Drug Discount Program: Characteristics of Hospitals Participating and Not Participating in the 340B Program

What GAO Found

The 340B Drug Pricing Program enables certain categories of hospitals to obtain discounts on covered outpatient drugs. To be eligible for the program, hospitals must meet various requirements. For most hospitals, these include serving a specified disproportionate share of low-income inpatients, such as Medicaid inpatients, as measured by the hospital's Medicare disproportionate share hospital (DSH) adjustment percentage.

GAO examined characteristics of 340B-participating hospitals and how they compared with hospitals that did not participate in the program. GAO focused its analysis on three of the six hospital types eligible for the program because these three types accounted for over 95 percent of hospitals participating in the program in 2016. Critical access hospitals (CAH) and sole community hospitals (SCH) are eligible for the 340B Program in part because of their status as CAHs or SCHs under Medicare, which recognizes their geographically isolated location. General acute care hospitals--also referred to as 340B DSH hospitals--are eligible for the program primarily because they serve a disproportionate share of low-income inpatients.

GAO found that among all hospitals in its analysis for 2016, 340B hospitals were generally smaller in terms of the number of inpatient beds, and a somewhat higher percentage of these hospitals were teaching hospitals compared with non-340B hospitals. However, in nearly all characteristics included in GAO's analysis, the differences between 340B and non-340B hospitals varied by hospital type. For example, while 340B general acute care hospitals (340B DSH) were much larger in terms of the number of inpatient beds compared with their non-340B counterparts, 340B and non-340B CAHs were similar in size in terms of the number of inpatient beds. In addition, a much higher percentage of 340B general acute care hospitals (340B DSH) were teaching hospitals compared with their non-340B counterparts, whereas the same percentage of 340B and non-340B SCHs were teaching hospitals.

In addition, GAO found that in 2016, compared with non-340B hospitals, 340B hospitals generally provided similar amounts of charity care and higher amounts of uncompensated care--which typically represent services that hospitals provide to patients who are unable or unwilling to pay for their care, respectively. But again, the differences between 340B and non-340B hospitals varied by hospital type. For example, while the median amount of uncompensated care provided by 340B general acute care hospitals (340B DSH) was higher than that of their non-340B counterparts, the median amount provided by 340B CAHs was lower than that of non-340B CAHs.

GAO also found that from 2012 to 2016--periods before and after most states started expanding their Medicaid programs under the Patient Protection and Affordable Care Act--participation in the 340B Program among general acute care hospitals (340B DSH) increased in Medicaid expansion states but did not increase in non-expansion states. This may be explained in part by an increase in the number of hospitals in expansion states that met the minimum Medicare DSH adjustment percentage required for 340B participation, as it identifies hospitals that treat a disproportionate number of low-income Medicare and Medicaid inpatients. GAO found that from 2012 to 2016, the median Medicare DSH adjustment percentages for both 340B and non-340B general acute care hospitals increased in Medicaid expansion states and decreased in non-expansion states. GAO also found that the median amounts of charity care and uncompensated care provided by hospitals in Medicaid expansion states generally decreased more compared with hospitals in non-expansion states. The increase in 340B participation and decrease in charity care and uncompensated care may suggest that in expansion states, hospitals experienced an increase in the number of patients covered by insurance, such as Medicaid.

Why GAO Did This Study

The 340B Program--administered by the Health Resources and Services Administration (HRSA) within the Department of Health and Human Services--enables participating hospitals to obtain discounts on covered outpatient drugs. Questions have been raised about the number of hospitals participating in the 340B Program--which increased over 60 percent from 2011 to 2016, from 1,465 to 2,399--and the impact of Medicaid expansions on 340B participation. Questions have also been raised about whether hospitals in expansion states may be providing less charity care and uncompensated care due to increased insurance coverage resulting from the Medicaid expansions.

GAO was asked to examine the characteristics of hospitals that participate in the program and changes, if any, in those characteristics after Medicaid expansions. This report (1) compares certain characteristics of 340B and non-340B hospitals and (2) describes how, if at all, the characteristics of these hospitals changed after states' Medicaid coverage was expanded. To compare characteristics of 340B and non-340B hospitals, GAO analyzed 2012 and 2016 data--the most recent year available--from HRSA and the Centers for Medicare & Medicaid Services. The Department of Health and Human Services reviewed a draft of this report and did not have any comments.

For more information, contact James Cosgrove at (202) 512-7114 or CosgroveJ@gao.gov.