Reemployment Services: DOL Could Better Support States in Targeting Unemployment Insurance Claimants for Services

In 2017, the UI program provided about $30 billion in temporary income support to 5.7 million claimants who became unemployed through no fault of their own. The federal government provides various resources states can use to help UI claimants achieve reemployment. GAO was asked to review how states identify and serve claimants who need such assistance.

This report examines, among other things, (1) what key federal programs and approaches states used to help UI claimants return to work, and (2) how states used profiling systems to identify claimants who are most likely to exhaust their benefits and need assistance returning to work. GAO reviewed relevant federal laws and guidance; analyzed the most recent available national data on UI claimant participation in key workforce programs, from July 2015 through June 2016; interviewed officials from DOL, six states with key reemployment practices, and three additional states with a variety of profiling practices; and reviewed national studies examining state profiling systems.

Nationwide, four key federally funded workforce programs helped states provide reemployment services, such as career counseling and job search assistance, to millions of unemployment insurance (UI) claimants, according to data from July 2015 through June 2016, the most recent period available (see table). The six selected states GAO reviewed in-depth reported using these key programs to support their efforts to help claimants return to work. Selected state officials described skills assessments, job search assistance, and interview and resume workshops as the types of services they use to connect UI claimants to jobs quickly. Officials also described varying service delivery approaches, with some of the selected states emphasizing the use of online services, while others relied to a greater extent on in-person services.

According to a 2014 national questionnaire to states, most states used a statistical system to identify UI claimants who are most likely to exhaust their benefits and need assistance returning to work (known as profiling). Six of the nine states GAO reviewed used statistical systems and three used non-statistical approaches. GAO identified several concerns with the Department of Labor's (DOL) oversight and support of state UI profiling systems:

Although a 2007 DOL-commissioned study found that some statistical systems may not perform well, DOL has not collected the information needed to identify states at risk of poor profiling system performance.

Some selected states have faced technical challenges in implementing and updating their statistical systems. However, DOL does not have a process for identifying and providing technical assistance to states at risk of poor system performance or those facing technical challenges. Instead, it only provides assistance to those states that request it.

While states have latitude to choose their preferred profiling approach, DOL's 1994 guidance encourages all states to use statistical systems. Because DOL has not updated this guidance to ensure that it clearly communicates all available profiling system options, some states may not be aware that they have greater flexibility in choosing an option that best suits their needs.

GAO recommends that DOL (1) systematically collect sufficient information to identify states at risk of poor profiling system performance, (2) develop a process for providing risk-based technical assistance to such states, and (3) update guidance to clarify state profiling options. DOL agreed with these recommendations.

The federal-state unemployment insurance (UI) program provides  temporary income support to eligible workers who lose their jobs through  no fault of their own. Overseen by the Department of Labor (DOL) and  administered by states, the UI program paid approximately $30 billion in  benefits to 5.7 million claimants in 2017. To receive benefits, UI claimants  generally must be able to work, be available to work, and seek work  actively. Claimants may access reemployment services from the public  workforce system—a network of federal, state, and local partners that  administer and carry out an array of federal employment and training  programs—to help them return to work. These reemployment services,  such as job search assistance and career counseling, are available at  one-stop centers, also known as American Job Centers. However,  technology has changed how UI claimants interact with the public  workforce system. Many claimants now apply for UI benefits remotely,  and may not visit one-stop centers to obtain reemployment services.

Policymakers have encouraged states to strengthen the connection  between the UI program and the public workforce system in a number of  ways. For instance, the Workforce Innovation and Opportunity Act  (WIOA) requires local workforce development boards to include in their  plans strategies for strengthening linkages between the UI program and  one-stop centers. In 2018, Congress also authorized up to approximately  $3.9 billion in funding over the next 10 years for the Reemployment  Services and Eligibility Assessment (RESEA) grant program.  Participating states use a profiling system to identify UI claimants who are  most likely to exhaust their benefits, meaning that they receive benefits  for the maximum time period for which the state pays benefits. The state  then selects these claimants, as well as certain military veterans, to  receive services offered through the program. These services include a  one-stop center orientation and meeting with a caseworker, who  assesses each claimant’s eligibility for UI benefits and helps the claimant  develop an individualized reemployment plan, among other things.

You asked us to review how states leverage resources from the public  workforce system to meet UI claimants’ reemployment needs. This report  (1) describes some key approaches selected states use to support UI  claimants who need assistance returning to work, (2) describes what is  known about how often UI claimants receive services through key  federally funded workforce programs and how states fund reemployment  services for UI claimants, and (3) examines what is known about how  states use profiling systems to identify UI claimants who are most likely to  exhaust their benefits and need assistance returning to work, and how  DOL supports and monitors these efforts.

First, to identify some key approaches states use to support UI claimants  who need assistance returning to work, we reviewed relevant reports and  program evaluations, and interviewed officials from DOL, DOL’s Office of  Inspector General, and the National Association of State Workforce  Agencies (NASWA). Using information from these sources, we selected  six states cited in research or by stakeholders as having at least one  noteworthy reemployment practice, such as an effective or well-designed  reemployment program or commitment to using technology to improve  service delivery, as well as other features of interest, such as use of state  funds to help provide reemployment services. We visited four states  (Massachusetts, Nebraska, Nevada, and Utah), where we interviewed  state and local workforce officials, and had phone interviews with state  workforce agency officials in two states (Texas and Wisconsin). Our  selected states provided illustrative examples of the approaches they take  to meet the reemployment needs of UI claimants; these examples are not  representative of state practices nationwide.

Second, to describe how often UI claimants receive services through key  federally funded workforce programs, we interviewed DOL officials to  identify which programs states typically use to serve UI claimants, and  analyzed national data on UI claimant participation in those programs— the DOL-administered Wagner-Peyser Employment Service, RESEA, the  WIOA Adult program, and the WIOA Dislocated Worker program—for  program year 2015 (July 2015 through June 2016), the most recent year  available at the time of our review. We assessed the reliability of these  data by reviewing data system documentation, conducting data checks,  and interviewing knowledgeable DOL and selected state officials. We  found the data sufficiently reliable to describe how many UI claimants  states report serving through key federally funded workforce programs,  and have included caveats regarding differences in state reporting  practices and other limitations, as appropriate. To describe how states  fund reemployment services for UI claimants, we analyzed summary  reemployment program expenditure data provided by five of the six  selected states for state fiscal year 2017, the most recent year available  at the time of our review. We assessed the reliability of these data by  interviewing knowledgeable state officials, and found them reliable for our  purposes.

Third, to obtain national information on how states use profiling systems  to identify UI claimants who are most likely to exhaust their benefits and  need assistance returning to work, we reviewed a 2007 national study of  state profiling systems and analyzed state responses to a 2014 follow-up  profiling system questionnaire. To obtain more in-depth information on  the practices of individual states, we interviewed officials from our six  selected states and three additional states (Connecticut, Kentucky, and  Maryland), selected because they worked with external partners to  develop their profiling systems or had systems DOL officials identified as  innovative. Where available, we also reviewed documentation related to  selected states’ profiling systems. To obtain information about how DOL  supports and monitors states’ use of profiling systems, we interviewed  DOL officials and reviewed DOL guidance and technical assistance  materials. Lastly, we reviewed relevant federal laws and DOL guidance,  and assessed DOL’s efforts against standards for internal control in the  federal government.

We conducted this performance audit from December 2016 to September  2018 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.

Enacted in July 2014, WIOA emphasizes the alignment and integration of  workforce programs, primarily administered by the departments of Labor  and Education, that provide education and training services to help job  seekers obtain employment and advance in the labor market. WIOA also  provides for state workforce development boards to help oversee a  system of local workforce development boards that, in turn, deliver  services through a network of one-stop centers. In its guidance on  implementing WIOA, DOL states that this network is a shared  responsibility of states, local boards, and other partners, including one- stop programs. It also encourages integration of services across one-stop  programs to promote seamless service delivery.

The public workforce system is available to all job seekers, including UI  claimants, and through it claimants may access reemployment services  from a variety of federally funded workforce programs. At one-stop  centers, states make services such as job search assistance and career  counseling available to UI claimants and other job seekers using  programs including the DOL-administered Wagner-Peyser Employment  Service, the WIOA Adult program, and the WIOA Dislocated Worker  program. The WIOA Adult program and WIOA Dislocated Worker  program may also be used to provide training (see table 1).

UI claimants may also access services from other programs offered  through the public workforce system. One such program, RESEA, is  designated for the provision of reemployment services to UI claimants  specifically. Established as a discretionary grant program in 2015,  RESEA makes funding available to states for reemployment services to  UI claimants identified by their state as most likely to exhaust their  benefits, as well as veterans who receive UI benefits through the  Unemployment Compensation for Ex-Servicemembers (UCX) program.  During fiscal year 2017, 49 states and the District of Columbia  participated in RESEA, and DOL made $115 million in grant funds  available through the program. In February 2018, legislation was  enacted that established RESEA as a formula grant program with  incentive payments for states meeting or exceeding outcome goals, and  authorized up to approximately $3.9 billion in funding for the program  through fiscal year 2027. In July 2018, DOL announced that it was  developing an implementation plan for the new RESEA program  provisions, and would provide details on this plan in the coming months.

RESEA aims to link UI claimants to the public workforce system, address  their individual reemployment needs, and help states prevent and detect  improper payments by conducting UI eligibility reviews. Once a UI  claimant is selected for RESEA, the claimant is required to attend a one- stop orientation and meet one-on-one with a caseworker, who conducts a UI eligibility assessment, helps the claimant develop an individualized  reemployment plan, and provides or refers the claimant to other  reemployment services, as appropriate (see fig. 1). In some states,  claimants participate in a second caseworker meeting to receive follow-up  services, either in person or by phone.

Since 1994, states have been required by law to develop and use  profiling systems to identify UI claimants who are likely to exhaust their  benefits, and to refer such claimants to reemployment services. In  response to this legislation, DOL launched a Worker Profiling and  Reemployment Services (WPRS) initiative in 1994. Currently, most states  provide services to such claimants through their RESEA programs, using  the profiling systems they developed under the WPRS initiative.

DOL issued WPRS guidance in 1994 describing minimum profiling  requirements for all states and listing two profiling options:

Statistical profiling systems predict each UI claimant’s  likelihood of exhausting benefits based on claimant characteristics  (such as education level, prior claims history, and industry or  occupation) and other factors. The system produces a ranked list,  and claimants with the highest predicted likelihood of exhausting  benefits are selected for reemployment services.

Non-statistical characteristic screens sort claimants into two  groups, based on the presence of certain characteristics.  Claimants with one or more of these characteristics are  considered not likely to exhaust their benefits, and are excluded  from selection for services. Remaining claimants are considered  likely to exhaust their benefits, and a subset is randomly selected  for reemployment services.

This guidance also specifies characteristics that states must, may, and  are forbidden to use in their profiling systems. Specifically, states are  required to include certain characteristics to identify UI claimants who are  permanently laid off and unlikely to return to their previous industry or  occupation. States may also use a claimant’s education, tenure at a previous job, and the state unemployment rate. States are prohibited from  using claimant age, race or ethnic group, sex, disability, religion, political  affiliation, and citizenship, among others. DOL determined that use of  these characteristics could produce discriminatory effects, as UI  claimants selected for reemployment services through the profiling  process are required to attend services, or may lose their eligibility to  receive UI benefits.

Research on Effectiveness of Reemployment Services

DOL-commissioned research suggests that reemployment services may  help UI claimants find work more quickly and reduce UI program  expenditures, though results have differed across states reviewed. A  2008 study found that the Reemployment and Eligibility Assessment  (REA) program, the predecessor to RESEA, was effective in reducing the  average duration of UI benefits in one of two states reviewed. Specifically,  this study found that the REA program led to a statistically significant  reduction in the duration of UI benefit claims of about a week for  claimants with multiple caseworker meetings in Minnesota, but did not  find statistically significant effects for claimants in North Dakota. A  subsequent 2011 study found significant reductions in UI benefit duration  and amount of benefits received among REA participants in three of four  states reviewed, with the largest effects exhibited in Nevada. A more in- depth 2012 evaluation of Nevada’s REA program during the 2007 to 2009  Great Recession found that, on average, REA participants exited the UI  program about three weeks sooner and used $873 less in benefits than  non-participants as a result. This impact on UI benefit duration and  benefit amounts includes both reductions in regular UI benefits and in  Emergency Unemployment Compensation (EUC) benefits. Additionally,  REA participants were nearly 20 percent more likely to obtain  employment in the first two quarters after entering the program.

Selected States Provide Services to Help UI Claimants Find Work Using a Variety of Key Approaches Selected States All Provide Reemployment Services to Connect UI Claimants to Jobs Quickly

Officials from all six of our selected states said they provide  reemployment services designed to help UI claimants get back to work  quickly. These services include assessing claimant skills and service  needs, providing job search assistance and referrals, and conducting  interviewing and resume workshops, among others. State officials said  they may also refer claimants with more extensive needs to additional  services, such as longer-term case management or retraining.

Selected States Vary in How They Deliver Services through their Primary Reemployment Programs for UI Claimants

Officials from all six of our selected states described operating  reemployment programs that connect many UI claimants to the state’s  public workforce system; we refer to these as primary reemployment  programs. While the services available through these programs are  similar, state approaches to selecting participants for and delivering  services through these programs vary. According to information from  state officials, these selected states’ primary reemployment programs  generally follow the RESEA model of a one-stop center orientation and  one-on-one meeting with a caseworker.

Officials in all six of our selected states said they served UI claimants  identified as most likely to exhaust their benefits, as required by law,  through their primary reemployment programs, but some select additional  claimants for these programs as well. Officials in two states,  Massachusetts and Nebraska, said they believe it is important for all  claimants to have access to reemployment services and that they require  all claimants to report to a one-stop center for an orientation and meeting  with a caseworker. (See text box.)

State Spotlight: Service Goals  In 2015, Nebraska expanded its primary reemployment program, called NEres, to all  unemployment insurance claimants, with state officials noting that all claimants can  benefit from the high-quality services it offers.

In contrast, officials from three selected states said they prioritize  claimants who are most likely to exhaust their benefits for reemployment  services, and noted that these claimants have the greatest service needs.  Officials from Wisconsin, for example, said claimants who are not  selected for the state’s RESEA program are considered job ready and  typically do not need in-person services. In addition to prioritizing  claimants who are most likely to exhaust their benefits, our sixth selected  state, Nevada, randomly selects additional claimants to participate in a  state-funded reemployment program that is similar to the state’s RESEA  program. Officials in Nevada said they believe their state-funded program  allows them to serve claimants with less intensive needs more efficiently  and builds upon the success of the state’s prior REA program.

Officials in the six selected states described varying approaches to  providing reemployment services online versus in person. Officials in two  states said their state strongly encourages the use of online services. For  example, officials in Utah said all UI claimants are required to fill out an  online needs assessment when filing a claim, and based on their  responses, are required to complete up to five additional online  workshops. These officials said leveraging online self-service options  helps UI claimants adapt to using technology in the workplace and helps  the state preserve limited financial resources (see text box). Similarly,  officials in Wisconsin said claimants are required to complete an online  needs assessment and orientation, and claimants can access various  online workshops to address identified service needs. These officials  believe this emphasis on online services will help claimants become more  self-sufficient and in control of their job search.

State Spotlight: Online Services  Officials in Utah described the one-stop center’s motto as “self-directed.” One-stop  center staff encourage customers to access services independently through the  state’s online portal in the computer lab so that they feel empowered to use online  services at home.

In contrast, officials in three other selected states emphasized the  benefits of in-person service provision. In Nebraska, officials said in- person meetings help one-stop center staff observe a claimant’s potential  employment barriers that might otherwise be hard to identify. Officials  provided an example of a claimant who seemed well-positioned on paper  to obtain employment, but in person clearly lacked good interviewing  skills, prompting the caseworker to refer the claimant to additional  interviewing support. In Texas, officials said in-person service provision,  where possible, also helps promote program integrity as it enables  caseworkers to more easily set the expectation that claimants must  search for work to qualify for UI benefits. Additionally, officials in Nevada  said establishing a personal connection with claimants can help one-stop  staff encourage those struggling with the experience of applying for  dozens of jobs online without receiving any feedback from prospective  employers (see text box).

Officials in the six selected states also described varying approaches in  the extent to which they provide reemployment services in group settings  or on an individual basis. In RESEA guidance, DOL has encouraged the  use of group services as a way to enhance efficiency, and officials in four  selected states said they conduct group orientations through their primary  reemployment programs. For example, in Massachusetts, officials said  that all UI claimants attend a group Career Center Seminar, where one- stop center staff provide an overview of available reemployment services  and local labor market conditions, and UI claimants complete a needs  assessment and career action plan. In Nebraska, a caseworker said the  use of group orientations is a strength of the state’s program because it  provides an opportunity for claimants to discuss shared challenges and  network with each other. In contrast, Nevada provides all services  through its primary reemployment program individually, which officials  said they believe is more effective than group service provision. Officials  said that during these individual meetings, caseworkers identify each  claimant’s barriers to employment and assess whether the claimant  needs ongoing individual case management or if additional service  referrals would be appropriate.

Selected States Leverage Technology and Integrate Program Resources to Help Improve Services

Officials from all six selected states said they use technology and  integrate resources from across federally funded workforce programs as  strategies that help enhance efficiency and improve UI claimant customer  experiences.

To help provide services more cost-effectively and enhance service  delivery capacity, officials in two selected states, Utah and Wisconsin,  said they invested resources into expanding the array of online self- service options available to UI claimants. Utah officials said the state  increased its use of technology to meet heightened service demand  during the Great Recession, and continues to encourage online self- services as a cost-effective, fiscally sustainable means of maintaining  service levels with fewer staff. Similarly, officials in Wisconsin said the  state’s enhanced self-service options are central to its strategy for  meeting current UI claimant needs and prepare the state for potential  increases in UI claimant demand in an economic downturn.

Officials in five selected states said they have also used technology to  help make services more customer-friendly, including the four selected  states in which officials described improvements to their online job banks.

One of these states, Nebraska, added a mobile job bank application that,  according to officials, has made it easier for UI claimants to use job bank  features on their mobile devices and allows them to search for postings  within a certain radius of their physical location. Nevada and Wisconsin  officials also described other investments in mobile technology. Nevada,  for instance, plans to implement a tool that will allow UI claimants to  communicate with caseworkers via text message, such as by sending a  picture of their first paystub to document that they found a job.  Additionally, Wisconsin implemented a self-scheduling feature for initial  RESEA meetings as part of broader upgrades to the state’s UI and  workforce data systems.

Officials in all six selected states said they use technology to help  caseworkers maximize their time. For example, officials in four states said  integrating their state UI and workforce data systems has enabled them to  automate some caseworker responsibilities. In Massachusetts and  Wisconsin, officials said data system integration allows caseworkers to  instantly transfer relevant information from the workforce data system to  the UI data system, enabling them, for instance, to automatically trigger  UI adjudication proceedings after a UI claimant fails to meet RESEA  requirements. Officials from Wisconsin, Massachusetts, and Utah said  their online self-scheduling features help save time that caseworkers  would otherwise spend scheduling and rescheduling missed  appointments. (See text box.) Officials in four selected states said they  also use technological tools to help caseworkers focus their time on  providing individualized services. For example, Nebraska developed a  series of orientation videos designed to deliver clear, standardized  information on job search requirements and available resources for  claimants. As a result, caseworkers who manage in-person orientation  sessions are able to focus on answering participant questions and  emphasizing key information.

State Spotlight: Self-Scheduling Tool  Wisconsin officials said their online self-scheduling tool for participants in the  Reemployment Services and Eligibility Assessment (RESEA) program has both  freed up staff time and increased RESEA attendance rates. According to data  provided by state officials, the percentage of scheduled RESEA meetings attended  by claimants increased from about 69 percent in 2014 to 87 percent in 2016.  Officials attributed this increase to the implementation of the self-scheduling tool in  March 2015.

Officials from all six selected states cited the benefits, such as improving  UI claimant access to services, of enhancing program integration.  Officials from four selected states said they aim to improve UI claimants’  customer experience using a “no wrong door” service delivery framework  in which one-stop center staff guide claimants and other job seekers to  the services they need without requiring them to approach different siloed  programs for services (see text box). Additionally, officials from three  selected states said state workforce agencies work behind the scenes  using integrated budgeting, or “braided funding,” to align the appropriate  federal resources so one-stop center staff can focus on service provision  rather than funding source constraints. Officials in Utah and Wisconsin  said integrated budgeting helped them support system-wide  improvements, such as IT updates. For example, Wisconsin state officials  said they strategically set aside funding from multiple programs to support  the technology upgrades needed for a redesign of their reemployment  program.

State Spotlight: Program Integration  Massachusetts cross-trains one-stop center staff on available workforce programs to  increase collaboration and make the experiences of “shared” customers—those who  receive services from more than one program—more seamless.

Finally, officials from all six of our selected states said that the Wagner- Peyser Employment Service—a federally funded workforce program that  can be used to support any job seeker—is a critical federal resource that  they use in conjunction with other workforce programs to meet the needs  of UI claimants specifically. These six selected states described using the  Wagner-Peyser Employment Service for a wide range of functions,  including expanding reemployment service provision to claimants,  supporting one-stop center staff or computer labs, and maintaining  continuity of RESEA operations in periods of funding uncertainty.

States Served UI Claimants through Four Key Federally Funded Workforce Programs, but Data on Reemployment Service Expenditures Are Not Available States Report that They Most Often Served UI Claimants through the Wagner-Peyser Employment Service

In program year 2015 (July 2015 through June 2016), states reported  providing services to UI claimants through four key federally funded  workforce programs, most often the Wagner-Peyser Employment Service,  followed by RESEA, the WIOA Dislocated Worker program, and the  WIOA Adult program (see fig. 2). (See appendix I for selected state  participation data.)

States likewise served the largest number of all job seekers through the  federally funded Wagner-Peyser Employment Service in program year  2015, followed by RESEA, the WIOA Adult program, and the WIOA  Dislocated Worker program. The proportion of service recipients who  were UI claimants, and the amount of DOL funding provided to states  under these programs, also varied (see fig. 3).

The following sections discuss these programs in more detail.

Selected States Do Not Track All Reemployment Service Spending on UI Claimants, and DOL Officials Said Such Tracking Would Be Burdensome

Officials from all six of our selected states said their accounting systems  did not generally track expenses by the UI claimant status of jobseekers  served, and as a result, they could not isolate all reemployment service  spending on UI claimants specifically. For instance, Utah officials said  they allocated workforce system costs across multiple funding streams by  surveying staff members about their activities at random moments in time.  Officials said that while a jobseeker’s UI claimant status may be relevant  to some staff time charges (such as helping a jobseeker apply for UI  benefits), it would not be relevant, or even known, in other cases (such as  providing computer lab assistance).

Officials from DOL said it would be burdensome for states to track and  report workforce program expenditures on reemployment services  provided to UI claimants specifically, as states have flexibility to use funds  from multiple federal sources on services to both claimants and other  jobseekers. DOL officials said they believe states mainly rely on RESEA,  Wagner-Peyser, WIOA Dislocated Worker, and WIOA Adult funds to  support UI claimant reemployment services. DOL has also reported that  some states, including one of our selected states (Nevada), collect taxes  designated for purposes that may include reemployment services.

Our six selected states also provided some UI claimant reemployment  services through their primary reemployment programs, and five of these  states were able to provide us with summary expenditure data from these  programs. These five states chiefly leveraged RESEA funds to support  these programs in state fiscal year 2017, and three states supplemented  RESEA funds with funds from other sources (see fig. 8).

Of the three states that supplement RESEA funds with other sources, two  (Nebraska and Wisconsin) used Wagner-Peyser funds, and one (Nevada)  used state funds. Nebraska officials said they leveraged flexible Wagner- Peyser funds to enable the state to serve all UI claimants through its  primary reemployment program. Wisconsin officials said that they, too,  used Wagner-Peyser funds to expand the capacity of their state’s primary  reemployment program, but did not aim to serve all UI claimants.  Nevada officials said they used state funds from an employer payroll tax  to provide reemployment services to randomly selected UI claimants not  already selected for RESEA.

States Use Different Profiling Systems to Target UI Claimants for Services, but DOL Has Not Collected Needed Information or Fully Advised States about Profiling Options States Use a Range of Practices to Profile UI Claimants for Reemployment Services

Past national studies and our review of information from nine selected  states indicate that the practices used by states to profile, or identify, UI  claimants who are most likely to exhaust their benefits and need  assistance returning to work differ. A 2007 DOL-sponsored study and a  2014 follow-up questionnaire to states found that, nationally, a large  majority of states reported using statistical profiling systems, while a few  states used a type of non-statistical profiling system known as a  characteristic screen. (See text boxes.) The 2007 study also found that  the performance of states’ profiling systems varied widely. Specifically,  while some systems predicted claimants’ likelihood of benefit exhaustion  relatively well, others did not perform much better than random chance.  Accepted statistical practices recommend that profiling systems be  updated regularly, and DOL has recommended that states update their  profiling systems every 2 to 4 years. However, more than half of states  that responded to the 2014 questionnaire reported that they had not  updated their systems since before 2008.

Statistical Profiling Systems  Statistical profiling systems predict each unemployment insurance (UI) claimant’s  likelihood of exhausting benefits based on claimant characteristics (see examples  below), which are each assigned weights through a statistical process. The system  produces a ranked list, and claimants with the highest predicted likelihood of  exhausting benefits are selected for reemployment services.

Sample Characteristics Used to Predict Benefit Exhaustion

Weeks of UI benefits used in the past 3 years  Non-Statistical Profiling Systems (example: Characteristic Screen)  Non-statistical profiling systems select claimants for services using a process that does  not rely on statistical analysis. One example of these, characteristic screens, sort  unemployment insurance (UI) claimants into two groups, based on the presence of  certain characteristics (see examples below). Claimants with one or more of these  characteristics are considered not likely to exhaust their benefits, and are excluded  from service requirements. Remaining claimants are considered likely to exhaust their  benefits, and a subset is randomly selected for reemployment services.

Of the nine selected states whose profiling systems we reviewed, six use  statistical systems and three use non-statistical systems, and profiling  practices vary widely, even among states using the same type of  system. The six states with statistical systems have varying levels of  system sophistication, and different system assessment and updating  practices. For example, officials in one state said they invested  substantial time and resources in building a sophisticated statistical  profiling system and assessing its performance. To maintain the system,  officials said they update it biannually through a yearlong, resource- intensive process. Officials described this process as important, noting  that employer needs and the economy change over time, as do other  factors that influence UI claimants’ likelihood of exhausting their benefits.  State officials further said that as part of a large umbrella agency with  oversight of numerous federal workforce programs, they have the  resources needed to sustain a centralized data office with the capacity to  build and maintain a sophisticated statistical system.

Officials in another state told us they had recently replaced their  sophisticated statistical profiling system, which was based on the  principles of machine learning, with a new, more straightforward,  statistical system. While DOL officials said the state’s prior system was  innovative, state officials said that after the person who developed it left  the agency, they did not know how to update it. The official charged with  developing the state’s new profiling system said he had to re-familiarize  himself with statistical modeling practices in order to build it, and that it  took months to complete. State officials said they had not yet established  a performance assessment and updating process for the new system,  and that they would need to gather additional data and determine how to  address certain analytical challenges before doing so.

Officials from a third state agency said they were using a statistical  profiling system that had not been updated in over 25 years, and had  asked DOL to help them develop a new statistical profiling system  because they lacked the expertise to do so themselves. In March 2017,  DOL provided the new system to the contractor that maintains the state’s  UI data system and will be responsible for running the new system.  However, in June 2018, state officials told us they had delayed  implementing the new system until the state completed a UI  modernization project. Further, while state officials said they plan to keep  the system up-to-date once implemented, they acknowledged that they  do not have staff with the skills to do so, and will likely need continued  DOL support.

For the three selected states that use non-statistical profiling systems,  state officials said that these systems generally require little effort to  maintain. Officials in two of these states reported using characteristic  screens, which sort claimants into two groups to identify and exempt from  service requirements those claimants who meet certain conditions, such  as being only temporarily unemployed or in an approved training  program. An official from each state said they aim to serve all non-exempt  claimants through their reemployment programs.

The third state recently implemented a non-statistical claimant needs  assessment that replaced the state’s outdated statistical profiling system,  which officials said had never been updated and was only used to comply  with the federal profiling requirement. With the new needs assessment,  claimant responses to questions such as, “Do you have a resume?” and  “How many job interviews have you had in the last month?” are scored to  determine whether the claimant is job-ready or needs reemployment  services. (See text box.) Caseworkers can also use these responses to  make more effective service referrals during their appointments with  claimants. For instance, if a claimant reported not having a current  resume, a caseworker might refer the claimant to a resume workshop. In  addition, officials said that program administrators can easily adjust the  scoring and weights used in the assessment, and that they review it each  year for potential updates.

Sample Alternative Non-Statistical Profiling System (Needs Assessment)  One selected state’s claimant needs assessment scores claimant responses to a  questionnaire about job readiness to determine if claimants need reemployment  services. Those responses also provide caseworkers with direct information about  claimant needs.

How long have you been looking for work?

Do you need help preparing for an interview?

Do you have the computer skills needed to complete online job applications?

DOL Has Not Systematically Collected Information on State Profiling Systems that Could Inform Its Oversight and Technical Assistance Efforts

Despite past research identifying weaknesses in state profiling systems,  DOL has not systematically collected information on these systems,  which limits its ability to oversee their performance. DOL officials said that  they communicate with states about their profiling practices and gather  some profiling system information in the course of their periodic UI and  RESEA reviews. However, DOL technical staff do not review or  maintain this profiling system information for oversight purposes, and  DOL does not have a systematic method of tracking state profiling  practices across states. DOL officials said that they view their primary  role, related to profiling systems, as providing technical assistance;  however, by law, DOL is also responsible for ensuring that states’  profiling systems meet federal requirements. Further, GAO  recommended in a 2007 report that DOL take a more active role in  ensuring profiling system accuracy, and federal internal control  standards state that agencies should obtain timely and relevant data to  conduct effective monitoring. Without such data, DOL’s ability to  effectively oversee state profiling practices is limited.

In addition, DOL provides technical assistance—which can range from  answering specific questions to developing a new statistical profiling  system on a state’s behalf—to individual states only upon request, rather  than identifying and providing assistance to states at higher risk of poor  profiling system performance. This approach necessitates that states  recognize when they need technical assistance and request it. However,  states may not know that their profiling systems are performing poorly  and may not request needed technical assistance as a result. For  example, officials from four of our six selected states with statistical  systems told us that they do not currently have a process to assess their  systems’ performance. As a result, these states may not be aware of  potential issues they may need to address to improve their system  performance. Additionally, officials responsible for maintaining another  selected state’s profiling system had incorrectly identified the system  type. As a result, officials may have difficulty identifying problems and  seeking support.

DOL has an opportunity to use its new UI state self-assessment to  systematically collect information that could inform its oversight of state  profiling practices and technical assistance efforts. This questionnaire,  which DOL designed to help states self-identify and correct UI system  weaknesses, covers 15 functional areas. Self-assessment questions in  one of these areas will collect some information on state profiling  systems, such as system type and date of last update. However, as  currently designed, the self-assessment will not solicit other information  that could help DOL identify states at risk of poor system performance.  For example, it does not ask whether states have experienced challenges  maintaining their systems (for instance, due to staff turnover), or how  states have assessed system performance. DOL officials told us regional  staff will review state responses to the self-assessment, the first of which  are due in March 2019, and which will be one piece of information used to  identify states that DOL might prioritize for general UI program oversight.

While DOL officials said it would make sense to use the information  gathered to inform oversight of profiling systems as well, they did not  have specific plans about how they would do so. Federal internal control  standards state that agencies should identify, analyze, and respond to  risks. Without collecting more detailed and consistent profiling system  information and having a clearer plan for how to use it, DOL’s ability to  conduct effective monitoring and respond to risks will continue to be  limited. More specifically, DOL may miss opportunities to help states at  risk of poor profiling system performance better identify UI claimants most  in need of reemployment services.

DOL Guidance Does Not Fully Address State Options for Meeting Profiling System Requirements

DOL’s current profiling guidance does not clearly and comprehensively  communicate the profiling system options available to states, which may  prevent states from using the profiling systems that best suit their needs.  While the law does not specify a particular type of profiling system states  must use, DOL’s only formal profiling guidance, issued in 1994, describes  only two state options: statistical systems and characteristic screens, a  type of non-statistical system. Further the guidance encourages states to  use statistical systems, which it asserts are more efficient and precise,  and easier to manage and adapt, than non-statistical systems. DOL  officials who provide technical assistance to states told us they also  encourage all states to use statistical profiling systems for the same  reasons. However, DOL officials acknowledged that, in practice, not all  statistical profiling systems predict benefits exhaustion well, particularly  outdated systems. The 2007 DOL-sponsored study similarly found that  some state profiling systems did not predict benefit exhaustion much  more accurately than random chance.

Additionally, statistical profiling systems may be more difficult for some  states to develop and maintain than non-statistical systems. DOL officials  acknowledged that states with technical capacity issues, such as staffing  and data system limitations, may experience particular challenges.  Officials we spoke to in four of our six selected states with statistical  profiling systems told us that they have faced these challenges. In contrast, officials from all of our selected states with non-statistical  profiling systems said their systems are easy to maintain. Officials from  one state that uses a claimant needs assessment said this system also  provides useful information that caseworkers can review prior to one-on- one meetings with claimants.

DOL officials told us they are supportive of state experimentation with  alternative profiling approaches. However, officials in our selected states  had differing perspectives on DOL’s views on state flexibility and options  for pursuing experimentation. For example, an official in one state was  interested in making a change to the outcome variable that the state’s  statistical system predicted, believing it could reduce UI program  expenditures. As a result, the state consulted with regional DOL staff  about the possible revision and made the change with DOL’s support. In  contrast, an official in another state who wanted to make a similar change  to its statistical profiling system has not pursued the change or discussed  it with DOL officials because he believes such a change would not be  allowed.

Further, some of our selected states differed in their understanding of  state flexibility to use the type of profiling system that works best for them.  For example, officials in one of our selected states said they are switching  to a statistical system after longstanding encouragement by DOL to do  so, even though a key official expressed concern that a statistical system  may not be useful, given the state’s goal of providing services to all UI  claimants. In contrast, officials in another state said they had recently  replaced their outdated statistical profiling system with a claimant needs  assessment that differs from the options described in DOL’s 1994  guidance, after requesting DOL review of their revised approach.

The differences in states’ perspectives on allowable options for profiling  systems may in part be due to the fact that DOL’s current profiling  guidance is limited and outdated. The guidance was issued in 1994, and  it does not clearly reflect all of the options available to states, such as  using a different outcome variable in a statistical system, or implementing  an alternative type of non-statistical system to meet worker profiling  requirements. Further, while a key DOL official said they are open to  reviewing alternative state profiling approaches, they do not have a formal  process for doing so, nor does guidance address the option for DOL to  review alternative approaches. DOL officials said they believe the existing  guidance provides states relatively wide latitude in designing their  profiling systems and, as a result, they have not found the need to  change those guidelines. However, federal internal control standards  emphasize the importance of periodically reviewing policy for continued  relevance and effectiveness in achieving objectives. Without clearer,  more current policy information from DOL on profiling requirements and  available options, state officials may continue to have differing  understandings of what they can do, and states may not pursue  innovations that could improve their profiling systems, better suit their  technical capacity, and, ultimately, better target claimants for  reemployment services.

With 5.7 million UI claimants receiving nearly $30 billion in unemployment  benefits in 2017, reemployment services have the potential to  substantially improve employment outcomes and conserve resources by  shortening UI claimants’ periods of unemployment. Earlier this year,  Congress authorized up to approximately $3.9 billion in funding over the  next decade for the RESEA program, which states use to provide  services to UI claimants most likely to exhaust their benefits. However,  DOL has not taken key steps to help states effectively identify and select  such claimants for the program. DOL has the opportunity to collect more  systematic information on state practices for profiling UI claimants  through its new UI state self-assessment, but the information it is planning  to collect is limited and may not enable DOL to identify states that are  having trouble identifying claimants in need of services. Further, DOL  does not have a process for how it can use information on state risks of  poor profiling system performance to guide its oversight and technical  assistance efforts, choosing largely to assist individual states only when  asked. Some states may not be equipped to identify weaknesses in their  profiling systems, and as a result may not request the assistance they  need. In addition, DOL encourages all states to use statistical profiling  systems despite acknowledging that some states’ statistical systems,  particularly outdated ones, may not perform well in practice. Moreover, its  profiling guidance to states has not been updated since 1994, and may  not reflect the flexibility afforded states to pursue alternative profiling  options. Without clearer, more current information from DOL, states may  not pursue innovations that could help them better identify the UI  claimants who need reemployment services most.

We are making the following three recommendations to the Department  of Labor:

The Secretary of Labor should systematically collect sufficient  information on state profiling systems, possibly through DOL’s  new UI state self-assessment process, to identify states at risk of  poor profiling system performance. For instance, DOL could  collect information on challenges states have experienced using  and maintaining their profiling systems, planned changes to the  systems, or state processes for assessing the systems’  performance. (Recommendation 1)

The Secretary of Labor should develop a process to use  information on state risks of poor profiling system performance to  provide technical assistance to states that need to improve their  systems. DOL may also wish to tailor its technical assistance  based on state service delivery goals and technical capacity.  (Recommendation 2)

The Secretary of Labor should update agency guidance to ensure  that it clearly informs states about the range of allowable profiling  approaches. (Recommendation 3)

We provided a draft of this product to the Department of Labor for  comment. In its comments, reproduced in appendix II, DOL agreed with  our recommendations and stated that it would take action to address  them. DOL reiterated its commitment to providing technical assistance to  states and strengthening the connection between the UI program and the  public workforce system. DOL also provided technical comments, which  we incorporated as appropriate. Additionally, we provided relevant  excerpts of the draft report to officials in the selected states we included  in our review. We incorporated their technical comments as appropriate.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of the Department of Labor, and  other interested parties. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at 202-512-7215 or brownbarnesc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

Appendix I: Selected State Program Participation Data

We selected six states—Massachusetts, Nebraska, Nevada, Texas, Utah,  and Wisconsin—for in-depth review. These six selected states all served  unemployment insurance (UI) claimants through several key federally  funded workforce programs in program year 2015 (July 2015 through  June 2016). For the five states that confirmed the reliability of the data  they reported to the Department of Labor (DOL) over this time period, the  numbers of UI claimants served through each program and percent of all  service recipients who were UI claimants varied. Summary data from  each of these five states are presented in figures 9 through 13.

Appendix II: Comments from the Department of Labor

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Rebecca Woiwode (Assistant  Director), Ellen Phelps Ranen (Analyst-In-Charge), Caitlin Croake,  Margaret Hettinger, Efrain Magallan, and Amrita Sen made key  contributions to this report. Also contributing to this report were Lilia  Chaidez, Alex Galuten, Thomas James, Nicole Jarvis, Serena Lo, Mimi  Nguyen, Jessica Orr, Karissa Robie, Almeta Spencer, and Jeff Tessin.


Drug Discount Program: Improvements Needed in Federal Oversight of Compliance at 340B Contract Pharmacies

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.

I am pleased to be here today to discuss our June 2018 report on  contract pharmacies in the 340B Drug Pricing Program (340B Program).  As you know, the 340B Program, named for the statutory provision  authorizing it in the Public Health Service Act, requires drug  manufacturers to sell outpatient drugs at discounted prices to covered  entities in order to have their drugs covered by Medicaid. Covered  entities include 6 types of hospitals and 10 types of federal grantees,  such as federally qualified health centers. A covered entity typically  purchases and dispenses 340B drugs either through an in-house  pharmacy; through the use of a contract pharmacy arrangement, in which  the entity contracts with an outside pharmacy and pays it to dispense  drugs on its behalf; or both.

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. Participation in the 340B Program is voluntary  for both covered entities and drug manufacturers, but there are strong  incentives to do so. 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 revenue when they purchase 340B drugs for eligible patients  whose insurance reimbursement exceeds the 340B price paid for the  drugs. The statute authorizing the 340B Program does not dictate how  covered entities should use this revenue or require discounts received on  the drugs to be passed along to patients. The ability to have their drugs  covered by Medicaid provides incentives for manufacturers to participate  in the 340B Program.

Covered entities are required to meet certain conditions set forth both in  law and interpretive agency guidance. For example, they are prohibited  from diverting 340B drugs—that is, transferring 340B drugs to individuals  who are not eligible patients of the covered entities. They are also  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. Covered  entities that use contract pharmacies are responsible for overseeing  those pharmacies to ensure compliance with these 340B Program  requirements. Some covered entities hire and pay private companies,  referred to as third-party administrators (TPA), to help determine patient  eligibility and ensure compliance at contract pharmacies.

HRSA’s original guidance permitting the use of contract pharmacies  limited their use to entities that did not have in-house pharmacies and  allowed each entity to contract with only one outside pharmacy. However,  March 2010 guidance lifted these restrictions, thus allowing covered  entities to have an unlimited number of contract pharmacies. Since that  time, the number of contract pharmacies has increased significantly, from  about 1,300 to around 20,000. Given the growth in the 340B Program,  there has been interest in obtaining a better understanding of program  oversight, and the impact of contract pharmacies on the integrity of the  program.

My testimony today summarizes the findings from our June 2018 report.  Accordingly, this testimony addresses: 1) the extent to which covered  entities contract with pharmacies to distribute 340B drugs, and  characteristics of these pharmacies; 2) the financial arrangements  selected covered entities have with contract pharmacies and TPAs  related to the administration and dispensing of 340B drugs; 3) the extent  to which selected covered entities provide discounts on 340B drugs  dispensed by contract pharmacies to low-income, uninsured patients; and  4) HRSA’s efforts to ensure compliance with 340B Program requirements  at contract pharmacies.

To conduct the work for our report, we analyzed HRSA’s 340B Program  database of covered entities and contract pharmacies; selected and  reviewed a nongeneralizable sample of 30 contracts between covered  entities and contract pharmacies; and received completed questionnaires  from 55 of 60 covered entities about the discounts provided to patients on  340B drugs dispensed by contract pharmacies and how the entities  reimburse TPAs. Additionally, we reviewed relevant program policies,  procedures, and guidance; analyzed summaries of HRSA’s audits of  covered entities; and conducted an in-depth review of a nongeneralizable  sample of 20 HRSA audits. We also interviewed officials from HRSA, two  TPAs, and 10 of the covered entities that responded to our questionnaire.  As part of our work, we assessed HRSA’s guidance and oversight of  covered entities against federal internal control standards related to  control activities, information and communication, and monitoring.  Additional information on our scope and methodology is included in our  report. The work this statement is based on was performed in  accordance with generally accepted government auditing standards.

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.

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.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

To have their drugs covered under Medicaid, the "340B" program requires drug manufacturers to sell outpatient drugs to covered entities—certain hospitals and clinics—at a discount. These entities are increasingly contracting with pharmacies to dispense 340B drugs. Doing so can make it harder to ensure compliance with 340B rules. For example, contract pharmacies may also fill prescriptions for the general public, increasing the risk of dispensing 340B drugs to ineligible patients.

We testified on our report's recommendations to improve federal oversight of covered entities to help ensure compliance with 340B requirements.