incorporate reviews of covered entities’ methodology into their audit  process to ensure that entities are adequately assessing the full scope of  noncompliance; and 3) require all covered entities to provide evidence  that their corrective action plans have been successfully implemented  prior to closing audits, including documentation of the results of the  entities’ assessments of the full scope of noncompliance identified during  each audit. HHS cited concerns that implementing these  recommendations would be burdensome on covered entities and HRSA.  However, as explained in our report, we believe that these  recommendations would only create limited additional burden on covered  entities and the agency and are warranted to improve HRSA’s oversight  of the 340B Program. Chairman Burgess, Ranking Member Green, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to answer any questions that you may have at this time. GAO Contacts and  Staff  Acknowledgments If you or your staff members have any questions concerning this  testimony, please contact Debra A. Draper at (202) 512-7114 or  draper@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. In addition to the contact named above, Michelle Rosenberg  (Assistant Director), Amanda Cherrin (Analyst in Charge), Jennie Apter,  George Bogart, and David Lichtenfeld made key contributions to this  statement. 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This testimony summarizes the information contained in GAO's June 2018 report, entitled Drug Discount Program: Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement ( GAO-18-480 ). The 340B Drug Pricing Program (340B Program), which is administered by the U.S. Department of Health and Human Services' (HHS) Health Resources and Services Administration (HRSA), requires drug manufacturers to sell outpatient drugs at a discount to covered entities so that their drugs can be covered by Medicaid. Covered entities include certain hospitals and federal grantees (such as federally qualified health centers). About one-third of the more than 12,000 covered entities contract with outside pharmacies--contract pharmacies--to dispense drugs on their behalf. GAO's review of 30 contracts found that all but one contract included provisions for the covered entity to pay the contract pharmacy a flat fee for each eligible prescription. The flat fees generally ranged from $6 to $15 per prescription, but varied by several factors, including the type of drug or patient's insurance status. Some covered entities also agreed to pay pharmacies a percentage of revenue generated by each prescription. Thirty of the 55 covered entities GAO reviewed reported providing low-income, uninsured patients discounts on 340B drugs at some or all of their contract pharmacies. Of the 30 covered entities that provided discounts, 23 indicated that they pass on the full 340B discount to patients, resulting in patients paying the 340B price or less for drugs. Additionally, 14 of the 30 covered entities said they determined patients' eligibility for discounts based on whether their income was below a specified level, 11 reported providing discounts to all patients, and 5 determined eligibility for discounts on a case-by-case basis. GAO found weaknesses in HRSA's oversight that impede its ability to ensure compliance with 340B Program requirements at contract pharmacies, such as: HRSA audits do not fully assess compliance with the 340B Program prohibition on duplicate discounts for drugs prescribed to Medicaid beneficiaries. Specifically, manufacturers cannot be required to provide both the 340B discount and a rebate through the Medicaid Drug Rebate Program. However, HRSA only assesses the potential for duplicate discounts in Medicaid fee-for-service and not Medicaid managed care. As a result, it cannot ensure compliance with this requirement for the majority of Medicaid prescriptions, which occur under managed care. HRSA requires covered entities that have noncompliance issues identified during an audit to assess the full extent of noncompliance. However, because HRSA does not require all the covered entities to explain the methodology they used for determining the extent of the noncompliance, it does not know the scope of the assessments and whether they are effective at identifying the full extent of noncompliance. HRSA does not require all covered entities to provide evidence that they have taken corrective action and are in compliance with program requirements prior to closing the audit. Instead, HRSA generally relies on each covered entity to self-attest that all audit findings have been addressed and that the entity came into compliance with 340B Program requirements. Given these weaknesses, HRSA does not have a reasonable assurance that covered entities have adequately identified and addressed noncompliance with 340B Program requirements.