[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT AND ADMINISTRATION OF THE 340B
DRUG DISCOUNT PROGRAM: IMPROVING
EFFICIENCY AND TRANSPARENCY
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND
COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
DECEMBER 15, 2005
Serial No. 109-108
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
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COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, JR., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. "CHIP" PICKERING, Mississippi ALBERT R. WYNN, Maryland
Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DEGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. "BUTCH" OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
BUD ALBRIGHT, Staff Director
DAVID CAVICKE, General Counsel
REID P. F. STUNTZ, Minority Staff Director and Chief Counsel
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
ED WHITFIELD, Kentucky, Chairman
CLIFF STEARNS, Florida BART STUPAK, Michigan
CHARLES W. "CHIP" PICKERING, Mississippi Ranking Member
CHARLES F. BASS, New Hampshire DIANA DEGETTE, Colorado
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MICHAEL C. BURGESS, Texas TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee HENRY A. WAXMAN, California
JOE BARTON, Texas JOHN D. DINGELL, Michigan
(EX OFFICIO) (EX OFFICIO)
CONTENTS
Page
Testimony of:
Wright, Stuart, Deputy Inspector General for Evaluation
and Inspections, Office of Inspector General, U.S.
Department of Health and Human Services 9
Williams, Denis, Deputy Administrator, Health
Resources and Services Administration, U.S.
Department of Health and Human Services 16
Von Oehsen, III, William H., Powers, Pyles, Sutter
& Verville PC, General Counsel, Public Hospital
Pharmacy Coalition 39
Brown, David B., Director, Government Contracts and
Pricing Programs, GlaxoSmithKline 53
Hatwig, Christopher A., Senior Director, 340B Prime
Vendor Program, HealthCare Purchasing Partners
International 58
OVERSIGHT AND ADMINISTRATION OF THE 340B
DRUG DISCOUNT PROGRAM: IMPROVING
EFFICIENCY AND TRANSPARENCY
THURSDAY, DECEMBER 15, 2005
HOUSE OF REPRESENTATIVES,
COMMITTEE ON ENERGY AND COMMERCE,
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:14 p.m., in
Room 2322, Rayburn House Office Building, Hon. Ed Whitfield
[chairman] presiding.
Members present: Representatives Whitfield, Blackburn,
Stupak, DeGette, and Inslee.
Staff Present: Andrew Snowdon, Counsel; John Halliwell,
Policy Coordinator; Jonathan Pettibon, Legislative Clerk; Terry
Lane, Deputy Communications Director; Edith Holleman,
Minority Counsel; and Chris Knauer, Minority Investigator.
MR. WHITFIELD. First of all, I want to apologize. There are a
lot of things going on beyond our control. For those who have
come to testify, we genuinely apologize to you, because I know
many of you have schedules and planes to catch and so forth. But,
unfortunately, we have a markup in the Energy Committee going
on now, and we have votes on the floor. We just had a conference
on an immigration issue, and we simply could not get around this
delay.
So having apologized to you, as soon as Mr. Stupak arrives, we
will go on and get this hearing started and we look forward to the
testimony from all of you.
Mr. Stupak, I have already made an announcement to apologize
for our delay. Today's hearing subject matter is Oversight and
Administration of the 340B Drug Discount Program: Improving
Efficiency and Transparency, and we have two panels of witnesses
today. On the first panel we have Mr. Stuart Wright, who is the
Deputy Inspector General for Evaluation and Inspections, Office of
Inspector General, U.S. Department of Health and Human
Services; and accompanying him is Mrs. Maxwell. We appreciate
her being here very much.
In addition, we have Mr. Dennis Williams, who is the Deputy
Administrator for the Health Resources and Services
Administration at the U.S. Department of Health and Human
Services. And I will introduce the second panel when we call them
up.
The purpose of today's hearing is to examine the oversight and
administration of the 340B drug pricing program. Under this
program, institutions that serve some of the Nation's neediest and
most vulnerable patients, including public hospitals and
community health centers, receive outpatient drugs at a discount.
It is estimated that the roughly 12,000 340B entities save between
$1.5 and $2 billion annually as a result of the program, savings that
are often passed along to taxpayers.
This subcommittee takes its oversight responsibilities very
seriously, and if the program is not running smoothly then we need
to find out why. Over the past several years this subcommittee has
devoted a substantial amount of time to examining drug pricing in
various government programs. In December of last year, for
example, the subcommittee held a widely publicized hearing which
exposed in vivid detail just how much the Medicaid program is
overpaying for prescription drugs because most states continue to
rely upon average wholesale price as the basis for reimbursement.
The theme of that hearing and, indeed, the common theme of all
the subcommittee's drug pricing work, has been transparency.
The 340B program certainly fits that mold. It is nonsensical to
me that the entities entitled to the 340B discount, the 340B
institutions and the prime vendor, do not have access to the ceiling
prices. Imagine going to a grocery store which advertises a special
discount price, only to find that when you go to the register to
check out, no one can tell you what that discount is.
I want to commend the Office of Inspector General for the
outstanding work that it has done and continues to do on this issue.
In its most recent report on the 340B program, the OIG identified
serious deficiencies in the operations of the program and made a
variety of recommendations for improvement. I look forward to
discussing some of these recommendations with the witnesses
today to see what we can do to make the 340B program more
efficient and transparent. I want to be clear, however, that this is
not necessarily a knock on HRSA. There may well be structural,
statutory, or resource problems that need to be identified and
addressed.
The OIG's work has also shown that this lack of price
transparency can result in 340B entities overpaying by millions of
dollars. When Medicaid patients are the recipients, such
overcharges, whether accidental or intentional, are passed on to the
taxpayers.
It is my understanding that the Office of Inspector General is
currently doing additional work that will attempt to quantify 340B
overcharges and delve into the reasons behind them. I look
forward to holding another hearing when this report is released
next spring.
I want to thank all of today's witnesses for providing their
experience and expertise to this subcommittee. In particular, I
would like to welcome Mr. Brown and recognize GlaxoSmithKline
for taking the bold step of voluntarily, I might add, posting its
ceiling price calculations so that 340B entities have the ability to
make sure that the prices that they are paying are the appropriate
prices. If this hearing is able to increase transparency by
encouraging other drug manufacturers to do the same, then I think
it will have been a success.
[The prepared statement of Hon. Ed Whitfield follows:]
PREPARED STATEMENT OF THE HON. ED WHITFIELD, CHAIRMAN,
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
The purpose of today's hearing is to examine the oversight and
administration of the 340B Drug Pricing Program. Under this
Program, institutions that serve some of the nation's neediest and
most vulnerable patients, including public hospitals and
community health centers, receive outpatient drugs at a discount.
It is estimated that the roughly 12,000
340B entities save between $1.5 and $2 billion annually as a
result of the Program -- savings that are often passed along to
taxpayers. This Subcommittee takes its oversight responsibilities
very seriously, and if the Program is not running smoothly, then
we need to find out why.
Over the past several years, this Subcommittee has devoted a
substantial amount of time to examining drug pricing in various
government programs. In December of last year, for example, the
Subcommittee held a widely-publicized hearing which exposed in
vivid detail just how much the Medicaid program is overpaying for
prescription drugs because most states continue to rely upon
Average Wholesale Price as the basis for reimbursement.
The theme of that hearing -- and indeed the common theme of
all the Subcommittee's drug pricing work -- has been
transparency. The 340B Program certainly fits that mold. It is
nonsensical to me that the entities entitled to the 340B discount --
the 340B institutions and the prime vendor -- do not have access to
the ceiling prices. Imagine going into a grocery store which
advertises a special discount price on a gallon of milk -- only to
find that when you get to the register no one will tell you what that
discount is?
I want to commend the Office of Inspector General for the
outstanding work that it has done, and continues to do, on this
issue. In its most recent report on the 340B Program, the OIG
identified serious deficiencies in the operations of the Program and
made a variety of recommendations for improvement. I look
forward to discussing some of those recommendations with the
witnesses today to see what we can do to make the 340B Program
more efficient and transparent. I want to be clear, however, that
this is not necessarily a knock on HRSA. There may well be
structural, statutory, or resource problems that need to be identified
and addressed.
The OIG's work has also shown that this lack of price
transparency can result in 340B entities overpaying by millions of
dollars. When Medicaid patients are the recipients of these drugs,
such overcharges -- whether accidental or intentional -- are passed
on to the taxpayers. It is my understanding that OIG is currently
doing additional work that will attempt to quantify 340B
overcharges and delve into the reasons behind them. I look
forward to holding another hearing when this report is released
next Spring.
I want to thank all of today's witnesses for providing their
experiences and expertise to the Subcommittee. In particular, I
would like to welcome Mr. Brown and recognize Glaxo-Smith-
Kline for taking the bold step of voluntarily posting its ceiling
price calculations so that 340B entities have the ability to make
sure that they are paying appropriate prices. If this hearing is able
to increase transparency by encouraging other drug manufacturers
to do the same, then I think that it will have been a success.
MR. WHITFIELD. At this time I'd like to recognize the Ranking
Minority Member, Mr. Stupak of Michigan.
MR. STUPAK. Thank you, Mr. Chairman, and apologize to our
witnesses. We're probably going to have to run downstairs for
another vote. We're in full committee even as we speak. So I want
to give it sort of an abbreviated.
This is our second hearing of this week. It was clear at the
Internet pharmacy hearing earlier this week that members on both
sides of the aisle believe this committee must follow up and
demand actions and actors to find the best solutions to combat
illegal sales of controlled substances on the Internet.
Mr. Chairman, I ask for your assurances our staff will continue
to work together and address the outstanding issues and concerns
identified at the hearing in the next couple weeks, when we get
back from the break, because there are a lot of things we've got to
do that.
Last but not least, while the 340B is a useful topic, Hurricane
Katrina severely damaged the health care system in New Orleans
on the gulf coast. Many of those facilities were 340B facilities. I
think that's sort of a disgrace, Mr. Chairman, that they have lost --
especially Charity Hospital lost their health care.
We have repeatedly asked for hearings on Katrina-related
health care, energy and communications issues and want to take
the opportunity to ask that we do a field hearing in New Orleans so
the subcommittee can see firsthand and hear firsthand about this
gaping hole in our national health care system.
A 340B program is of no value if the providers aren't
functioning. With that, Mr. Chairman, I'm going to submit the rest
of my statement to the record because I do want to hear from our
witnesses and get this hearing moving and hopefully we can have
that hearing down in New Orleans maybe over the break. Thank
you.
[The prepared statement of Hon. Bart Stupak follows:]
PREPARED STATEMENT OF THE HON. BART STUPAK, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you, Mr. Chairman. I believe that most of us are
supporters of an effective 340b program. It helps the hospitals,
community health centers and clinics that serve the poorest of the
poor under very difficult financial circumstances, and we support
every effort to make this program more efficient and effective.
After all, we have 45 million Americans who are completely
without insurance, and many of them are served by 340b entities
much less expensively than if they went to hospital emergency
rooms. And, as previous work by the Inspector General has
revealed, 340b entities are losing tens of millions of dollars every
year because of improper calculations of ceiling prices.
As the Inspector General will testify, the Health Resources and
Services Administration (HRSA) lacks legislative, regulatory, and
contractual authority to enforce an effective and efficient 340b
program. Mr. Chairman, legislative authority is our job, and I
hope that this is just not another oversight hearing after which we
in Congress identify a problem, but do nothing about it. The rest
of these authorities require commitments from the top levels of
Department of Health and Human Services and the drug
companies, and neither of those 800-pound gorillas are in the
room.
The Centers for Medicare and Medicaid Services controls all of
the data that HRSA needs to calculate the ceiling price for 340b
drugs. As the Inspector General has determined, there needs to be
close cooperation between these two agencies in the Department of
Health and Human Services, and that is not occurring. We on the
minority side asked for CMS as a witness, but the Department took
the position that it would provide only a single witness at our
hearings. So we can't hold CMS's or the Department's feet to the
fire and get firm commitments that we can monitor. In our
experience, a statement from an agency that it "concurs" with the
recommendations in an inspector general's report is generally a
commitment to inaction.
Second, the drug companies calculate their own ceiling price,
and that is the one that the 340b providers actually pay or use for
negotiating lower prices. These providers have no idea if the
"official" HRSA price is the same as the price they are working
with. If there are overcharges, they are often not recovered by
these entities that serve this very vulnerable population. The
pharmaceutical companies apparently are very opposed to sharing
their ceiling price calculations with the 340b prime vendor, but we
can't have a full discussion of this issue because the objecting drug
companies, or their association, are not here.
Finally, Mr. Chairman, while 340b is a useful topic, Hurricane
Katrina severely damaged the health care system of New Orleans
and the Gulf Coast. Many of these facilities were 340b facilities.
This, Mr. Chairman, is a national disgrace. We have repeatedly
asked for hearings on Katrina-related health care, energy and
communications issues, and I want to take this opportunity to ask
for a field hearing in New Orleans so the Subcommittee can see
and hear first-hand about this gaping whole in our national health
care system. A 340b program is of no value if the hospital or
health care aren't functioning.
[Additional statements submitted for the record follow:]
PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN,
COMMITTEE ON ENERGY AND COMMERCE
Thank you, Mr. Chairman, for holding today's hearing. It
seems like any time we use "prescription drugs" and "government
program" in the same sentence, common sense goes out the
window. The 340B Drug Discount Program appears to be no
exception. Under this Program, we tell certain institutions that
they are entitled to a discount price for prescription drugs, except
they can't know what that price is, and the agency in charge of
running the Program has virtually no authority to ensure that they
are getting these discounts. Brilliant!
A little over a year ago this Subcommittee held a hearing on
Medicaid prescription drug reimbursement. During that hearing I
posed the following question: why shouldn't we "go to some
system that really is based on actual sales prices with auditing and
backup so that we have a transparency in the system so that
anybody that has an interest can really find out what's going on?"
That premise has shaped this Committee's recent Medicaid
reforms, and I hope that it can also be applied to the 340B
Program.
I look forward to hearing from the witnesses today about what
steps might be taken to improve the 340B Program. Drug
manufacturers, wholesalers, CMS, HRSA (her-sa), OIG, the prime
vendor, and the 340B entities themselves all have a role to play. If
legislation is needed to make this Program more efficient and
transparent, Congress may have a role to play as well.
Thank you again, Mr. Chairman, and I yield back the balance of
my time.
MR. WHITFIELD. Thank you, Mr. Stupak. We look forward to
working with you on the controlled substances issue, as you said,
and looking to this additional hearing as well. All of you are aware
that this committee is holding an investigative hearing and, when
doing so, it has been the practice of our subcommittee of taking
testimony under oath. Do any of you have any objection to
testifying under oath today?
The Chair would advise you that under the rules of the House
and rules of the committee, you are entitled to be advised by
counsel. Do you desire to be advised by counsel today? In that
case, if you would please stand and raise your right hand.
[Witnesses sworn.]
TESTIMONY OF STUART WRIGHT, DEPUTY INSPECTOR GENERAL FOR EVALUATION AND
INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES, ACCOMPANIED BY: ANN MAXWELL, ACTING REGIONAL INSPECTOR GENERAL,
CHICAGO OFFICE; AND DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH RESOURCES
AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
MR. WHITFIELD. Thank you very much and you are now sworn
in, and I might add that because of the erratic schedule today, there
may be some other members coming in, and I will probably give
some of them an opportunity to make opening statements, or all of
them, and certainly they have an opportunity to put their opening
statement into the record.
And with that, Mr. White, I will recognize you for your opening
statement.
MR. WHITE. Thank you. Good afternoon. I'm Stuart Wright,
Deputy Inspector General for Evaluation and Inspections for the
Office of Inspector General. I am pleased to have Ann Maxwell,
Acting Regional Inspector General from our Chicago, office with
me today.
I appreciate the opportunity to appear before you to present
OIG work related to the 340B program which is managed by
HRSA. The 340B program provides for sales of drugs at or below
established ceiling prices to certain entities that provide health care
to some of the country's most disadvantaged citizens who are
typically underinsured or uninsured. Over the past few years we
have issued a number of reports looking at various aspects of the
340B program. Our most recent work entitled "Deficiencies in the
Oversight of 340B Drug Pricing Program" assessed whether
systems exist to ensure that entities participating in the program are
able to purchase drugs at or below the statutorily established
ceiling price.
Our work has led us to conclude that the 340B program may not
be functioning as intended, which was to ensure that appropriate
discounts on drugs are available to entities. Specifically our work
has found a number of deficiencies in program oversight as well as
broader programmatic issues that impact HRSA's ability to
administer the program. I have a chart that outlines all parties
involved in the 340B program. As the chart illustrates, both the
government and the manufacturers calculate 340B ceiling prices.
They use the same statutorily defined formula based on the drug
pricing data that manufacturers report to CMS for the Medicaid
Drug Rebate Program.
The government's calculations are intended for use in programs
oversight, while the manufacturers calculations are prices used in
the sale of drugs to 340B entities. Theoretically, HRSA and
manufacturers calculate the same 340B ceiling prices because they
use the same drug pricing elements for the calculation. However,
this may not be the case due to differing interpretation of the drug
pricing data used in the formula, administrative error, and/or
intentional misrepresentation.
Because of the potential for discrepancies which may lead to
overcharges, it is important for HRSA to provide oversight.
However, we found problems with program oversight related to the
following four areas which are discussed in detail in my written
statement: the government's calculation of the 340B ceiling price,
monitoring program participation, overseeing manufacturers'
calculation of the 340B price, and ensuring 340B entities pay at or
below the ceiling price.
In terms of the government's record of 340B ceiling prices, we
found problems with the accuracy and reliability of the data. For
over a decade the government's 340B ceiling prices were
calculated using incomplete data to represent package size. In
addition, we found that HRSA did not have 340B ceiling prices for
nearly 30 percent of eligible drugs due to missing data.
In terms of monitoring 340B program participants, a June 2004
OIG report found the HRSA's database inappropriately listed
38 percent of sampled entities as participating in the program,
when in fact they did not. We also found that HRSA does not
verify that manufacturers are correctly calculating 340B ceiling
prices. Specifically, HRSA does not compare the government's
340B ceiling prices to the manufacturers' ceiling prices to ensure
that the results are the same.
Finally, we found that there is no systematic oversight process
in place to ensure that 340B entities receive the ceiling prices to
which they are legally entitled. HRSA does not monitor the
purchase prices paid by 340B entities to ensure they are at or
below the government's 340B ceiling prices.
Beyond these oversight issues, I would like to mention two
programmatic issues that limit HRSA's ability to administer the
program: confidentiality of the drug pricing data and the lack of
adequate enforcement mechanisms.
First, confidentiality provisions in the Medicaid drug rebate
statute protect the drug pricing elements used to calculate 340B
ceiling price. This impacts HRSA's ability to use the 340B ceiling
price data to ensure entities receive the appropriate ceiling praise.
HRSA does not currently reveal 340B ceiling prices to
participating entities.
Second, with regard to enforcement, we believe HRSA lacks
the necessary authority to enforce the manufacturers and
wholesalers to comply with the Public Health Service Act. Current
law provides noncompliance with 340B provisions can result in
termination from participation in Medicaid and the 340B program.
However, this remedy is so extreme that it limits the likelihood that
it will be used.
To strengthen 340B program oversight, we have recommended
that HRSA first ensure that it is correctly calculating the 340B
ceiling price with complete and accurate data. Second, develop a
strategic plan for correcting the inaccuracies in the 340B
participant data base. Third, develop oversight mechanisms to
verify that 340B ceiling prices are being correctly calculated by
manufacturers. Fourth, develop monitoring mechanisms that allow
for a comparison of the government's 340B prices and the prices
paid by 340B entities.
We also believe that issues associated with the confidentiality
of the data need to be addressed. We believe that permitting some
disclosure of information about 340B ceiling prices is essential to
improving the operation of the program.
Finally, we have recommended that HRSA seek authority to
establish intermediate penalties for program violations.
In conclusion, we are committed to continuing our work related
to the 340B program and hope that our work helps ensure this vital
program operates as intended. Thank you.
[The prepared statement of Stuart Wright follows:]
PREPARED STATEMENT OF STUART WRIGHT, DEPUTY INSPECTOR
GENERAL FOR EVALUATION AND INSPECTIONS, OFFICE OF
INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Good afternoon, Mr. Chairman and members of the
subcommittee. I am Stuart Wright, Deputy Inspector General for
Evaluation and Inspections for the Office of Inspector General
(OIG), U.S. Department of Health and Human Services (HHS). I
am pleased to have Ann Maxwell, Acting Regional Inspector
General from our Chicago office, with me today. I appreciate the
opportunity to appear before you to present information regarding
the 340B Drug Pricing Program (340B program), which
establishes ceiling prices on prescription drugs that are purchased
by certain health care entities.
Over the past few years, OIG has issued a number of audit and
evaluation reports looking at various aspects of the 340B program.
Our most recently published work, "Deficiencies in the Oversight
of the 340B Drug Pricing Program," assessed the effectiveness of
existing systems and processes that are intended to ensure that
entities participating in the program are able to purchase products
at or below a statutorily established ceiling price. Currently, we
are engaged in another evaluation of the program to determine
whether entities participating in the 340B program have actually
received the ceiling prices to which they are entitled, and if not, the
potential reasons for price discrepancies. Our work has led us to
conclude that the 340B program may not be functioning as
intended to ensure that appropriate discounts on drugs are available
to eligible entities. We have found a number of deficiencies in
oversight of the program and have concerns related to broader
programmatic issues that negatively impact the program.
My testimony begins with a brief overview of the program,
followed by a summary of OIG findings and recommendations that
are aimed at improving the 340B program.
Background On The 340B Drug Pricing Program
In 1992, Congress enacted section 340B of the Public Health
Service Act (PHS Act), 42 U.S.C. 256b, to establish the 340B
Drug Pricing Program. This program, which is managed by the
Health Resources and Services Administration (HRSA), provides
for sales of drugs at or below established ceiling prices to certain
"covered entities" (340B entities) that provide health care to some
of the country's most disadvantaged citizens who are typically
uninsured or underinsured. 340B entities include such health care
entities as public hospitals, AIDS Drug Assistance programs, and
community health centers. Based on the most recent HRSA
estimates, 340B entities spent $4 billion on covered outpatient
drugs in calendar year 2005.
Pursuant to the PHS Act, manufacturers sign a Pharmaceutical
Pricing Agreement (Agreement) stipulating that they will charge
340B entities at or below a specified maximum price, known as the
340B ceiling price, for covered outpatient drug purchases. Ceiling
prices are guaranteed whether the 340B entity purchases drugs
directly from manufacturers or through a wholesaler.
The Government and pharmaceutical manufacturers separately
calculate 340B ceiling prices each quarter. The Government's
calculations are intended for use in program oversight, while the
manufacturers' calculations are the prices used in sales to 340B
entities. Both the Government and the manufacturers calculate
340B ceiling prices using the same statutorily-defined formula and
the drug pricing data that manufacturers report to the Centers for
Medicare & Medicaid Services (CMS) for the purposes of the
Medicaid drug rebate program.
Due to statutory provisions and policies protecting the
manufacturers' pricing data, neither the Government's nor the
manufacturers' ceiling prices are disclosed to the covered entities.
Instead, 340B entities pay the prices they are billed by the
manufacturer or wholesaler with no way to verify that they are
being charged at or below the 340B ceiling prices to which they
are entitled. The chart below illustrates the current flow of 340B
ceiling price calculations in the purchase of drugs and oversight of
the program. The dotted lines represent where program oversight
should be strengthened, as I will discuss further.
Calculation of the 340B Ceiling Price and Purchase Flow
340B Program Oversight Issues
Calculating the 340B Ceiling Price
For many years CMS calculated the 340B ceiling prices used by
the program. More recently, HRSA assumed that responsibility.
HRSA needs the 340B ceiling prices for research, analysis, audit,
and dispute resolution purposes. However, OIG has found
systemic problems with the accuracy and reliability of the
Government's historical record of 340B ceiling prices. For
example, for over a decade, the Government's 340B ceiling prices
were calculated using incomplete data to represent package size.
HRSA has not established any standards or technical guidance on
using the statutorily-defined formula to calculate 340B ceiling
prices.
Problems with reliability and accuracy also stem from missing
data. When any of the drug pricing elements needed to calculate a
ceiling price are missing, an accurate 340B ceiling price cannot be
calculated, and HRSA cannot create an accurate record of ceiling
prices for program oversight purposes. Missing ceiling prices are
most often the result of manufacturers not reporting to CMS, or not
reporting in a timely manner, the drug pricing data necessary for
the calculation. While HRSA is eventually provided the missing
data when they are submitted by the manufacturer to CMS at a
later date, HRSA does not have a policy in place to update the
ceiling prices when supplemental data are received. Thus, any
missing data elements or 340B ceiling prices simply remain
missing. OIG found that HRSA did not have 340B ceiling prices
for nearly 30 percent of eligible drugs due to missing data.
Another 8 percent of 340B ceiling prices were calculated
incorrectly due to missing data.
Monitoring of 340B Program Participation
Based on our review, we concluded that 340B entities'
participation in the program is not adequately monitored. HRSA is
required to maintain a complete listing of all its participating 340B
entities. This permits pharmaceutical manufacturers to verify
entities' eligibility for the discount and ensure that their drugs are
only shipped to legitimate sites. However, in a June 2004 report,
"Deficiencies in the 340B Drug Discount Program's Database," we
found that HRSA's participant database inappropriately listed 38
percent of sampled entities as participating in the program when, in
fact, they did not. Additionally, we found that the database had
incorrect address information for 43 percent of sampled entities.
The inaccuracies in the participant database limits HRSA's ability
to ensure that only legitimate entities are receiving the 340 ceiling
prices.
Ensuring That 340B Entities Pay 340B Ceiling Prices or Below
OIG also found that there is no systematic oversight process in
place to ensure that 340B entities receive the ceiling prices to
which they are legally entitled. HRSA does not monitor the
purchase prices paid by 340B entities to ensure that they are at or
below the Government's 340B ceiling prices. Conducting this type
of oversight is essential to ensure that Federal grant dollars are
spent appropriately.
Rather than establishing a systematic means of monitoring
prices, HRSA generally checks the appropriateness of 340B
entities' prices only when requested by the entity to do so. An
entity may submit a written request to HRSA to conduct a review
for a maximum of 10 products. If HRSA agrees to undertake the
review, the results will only confirm or refute that the entity has
been overcharged. HRSA does not convey the extent of any
overcharges due to confidentiality concerns.
Overseeing the Drug Industry's 340B Ceiling Price
Calculations
OIG found that HRSA does not verify that manufacturers are
correctly calculating 340B ceiling prices. It is especially important
for HRSA to monitor manufacturers' ceiling price calculations
because the 340B entities are not permitted access to ceiling prices
themselves, and therefore cannot perform their own checks.
Specifically, HRSA does not compare the Government's 340B
ceiling prices to the manufacturers' ceiling prices to ensure that the
results are the same. Theoretically, HRSA and manufacturers
should calculate the same 340B ceiling prices because they use the
same drug pricing elements for the calculation. However, this may
not be the case due to differing interpretations of the drug pricing
data used in the formula, administrative or other error, and/or
intentional misrepresentation.
The lack of written, formal procedures explaining how the
Government calculates its 340B ceiling prices increases the
possibility of differences in interpretation that could cause
manufacturers' ceiling prices to differ. It is also possible for a
manufacturer to correctly interpret the calculation but to make an
administrative error in applying or transmitting the calculation.
Alternatively, manufacturers can benefit from any overpayments
that result from their intentional inflation of the 340B ceiling prices
or the inappropriate manipulation, to their advantage, of any of the
drug pricing data used in the calculation. OIG's current work will
attempt to ascertain the extent to which each of these factors may
be contributing to 340B entities paying more than the stipulated
ceiling prices. A previous OIG report, "Pharmaceutical
Manufacturers Overcharged 340B-Covered Entities" (A-06-01-
00060), found that five drug manufacturers inappropriately
excluded certain sales from one of the drug pricing elements in the
calculation, resulting in overcharges to 340B entities of $6.1
million in 1999.
Broader Programmatic Issues
Confidentiality Provisions
Confidentiality provisions in the Medicaid drug rebate
provisions of the Omnibus Budget Reconciliation Act of 1990
(OBRA '90), regarding manufacturers' pricing information, impact
HRSA's ability to ensure that 340B entities receive the appropriate
ceiling price. The Medicaid drug rebate statute protects the pricing
and other data that manufacturers submit to CMS for the Medicaid
drug rebate program, in particular Average Manufacturer Price
(AMP) and Best Price, as confidential. The law states that the
pricing information disclosed by manufacturers ".shall not be
disclosed by the Secretary.in a form which discloses the identity
of a specific manufacturer, ...[or] prices charged for drugs by such
manufacturers," except as the Secretary determines to be necessary
to carry out the provisions of the statute or in other limited
situations. This provision has been interpreted to mean that
HRSA is precluded from revealing exact overcharges to 340B
entities, so as not to reveal the 340B ceiling prices to the entities.
Confidentiality provisions related to disclosure of 340B ceiling
prices also limit the ability of the Prime Vendor to negotiate for
prices below stipulated 340B ceiling prices. The PHS Act
mandates the creation of a Prime Vendor Program. The Prime
Vendor may attempt to negotiate subceiling prices on behalf of
340B entities. However, the Prime Vendor cannot effectively
negotiate subceiling prices if it is not allowed access to the 340B
ceiling prices. Such access has been limited by the manner in
which the confidentiality provisions have been interpreted.
340B Program Enforcement Authorities
We believe that HRSA lacks the necessary legislative,
regulatory, and contractual authority to enforce manufacturer and
wholesaler compliance with the PHS Act and the Agreement. The
PHS Act does not provide HRSA with the authority to impose civil
monetary penalties for noncompliance with the 340B program
requirements. Instead, the PHS Act and the companion provisions
of the Social Security Act require that manufacturers must comply
with the terms of the 340B program and the Medicaid drug rebate
statute. Noncompliance could result in termination from
participation in the Medicaid and 340B programs. This remedy is
so extreme that it limits the likelihood that it will be used. To date,
it has never been used. Terminating a manufacturer's participation
is an exceptionally severe sanction, given the effect that
terminating a manufacturer would have on access to medications
for the millions of Medicaid and 340B beneficiaries.
Further, it is CMS and not HRSA that initially receives the data
from manufacturers, and manufacturers are not required to report
the information directly to HRSA. HRSA does not have statutory
authority to compel manufacturers to report complete drug pricing
data in a timely matter to CMS. Under the Medicaid drug rebate
program statute (pursuant to which manufacturers send data to
CMS), the Secretary of HHS has the authority to impose a civil
monetary penalty for late submission of drug pricing data. We are
unaware of any use of this provision in recent years. Instead,
manufacturers are generally notified by CMS of the late data and
are afforded the opportunity to supply the previously missing data
with a subsequent data submission. While subsequent data
submissions do not pose a significant problem for the retrospective
Medicaid drug rebate program, which CMS oversees, late
submissions of the drug pricing data prevent HRSA's timely and
accurate calculations of the Government's 340B ceiling prices.
Also, because manufacturers are not required to share the 340B
ceiling prices that they calculate with the Government, there are no
data available for comparison.
OIG also found limitations with the obligations outlined in the
Agreement. The Agreement gives the Secretary of HHS the ability
to require manufacturers to reimburse entities for discounts
withheld. However, even when HRSA attempts to take action
against violators based on the Agreement, HRSA's lack of legal
authority makes the Agreement challenging to enforce. For
example, in response to the 2003 OIG finding that five
manufacturers had overcharged 340B entities by $6.1 million,
HRSA issued letters to each of the five drug companies requesting
that they develop action plans that include refunding covered
entities for overcharges. According to HRSA, the companies have
responded to the letters, but refunds have yet to be recovered.
OIG found that the only compliance mechanism that HRSA
currently has with regard to refunds is an informal dispute
resolution process that has never been utilized. Because the 340B
program dispute resolution process is voluntary, manufacturers and
340B entities are not required to participate. If the manufacturer
does not cooperate with the dispute resolution process, HRSA can
neither compel their participation nor sanction their lack of
participation.
OIG Recommendations
OIG's recommendations to improve the 340B Program focus on
the steps HRSA can take to strengthen its oversight and
management of program operations and on the two broader
programmatic issues I just described.
340B Program Oversight
To strengthen HRSA's ability to oversee the program, OIG
recommends that HRSA: (1) publish detailed standards for the
Government's calculation of 340B ceiling prices, (2) work with
CMS to ensure timely receipt of manufacturers' pricing data, and
(3) develop a strategic plan for managing the 340B program
database. HRSA concurred with these recommendations and has
made some progress in implementing them, including launching a
new database to track entity participation.
In addition, OIG recommends that HRSA develop oversight
mechanisms to verify that 340B ceiling prices are being correctly
calculated by manufacturers. We suggest that HRSA selectively
audit manufacturers and wholesalers. HRSA has stated its
intention to review 340B prices that manufacturers voluntarily
supply to them. However, OIG does not believe that this approach
provides a sufficiently systematic review of compliance necessary
to provide adequate oversight to the program.
OIG also recommends that HRSA develop monitoring
mechanisms that allow for a comparison of the Government's
340B prices and the prices paid by 340B entities. There are
several ways HRSA could achieve this. For example, HRSA could
spot-check covered entity invoices against the Government's
record of 340B ceiling prices. Alternatively, HRSA could develop
a system for covered entities to access certain secured pricing data
to help them determine whether the prices they pay exceed the
340B ceiling prices.
Broader Programmatic Issues
OIG believes that permitting some disclosure of information
about 340B ceiling prices is essential to improving the operation of
the program. HRSA's options for using 340B ceiling prices to
monitor the program are limited due to the confidentiality of the
drug pricing data elements used to calculate the 340B ceiling
prices. The Social Security Act expressly permits the Secretary to
disclose information if disclosure is determined to be "necessary to
carry out" the programs, including the 340B program. However,
HRSA has been following a CMS interpretation of the
confidentiality provision that prohibits HRSA from using the 340B
ceiling prices to monitor the program. OIG sees a need for
clarification of the confidentiality provision.
OIG also recommends that HRSA seek authority to establish
penalties for program violations. We disagree with HRSA's
assessment that it has sufficient authorities to enforce the
requirements of the 340B program statute. The Secretary of HHS
could terminate a manufacturer's participation in the Medicaid
drug rebate and 340B programs, but HRSA has no effective
penalties to use for violations of the PHS Act or the
Pharmaceutical Pricing Agreement. We believe that legislation
authorizing the imposition of penalties and fines would provide
HRSA with more effective tools to enforce the 340B program
requirements.
Conclusion
We appreciate the Committee's interest in this important
subject. Further, we are encouraged by HRSA's response to our
recommendations. We believe that HRSA has been responsive in
terms of its improvements in the accurate calculation of the 340B
ceiling prices and its 340B participant database. However, we
encourage HRSA to fully address OIG's recommendations related
to strengthening the administration and oversight of the 340B
program. In addition, OIG continues to believe that confidentiality
issues and a lack of enforcement authority impact HRSA's ability
to ensure that the program is functioning properly and that 340B
entities are paying at or below the 340B ceiling prices.
OIG is committed to continuing its review of this program and
addressing the concerns of congressional oversight committees.
As previously mentioned, OIG is currently engaged in a review to
determine whether 340B entities pay at or below the statutorily-
defined 340B ceiling price, and, if not, the potential reasons for
price discrepancies. We anticipate a final report on this topic in
Spring 2006. This concludes my testimony. I would be happy to
answer your questions.
MR. WHITFIELD. Mr. Wright, thank you very much. At this
time, I recognize Mr. Williams for his opening statement.
MR. WILLIAMS. Mr. Chairman, members of the subcommittee,
my name is Dennis Williams. I am the Deputy Administrator of
the Health Resource and Services Administration, and I'm pleased
to appear before you today to discuss the oversight and
administration of the 340B drug pricing program in light of the
recent reports by the Office of Inspector General.
The 340B program was created by section 602 of the Veterans
Health Care Act of 1992. The purpose of the program is to limit
the costs of covered outpatient drugs to federally funded grantees
and other safety-net health care providers referred to as covered
entities. By expanding access to affordable drugs, the 340B
program plays an important role in eliminating health disparities
and improving the health of the uninsured and underinsured.
HRSA is responsible for ensuring that drug companies and
covered entities carry out their responsibilities under the law.
Drug companies participating in the Medicaid program are
required to enter into pharmacy pricing agreement with HRSA and
to provide outpatient drugs to covered entities at or below a
maximum or ceiling price established by the law. In turn, covered
entities are prohibited from reselling or transferring a drug
obtained with a 340B discount to a person who is not a patient of
the entity. They also agree not to request a 340B discount for a
drug which is subject to a Medicaid rebate.
HRSA administers the 340B program based on Medicaid drug
data received from the Centers for Medicaid and Medicare
Services. Currently there are over 12,000 covered entities and
approximately 650 drug manufacturers participating in the
program. Covered entities have realized significant savings on
pharmaceuticals estimated at 20 to 50 percent below list price or
average wholesale price. This translates into roughly $1.5 billion
to $2 billion savings annually. We estimate an annual purchasing
volume of $4 billion, which represents about 1.7 percent of the
$230-billion-a-year pharmaceutical market.
Recent reports by the Office of Inspector General have focused
on pharmaceutical manufacturers' compliance with their obligation
to sell outpatient drugs at or below 340B prices. In a March 2003
audit, the OIG found that five pharmaceutical manufacturers
overcharged 340B covered entities $6.1 million for sales during the
1-year period ending September 30, 1999. In September 2004,
HRSA sent letters to these companies requesting corrective action
plans for payment of the OIG stated overcharges. We are currently
working with the drug companies and CMS to resolve the issues
raised by the OIG.
At the request of the Department of Justice, which is
investigating one of the companies, we have temporarily
suspended our inquiry of this company.
In October 2005, the OIG issued a final report concerning the
oversight of the 340B program. In this report the OIG made five
recommendations:
First, HRSA and CMS should continue to work together to
ensure accurate and timely pricing data.
Second, HRSA should establish detailed standards for the
calculation of ceiling prices.
Third, HRSA should institute oversight mechanisms to validate
340B price calculations and the prices charged to participating
entities.
Fourth, HRSA should seek authority to establish penalties for
statutory violations.
And fifth, HRSA should provide participating entities with
secure access to certain pricing data.
We have taken several steps to address the findings of the OIG.
In September 2005, HRSA signed an interagency agreement with
CMS to receive the average manufacturer's price and the Medicaid
unit rebate data needed to calculate the 340B ceiling prices. Since
that time we have assumed the responsibility for calculating ceiling
prices from CMS. In addition, we have arranged to purchase
packet-size data from First Data Bank to accurately compute the
340B prices, and we have increased outreach and technical
assistance to encourage enrollment in the 340B program.
In order to validate 340B prices calculated by pharmaceutical
companies, we plan to compare quarterly manufacturer pricing
data available through the Prime Lender Program with 340B
pricing data; contact manufacturers to resolve discrepancies; and,
request the IG audit difficult cases and/or refer to the Department
of Justice.
HRSA has targeted some of its administrative resources to
monitoring allegations of drug diversion by covered entities, and
we have referred some cases to the Department of Justice through
the OIG. These cases have helped us to examine the need to revise
program guidelines to more clearly define the patient-provider
relationship under the 340B program. In addition, we are drafting
guidelines on the use of multiple contract pharmacies as a way to
expand access to discounted drugs, especially in rural areas.
The 340B program is essential to ensuring access to quality
health care for the Nation's most vulnerable patient populations.
Thank you for the opportunity to report on the oversight and
administration of the program. We look forward to working with
you to guarantee the 340B drug price program continues to be a
valuable Federal resource.
MR. WHITFIELD. Mr. Williams, thank you for your testimony.
[The prepared statement of Dennis P. Williams follows:]
PREPARED STATEMENT OF DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH
RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Mr. Chairman and Members of the Subcommittee:
My name is Dennis Williams. I am the Deputy Administrator
of the Health Resources and Services Administration (HRSA). I
am pleased to appear before you today to discuss the oversight and
administration of the 340B Drug Pricing Program (340B Program)
in light of the recent reports by the Office of the Inspector General.
History of the Program
The 340B Program was created by Section 602 of the Veterans
Health Care Act of 1992 (P.L. 102-585), which was enacted on
November 4, 1992. As established, the 340B Program limits the
cost of covered outpatient drugs to certain safety-net providers,
referred to as covered entities. These covered entities include:
Federally Qualified Health Centers (FQHCs), Hemophilia
Treatment Centers, Ryan White Programs, Sexually Transmitted
Disease/Tuberculosis Programs (STD/TB), Title X Family
Planning (FP) Clinics, Urban/638 Tribal Programs, Federally
Qualified Health Center Look-Alikes and certain Disproportionate
Share Hospitals (DSHs).
The 340B drug discount prices, commonly referred to as ceiling
prices, are based on Average Manufacturers Price and Medicaid
Drug Rebates. Pharmaceutical companies that participate in the
Medicaid program must sign a Pharmaceutical Pricing Agreement
that obligates them to participate in the 340B program. Under the
340B program, the selling price may be lower than the ceiling
price, but never greater.
HRSA Oversight and Administration
HRSA administers the 340B program based on Medicaid drug
data received from the Centers for Medicaid and Medicare
Services (CMS) pursuant to an Intra-Agency Agreement. Through
our Office of Pharmacy Affairs (OPA), we: enroll eligible entities
in the 340B program; maintain a web accessible database that
houses eligible covered entity data, program guidelines and other
useful information; calculate the 340B discount price; execute
Pharmaceutical Pricing Agreements with drug manufacturers;
provide information and technical assistance to covered entities via
the Pharmacy Services Support Center (PSSC); administer the
Prime Vendor Program; and provide program oversight.
The PSSC, operated under a contract with the American
Pharmacists Association, provides expert technical assistance to
covered entities that want to access the 340B program and to
improve their pharmacy programs.
The new Prime Vendor Program, which operates under a
competitively awarded agreement with Health Purchasing Partners
International, became effective in September 2004, and has three
primary functions to increase value for participating covered
entities: 1) negotiate drug prices below the statutorily required
340B ceiling price; 2) enter into favorable distribution agreements
with multiple drug wholesalers; and 3) provide discounts on other
value-added pharmacy products and services. As of November
2005, approximately 2,000 covered entities participate in the Prime
Vendor Program and represent over $1.7 billion in combined
purchases.
Currently, there are a total of over 12,000 participating 340B
covered entities. As of October 2005, approximately 650 drug
manufacturers have signed Pharmaceutical Pricing Agreements.
The most important benefit of participation in the 340B Drug
Pricing Program is the significant savings on pharmaceuticals
estimated at 20% to 50% below list price or average wholesale
price. We estimate annual 340B purchasing volume of $4 billion,
which represents about 1.7% of the $230 billion a year
pharmaceutical market. We estimate that participating entities can
save $1.5 billion to $2 billion annually.
In June 2001, the Alternative Methods Demonstrations Projects
were initiated to increase access to affordable drugs for uninsured
and underinsured patients of covered entities, particularly in rural
areas. These projects involve one or a combination of the
following three activities: 1) a network of covered entities; 2)
multiple contracted pharmacy services sites; or 3) a contracted
pharmacy to supplement in-house pharmacy services. As of
October, there were 11 approved projects.
2003 OIG Report
In a March 2003 audit, the Office of Inspector General (OIG)
found that 5 pharmaceutical manufacturers overcharged 340B
covered entities $6.1 million for sales during the 1-year period
ending September 30, 1999.
In September 2004, HRSA sent letters to these companies
requesting corrective action plans for repayment of the OIG stated
overcharges. To date, we have not received refunds from the
companies. We are currently working with CMS to resolve the
issues raised by the OIG.
2004 OIG Report
In June 2004, the OIG assessed the accuracy of information
contained in 340B Drug Discount Program's database. The OIG
recommended that HRSA develop a strategic plan for managing
340B program data. In order to implement the recommended
improvements, HRSA contracted with a firm to assist in the
completion of these enhancements. We have also entered into a
separate contract for the development of the new Web database
using the new systems requirements as a guide.
2005 OIG Report
In October 2005, the OIG issued a final report concerning
HRSA's oversight of the 340B Program. In this report, the OIG
recommended actions to: ensure accurate and timely pricing data;
set detailed standards for calculation; create procedures to validate
price calculations and prices charged; establish penalties for
violations; and, provide access to certain pricing data to help
approximate 340B ceiling prices.
HRSA and CMS recently signed an Intra-Agency Agreement
(the Agreement). In accordance with the Agreement, we now
receive the AMP and the Medicaid Unit Rebate data from CMS to
calculate the 340B ceiling prices. In addition, we have increased
outreach and technical assistance to covered entities. Currently,
we are seeking voluntary data submissions for the Prime Vendor
secure Web site; monitoring compliance with 340B legal and
regulatory requirements; and working with the OIG and DOJ in
instances of drug diversion. These cases of drug diversion have
led us to examine the need to revise program guidelines to more
clearly define the patient-provider relationship under the 340B
Program. Lastly, we plan to compare pharmaceutical company
ceiling price data with market place selling price data on a
quarterly basis and follow-up with the respective drug company or
wholesaler to resolve discrepancies. Unresolved discrepancies
may be referred to the OIG and DOJ for assistance.
With over twelve thousand participating covered entities, the
340B Drug Pricing Program plays an important role in improving
the health of the uninsured and underinsured. The 340B Program
ensures that federally funded grantees and other safety net health
care providers purchase prescription medication at significantly
reduced prices. In so doing, this program expands access to
affordable pharmaceutical drugs, improves health outcomes and
eliminates health disparities among the nations most vulnerable.
Thank you for the opportunity to report on the oversight and
administration of the 340B Drug Pricing Program. We look
forward to working with the Committee to ensure that the 340B
Drug Pricing Program continues to be a valuable Federal resource.
MR. WHITFIELD. We are getting ready to have a final vote in
the full committee downstairs. So we're going to recess for
15 minutes and when we come back, hopefully we're going to ask
these questions, go to the second panel, and there won't be any
more interruptions. So we'll recess for 15 minutes, we'll be right
back.
[Recess.]
MR. WHITFIELD. The hearing is reconvened and once again I
apologize to you all. But, Mr. Wright, I would like to ask you a
few questions to start off with here. Does HRSA currently verify
that manufacturers are correctly calculating the ceiling prices for
their drugs?
MR. WRIGHT. I do not believe that they currently do that, sir.
MR. WHITFIELD. Now, if HRSA and the drug manufacturers
are independently calculating these ceiling prices based on the
same data, shouldn't their calculations be exactly the same?
MR. WRIGHT. Yes. Theoretically, as I indicated in my opening
statement, they should be the same. However, there are some
nuances in terms of how the calculations are done. There may, in
addition, be sort of inadvertent administrative error or there could
be intentional misrepresentation. Any of those three things would
cause there to be a discrepancy. And as a I stated in my statement,
as a result of that, it's imperative for HRSA to conduct aggressive
oversight to ensure that there are in fact no discrepancies.
MR. WHITFIELD. And so it would not be unusual that there be
different prices because of the three or four reasons that you've
elaborated on there.
MR. WRIGHT. Correct. And the ongoing work that you
referenced in your opening statement is actually looking at invoice
prices paid by 340B entities and comparing that to the
government's ceiling price. To the extent that there are
discrepancies, we will identify them in this ongoing work, and we
will calculate any overcharges that are resulting to 340B entities.
MR. WHITFIELD. I'm assuming HRSA would not check to make
sure that the covered entities are actually receiving the discount
they are entitled to, because of what you already said, they don't
really have the mechanism to do that.
MR. WRIGHT. Yes. I believe that they currently do not do
oversight of the manufacturer's generated number. There is some
spot-checking of the 340B entities' invoices, but that is not
systematic and not widespread.
MR. WHITFIELD. And from your report, your investigation, I'm
assuming that it's not unusual that there are overcharges; would
that be accurate or not?
MR. WRIGHT. Certainly from the audit report that was issued in
1999, there were $6.1 million in overcharges just from five
manufacturers and 11 drugs for a period of 1 year. The ongoing
work that we have will quantify the overcharges and project total
overcharges to all drugs covered under the 340B program. But as
of yet I can't quantify that for you.
MR. WHITFIELD. Now we have a witness with
GlaxoSmithKline that will be on the second panel, and I said in my
opening statement, the fact that Glaxo is now posting its ceiling
price on the prime vendor's web site, is that sufficient to increase
transparency in the 340B program?
MR. WRIGHT. It is certainly a step in the right direction. We
are in favor of anything that increases transparency between the
government-calculated 340B ceiling price and those prices paid by
the 340B entities. And this is certainly a step in the right direction.
It does not cover all drugs and all entities.
MR. WHITFIELD. Now, if HRSA becomes aware of an
overcharge, what are the current options in terms of dispute
resolution and/or enforcement that's available to HRSA?
MR. WRIGHT. To our understanding, the only enforcement
mechanism that is available to HRSA if there is noncompliance
with the 340B program requirements is to terminate the
manufacturer from both Medicaid and the 340B program. And as I
indicated in my statement, that is such a drastic penalty that it is
likely not to be used.
MR. WHITFIELD. And are you aware of any incidences where
that has been the case?
MR. WRIGHT. I believe it has never been utilized.
MR. WHITFIELD. It's my understanding -- and I'll get to Mr.
Williams in just a minute -- or has my time expired -- that HRSA
does not believe there are any legislative changes needed at this
time. From your experience looking into this issue, do you feel
like there are some specific legislative or regulatory or contractual
changes that need to be made to improve this program?
MR. WRIGHT. Yes. We have stated very clearly that we think
additional intermediate sanctions should be authorized and that
HRSA should seek legislative authority to impose civil monetary
penalties for situations of noncompliance. I certainly will let
Dennis speak, but I believe that HRSA has taken the position that a
number of the other things that they're currently undergoing in
terms of addressing the previous OIG recommendations should
occur first before they make a full assessment about whether or not
additional penalties are necessary.
But clearly we've said that there should be additional penalties
because the current penalty of kicking manufacturers out of
Medicaid and the 340B program is so draconian that it's not likely
to be utilized.
MR. WHITFIELD. Mr. Williams, of course you have seen the
OIG report, I'm assuming, and was HRSA aware of these problems
prior to this report coming out? I'm assuming that you were.
MR. WILLIAMS. Yes, we were aware of them. But I think the
IG has done a very good job in systematically looking at a number
of these issues and laying them out in one place. So I think they
have done a good job and focused us on a number of tasks that I
think can help us improve the administration of the program.
MR. WHITFIELD. Now, do you all feel like you need additional
legislation or do you feel like HRSA can do it from a regulatory
standpoint or what?
MR. WILLIAMS. Our primary job is to administer the program
within the legislative context that we currently have, and we are
working hard to try to do that. I think the OIG has pointed out
some areas where additional authorities under certain
circumstances may be useful, but I don't think that we have
exhausted all of the possibilities to try to carry out our
responsibilities within the existing authority. There are some
limitations in that.
MR. WHITFIELD. So officially HRSA is not asking for any
legislative changes at this point.
MR. WILLIAMS. Not at this time we're not.
MR. WHITFIELD. Now, on page 21 in the OIG's
recommendations, he says that HRSA should establish detailed
standards for the calculation of ceiling prices. And in the wake of
the OIG report, I was curious, have you all taken any steps to
develop some specific procedures for calculating these ceiling
prices?
MR. WILLIAMS. No, but we think it's a good idea. We just took
over -- CMS up until about September was responsible for actually
calculating the 340B ceiling prices, which they then passed on to
us. We have agreed with CMS beginning in October that we will
now do that calculation, again, with information provided to us by
CMS and drug companies. But now that we do have the
responsibility, I think the idea of laying out the procedures is a
good idea and we'll work on that.
MR. WHITFIELD. Do you all have the ability or the authority to
compel manufacturers to provide their ceiling prices?
MR. WILLIAMS. We don't directly. As part of their agreements
to participate in the 340B program and the Medicaid drug rebate
program, they have an obligation to provide that information.
MR. WHITFIELD. How many of them provide the ceiling prices
to HRSA?
MR. WILLIAMS. Up until now they have been providing the
information to CMS, and through CMS the calculations have come
to us.
MR. WHITFIELD. What about the underlying data to calculate
the ceiling price; do they provide that to you?
MR. WILLIAMS. No. They will be. Again, they provide -- up
until September they have been providing that information to
CMS, the average wholesale price and the other information CMS
needed. We'll be getting that information.
MR. WHITFIELD. What about the actual calculation itself?
MR. WILLIAMS. We got the calculation from CMS, up through
September. We're going to do that now ourselves, in conjunction
with them, but we'll actually do the calculation ourselves.
MR. WHITFIELD. I see my time has expired, so at this point I'll
recognize Mr. Stupak.
MR. STUPAK. Mr. Wright, the 2001 OIG report found that
50 percent of the drugs provided by 340B entities were priced at
levels exceeding the government's applicable ceiling prices. Do
you have any reason to think that is not true today?
MR. WRIGHT. Are you speaking of the June 2004 OIG report?
MR. STUPAK. 2001. Back then they said 50 percent of drugs,
or more, were exceeding government levels. Any reason to think
that's not true today?
MR. WRIGHT. As I indicated, we're currently doing a review
which consists of a random sample of invoices that 340B entities
have paid. We'll be able to quantify exactly the extent of the
overcharges in terms of the percent and the amount. That isn't
information that I have today, and we do hope to report to you in
the spring.
MR. STUPAK. Let me ask you this one. In October 2004,
HRSA, the Administrator and Chairman Barton promised a
comprehensive plan to strengthen the effectiveness of the 340B
drug pricing program, and that was based again on an OIG report
of 2004. HRSA also concurred with those recommendations. Did
you see any evidence of that plan during your work in 2005?
MR. WRIGHT. I think we have had fairly good communication
with HRSA regarding the 340B work that we have done. We
think, as I indicated in my testimony, that they have been fairly
responsive to the OIG recommendations. There are a number of
areas where we think they can take additional steps, but in general
I think we have been pleased with the actions that HRSA has taken
to date based on what we've found.
MR. STUPAK. Is there a plan that came over from 2004 to now?
MR. WRIGHT. I have not seen a specific plan and certainly
welcome Mr. Williams to address that. I have seen detailed
responses from HRSA in terms of the OIG recommendations that
have been made to date, including various correspondence with
Members of Congress delineating what they're planning on doing
specific to each recommendation.
MR. STUPAK. Let me ask you then, Mr. Williams, has a plan
been developed as they said they were going to do in 2004?
MR. WILLIAMS. We have taken a number of steps to try to
improve our administration of the program. We're working on the
development of a database which will -- one of the things the
inspector general pointed out to us is our list of covered entities,
addresses, contact information was not up to date.
MR. STUPAK. I'm asking about a comprehensive plan. Was a
plan put forth in writing?
MR. WILLIAMS. Not a plan. We have a series of steps which
we are working on.
MR. STUPAK. I'm glad you're talking to each other, and I'm glad
things are going better, but the point I was asking about is a
comprehensive plan as you said you were going to do in October
of 2004. I just need to know if there's a plan.
MR. WILLIAMS. Well, if you mean -- as a result of the work of
the Inspector General and others, we have identified a number of
weaknesses in the program which we are working on.
MR. STUPAK. Are those weaknesses in writing anywhere?
MR. WILLIAMS. They are on our work plan.
MR. STUPAK. Could you submit that work plan in to us? I'm
not making this up. Says "comprehensive plan" in quotes, so we
want to see that plan.
MR. WILLIAMS. We'd be glad to tell you the steps we're
undertaking to improve the program.
[The information follows:]
RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH
RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
What steps are we undertaking to improve the program?
We signed an Interagency Agreement with CMS for fiscal year
2006. We assumed the responsibility of computing 340B ceiling
prices beginning October 1, 2005. The Interagency Agreement
continues to restrict our use of the data and does not allow for
pricing transparency.
On December 30, 2005 we mailed the letter requesting
voluntary submission of manufacturer 340B ceiling price data and
requested drug company permission to share their pricing data on a
password-protected secure web site maintained by the 340B Prime
Vendor. We have gotten a positive response from many
manufacturers, and have to date received pricing submissions to
the Office of Pharmacy Affairs (OPA) from 134 manufacturers.
These manufacturers comprise roughly 20 percent of all
manufacturers participating in the 340B program. Only one of
these companies has voluntarily agreed to permit their data to be
shared with the Prime Vendor.
We have compared computed 340B prices with those submitted
in Excel format by manufacturers, and have identified pricing
discrepancies that allowed us to further review the data submitted
and price algorithm assumptions. Informal contact with the OIG
has confirmed that there remain pricing discrepancies attributable
largely to different package size conventions used by the
pharmaceutical industry and CMS.
We hope to have a more formal interaction with OIG by the end
of March to discuss findings and problem-solve. In the interim,
OPA and its contractor are reviewing data anomalies to discover
root causes for pricing errors. These anomalies include
mismatches in CMS and First Data package size data, apparent
changes in package size for a given National Drug Code (NDC)
and incomplete data.
We may seek OMB approval to request that drug companies
submit their pricing data in a standard format. Standardization of
price submissions will give HRSA the ability to review data
submitted in a cost-effective manner while ensuring the quality of
the data. We have created a draft Excel template for drug
companies' voluntary submission of 340B prices from our
experience thus far with manufacturer price submissions. HRSA
will explore with HHS and OMB if additional approvals are
required to stipulate an Excel format.
MR. STUPAK. Okay. Let me ask you this: Can you explain to
me -- the Chairman was asking you about the pricing. There is
really two pricing plans, isn't there, one by the government, one for
the ceiling price; one by the government they calculate, and then
the manufacturers calculate one?
MR. WILLIAMS. Yes.
MR. STUPAK. Is that both plans provided to you so you can
check calculations, things like that?
MR. WILLIAMS. Now, we have the drug companies provide
information to CMS, who calculates the 340B ceiling prices. The
drug companies calculate their own, and they use that as the basis
for doing business in the marketplace with covered entities.
MR. STUPAK. Have you ever seen the manufacturers' drug
pricing plan?
MR. WILLIAMS. We have seen GlaxoSmithKline. They have
voluntarily agreed to give us their 340B ceiling price calculations,
and they've provided to us and --
MR. STUPAK. Anyone else besides GlaxoSmithKline?
MR. WILLIAMS. No. We are hopeful that they, having stepped
forward -- they're a major company, and stepping forward,
voluntarily making information available into the marketplace, and
we hope that that will lead others to do the same. Limitations in
the law don't allow us to go at this more directly, but if the drug
companies voluntarily provide information --
MR. STUPAK. Do you think it would be helpful if the drug
companies provided their ceiling price plans?
MR. WILLIAMS. If they provide it voluntarily, and depending
on what limitations they put on its use.
MR. STUPAK. Even if they didn't voluntarily, let's say if they
had to provide it to you, wouldn't that be helpful? I'm a little
disturbed when they say at the beginning, here we spent $61
million for 11 drugs from 5 different manufacturers, a random
sample they did. I'm sorry; $6.1 million for 11 drugs from 5
manufacturers.
I mean, if you have got two ceiling prices, you know what
yours is because you calculate it, but you don't know what the drug
companies' are. How do you know if you're getting the right deal?
MR. WILLIAMS. The law provides certain limitations on the use
of the information that we get from drug companies. They can
provide us pricing data related to their drug data, and the law puts
limitations on what we can do with that limitation and how we can
use it.
MR. STUPAK. Are you saying the law puts a limitation on you
from getting a ceiling price from the drug companies?
MR. WILLIAMS. From using that ceiling price.
MR. STUPAK. I'm talking about getting it for comparison
purposes. If you're trying to figure out if you're getting overpaid or
underpaid, I would think you need a yardstick to measure it by. I
would think that yardstick would be, since there is two ceiling
price plans --
MR. WILLIAMS. Not necessarily. They are calculated in two
different ways, but the drug companies calculate using the same
formula that we do for a ceiling price. As the OIG has pointed out,
we don't know the degree of discrepancy.
MR. STUPAK. Absolutely you wouldn't know it. So wouldn't
you want to see it?
MR. WILLIAMS. Sure.
MR. STUPAK. Have you ever asked?
MR. WILLIAMS. I am limited on what I can do with that
information.
MR. STUPAK. There's nothing in the law that says you can't ask
for it, right, or to make the comparison?
MR. WILLIAMS. No.
MR. STUPAK. The concern I have, and, again, in answer to a
question to the Chairman, you said you had not exhausted all your
possibilities, and therefore you didn't think you needed any
legislative changes. This law has been around since 1993, and
we're on our 12th year. I would think we would have exhausted
our administrative remedies. After 12 years I think you would try
something to get control over this, because the problem is a lack of
information being shared between all the parties, correct?
MR. WILLIAMS. I think transparency is an issue in this
program. There are covered entities in the marketplace purchasing
drugs at certain prices, and the law requires drug companies do
make those drugs available to covered entities at certain prices, and
not everybody has full information.
MR. STUPAK. The Inspector General says in the report you
need more legislative, regulatory, and contractual authority to
enforce manufacturer and wholesale compliance with the 340B
program. Do you agree?
MR. WILLIAMS. I think our job is to work as best we can within
the limitations of the law, and we're trying to do that. I think we've
made some progress. Drug companies in the case of --
MR. STUPAK. My question is do you agree with the inspector
general when they say you need more legislative, regulatory, and
contractual authority to enforce manufacturer and wholesale
compliance with 340B program; do you, yes or no?
MR. WILLIAMS. I think we're making progress with the
authorities we have, and we're going to continue to try to do that.
MR. STUPAK. It's been 12 years' worth of progress. When will
you get to the final analysis here?
MR. WRIGHT. In recent months I think we've made a lot of
progress, and there are a lot of opportunities here to improve the
situation. I think we look forward to the IG study this spring. I
think no one really knows the overall degree to which ceiling
prices are not actually being provided to people. I think that
information would be very helpful to all of us.
MR. STUPAK. I'll yield back, Mr. Chairman.
MR. WHITFIELD. Mr. Inslee, you're recognized for 10 minutes.
MR. INSLEE. Thank you. I'm probably the least --
MR. WHITFIELD. Mr. Inslee, excuse me, I didn't see
Ms. Blackburn.
So, Ms. Blackburn, you're recognized for 10 minutes.
MS. BLACKBURN. Thank you, sir, and I will not take all of my
time because I know we're going to have a vote very soon, and the
others would like the opportunity to question. And I do have
several questions for you all, and I want to thank you all for
staying while we were between votes.
I want to follow right along, Mr. Williams, with what Mr.
Stupak was talking with you about, and please understand I can
hear the frustration in your voice, and I don't know if you're
frustrated with us or with the situation or with the bureaucracy,
which can be very difficult to deal with. And many of us -- I have
hospitals that participate in this program, and what we find
ourselves looking at is probably we have a lot of bad data that is
out here and no confirmation that the hospitals are getting the
prices at the levels at which they're supposed to get under this
program. So there is a lot of frustration and call to question.
Now, you have mentioned the identified weaknesses that you
all -- and that you all have a work plan. Mr. Stupak has asked that
you submit that. What I would like to see from you is a time line,
because one of the things that frustrates me is the fact that
repeatedly we have hearings with different agencies who are
always going to get around to it, and they're always go to do
something, and in the meantime we have taxpayers that continue to
foot the bill for systems that do not work and do not yield the
quality of service that they should be yielding. The 340B program
is one of those that should be doing a good work, but nobody can
really confirm if it is or if it is not, so, therefore, yes, it is going to
be questioned. And we are getting our vote.
Going to transparency, Mr. Wright, if I can come to you, please.
In your testimony you mentioned that in your review that the 340B
entities' participation in the program is not adequately monitored,
including 38 percent of the database listed as participating the
program when they did not and incorrect address information for
43 percent of the entities.
Now, I tell you, I'm coming to this because when I previously
served on government Reform with government efficiency and
financial management. One thing that was quite frustrating is the
fact that whether it is monetary resources or human capital, there
seems to be either a lack of will or a lack of knowledge in how to
manage those resources. So, you know, that caught my attention
when you said that. A third to a half of your program you feel like
you don't have a good handle on.
So based on that, can a drug manufacturer participating in this
program be assured that the hospitals they are offering the 340B
prices are actually participating in the program? And then what
investigations or oversight is being formed to ensure that only
eligible entities are receiving those prices?
MR. WRIGHT. It is essential that only eligible entities receive
those discounts.
MS. BLACKBURN. How can you assure that?
MR. WRIGHT. The 38 percent of the entities that we sampled
told us that they were not participating in the program even though
they were listed in the database that contained the full listing of all
340B participants. So since they stated that they weren't
participating in the program, one would expect that they had not
billed any drugs using 340B prices. But, nevertheless, it is still
somewhat disconcerting --
MS. BLACKBURN. If I may interrupt you for the sake of time.
You have no confirmation on that. That is just your assumption.
MR. WRIGHT. They said they were not participating.
MS. BLACKBURN. I want to move on with you on that because
I'm going to submit the rest of my questions, but I want to know
what you're doing as far as penalties. When you talk about the
$6.1 million in overcharges, I want to know if you're recouping
that money, and what percentage of that you're recouping, and if
you're recouping it with penalties. And you're going to get these
questions submitted to you for your answers.
I also have some questions on the flow chart dealing with
ensuring that manufacturer ceiling price and the government
ceiling price are going to match.
With that, Mr. Chairman, I'm going to yield back so that the
others have the opportunity before we're called to vote. I thank
you.
MR. WHITFIELD. Thank you, Ms. Blackburn.
Mr. Inslee, you're recognized.
MR. INSLEE. Thank you.
I was just reading some staff memorandum, and it says: Drug
manufacturers are not required to provide their ceiling price
calculations to HRSA, so HRSA does not have ability to compare
its ceiling price calculations to those of the manufacturers in order
to identify discrepancies. Is that accurate?
MR. WILLIAMS. Yes, although as we pointed out, one company
has come forward and offered to voluntarily provide that
information. They also are making that information available to
the prime vendor and through the prime vendor in a secure
Website.
MR. INSLEE. If you were to conclude that's a problem, that we
want HRSA a to have that information so it can act accordingly, is
it fair to say that we ought to adopt a statutory requirement that
that happen, that HRSA be provided that?
MR. WILLIAMS. Well, that's for this committee and the
Congress to decide. I think there are opportunities for us to work
with the drug companies and covered entities to create a situation
where everybody has the information they need to carry out their
obligations under the law.
MR. INSLEE. I guess what I'm trying to get at is if we don't
statutorily require that, it's probably not going to happen, is that a
fair statement, because for reasons outside of your control, you're
not going to accomplish that; is that a fair statement or not?
MR. WILLIAMS. We have not concluded that, no.
MR. INSLEE. Well, so let me ask you this: If we don't compel
them to provide it to you and give you the right to obtain it, what
can you tell us as to whether or not you'll get that information?
MR. WILLIAMS. I can tell you that we are working with drug
companies to try to create a situation where transparency can be
improved. At this stage we have made some very good progress
there. We have a long way to go, but a good step forward, and
we're hoping that the fact that GlaxoSmithKline has stepped
forward, this is a very competitive industry, and that people will
notice what they do, and we would hope that others would come
forward also.
MR. INSLEE. Can you give us any percentages like 50 percent
in next 12 months or any assessment at all?
MR. WILLIAMS. No, I can't give you that assurance.
MR. INSLEE. So what incentive do people have for providing
you this information right now?
MR. WILLIAMS. I think it is -- I can't speak for the drug
companies. GlaxoSmithKline will come forward in the second
panel. I think that's a good question for them, what was the
incentive of them to give us that information. They felt it was in
their interest. We did not, as you point out, force them to give us
that information; they came forward voluntarily, and I think that's a
good question for them to answer for you, and I think it's probably
instructive for other drug companies as well.
MR. INSLEE. Thank you.
MR. WHITFIELD. To follow up 1 minute, could the
pharmaceutical pricing agreement be changed to require drug
manufacturers to provide the ceiling price calculation?
MR. WILLIAMS. I think the pricing agreement does not carry
necessarily the statutory weight that the law does. The agreement
lays out some mutual responsibilities, but it's still within the
overall framework of the statute that we both operate within.
MR. WHITFIELD. Okay. I'm very sorry to say that we have four
more votes on the House floor. And how many minutes are left in
this vote? We have about 7 minutes left. So I hate to say we're
going to recess this again, and we'll be back just as soon as we can.
I hope you're becoming familiar with the cafeteria downstairs and
the machines where you can buy Cokes and things to eat. We'll be
in recess, and we'll be back just as soon as we can.
[Recess.]
MR. WHITFIELD. We are waiting for Ms. DeGette of Colorado.
She had some questions specifically of the first panel, but while we
were waiting for her, there was an additional question that I want
to ask you.
Mr. Williams, relating to the OIG who had recommended that
you selectively audit manufacturers, wholesalers, and covered
entities, and I was going to ask, do you intend to follow those
recommendations? Then I also was told that there had been some
legislation introduced relating to the two audits. Would you
briefly comment on that?
MR. WILLIAMS. Well, with respect to the first part we really
don't have authority under the law to audit directly. There is
legislation, I think, pending, that would give us that authority, but
we do not have that authority today.
MR. WHITFIELD. Do you know the status of that legislation?
MR. WILLIAMS. No, I don't.
MR. WHITFIELD. At this time, I recognize Ms. DeGette for her
period of questions.
MS. DEGETTE. Thank you so much, Mr. Chairman. I want to
thank the panel for staying. I appreciate your patience.
I have a couple of questions. Mr. Wright, the first one is for
you. Your report indicates that HRSA has been unable to correctly
determine the ceiling price set by drug manufacturers. How was
the OIG able to verify that HRSA's methodology was incorrect?
MR. WRIGHT. The report that we issued this past October
addressed primarily oversight issues in terms of HRSA's oversight
of the program. The report that we had done last June actually
quantified the overpayments that 340B entities were incurring as a
result of the discrepancies in the data.
As you are aware, we withdrew that report and we are currently
redoing it. In the spring, when we report back to this committee
the results of that work, we should be able to quantify exactly the
extent to which 340B entities are being overcharged. But the
October report, which I discussed in the testimony, really only
dealt with oversight issues.
MS. DEGETTE. So the upcoming report next spring will talk
more about the methodology?
MR. WRIGHT. Will actually quantify the extent to which
overcharges are occurring.
MS. DEGETTE. You think you will be able to verify the
methodology in that report next spring then?
MR. WRIGHT. Yes, that report will verify the extent to which
overcharges are occurring, and then will actually look behind when
overcharges occur and try to determine why in fact those
overcharges happened.
MS. DEGETTE. Do you think that we need any statutory
changes for HRSA to be able to utilize the methodology in the
future?
MR. WRIGHT. We have talked about statutory changes in terms
of additional intermediate sanctions that HRSA could use to
enforce noncompliance.
MS. DEGETTE. Okay.
MR. WRIGHT. The other areas we have talked about just
increased HRSA oversight.
MS. DEGETTE. You wouldn't need statutory changes for that?
MR. WRIGHT. No, not for those.
MS. DEGETTE. Mr. Williams, I have some questions for you.
The first one I want to ask you is sort of the fundamental question
that's been hinted at in many of the other panel member's
questions. That is if you have a voluntary reporting system and
you have only one company that has voluntarily reported, then
how can you administer this system?
MR. WILLIAMS. Well, we have a range of responsibilities under
the system, which we, I think, carry out reasonably well with
respect to verification.
MS. DEGETTE. Right.
MR. WILLIAMS. A voluntary -- under the structure of the law,
we can get information -- we cannot disclose the manufacturer's
data or pricing data of the manufacturers. That puts a limitation on
what we can use with the data that we have. With a company
coming forward, and voluntarily giving us that pricing data and
voluntarily allowing us to use that data to verify whether the
calculation is correct, they have also voluntarily -- they are also
making that information voluntarily available to covered entities
who purchase the drug.
MS. DEGETTE. Right.
MR. WILLIAMS. All that brings for that company a transparency
in the system that benefits covered entities who purchase and
benefits us in our oversight role.
MS. DEGETTE. Right, that's one company.
MR. WILLIAMS. One very large company, yes.
MS. DEGETTE. So that sort of begs the question of what about
verification for all the other companies that have not chosen to
participate on the system?
MR. WILLIAMS. Well, we rely on a range of tools. If covered
entities are uncertain about or have questions about whether they
are getting the right price, they can ask us, and we can take that
request and try to verify the situation.
MS. DEGETTE. How often does that happen?
MR. WILLIAMS. We get a number of requests.
MS. DEGETTE. Are you able to verify that information?
MR. WILLIAMS. We can take that information -- since we
calculate, or CMS has been calculating the 340B ceiling price, we
can tell that company or that covered entity whether the price that
they are being charged is consistent with a ceiling price that we
have calculated. We can't tell them precisely what the price is, but
we can tell them whether it is over or under that price.
MS. DEGETTE. Okay. So if CMS has a price, and then
someone else, so there are many covered entities, you could just
tell them if it's the same as CMS. But there's no independent
verification there?
MR. WILLIAMS. A covered entity doesn't have that information,
no. The law doesn't allow us to give that to them.
MS. DEGETTE. Have you tried to get the other entities to
voluntarily report by trying to persuade them that the same kind of
transparency that Glaxo has would benefit them commercially as
well? Have you tried to encourage this voluntary --
MR. WILLIAMS. We have lots of conversations with
manufacturers as well as covered entities. These have been
matters that we have discussed when companies come forward,
and hopefully that will help others to see benefits from it.
MS. DEGETTE. Okay. Let me ask another question. Your
agency's inability to properly determine the drug manufacturer
ceiling price has been highlighted by many, and today as well, as
one of the most significant problems with the oversight of the
340B program. Can you explain to me the process that you
inherited from the CMS?
MR. WILLIAMS. Well, the process, without going into a lot of
detail, involves manufacturers providing information about
average wholesale price. There are also questions about package
sizes and other technical information needed to help calculate the
price.
As the OIG has pointed out, not all of that information in the
past has been accurate and then provided in the form in which we
have needed it. We are working on that. We have now arranged
with another company, First DataBank, to get the right package
size data that we need to calculate a price that is meaningful to a
covered entity. So we are making progress in the areas where I
think the IG has pointed out some deficiencies in the process.
MS. DEGETTE. What is your timeframe for making those
changes?
MR. WILLIAMS. That change is already made.
MS. DEGETTE. Are there any other changes that you intend to
make?
MR. WILLIAMS. There are some historical data that we need to
go back and correct in time. But in terms of the pricing data, we
are getting much better information than we had before.
MS. DEGETTE. What is your timeframe for that? Is that a
change you are planning to make?
MR. WILLIAMS. That is already made. We are using that data
now in the calculation of it.
MS. DEGETTE. So you are not planning to make any additional
changes. Is that what your testimony is?
MR. WILLIAMS. No. As we find deficiencies, we will make
changes.
MS. DEGETTE. But at this point, you have identified no
additional deficiencies, is that what you are saying? I don't want to
put words in your mouth, but I am having a hard time -- I am
frankly having a hard time understanding your testimony, because
you said that your agency is working to implement some of the
recommendations of the OIG, but I don't know specifically what
those are, what your timeframe for making them is.
MR. WILLIAMS. We have just taken over in September
responsibilities for actually recalculating the 340B price from
CMS. Up to this time this has been the total responsibility of
CMS.
MS. DEGETTE. I understand.
MR. WILLIAMS. We have taken the results of their calculations
and used it. To the extent there were deficiencies in the data they
used or in the process they used, that is something they were
responsible for at that time.
Now that we have taken over that responsibility, we will
address some of the deficiencies that come to our attention. One of
the big ones was getting the right package size data for the covered
entities.
MS. DEGETTE. Right.
MR. WILLIAMS. And that we have resolved.
MS. DEGETTE. But you didn't tell me which of the other ones
you intend to address.
MR. WILLIAMS. We will address all of them as they come to
our attention.
MS. DEGETTE. All right. Thank you for clarifying that.
Now, according to the recent -- the OIG report, even if your
agency was able to accurately determine the drug manufacturers'
ceiling prices, you wouldn't have the authority to enforce
compliance or impose penalties, and so the OIG recommends that
your agency seek legislation to give you that authority, including
the ability to impose penalties.
But in your response you said that HRSA does not want to
establish penalties for violation. So my question is, how are you
going to enforce compliance by drug manufacturers if there is no
punishment for violations?
MR. WILLIAMS. Well, this is a -- we have one big penalty,
which is to get them to leave the Medicaid program or the 340B
program. That's a very large penalty, which, as the IG correctly
points out, the penalty is worse really than the problem we are
trying to resolve.
MS. DEGETTE. That is probably why you never actually
enforced that penalty; correct?
MR. WILLIAMS. I think we have always -- and CMS, together,
we have always tried to, where we identified problems, to work
with those to resolve those problems. That's the approach we have
always taken.
MS. DEGETTE. Yes, I realize that.
Thank you very much, Mr. Chairman, I yield back.
MR. WHITFIELD. I just want to clarify one other aspect of this,
Mr. Williams. I asked you earlier, relating to Exhibit 1 of the OIG
report on page 21, about the recommendation that you establish a
standard for the calculation of the ceiling price. You have
indicated, I believe, that, yes, you are working on that.
Now, they also recommended or pointed out the lack of
standardization for package sizes, especially drugs sold in powder
form, liquid form, whatever, that presents a major problem to
accurate ceiling price calculations. Would you just briefly explain
that problem and what you are doing to correct that issue?
MR. WILLIAMS. That we have already resolved. We have a
contract with a company called First DataBank. They provide us --
for the drugs that are part of the program. They provide us that
information, and we are now putting that information to the
calculation for the ceiling price. So that issue has been resolved.
MR. WHITFIELD. When was that contract entered into?
MR. WILLIAMS. In the past 6 months.
MR. WHITFIELD. Six months, okay.
MR. WILLIAMS. I don't know precisely. I can give you the
exact date.
[The information follows:]
RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY
ADMINISTRATOR, HEALTH RESOURCES AND SERVICES
ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
When did we sign the first contract with First Data?
OPA's contractor is the entity that holds the contract with First
Data Bank. The contractor first signed with First Data Bank on
October 1, 2005.
MR. WHITFIELD. Mr. Stupak.
MR. STUPAK. Thank you, Mr. Chairman. Mr. Wright, does the
law state that the Secretary can disclose pricing information if
necessary to carry out the provisions of the law, or the statute, I
should say?
MR. WRIGHT. Yes, that was included in my written statement.
If the Secretary, in fact, determines that that's necessary.
MR. STUPAK. So there would be no changes we would have to
make in order to get that information?
MR. WRIGHT. If the Secretary were, in fact, to make that
interpretation, correct.
MR. STUPAK. So it is not a legislative issue, it's a discretionary
issue.
MR. WRIGHT. Certainly.
MR. STUPAK. The law gives that discretion.
MR. WRIGHT. Yes, depending on how one reads the statute and
I believe in fact different people have read it differently. The fact
of the matter is HRSA is currently precluded either by a statutory
interpretation or by a matter of policy from disclosing that
information.
MR. STUPAK. Okay.
MR. WRIGHT. So that would have to change.
MR. STUPAK. True. Mr. Williams, Ms. DeGette asked you a
little bit about dispute resolutions or how you do enforcement. Let
me ask you this question, the Inspector General said the only way
HRSA can get a refund is through an informal, voluntary --
informal, voluntary, dispute resolution process, which it has never
used. Why hasn't that ever been used?
MR. WILLIAMS. Well, I wouldn't say that's the only way. We
tried to resolve differences that are brought to our attention on
calculations between a covered entity and a manufacturer. We try
to resolve those issues. The $6.1 million discrepancies that the IG
found, we have written the companies and asked them to respond
to us about how they plan to resolve those issues.
MR. STUPAK. Right. They haven't responded?
MR. WILLIAMS. Well, we have been in touch with them. One
company we have not -- we have been asked not to pursue,
because the Department of Justice is in discussions with them. The
others have responded. CMS has to complete some additional
work before we can resolve the issue. But we are in discussion
with them. They have responded. It has not been totally resolved,
I would agree with you.
MR. STUPAK. If I remember correctly, didn't the letters ask for
them to develop a corrective action plan?
MR. WILLIAMS. Yes.
MR. STUPAK. I believe GlaxoSmithKline did for Flonase, and
that's the only one; correct?
MR. WILLIAMS. They have responded, I believe, yes.
MR. STUPAK. Yes, Glaxo did on Flonase, so Aventis,
Bristol-Myers, Squibb, TAP Pharmaceuticals, they haven't
responded with a corrective plan?
MR. WILLIAMS. Well, we are still in discussion with them and
CMS to try to resolve the issue, with all but one company where
we have not continued discussions because of the Department of
Justice investigation.
MR. STUPAK. But if the letter asked to develop a corrective
plan and then you enter into discussion, how long are these
discussions going to go on?
MR. WILLIAMS. We are hopeful that CMS will be able to
resolve the discrepancy at issue.
MR. STUPAK. When were those letters sent? Weren't they sent
in 2003?
MR. WILLIAMS. 2004, I believe.
MR. STUPAK. Alright. That was 2004, we are pushing 2006,
okay. Mr. Chairman, since only Glaxo is here as a witness on the
next panel, I would like to request that you and I sign a joint letter
to these other companies and ask them why they have not
developed these plans. Hopefully that is something we can agree
to do on that. I am concerned about it.
Alright. Mr. Williams, one more question, if I may. We talked
a lot about these two plans here, these ceiling plans, prices, I
should say. There is one calculated by you and one by the drug
companies.
In the past, HRSA hasn't really pushed this issue or really asked
the drug companies to come up with their plan, because they said
they didn't have the resources to do that. Do you have the
resources now to make the comparisons? If you get this
information, do you have the resources to make the comparisons,
manufacturers and your prices?
MR. WILLIAMS. We have a small, very dedicated and talented
staff, and within the resources available to us there are some things
that we can do that we do not have unlimited resources.
MR. STUPAK. Well, how many comparisons have you made
that -- I know you have a small group there. That's why I want to
see if you need more resources.
MR. WILLIAMS. Well, it depends on the nature of the extent of
the interactions. We have staff that are able to handle individual
issues that come to our attention. We have the staff, and we cannot
do unlimited enforcement that way.
MR. STUPAK. How many have you done in the last 12 months?
MR. WILLIAMS. I don't know, but I can supply that to you for
the record.
MR. STUPAK. One?
MR. WILLIAMS. I don't know. I will supply that for the record.
I don't know off the top of my head.
MR. STUPAK. Alright. Thank you, Mr. Chairman. Thank you,
witnesses.
[The information follows:]
RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY
ADMINISTRATOR, HEALTH RESOURCES AND SERVICES
ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES
How many comparisons on drug prices have we made in the
past 12 months?
Since October 1, 2005 we have conducted price comparisons
between manufacturer-submitted 340B prices and the
government's calculated 340B prices for roughly twenty
manufacturers. This effort represents roughly 2,400 unique NDCs.
We have also conducted 3 quarterly comparisons between 340B
selling prices submitted by the three national drug wholesalers.
We have compared a market basket of ADAP drug prices with
340B prices on 3 separate occasions. Because of the restrictions
on disclosure of 340B pricing information, we were limited to
disclosing only that the ADAP drug market basket did or did not
exceed the aggregate cost represented by 340B prices. We have
also reviewed prices for two Disproportionate Share Hospitals and
responded with market basket assessments. We have addressed
other covered entity price concerns through our Prime Vendor.
MR. WHITFIELD. Thank you. Obviously there does need to be
more transparency in this program. I want to thank the first panel.
At this time I would like to call up the second panel. Mr.
William von Oehsen, who is with Powers, Pyles, Sutter & Verville.
Mr. David Brown, who is Director of the Government
Contracts and Pricing Programs for GlaxoSmithKline.
Mr. Christopher Hatwig, who is the Senior Director of the 340B
Prime Vendor Program at HealthCare Purchasing Partners
International. So we welcome you all. I am sure you were
convinced that we would never get to you today, but here we are.
As you heard the questions to the first panel, you are aware that
this committee is holding an investigatory hearing. When doing so
it is the practice to take testimony under oath. Do any of the three
of you have any objection to testifying under oath?
MR. VON OEHSEN. No.
MR. BROWN. No.
MR. HATWIG. No.
MR. WHITFIELD. Of course, under the rules of the House and
the rules of the committee you are entitled to legal counsel. Do
any of you want counsel today.
MR. VON OEHSEN. No.
MR. BROWN. No.
MR. HATWIG. No.
STATEMENTS OF WILLIAM H. VON OEHSEN, III, POWERS, PYLES, SUTTER & VERVILLE
PC; DAVID B. BROWN, DIRECTOR, GOVERNMENT CONTRACTS AND PRICING PROGRAMS,
GLAXOSMITHKLINE; AND CHRISTOPHER A. HATWIG, M.S., R.PH., FASHP, SENIOR
DIRECTOR, 340B PRIME VENDOR PROGRAM, HEALTHCARE PURCHASING PARTNERS
INTERNATIONAL
[Witnesses sworn.]
MR. WHITFIELD. You are now under oath. Mr. Von Oehsen,
you are recognized for your opening statement.
MR. VON OEHSEN. Thank you, Mr. Chairman. I am Bill von
Oehsen, Public Counsel for the Public Hospital Pharmacy
Coalition. Thank you for allowing me to share the views of PHPC
and its member hospitals participating in the 340B drug discount
program. As participants in 340B, PHPC members have a deep
interest in effective oversight of the 340B program and express our
appreciation to your subcommittee for holding this hearing.
We also want to commend the Office of the Inspector General
in issuing its recent report outlining ways to improve
administration of the program.
PHPC supports all of the OIG's recommendations and would
like to offer additional recommendations and comments. But
before turning to those recommendations, I would like to say a few
words about our organization and the value of the program to
safety net institutions and their patients.
PHPC is a coalition of approximately 330 disproportionate
share hospitals which represent a majority of the hospitals
participating in 340B. Its membership encompasses a wide range
of institutions, both urban and rural hospitals, public and private,
nonprofit hospitals, hospitals with bed sizes over 500, under 50 and
in between, religious hospitals, academic medical centers and
community hospitals.
But notwithstanding this diversity, PHPC members share a
common mission of serving low income and uninsured patients,
including significant numbers of the working poor. Indeed, it is
because of this mission to serve the poor that PHPC's members all
qualify for and participate in the 340B program. Access to
discounts and outpatient drugs under the 340B program is vital to
the ability of PHPC member hospitals to provide comprehensive
pharmacy services to low-income patients and other vulnerable
populations. For example, in a conversation last week with one of
our long-standing members, the University of Kentucky Hospital,
we were told that access to 340B discounts is, quote, the only
reason, end quote, why the hospital can keep its outpatient
pharmacy and chemotherapy clinic open.
Shands Hospital, University of Florida, has a large population
of transplant patients who can live only with extensive
pharmaceutical support. 340B pricing helps Shands defray the cost
of providing their postoperative medications, which enables them
to resume productive lives. Every 340B provider has a story like
one of these attesting to the value of the 340B program.
Returning to the OIG report, we believe of all the OIG's
recommendations, the three most critical ones are, number one,
establishing a well-defined system to assure that covered entities
receive the discounts to which they are entitled. Let me be clear,
that means the prices calculated by the government, the prices
calculated by manufacturers, and the prices actually paid by
covered entities all have to be the same.
Number two, giving HRSA the authority to impose meaningful
sanctions on manufacturers for overcharging covered entities or
other violations.
And, number three, giving covered entities access to
information so that they can determine whether they are receiving
the correct prices.
PHPC asks Congress and the administration to fix these
problems. It is critical that 340B providers receive the full
discount on outpatient drugs to which they are entitled under
Federal law, and it is critical that the government agencies
responsible for administering the program have the resources,
authorities, and requisite systems in place to assure that this occurs.
Importantly, in order to improve administration of the 340B
program in the above areas, there must be better coordination
between HRSA and CMS. The need for coordination between
these two agencies is not just limited to the area of sharing and
calculating pricing.
Consequently, we recommend that HRSA and CMS establish a
permanent working group to address and monitor all the necessary
interactions of HRSA and CMS in implementing the 340B
program.
There are other areas of 340B program administration which
need attention as well which were not addressed in the OIG report.
These include, one, stronger enforcement of the 340B pricing
agreements between manufacturers and the government.
Number two, Federal assistance in giving facilities access to
340B discounts on drugs that are in short supply, especially IVIG.
Number three, the development of a clear and enforceable
procedure for refunding 340B facilities in cases of overcharges.
Number four, the establishment of an effective administrative
process to resolve disputes between 340B entities and
manufacturers.
In conclusion, we would like to thank the subcommittee for
holding this hearing and to commend the OIG for its fine work in
assessing some of the problems and complexities of the program
and in formulating recommendations for improvement. We agree
with the OIG's recommendations and have suggested other areas of
reform that if collectively implemented would vastly improve the
effectiveness of the 340B program, expanding access to affordable
drugs or safety net providers and their patience.
I appreciate the opportunity to testify and look forward to
addressing any questions that the subcommittee members may
have for me.
MR. WHITFIELD. Thank you, Mr. von Oehsen.
[The prepared statement of William H. Von Oehsen, III
follows:]
PREPARED STATEMENT OF WILLIAM H. VON OEHSEN, III, POSERS, PYLES, SUTTER &
VERVILLE PC, GENERAL COUNSEL, PUBLIC HOSPITAL PHARMACY COALITION
SUMMARY OF TESTIMONY
The Public Hospital Pharmacy Coalition (PHPC)-an
organization that represents approximately 330 disproportionate
share hospitals (DSH) participating in the 340B drug discount
program-is fundamentally in agreement with the
recommendations of the Department of Health and Human
Services (HHS) Office of Inspector General (OIG) in its recent
report entitled "Deficiencies in the Oversight of the 340B Drug
Pricing Program." However, PHPC believes that there are a
number of more specific and, in some instances, supplementary
measures that should be implemented as soon as practicable to
achieve truly responsible and effective administration of the
program.
PHPC applauds the OIG for identifying the three most critical
elements of necessary reform to the 340B program as it is currently
administered by the Health Resources and Services Administration
(HRSA). These three elements are: (1) establishment of a
precisely defined methodology for determination of correct 340B
ceiling prices, combined with a process for routinely making direct
comparisons between the 340B ceiling prices calculated by HRSA
and the ceiling prices calculated and charged by manufacturers for
the same products; (2) authority for HRSA to impose meaningful
sanctions on manufacturers in the form of fines and monetary
penalties for charging covered entities above the 340B ceiling
price or other violations of the 340B pharmaceutical pricing
agreement (PPA); and (3) increased access by 340B entities to
information enabling them to determine whether the prices they are
being charged under the program are within the applicable
statutory ceilings.
There are also several other problems in 340B program
administration that are not covered in the OIG's most recent report
and which are of continuing concern to the 340B community
notwithstanding the hard work by responsible federal officials to
administer this important program. These include: (1) undue delay
in the execution or limitation on the scope of 340B PPAs (2) the
lack of a specific HRSA policy detailing the procedure by which
manufacturers should issue refunds to covered entities whenever it
is discovered or finally determined that they have sold 340B drugs
at above-ceiling prices; (3) the difficulty that many 340B covered
entities face in attempting to purchase drugs that are reportedly in
short supply at the appropriate ceiling price; and (4) the absence of
an effective administrative process for obtaining a binding and
judicially reviewable resolution of claims by covered entities that
manufacturers have charged prices for drugs that exceed the
appropriate 340B ceiling price.
Good afternoon Mr. Chairman. I am Bill von Oehsen, General
Counsel and founder of the Public Hospital Pharmacy Coalition
(PHPC). Thank you for inviting me to share the views of PHPC
and its member hospitals participating in the 340B drug discount
program. As participants in the 340B program, PHPC's members
have a deep interest in effective oversight of the 340B program and
express our appreciation to your Subcommittee for holding this
hearing. We also want to commend the Department of Health and
Human Services (HHS) Office of the Inspector General (OIG) in
issuing its recent report outlining ways to improve administration
of the program. PHPC supports all of the OIG's recommendations
and, as explained in more detail below, would like to offer
additional recommendations and comments. Before turning to
those recommendations, however, I would like to say a few words
about PHPC and the value of the 340B program to safety net
institutions and their patients.
Background on PHPC
PHPC is a coalition of disproportionate share hospitals (DSH)
established in 1993 by the National Association of Public
Hospitals and Health Systems (NAPH) to represent NAPH
members and other DSH hospitals with respect to the 340B drug
discount program and other initiatives affecting the availability and
cost of pharmaceutical care provided by our member hospitals.
PHPC has had a longstanding and very constructive relationship
with the office within the Health Resources and Services
Administration (HRSA) charged with administering the 340B
program, called the Office of Pharmacy Affairs (OPA), and with
OPA's staff and director, whose cooperation, commitment to the
program, and hard work is greatly appreciated by the 340B
community. One of the fruits of OPA's efforts is the prime vendor
program which has generated deeper discounts and other value-
added services for prime vendor participants, including many
PHPC member hospitals.
PHPC's membership stands at approximately 330 hospitals and
encompasses a wide range of institutions including both urban and
rural hospitals; public and private non-profit hospitals; hospitals
with bed sizes over 500, under 50 and in between; Catholic and
other faith-based hospitals; academic medical centers; tertiary care
hospitals with level one trauma centers, burn units and other
specialized services; and community hospitals focused on more
traditional acute care services. Notwithstanding such diversity,
PHPC's members share a common mission of serving low income
and uninsured patients, including significant numbers of the
working poor. Indeed, it is because of their mission to serve the
poor that PHPC's members all qualify for and participate in the
340B program. Hospital participation in the 340B program is
limited to hospitals that receive Medicare DSH payment
adjustments of 11.75 percent or higher, a standard that can only be
satisfied if a high percent of the hospital's inpatient care is
furnished, on a per day basis, to Medicaid recipients, low income
Medicare beneficiaries, and/or other indigent individuals. 340B
eligibility is also limited to hospitals that are owned or operated by
state or local governments or have a contract with state or local
governments to provide a significant level of indigent care (i.e.
non-Medicare, non-Medicaid).
The subset of PHPC's membership which overlaps with
NAPH's membership - approximately 100 hospitals - provides
about 24 percent of all uncompensated hospital care in the U.S.
even though it represents only two percent of all U.S. hospitals.
Other relevant characteristics from NAPH include the following.
Over 55 percent of gross charges are related to patients on
Medicaid or are uninsured. Twenty-one percent of all costs in
NAPH-member hospitals are uncompensated compared to 5.5
percent of costs nationally. We suspect that PHPC's non-NAPH
members have levels of uncompensated costs more comparable to
NAPH members than to the national figures.
Value of the 340B Program
Access to discounts on outpatient drugs under the 340B
program is vital to the ability of PHPC member hospitals to
provide comprehensive pharmacy services to low income patients
and other vulnerable populations. The role of pharmaceuticals in
meeting the health care needs of individuals, especially those
suffering from one or more chronic conditions, has grown
significantly over the past two decades. It is therefore no
exaggeration to say that access to affordable medications can make
the difference between clinically appropriate and inappropriate
care, and in some cases, life or death. I often hear from member
hospitals that, but for the savings available on drugs bought
through the 340B program, the hospitals could not afford to keep
their outpatient pharmacies open or would have to limit pharmacy
services by adopting strict formularies, higher co-pays or other
utilization control measures.
For example, in a conversation last week with one of PHPC's
longstanding members, the University of Kentucky Hospital, we
were told that access to discounts under the 340B program is the
"only reason" why the hospital can keep its outpatient pharmacy
and chemotherapy clinic open. Shands Hospital at the University
of Florida has a large population of transplant patients who can
live only with extensive pharmaceutical support. Many of these
patients lack employer-based health insurance and there are gaps in
coverage even for those patients that have some form of insurance.
340B pricing helps defray the cost of their post-operative
medications, which enables them to resume productive lives. A
couple of 340B hospitals in Milwaukee, Wisconsin - St. Joseph
Regional Hospital and St. Michael's Hospital - recently reported
that they use the savings from the program to maintain a pharmacy
assistance program for needy residents in the Milwaukee area and
that one of the hospitals invested its 340B savings on Procrit to
start a special anemia management clinic for renal disease patients.
Every 340B provider - referred to as a "covered entity" in the
statute - has a story like one of these attesting to the value of the
340B program.
Even with the savings available under the program, some
hospitals still cannot meet the demand for low cost drugs by local
residents who lack prescription drug coverage. Indeed, unless a
340B pharmacy has enough paying business to offset its losses in
serving the uninsured, access to discounts under the 340B program
is not enough to make ends meet. This is the primary reason why
many eligible 340B covered entities, especially community health
centers, do not even offer pharmacy services, let alone participate
in the 340B program.
It is therefore critical that DSH hospitals and other covered
entities participating in the 340B program receive the full discount
on outpatient drugs to which they are entitled under federal law;
and it is critical that the government agencies responsible for
administering the program have the resources, authorities, and
requisite systems in place to assure that this occurs. Unfortunately,
as the OIG report illustrates all too well, 340B providers can never
be sure that they are receiving accurate pricing. Until such
problems are resolved, the integrity of the 340B program remains
compromised. PHPC asks Congress, HHS and HRSA to fix these
problems; and in making this request I believe I am speaking for
all 340B providers and the national organizations that represent
them. Please note though, in making this request, we do not mean
to imply that covered entities do not also have responsibilities for
maintaining the integrity of the program. Covered entities have
their own obligations under the law. In particular, 340B providers
are prohibited from using the discounted drugs for anyone other
than their own patients and are required to adjust their Medicaid
purchasing and billing practices in order to protect manufacturers
from giving 340B discounts and Medicaid rebates on the same
drugs. PHPC takes these obligations very seriously and has been
active in educating both members and non-members on how to
comply with all aspects of the 340B program.
Comments on OIG Report
PHPC is fundamentally in agreement with the
recommendations of the OIG in its recent report entitled
"Deficiencies in the Oversight of the 340B Drug Pricing Program."
PHPC believes, however, that there are a number of more specific
and, in some instances, supplementary measures that should be
implemented as soon as practicable to achieve truly responsible
and effective administration of the program. In my testimony here
today, I would like both to address the importance of the OIG
recommendations and to urge implementation of some of these
other measures which, in our view, extend and supplement the
findings and recommendations of the OIG.
PHPC applauds the OIG for identifying the three most critical
elements of necessary reform to the 340B program as it is currently
administered by HRSA. These three elements are: (1)
establishment of a precisely defined methodology for
determination of correct 340B ceiling prices, combined with a
process for routinely making direct comparisons between the 340B
ceiling prices calculated by HRSA and the ceiling prices calculated
and charged by manufacturers for the same products; (2) authority
for HRSA to impose meaningful sanctions on manufacturers in the
form of fines and monetary penalties for charging covered entities
in violation of the applicable 340B ceiling price or other violations
of the 340B pharmaceutical pricing agreement (PPA); and (3)
increased access by covered entities to information enabling them
to determine whether the prices they are being charged for drugs
under the program are within the applicable statutory ceilings.
Importantly, in order to improve administration of the 340B
program in these three areas, there must be better coordination
between HRSA and the Centers for Medicare & Medicaid Services
(CMS), especially the office within CMS responsible for
administering the Medicaid rebate program.
Improved Coordination between HRSA and CMS
Both my testimony and the OIG's reported findings should
serve to underscore the importance of improving communication
between HRSA and CMS. There is a close statutory link between
the 340B and Medicaid rebate programs. Although HRSA is
responsible for administering the 340B program, it must rely on
CMS to compile and provide the data necessary to calculate and
verify correct 340B ceiling prices. Fraud or even routine
computation errors identified in the Medicaid rebate context can
signal errors and overcharges in 340B pricing. There are other
areas in which effective administration of the 340B program
requires teamwork between HRSA and CMS. For example, the
eligibility of a hospital to participate in the 340B program hinges
upon its DSH payment adjustment percentage, which is calculated
by CMS based on data maintained by CMS. Plus, the obligations
of drug manufacturers to execute pharmaceutical pricing
agreements (PPAs) with the Secretary of HHS and to participate in
the 340B program are contingent on execution of Medicaid rebate
agreements that are managed by CMS.
The OIG has identified a number of problems associated with
computation and verification of 340B ceiling prices that are
attributable to failures in communication or coordination between
HRSA and CMS. These problems include CMS's omission of
requisite data elements for 340B ceiling price computations and
the agency's failure to adequately reconcile package size data
necessary to calculate the ceiling prices. Accordingly, OIG has
recommended that HRSA and CMS "work together to ensure
accurate and timely pricing data for the Government's official
record of 340B ceiling prices."
PHPC fully supports this recommendation, but also wants to
point out that the need for coordination between HRSA and CMS
is not limited to the area of sharing and calculating pricing data.
Consequently, we feel that institution of a permanent working
group to address and monitor all of the necessary interactions of
HRSA and CMS in implementing the 340B program would
substantially improve program administration and oversight. In
addition to promoting coordination on matters of pricing data flow
and computation, a HRSA/CMS working group would be uniquely
positioned: (1) to clarify procedures for determining whether a
hospital's disproportionate share adjustment meets the 11.75
statutory threshold, (2) to develop mechanisms for protecting
manufacturers from giving 340B discounts and Medicaid rebates
on the same drug, and (3) to coordinate manufacturer refunds
under the 340B and Medicaid rebate programs based on retroactive
adjustments to a manufacturer's average manufacturer price
(AMP) and best price.
For these and other reasons, formal establishment of a permanent
HRSA/CMS working group would be an especially positive step
towards the goal of those components "working together" as the
OIG has recommended.
Pricing Computation and Verification
Turning now to the need for more concrete administrative
reforms, perhaps the most glaring deficiency in 340B program
administration identified by OIG is the fact that - in a program
designed to impose price-limits on qualifying pharmaceutical sales
- the responsible government agency has no system in place for
establishing whether the limits have been properly applied or how
exactly the price limits are to be calculated. It seems evident that,
in order to verify manufacturer compliance with price ceiling
requirements, HRSA (1) must determine exactly how, and on the
basis of what data, 340B ceiling prices are to be computed, (2)
must compute an accurate ceiling price for each covered drug
available for purchase under 340B, and (3) must compare its
ceiling price determinations with the prices computed and actually
charged by drug manufacturers to verify that applicable price
ceilings are not being exceeded. As the recent OIG report points
out, the present lack of a precise, established methodology for
calculating 340B ceiling prices has led to inconsistencies in
whether and how certain data elements are utilized in determining
applicable 340B price ceilings, and has made it difficult or
impossible to determine whether manufacturers have applied
"correct" 340B pricing to their products. A specific, detailed
methodology is needed but is lacking, for example, to standardize
the time periods and package sizes used to calculate 340B ceiling
prices. Clearly the first steps HRSA must make towards better
fulfilling its responsibilities to oversee the 340B program are to
establish a precise methodology by which 340B prices are to be
calculated, and to calculate accurate prices for covered drugs using
that methodology.
Accurate determinations of ceiling prices by itself will be of
little utility, of course, if nothing is done to verify that the ceiling
prices calculated independently by drug manufacturers are the
same as those HRSA has determined to be accurate and applicable.
As the new OIG report emphasizes, the absence of such
comparisons is one of the systemic deficiencies in HRSA's
administration of the program that makes effective oversight of
340B pricing impossible. Especially since covered entities lack
access to ceiling price information, and thus have no basis on
which to independently challenge the accuracy of 340B prices
charged by manufacturers, there is no effective way to identify and
control overcharging in the 340B program unless HRSA takes
affirmative steps to verify that the ceiling prices it calculates are
the same prices actually applied to purchases under the program.
Comparisons between the government-calculated 340B ceiling
prices and manufacturers' ceiling price figures should therefore be
made on a routine basis, and should trigger further specific
procedures for inquiry and corrective action where discrepancies
are found. OIG has suggested that this could be accomplished by
requesting manufacturers to submit some or all 340B prices to
HRSA each quarter. PHPC believes that HRSA should not merely
request, but should require manufacturers to submit all of the 340B
ceiling prices that they have calculated to HRSA each quarter for
verification of pricing accuracy. In addition, as the OIG has
recommended, HRSA should not only verify consistency between
its calculations of 340B ceiling prices and those calculated by
manufacturers, but also perform sufficient spot-checking of entity
invoices to confirm that actual charges are indeed at or below the
properly calculated ceiling prices.
Need for Meaningful Sanctions
The improved monitoring of 340B pricing that is achievable by
the above reforms will not lead to more accurate pricing, however,
without more effective incentives for manufacturers to comply
with pricing requirements and directives from HRSA to remedy
pricing violations that may be discovered. As matters now stand, a
manufacturer whose product has been determined by HRSA to
have been sold to covered entities at an above-ceiling 340B price
can refuse to remedy that situation with apparent impunity. For
example, several manufacturers whose 340B products had been
sold to covered entities at above-ceiling prices, according to the
OIG's findings in a report issued in 2003, have taken no action to
refund the overcharges, despite explicit letters from HRSA
directing them to do so, and have suffered no apparent
repercussions as a consequence of their refusal to comply with
HRSA's directive.
Although, in theory, this situation enables the Secretary of
HHS, under the terms of the 340B pharmaceutical pricing
agreement, to terminate Medicaid and Medicare coverage of the
non-complying manufacturers' products, it is plain that
manufacturers do not take this threat seriously, and are content to
simply deny that overcharging occurred and refuse to take any
remedial action. In the face of this defiance and delay, HRSA has
been unable to effectively obtain the refunds that are owed to 340B
providers. As manufacturers are well aware, the chances of HHS
deciding to deny coverage of a necessary drug for Medicaid
recipients because a manufacturer has violated a pricing
requirement in the much smaller and less visible 340B program,
are virtually non-existent. PHPC believes the only realistic means
to remedy this situation would be legislation conferring statutory
authority on HHS, through HRSA, to impose meaningful
sanctions, such as fines and monetary penalties, on manufacturers
that are found to be in violation of their 340B pricing obligations.
As the OIG has suggested, the requisite legislative amendments
to the 340B statute could be modeled after the civil penalty
authorities in section 1927(b)(3)(C)(i) of the Social Security Act
(Act) which governs sanctions applicable to the Medicaid rebate
program. In the alternative, we think a minor revision to section
1128A(a)(2) of the Act could expand the authority of HHS,
through the OIG, to impose civil monetary penalties in
circumstances where a manufacturer has requested payment from a
covered entity in violation of an applicable PPA. In fact, we
believe simple insertion of the words "or with the Secretary" in the
text of section 1128A(a)(2)(B) would accomplish this purpose.
Pricing Transparency
The third major component of an effective strategy for curing
current deficiencies in 340B pricing enforcement would be greater
transparency in pricing information for the covered entities that
actually purchase drugs under the 340B program. Probably the
single greatest frustration expressed to PHPC by its members is the
fact that they have no basis on which to assess whether they are
being overcharged or not for 340B covered products. PHPC
receives frequent reports from its members about specific 340B
prices that seem inconsistent, excessive, or questionable when
viewed in comparison with the prices negotiated by group
purchasing organizations (GPOs) or other purchasers in the private
market. Yet while these situations give rise to widespread
suspicions of overcharging for 340B drugs, there is ordinarily no
concrete action that can be taken by a covered entity to seek relief
from suspected overcharges because it has inadequate access to
relevant pricing information to challenge the manufacturer's
alleged 340B price, or even to compile a sufficient factual record
to effectively invoke the informal dispute resolution process
created by HRSA in federal guidelines.
In light of the resource limitations that have plagued 340B
program administration, as well as the historical deficiencies in
oversight and enforcement of 340B pricing obligations, it makes
undeniable sense to supplement HRSA's compliance-monitoring
efforts by empowering covered entities to play a role in verifying
that they are paying statutorily appropriate prices for 340B drugs.
Indeed, we believe that more stringent constraints have been
placed on covered entities' access to 340B price information than
federal law actually requires. Although certain components of the
340B ceiling price calculation utilize confidential data, disclosure
of a drug's 340B ceiling price is not tantamount to disclosure of
the drug's AMP, best price or any other specific information that
the Secretary of HHS is prohibited from disclosing under Section
1927(b)(3)(D) of the Social Security Act. Because calculation of
340B ceiling prices varies depending on how AMP and best price
compare and whether an inflationary cap on price increases is
triggered, it is impossible to deduce a drug's AMP or best price
just from knowing what the ceiling price is.
In addition, the Social Security Act expressly permits the
Secretary to disclose any information to the extent such disclosure
is determined "necessary to carry out" Section 1927 of the Act,
which pertains to Medicaid rebates as well as, in part, to the
limitations on prices of drugs purchased by 340B covered entities
and the requirement of 340B participation by manufacturers of
Medicaid-covered drugs. Accordingly, we believe the relevant
confidentiality provisions of the law may permissibly be construed
to allow such disclosures of pricing information to 340B covered
entities as the Secretary may determine are necessary to effectively
administer the 340B program, and that some disclosure of ceiling
price information is in fact necessary to such administration.
Language in the standard 340B PPA is consistent with this
construction of the law, as is legislative history of the 340B statute.
Even if current law is construed to prevent the Secretary's
public disclosure of 340B ceiling prices, however, sound
administration of the 340B program demands that some
compromise be reached under which covered entities can
realistically assess whether they are being or have been
overcharged, and bring those situations to the attention of the
relevant manufacturers and enforcement agencies. The OIG has
recommended that covered entities be afforded secure access to
certain pricing data to enable them to detect differences between
the prices that they pay and the prices to which they are legally
entitled - perhaps through a web-based system by which entities
can submit prices and gain a response indicating whether ceiling
prices have been exceeded.
PHPC agrees that effective 340B administration demands
greater access to price-relevant information by covered entities,
and believes that a right to such access should ideally be
established by legislative amendment. Nonetheless, we also
believe that a more flexible and useful system for affording 340B
pricing information to covered entities than currently exists could
be implemented by agency regulations or policy issuances,
consistent with legal constraints and manufacturers' legitimate
security concerns. It is possible, and unquestionably legally
permissible, for manufacturers to voluntarily make 340B pricing
data available to covered entities, and we strongly urge
manufacturers to consider doing so. Absent such voluntary action
on a broad scale in the manufacturer community, however,
legislative or administrative action must be taken to create some
mechanism for reasonable covered entity access to 340B pricing
information directly pertinent to the entity's own determination of
whether its rights are being violated, such as, for example,
authorization for one designated officer of each covered entity
(bound by an appropriately structured confidentiality and data use
agreement) to have access to 340B ceiling prices strictly for
purposes of reporting to HRSA any discrepancy between those
prices and the actual purchase prices paid by the entity for drugs. I
should note that GlaxoSmithKline has recently committed to
sharing its 340B ceiling price data with the 340B prime vendor
program, and that we applaud that action. This is just a first step,
however, towards the pricing data accessibility that will be
necessary to ensure pricing integrity.
Pharmaceutical Pricing Agreements
There are several other deficiencies in 340B program
administration of which PHPC is aware, but which are not within
the scope of the OIG's most recent investigation and published
report. For example, we understand that there are a number of
manufacturers that have avoided or delayed entering into 340B
PPAs notwithstanding the continued coverage of their products by
Medicaid.
It appears that this situation stems from the fact that there is no
defined or regularized process for assuring that manufacturers
entering into Medicaid rebate agreements also immediately enter
into 340B pharmaceutical pricing agreements as the statute
requires. Due to the absence of any such defined process, it seems
the obligations of all manufacturers that participate in Medicaid to
enter into 340B PPAs have not been uniformly enforced. Some
manufacturers have restricted the scope of their 340B obligations
by having subsidiaries enter into the PPAs on behalf of only
certain manufacturer "business units" (instead of the entire
corporate entity manufacturing Medicaid-covered pharmaceutical
products), or by executing PPAs through mid-level corporate
representatives whose authorities to bind the corporations extend
only to isolated business units. We have also heard, in some
instances, of manufacturers of Medicaid-covered drugs taking
months or years before they sign any 340B agreement at all.
To address these problems, a routine administrative process
must be instituted that, at a minimum, assures that a corresponding
340B program PPA is executed contemporaneously with any
Medicaid rebate agreement executed between a manufacturer and
the Secretary, or within a short, specifically defined time period
thereafter. HHS should also clearly designate the agency
personnel responsible for obtaining timely and properly executed
PPAs and provide for adequate HRSA review of PPAs to verify
that they apply to a scope of pharmaceutical products
corresponding to the scope of Medicaid coverage of the relevant
manufacturer's entire product line.
In addition, although PHPC is cognizant of questions that have
been raised as to the present enforceability of the standard
pharmaceutical pricing agreement between the Secretary and
manufacturers, we believe that certain revisions of that document
would facilitate more effective program administration and
compliance enforcement. At present, the PPA represents the only
direct source of legal obligation on the part of a manufacturer to
comply with 340B pricing limitations or other requirements. Yet
the manufacturer responsibilities expressly referenced in that
agreement are quite limited, and extend little beyond agreeing to
charge 340B entities at or below the applicable ceiling prices.
We believe a number of amendments to the PPA could and
should be made to address systemic problems of administration
and weaknesses in program enforcement that have been noted in
the recent OIG report and discussed in my testimony before the
Subcommittee. In particular, PHPC believes that the standard
340B PPA should be revised in some or all of the following ways:
The PPA should require manufacturers to submit the 340B
ceiling prices calculated for their drugs to HRSA for
purposes of comparison with HRSA's calculations based on
CMS data.
It should require manufacturers to disclose the 340B ceiling
prices they calculate for their drugs to designated officers of
covered entities, under appropriate confidentiality and data
use agreements and security mechanisms, to be established
by the Secretary through regulations or policy issuances.
It should expressly require manufacturers to make all of
their covered drug products available to covered entities for
purchase at 340B prices.
It should require manufacturers to calculate and refund
340B overpayments to covered entities, under a procedure
to be outlined by the Secretary in published regulations or
policy guidance, whenever it is finally determined by the
manufacturer or HRSA that 340B overcharges have
occurred.
It should obligate manufacturers to participate in and abide
by decisions rendered pursuant to an administrative process
established for resolution of pricing disputes.
It should require a manufacturer to calculate and apply
340B pricing retroactively to any purchases of covered
drugs made by covered entities during any significant lag-
time that may elapse between execution of the
manufacturer's Medicaid rebate agreement and its 340B
PPA, and to make appropriate retroactive refunds consistent
with such calculations.
It should require manufacturers to pay covered entities
interest on refunds for past overcharges.
In other words, until legislation is passed or regulations are
promulgated to implement the OIG's recommendations,
amendment and expansion of the standard 340B PPAs may offer
an alternative means to some immediate amelioration of
programmatic deficiencies.
Refund Procedures
We also believe that a specific policy needs to be developed by
HRSA requiring manufacturers to issue refunds to covered entities
whenever it is discovered or finally determined that they sold 340B
drugs at above-ceiling prices, and that such a policy should provide
detailed procedures on how to calculate and issue the refunds.
There are a number of different scenarios under which the
existence of a 340B overcharge may be established. In some
instances, particularly if HRSA oversight of the 340B program is
enhanced pursuant to recommendations discussed at this hearing,
HRSA may determine that an overcharge has occurred or - as was
the case with certain drug sales scrutinized in the OIG's March
2003 report and investigation - the OIG may find that covered
entities have been overcharged. In other instances, a manufacturer
itself may become aware that it has miscalculated AMP or best
price for a drug, and that consequently both Medicaid rebates and
340B ceiling prices have been inaccurately computed. In the latter
scenario, there is a defined set of procedures established by CMS
to facilitate retroactive adjustments of rebate payments to the
Medicaid program, but no parallel process for repayment of 340B
overcharges.
Thus we believe that HRSA needs to develop and define a
refund process to be implemented contemporaneously with CMS
rebate adjustment procedures, where manufacturers retroactively
correct AMP or best price calculations. Furthermore, in any and
all other circumstances in which manufacturer overcharges for
340B drugs are found to have occurred, there should be a clearly
defined process, established by HRSA, that manufacturers are
obligated to follow to afford appropriate refunds of 340B
overcharges to affected covered entities.
Drugs in Short Supply
Another frequent topic of complaints that PHPC has heard from
its members concerns drugs that are reportedly in short supply and
are therefore not being made available to covered entities at 340B
prices. According to our members, there have been a number of
instances in which covered entities were told by manufacturers that
particular products - especially intravenous immune globulin
(IVIG) and other blood-derived products - are unavailable for
purchase under the 340B program because all available supplies of
the products have already been committed to other purchasers
under commercial contracts. Often in these situations, the products
at issue were readily available for purchase on the commercial
market or through group purchasing organizations at prices above
340B ceiling prices, even though they were ostensibly in such
short supply that they could not be sold under the 340B program.
This problem is especially serious for disproportionate share
hospitals in the 340B program since they are prohibited under the
340B statute from purchasing covered outpatient drugs through
their GPOs. Unable to buy product at a 340B price because of a
shortage problem, the hospitals are faced with the impossible
dilemma of having to either violate federal law by purchasing the
drugs at GPO prices, buy the drugs at higher, retail prices that the
institution cannot well afford, or deny their patients access to the
drugs altogether.
Although HRSA has issued a letter stating its position that
manufacturers may not discriminate against 340B entities in
allocating drugs that are in short supply, PHPC believes that
additional protections are needed to adequately address this
problem. HRSA should audit or otherwise review the allocation
methods used by manufacturers to ensure that they are not
discriminatory and that they do not have a discriminatory effect.
Moreover, because large purchasers such as GPOs and managed
care organizations have an advantage over smaller purchasers by
virtue of being able to contract for most or all of the remaining
drugs available, the 340B prime vendor should be directed to take
an active role in purchasing drugs in short supply at the request of
covered entities. Perhaps most importantly, we believe HRSA
should issue a specific policy that not only addresses covered
entities' access to 340B pricing for covered outpatient drugs in
short supply, but also reinforces the point that Congress' clearly
expressed intent in the 340B statute is for covered entities to be
able to actually purchase covered drugs at 340B prices, not just to
enjoy theoretical discounts on products that are not made available
under the program at all.
Effective Dispute Resolution
PHPC also believes that an important step towards enhancing
the accountability of manufacturers for pricing violations and
empowering covered entities to assist HRSA in monitoring and
enforcing pricing compliance, would be institution of an
administrative process to resolve disputes between covered entities
and manufacturers relating to 340B prices and purchases that
culminates in a final and judicially reviewable agency decision.
The capacity of covered entities to effectively pursue relief from
above-ceiling charges by manufacturers for their drugs is presently
unclear. The dispute resolution process defined by HRSA
guidelines is not binding on manufacturers. Certain putative class
action lawsuits now pending in federal and state courts may test
whether common law, third-party beneficiary rights under a
contract, or anti-fraud provisions permit covered entities to initiate
and pursue court actions for recovery of past overcharges, but
disposition of those cases and questions is unlikely in the near
future.
PHPC has previously advocated legislative amendments clearly
conferring on covered entities a specific, statutory, private right of
action against manufacturers for recovery of 340B overcharges,
but believes covered entities' rights and interests in being able to
independently pursue relief from 340B overcharges might also be
protected by the development of suitable administrative
procedures. Specifically, the administrative process we envision
would be one through which covered entity and manufacturer
contentions and evidence of a 340B price dispute would be
reviewed and adjudicated by a federal agency decisionmaker, who
issues a final agency decision respecting the controversy. Formal,
duly promulgated regulations would be the preferable means of
defining and establishing such procedures, so that the agency's
decision pursuant to the process would have legally binding effect
on the parties in the absence of further review by a court. PHPC
believes and hopes that the availability of such an administrative
process, as well as implementation of the other programmatic
reforms I have described, would greatly reduce the likelihood of
covered entities deciding that they need to initiate litigation in the
courts to enforce their rights to proper 340B pricing.
Conclusion
In conclusion, PHPC would like to commend the OIG for its
fine work in assessing some of the problems and complexities of
the 340B program as currently administered, and formulating
recommendations for change and improvement. My testimony
here today by no means comprehensively addresses all of the areas
in which there is a need for federal attention and action. However,
in the view of PHPC, each of the measures I have suggested is vital
to the improvement of the 340B program and to the successful
attainment of its statutory goals in both the short and long-term.
PHPC would like to thank the Subcommittee for holding this
important hearing. I appreciate the opportunity to testify before
you today on these critical matters and look forward to addressing
any questions that Subcommittee members may have for me.
William H. von Oehsen
General Counsel
Public Hospital Pharmacy Coalition
Phone: (202) 872-6765
Fax: (202) 785-1756
E-Mail: [email protected]
William von Oehsen, a principal in the law firm Powers, Pyles,
Sutter and Verville P.C. (PPSV), has extensive experience in
general health law, legislation and policy, especially in the areas of
pharmaceutical pricing, materials management, and third party
reimbursement, and food and drug law.
With respect to Mr. von Oehsen's pharmaceutical pricing
practice, PPSV offers a wide range of services involving federal
and state regulation of drug prices and reimbursement. The U.S.
pharmaceutical market is unique in that pricing is regulated, either
directly or indirectly, under a complex array of federal and state
laws designed to make prescription drugs more affordable to
government programs and providers, as well as to seniors and
other vulnerable populations. As prescription drug prices continue
to climb at double digit inflation rates, the demand for expertise in
these laws has also grown. It is not surprising, therefore, that drug
pricing has become one of Mr. von Oehsen's most active practice
areas.
Mr. von Oehsen serves as general counsel to the Public
Hospital Pharmacy Coalition (PHPC) which was launched more
than ten years ago to help high-Medicaid public and non-profit
hospitals take advantage of a federal law - section 340B of the
Public Health Service Act - that requires pharmaceutical
manufacturers to give drug discounts on covered outpatient drugs
as a condition of the Medicaid program covering and paying for
those drugs. As membership for PHPC has grown, expertise on
340B matters and related drug pricing laws has deepened such that
Mr. von Oehsen has become a national leader in this area. He was
instrumental in forming the 340B Coalition, a coalition of
approximately sixteen national organizations whose members
collectively comprise all the entities that are eligible to participate
in the 340B program. The 340B Coalition hosts an annual
conference for safety net providers, industry, wholesalers and
policymakers, that, as a result of its popularity and broad
attendance, now serves a major forum in which national drug
pricing policy issues are addressed. PPSV is responsible for
organizing this annual event and delivering regular presentations
on recent developments - regulatory, legislative and judicial.
The 340B program is one of four federal drug discount
programs and, because one cannot truly understand federal
regulation of drug pricing without an understanding of how these
programs interrelate, Mr. von Oehsen has expertise in each of these
federal areas. They include the Medicaid drug rebate program, the
federal supply schedule and the federal ceiling price. States have
also been active in helping individuals, especially seniors and low-
income patients, access affordable drugs, and many of these efforts
build upon the federal programs. Accordingly, Mr. von Oehsen's
drug pricing client base includes a growing number of states that
are seeking to lower drug costs for state-funded populations, such
as Medicaid recipients, Medicaid expansion populations, prisoners,
mental health and other long term care patients, and state
employees. Mr. von Oehsen regularly testifies before state
legislatures and executive branch officials. Another area of
collaboration with states relates to numerous ongoing
investigations into potential violations by industry of federal and
state drug discount laws and efforts to recover overpayments form
industry.
As a result of Mr. von Oehsen's expertise in the drug pricing
and FDA areas, he has found himself serving a growing number of
pharmacies, both freestanding and institutional, in various legal
and regulatory matters. His pharmacy-related projects have
involved analysis of federal laws such as Robinson-Patman and the
Non-Profit Institutions Act, DEA registration, the Prescription
Drug Market Act, Medicare/Medicaid coverage and
reimbursement of pharmaceutical care and federal fraud and abuse
laws such as Stark and anti-kickback. At the state level, he has
state licensure laws. PPSV also assists pharmacy clients with their
transactional and litigation needs.
In the food and drug area, Mr. von Oehsen guides companies
through the FDA's premarket clearance process; assists companies
with product development strategies; provides labeling,
advertising, manufacturing and import/export advice; and handles
other issues that arise during the progression from initial clinical
testing through commercial distribution. He also works on the
development and distribution of medical devices, biologics, food,
food additives, dietary supplements, animal feeds, and cosmetics.
He has also defended clients against FDA enforcement actions.
Mr. von Oehsen has lectured and published articles on food and
drug related issues.
In addition to his drug pricing and FDA practices, Mr. von
Oehsen has considerable experience in advising clients on
materials management, managed care, and general health law
issues. He works with Medicare/Medicaid and other third-party
payment programs, hospitals, HMOs, PPOs, physician groups, and
other health care providers. He counsels clients on such issues as
managed care, fraud and abuse, third-party reimbursement,
mergers and acquisitions, state licensure of health professionals
and providers, and confidentiality of records. He also has
significant advocacy experience on health legislative issues,
including in the areas of drug pricing, managed care, AIDS, long-
term care, and Medicare/Medicaid. Mr. von Oehsen is co-author of
a book concerning Medicare/Medicaid managed care and state
health reform.
Mr. von Oehsen is a member of the District of Columbia Bar.
He received his law degree from Georgetown University Law
Center in 1988 and a masters from Harvard University in 1984. He
earned his undergraduate degree from Princeton University in
1981. Mr. von Oehsen participates in a number of professional
organizations including the Food and Drug Law Institute (where he
was an Annual Scholar), the American Health Lawyers
Association and the American Association of Health Plans. He was
also a founding director of the Family AIDS Housing Foundation,
now called Building Futures: Family AIDS Housing.
Concentrating in Health Legislation and Policy, Pharmaceutical
Pricing, and Food and Drug law, Principal, Powers, Pyles, Sutter &
Verville, P.C., Washington, D.C.
EDUCATION
J.D., Georgetown University Law Center, 1988
M.T.S., Harvard University, 1984
A.B., Princeton University, 1981
BAR ADMITTANCE
Admitted to the District of Columbia Bar, 1990
Admitted to the Pennsylvania Bar, 1988
MEMBERSHIPS
Food and Drug Law Institute
American Health Lawyers Association
American Association of Health Plans
Founding Director, Family AIDS Housing Foundation, Inc.
Annual Scholar, Food and Drug Law Institute, 1978-88
MR. WHITFIELD. Mr. Brown, you are recognized for your
opening statement.
MR. BROWN. Thank you, Chairman Whitfield, Ranking
Member Stupak and other subcommittee members. Thank you for
the opportunity to discuss ways in which GlaxoSmithKline is
working with Health Resources and Services Administration
Office of Pharmacy Affairs to improve the 340B Drug Discount
Program so that the patients served by this drug program have
access to the medicines they need.
My name is David Brown. I am the Director of Government
Contracts and Pricing Programs for GSK with the responsibility
for calculating and reporting government mandated prices,
including ceiling prices under the 340B drug discount programs.
Under section 340B of the Public Health Service Act,
manufacturers agree to charge 340B covered entities no more than
the ceiling price for covered drugs, which is a discounted price that
is calculated on our Federal formula by taking the average
manufacturers price for the drug and reducing that price by the
Medicaid rebate percentage.
Covered entities particularly purchase covered drugs at a
contract price through their wholesaler. The contract purchase
price usually includes both the drug cost, which if the entity
qualifies should be no more than a manufactured ceiling price, and
a wholesaler distribution fee. We understand that the contract
purchase price is typically agreed upon solely between the covered
entity and the wholesaler. The covered entities, however, have not
historically always had the same systemic access to the quarterly
ceiling prices that the wholesalers have had. Without this
information, the covered entities cannot effectively negotiate with
the wholesaler over the wholesaler's distribution fee.
In 2004 and 2005, the Health and Human Services Office of
Inspector General issued several reports that identified 340B
program issues and made recommendations for the program
improvement, including a recommendation that covered entities be
given easier access to ceiling price information.
In order to help address this issue, GlaxoSmithKline began
meeting with OPA in an effort to provide our expertise in an
atmosphere of frank dialogue and cooperation. Following these
very productive discussions, GSK decided to voluntarily post its
ceiling prices on a secure website accessible to participating
covered entities, starting on October 1, 2005. GlaxoSmithKline
has supported access to its manufactured ceiling prices for eligible
covered entities since the beginning of the program in 1993.
Historically, this was done through the company responses to
individual requests for quarterly ceiling price information from
eligible entities or their GSK account managers, and, as such,
showing only those entities that request such information.
To facilitate broader access to this information, we decided to
be the first pharmaceutical manufacturer to share its ceiling prices
with eligible covering entities by helping them to develop an
innovative website provided through the 340B Prime Vendor
Program, HealthCare Purchasing Partners International LLC. We
believe this will enable all interested covered entities that
participate in a 340B Prime Vendor Program to have secure and
easy access to up-to-date drug ceiling price information with no
added cost to the entities.
Specifically, GSK entered into a voluntary agreement with the
Prime Vendor Program to provide systemic access to 340B ceiling
prices to covered entities enrolled in the Prime Vendor Program.
Under this agreement, the GSK ceiling prices are sent to the prime
vendor quarterly and posted on their secure website on the first of
each calendar quarter. The website will contain two consecutive
quarters of data at one time.
Eligible covered entities will be granted access to the 340B
secure website through a password protected user interface after
signing the confidentiality clause contained in the standard
enrollment agreement with the prime vendor. In deciding to move
forward with this website, GSK worked with OPA to ensure that
the confidential and sensitive pricing information that would be
posted on the website for covered entities would not become
available to competitors or to those not eligible to participate in the
program.
Since GSK is the only pharmaceutical company providing
website access to ceiling prices at this time, we needed to do so in
a way that would reduce the risk of competitive disadvantages in
the marketplace. Ultimately, we decided that leading the way on
this issue was the right thing to do. Improved access to
manufactured ceiling price information will help inform the
covered entities about the components of the ultimate purchase
price of pharmaceutical products and as such will increase their
capabilities to provide care to the underserved patient populations
they represent.
In addition, in order to work cooperatively with the OPA in an
effort to ensure that GSK ceiling prices are being calculated
accurately, GSK also agreed to send a copy of its quarterly ceiling
prices, as well as relevant product package size information to
OPA. That way OPA may compare them to the ceiling prices
using data calculated by CMS.
For GSK ceiling prices effective October 1, 2005, OPA recently
informed us that they found a match of greater than 99 percent
accuracy to internal CMS calculations for the same period. GSK
remains committed to working with OPA to meet the needs of the
340B eligible entities and to enable successful administration of
the 340B Drug Discount Program.
We believe that by taking a leadership role and identifying and
proactively resolving these issues, such as providing improved
access to manufacturer 340B price information to eligible entities,
GSK can help make the program more effective and efficient and
ultimately improve patient access to needed drug therapy.
Thank you for the opportunity to testify today. I look forward
to answering any questions you might have.
[The prepared statement of David B. Brown follows:]
PREPARED STATEMENT OF DAVID BROWN, DIRECTOR, GOVERNMENT CONTRACTS AND PRICING
PROGRAMS, GLAXOSMITHKLINE
Chairman Whitfield, Ranking Member Stupak, and
Subcommittee Members, thank you for the opportunity to discuss
ways in which GlaxoSmithKline (GSK) is working with the Health
Resources and Services Administration (HRSA) Office of
Pharmacy Affairs (OPA) to improve the 340B Drug Discount
Program so that the patients served by this program have access to
the medicines they need.
My name is David Brown. I am the Director of Government
Contracts and Pricing Programs for GSK with the responsibility
for operational support of the GSK Federal and state contracted
business. This includes calculating and reporting government
mandated prices, including Ceiling Prices under the 340B Drug
Discount Program.
GSK is a world wide pharmaceutical company with combined
sales of over $37 billion, an annual R&D investment of $5 billion
and 100,000 employees world-wide with over 24,000 employees in
the United States. GSK has leading products in four major
therapeutic areas - anti-infectives, central nervous system (CNS),
respiratory and gastro-intestinal/metabolic. In addition, we are a
leader in the important area of vaccines and have a growing
portfolio of oncology products.
As stated in our mission statement, GSK is committed to
"improve the quality of human life by enabling people to do more,
feel better and live longer," and we value any opportunity to
provide input into a process that improves the access and delivery
of important medicines to patients.
GSK works to improve patient access to medicines through a
wide variety of programs. Through the GSK Global Community
Partnerships program, we provide money, medicines, time and
equipment to help improve health and education in under-served
communities. We support public health initiatives and local
community projects around the world and donate medicines to
support disaster relief efforts and impoverished communities. This
includes funding major health initiatives in developing countries to
tackle lymphatic filariasis (LF), HIV/AIDS, malaria, and diarrhea-
related disease. In the United States, GSK is also committed to
helping patients with limited means gain access to the
breakthrough medicines we discover. This is accomplished
through multiple programs including the "Bridges to Access" and
"Commitment to Access" programs, as well as through our
participation in all of the major government programs designed to
improve access to medicines for those most in need, such as the
340B Drug Discount Program.
Under section 340B of the Public Health Service Act,
manufacturers agree to charge 340B Covered Entities no more than
the "Ceiling Price" for covered drugs, which is a discounted price
that is calculated under a federal formula, by taking the Average
Manufacturers Price (AMP) for the drug and reducing that price by
the Medicaid rebate percentage. 340B Covered Entities include
public hospitals, community health centers, AIDS Drug Assistance
Programs and other entities that serve indigent and medically
needy Americans.
340B Covered Entities typically purchase covered drugs at a
contract price through their wholesaler. The contract purchase
price usually includes both the drug cost (which, if the entity
qualifies, should be no more than the manufacturer's 340B Ceiling
Price) and a wholesaler distribution fee. We understand that the
contract purchase price is typically agreed upon solely between the
340B Covered Entity and the wholesaler. The wholesaler
generally starts with the quarterly 340B drug Ceiling Price, which
is confidentially communicated to it by each manufacturer, and
then may add a wholesaler distribution fee. The 340B Covered
Entities, however, have historically not always had the same
systematic access to the quarterly 340B drug Ceiling Prices that the
wholesalers have had. This can make it difficult for 340B Covered
Entities to determine what they are paying for the drugs versus
what they may be paying in wholesaler distribution fees. Without
this information, the Covered Entities can not effectively negotiate
with the wholesaler over the wholesaler's distribution fee. GSK
has been working with OPA and the 340B Prime Vendor on cost
effective ways to address this issue.
Beginning in 2003, improving 340B Covered Entity access to
manufacturer 340B drug Ceiling Prices was raised as a major issue
at the 340B Coalition conferences held each year. In 2004 and
2005, the Health and Human Services Office of Inspector General
issued several reports that identified 340B program issues and
made recommendations for program improvements, including a
recommendation that Covered Entities be given easier access to
340B Ceiling Price information. In order to help address these
issues, GlaxoSmithKline began meeting with the OPA in an effort
to provide our expertise in an atmosphere of frank dialogue and
cooperation. Following these very productive discussions, GSK
decided to voluntarily post its 340B drug Ceiling Prices on a
secure website accessible to participating 340B Covered Entities,
starting on October 1, 2005.
Other than GSK, through the secure Prime Vendor Program
website that I will discuss in more detail below, I am not aware of
any government agency, pharmaceutical manufacturer or
contracting agent who routinely offers easy access to all quarterly
Ceiling Prices to 340B Covered Entities.
GlaxoSmithKline has supported access to its manufacturer
340B Ceiling Prices for eligible 340B Covered Entities since the
beginning of the program in 1993. Historically, this was done
through company responses to individual requests for quarterly
Ceiling Price information from eligible entities or their GSK
Account Managers, and as such reached only those entities that
requested the information. To facilitate broader access to this
information, we decided to be the first pharmaceutical
manufacturer to share its Ceiling Prices with eligible 340B
Covered Entities by helping to develop an innovative website
provided through the 340B Prime Vendor Program / HealthCare
Purchasing Partners International, LLC (340B PVP). We believe
this will enable all interested Covered Entities that participate in
the 340B Prime Vendor Program to have secure and easy access to
up-to-date drug Ceiling Price information with no added costs to
the entities.
Specifically, GSK entered into a one year voluntary agreement
with the 340B PVP to provide systematic access to 340B Ceiling
Prices to Covered Entities enrolled in the 340B PVP. The key
elements of making this pricing available include the following:
340B PVP will receive quarterly 340B Ceiling Prices by 11
digits National Drug Code (NDC) from GSK.
340B PVP will post quarterly 340B Ceiling Prices on their
secure website on the first of each calendar quarter and
maintain two consecutive quarters of data at one time.
Eligible Covered Entities will be granted access to the
340B PVP secure website through a password protected
user interface
All entities are required to sign / agree to the
confidentiality clause contained in the 340B PVP standard enrollment
agreement prior to receiving access to the secure website.
In deciding to move forward with an external website, GSK
worked with OPA to ensure that the confidential and sensitive
pricing information that would be posted on the website for 340B
Covered Entities would not become available to competitors or to
those not eligible to participate in the program. The
pharmaceutical market is a highly competitive commercial market
populated with other companies competing in many therapeutic
classes. Since GSK is the only pharmaceutical company providing
website access to 340B Ceiling Prices at this time, we needed to do
so in a way that would reduce the risk of competitive
disadvantages in the marketplace.
By previously providing GSK 340B Ceiling Prices to eligible
340B Covered Entities on a confidential basis upon request, GSK
had already decided that it was willing to take some commercial
risk that those prices would be improperly disclosed to our
competitors, but we concluded that the benefits to the 340B entities
requesting such information outweighed these risks to GSK. We
believe that the new external, website provided by the 340B Prime
Vendor has provided a mechanism that will best ensure against
sensitive Ceiling Price information being released to competitors
or non-Covered Entities while enabling the Covered Entities to
gain access to pricing information in an efficient, easy manner.
Ultimately, we decided that leading the way on this issue was the
right thing to do. Improved access to manufacturer Ceiling Price
information will help inform the Covered Entities about the
components of the ultimate purchase price of pharmaceutical
products and as such will increase their capabilities to provide care
to the underserved patient populations they represent.
In addition, in order to work cooperatively with the OPA in an
effort to ensure that GSK's 340B Ceiling Prices are being
calculated accurately, GSK has also agreed to send a copy of its
quarterly 340B Ceiling Prices, as well as relevant product package
size information, to OPA. That way, OPA may compare them to
the 340B Ceiling Prices calculated using data maintained by CMS.
For the GSK 340B Ceiling Prices effective 4Q2005, the OPA
Affairs used GSK's data to review the reported GSK 340B Ceiling
Price calculations and to compare them to internal CMS
calculations. We are pleased to report that OPA recently informed
us that they found a match for more than 99% of GSK's Ceiling
Prices. GSK works hard to calculate Ceiling Prices accurately, and
we were pleased to have achieved a 99%-plus accuracy rate.
GSK remains committed to working with the OPA to meet the
needs of the 340B eligible entities and enable the successful
administration of the 340B Drug Discount Program. We believe
that by taking a leadership role in identifying and proactively
resolving issues such as providing improved access to
manufacturer 340B Ceiling Price information to eligible entities,
GSK can help make the program more effective and efficient and
ultimately improve patient access to needed drug therapy.
Again, thank you for the opportunity to testify today. I look
forward to answering any questions you might have.
MR. WHITFIELD. Thank you, Mr. Brown.
Dr. Hatwig, you are recognized for your opening statement.
MR. HATWIG. Thank you. Good afternoon, Chairman
Whitfield, Mr. Stupak and members of the subcommittee. My
name is Chris Hatwig. I appreciate the opportunity to testify. I am
a registered pharmacist and currently serve as Senior Director of
the 340B Prime Vendor Program. I am employed by HealthCare
Purchasing Partners International, HPPI, which is based in Irving,
Texas. HPPI was awarded HRSA's prime vendor contract
effective September 10, 2004. As Senior Director of the Prime
Vendor Program, I am pleased to appear before you today.
Prior to joining HPPI, I was Director of Ambulatory Pharmacy
and Value Analysis Programs at Parkland Health & Hospital
Center, a major disproportionate share hospital in Dallas, Texas,
where I practiced for 13 years.
The Veterans Health Care Act of 1992 requires HRSA's Office
of Pharmacy Affairs to establish a prime vendor for the 340B Drug
Discount Program. The mission of the prime vendor is to approve
access to affordable medications. Its primary goals include
contracting for pharmaceuticals below the 340B ceiling prices,
providing covered entities with access to efficient drug distribution
solutions, providing contracts for other products and services to
meet the unique needs of the covered entities.
The Prime Vendor Program is designed to use the private
industry and the free market to increase competition and lower
drug prices for all participating covered entities by securing
voluntary discounts from the pharmaceutical manufacturers. Since
participation in the Prime Vendor Program is voluntary for the
eligible covered entities and the manufacturers, the prime vendor
must recruit the participants and the manufacturers to the program
based on the value that the program provides. HPPI has structured
the program to enable covered entities to participate in this
program at no cost.
During our first year of directly managing the Prime Vendor
Program, we have tripled the number of participating entities to
over 2,000. This includes 690 hospital sites and 580 community
health centers, which is approximately -- which accounts for
approximately $2.2 billion in pharmaceutical purchases annually.
We have successfully leveraged the entity's business to secure
sub-ceiling discounts from 18 pharmaceutical manufacturers.
In summary, the Prime Vendor Program provides the following
benefits to the participating covered entities:
There is no cost to participate.
It enables covered entities to maintain their existing distributor,
while accessing the program.
It offers a contract portfolio of sub-ceiling discounts on branded
and generic pharmaceuticals.
It offers discounts on other outpatient pharmacy-related
products and services.
It leverages the collective purchasing power of all program
participants to secure discounts for the smallest covered entities,
which might not otherwise be able to obtain such discounts.
It provides participants a secure website to access the contract's
pricing on products and services so all parties know what they
should be paying.
A criticism of the 340B Drug Discount Program has been the
lack of pricing transparency. For example, participants do not
have access to the 340B selling prices to validate the accuracy of
the pricing. HRSA's Office of Pharmacy Affairs and
GlaxoSmithKline were aware of HPPI's development of a secure
site for contract pricing. They approached us to consider a pilot to
make Glaxo's reported selling prices available upon a voluntary
basis within our website, and we have worked closely with GSK
staff to activate the value-added service as of October 1, 2005.
I have also been asked by the subcommittee to share my
thoughts on how the 340B program may be improved. Improving
the accuracy and the transparency of the 340B ceiling prices is
critical to improving the effectiveness and the value of the
program. I have three primary recommendations that would serve
this purpose.
First, the OPA should consider working directly with the
pharmaceutical manufacturers to verify the accuracy of the 340B
ceiling prices prior to those prices being made available at the start
of each quarter.
Secondly, the OPA should consider establishing a secure
mechanism for sharing the 340B ceiling prices with its prime
vendor and covered entities.
Third, the OPA should be granted sufficient resources to audit
manufacturers, wholesalers and covered entities to ensure
accountability with the requirements of the 340B program.
Mr. Chairman, I appreciate the opportunity to appear before the
subcommittee to discuss the 340B program and ways to improve
its effectiveness. This program is critically important to the safety
net providers in their mission to providing access to affordable
medications to our most vulnerable patient populations. I look
forward to answering any questions this subcommittee may have.
[The prepared statement of Christopher A. Hatwig follows:]
PREPARED STATEMENT OF CHRISTOPHER A. HATWIG, SENIOR DIRECTOR, 340B PRIME
VENDOR PROGRAM, HEALTHCARE PURCHASING PARTNERS INTERNATIONAL
Personal Background
Good Afternoon. My name is Chris Hatwig. I am a registered
pharmacist and currently serve as Senior Director of the 340B
Prime Vendor Program (PVP). I have been employed by
HealthCare Purchasing Partners International (HPPI), an LLC
based in Irving, Texas. HPPI competed in HRSA's public bid of
the 340B Program's Prime Vendor and was awarded the contract
effective September 10, 2004. Prior to that, HPPI operated for a
year as a subcontractor to AmeriSourceBergen, a pharmacy
wholesaler, which served as HRSA's first Prime Vendor for the
340B Drug Discount Program. In the capacity as Senior Director
of the 340B Prime Vendor managed by HPPI, I am pleased to
appear before you today. By way of background before taking the
position at HPPI, I held the position of Director of Ambulatory
Pharmacy and Value Analysis Programs at Parkland Health &
Hospital System. Parkland is a major disproportionate share
hospital located in Dallas, Texas where I practiced for thirteen
years. I was responsible for management of Parkland's ambulatory
pharmacy and purchasing programs. Parkland is one of the larger
and more progressive safety-net healthcare systems in the U.S. It
operates a network of community based clinics in medically
underserved areas and processes approximately 10,000 outpatient
prescriptions per day at an expense in excess of $65 million
annually.
Prime Vendor Program
In 1992 Congress enacted the Veterans Health Care Act.
Section 340B of that Act required pharmaceutical companies
whose drugs are covered by the Medicaid program to provide
mandatory discounts on outpatient covered drugs purchased by
certain government-supported facilities called covered entities.
Today, there are over 12,000 covered entities participating in the
340B Drug Discount Program, which include disproportionate
share hospitals, federally qualified health centers, family planning
clinics and other government grantees.
The Veterans Health Care Act also requires HRSA's Office of
Pharmacy Affairs (OPA) to establish a Prime Vendor for the 340B
Drug Discount Program. A primary mission of the 340B Prime
Vendor is to improve access to affordable medications for covered
entities and their patients. Its primary goals include:
Contracting for pharmaceuticals below the 340B ceiling
prices
Providing covered entities with access to efficient drug
distribution solutions to ensure access to affordable
medications
Providing contracts for other products and services to
meet the unique needs of participating covered entities
The Prime Vendor program is designed to use the private
industry and the free market to increase competition and lower
drug prices for all participating covered entities by securing
voluntary discounts from pharmaceutical manufacturers.
Since participation in the PVP is voluntary for the eligible
covered entities and manufacturers, the Prime Vendor must recruit
participants and manufacturers to the program based on the value it
provides. HPPI has structured the program to enable a covered
entity to participate in the program using its existing pharmacy
wholesaler with no additional costs to the entity. There are eleven
wholesalers participating in the current program, greatly improving
access to the program and its discounts. During HPPI's first year
of managing the Prime Vendor program, it has more than tripled
the number of participating covered entities. The program
currently represents over 2000 covered entities (including 690
hospitals and 580 community health centers) purchasing $2.2
billion in pharmaceuticals annually. HPPI has successfully
leveraged the entities' business to secure sub-ceiling discounts on
branded and generic products from 18 pharmaceutical
manufacturers. The program's contract portfolio also includes
discounts for important products such as vaccines, diabetic meters,
and test strips which are not required to be discounted through the
340B program but are critical products for the participating
covered entities' preventive health programs. As more covered
entities join the program, the value of the program's contract
portfolio will continue to grow.
In summary, the 340B Prime Vendor Program provides the
following benefits to participating covered entities:
No cost to participation
In most cases, enables covered entities to maintain their
existing distributor while accessing the program
Offers a contract portfolio of sub-ceiling discounts on
branded and generic pharmaceuticals
Offers discounts on other outpatient pharmacy related
products and services
Leverages the collective purchasing power of the
program's participants to secure discounts for even the
smaller covered entities (It is important to note that
there are approximately $3.5 billion in 340B related
pharmaceutical sales in the U.S. representing only one
to two percent of all US pharmacy sales)
Provides participants a secure website to access the
program's contracted pricing on products and services.
Voluntary Transparency of 340B Selling Prices
Many of the Prime Vendor participating hospitals and clinics
have expressed a desire to have access to the 340B ceiling prices to
validate the accuracy of pricing listed in the pharmacy wholesalers
systems. At HPPI, we had already developed a secure website
requiring logons and passwords to share our confidential sub-
ceiling pricing with participants. We were initially approached by
HRSA's Office of Pharmacy Affairs and GlaxoSmithKline (GSK)
about conducting a pilot to make GSK's reported selling prices
available on a voluntary basis in a secured portion our website. A
separate section of the website was proposed to avoid any
confusion with the Prime Vendor's separate contract portfolio. We
were able to work with GSK staff to finalize an agreement,
complete programming enhancements, and activate the value
added service on October 1st 2005. The website currently lists
GSK's 4th quarter pricing. As of December 5th, we have had 792
hits on the secure site and the GSK price file was downloaded a
total of 75 times or nearly 10% of the time a participant accessed
the site.
I believe the additional service will encourage more
manufacturers to work with the Prime Vendor Program and will
eventually lead to manufacturers offering additional sub-ceiling
pricing on their products to further benefit the program's
participants. The service offering is available at no cost to any
pharmaceutical manufacturer offering sub-ceiling discounts on
their products to the program's participants. The new section of
the website provides a more efficient method for pharmaceutical
manufacturers to directly share their selling prices with eligible
covered entities over previous methods. Having access to the
selling prices will enable the covered entities to verify they are
receiving the accurate pricing through their pharmacy wholesalers
and enable them to pursue appropriate resolution of any pricing
discrepancies.
Recently I have received inquiries from other pharmaceutical
manufacturers about the pilot program and have shared copies of
our data sharing agreement for those companies to review.
Suggestions for Improving the 340B Drug Pricing Program
Improving the accuracy and transparency of the 340B ceiling
prices is critical to improving the effectiveness and value of the
program. The following recommendations would serve this
purpose:
1. HRSA should work directly with pharmaceutical manufacturers
to verify the accuracy of 340B ceiling prices prior to the prices
being made available to pharmacy wholesalers at the start of
each quarter.
2. HRSA should identify a secure mechanism for sharing the
selling prices with its Prime Vendor to validate its own
contracts are indeed sub-ceiling. HRSA should also establish a
secure method of providing access to 340B selling prices to
pharmacy wholesalers and the eligible covered entities through
its contracted prime vendor or other means.
3. HRSA should be granted sufficient resources to audit
manufacturers, wholesalers, and covered entities to ensure
accountability with the requirements of the 340B program.
I appreciate the opportunity to appear before the subcommittee
to discuss the 340B Drug Discount Program and ways to improve
its effectiveness. This program is critically important to the safety-
net providers in their mission of providing access to affordable
medications for the low-income and uninsured populations in the
U.S.
MR. WHITFIELD. Thank you, Dr. Hatwig.
Mr. von Oehsen, you are the General Counsel for the Public
Hospital Pharmacy Coalition. Just how serious is this overcharge
situation? Is this serious, or is this just an isolated incident that
happens periodically?
MR. VON OEHSEN. Well, the reality is we don't know how
serious it is. There is ample evidence to be very concerned. Back
in 2000 we actually submitted some sample prices to the Office of
Pharmacy Affairs, because these were prices where there was
significant variation between our members. So we submitted a
range of prices and said something just doesn't look right here.
Can you tell us whether any of these are overcharges?
Well, we got a letter back in 2001, January of 2001, that
indicated that in fact a very significant amount of those prices were
overcharges. But probably even more disturbing was that for a
significant number of those prices, they couldn't tell us whether an
overcharge had occurred or not because they didn't have the proper
data.
MR. WHITFIELD. So they didn't know either?
MR. VON OEHSEN. They didn't know either.
MR. WHITFIELD. Well, I noticed that on page 17, Exhibit 1 of
that report, they say specifically there that you submitted six of
your hospital sales data to HRSA for price verification and HRSA
subsequently found that 37 out of 50 drug prices exceeded the
ceiling prices.
MR. VON OEHSEN. Exactly.
MR. WHITFIELD. Now, from your knowledge, have the
hospitals ever recovered those charges?
MR. VON OEHSEN. No. We talked it over with Office of
Pharmacy Affairs. I think essentially they just felt like there wasn't
anything they could do. I mean, the only recourse they had, was to
try to convince the Secretary to try to terminate these drug
companies from the Medicaid many practice. Well 340B is a
much smaller program than the Medicaid program. There is no
way they will do that.
MR. WHITFIELD. That is not a realistic solution?
MR. VON OEHSEN. It really is not.
MR. WHITFIELD. Did HRSA initiate a dispute resolution on
those cases that you are aware of?
MR. VON OEHSEN. No.
MR. WHITFIELD. If you were over at HRSA yourself, and you
were responsible for HRSA, would you be more aggressive? Do
you think there needs to be additional legislation? What is your
opinion?
MR. VON OEHSEN. Well, first of all, if you look at the
pharmaceutical pricing agreement, there's language in there that
manufacturers are required to -- let me just read it to you.
Manufacturers are responsible for affording the Secretary or his
designee reasonable access to records of the manufacturer relevant
to the manufacturer's compliance with the terms of the agreement,
which is basically to give the 340B prices.
We think it is right in the pharmaceutical pricing agreement that
they should give these prices to HRSA. So that's number one. I
would get the prices from the manufacturers. I would compare
how they have calculated the prices with how the government has
calculated the prices, and that is step 1.
Then step 2 is to make sure that the actual price is being
invoiced to the covered entities, comply, you know, is also the
same as the 340B ceiling price or lower. Can be lower than the
ceiling price, but it can't be higher.
MR. WHITFIELD. You feel the language is adequate now and
that HRSA is simply not enforcing it?
MR. VON OEHSEN. I think the government has the authority to
require manufacturers to submit their 340B prices to the
government. I think that a lot of the manufacturers actually do
submit their 340B prices to the government. What Glaxo has
done, which is so important, is for the first time they have
disclosed the prices to the covered entities -- or at least the covered
entities in the Prime Vendor Program.
MR. WHITFIELD. HRSA keeps saying well, confidentiality
prevents us from sharing these prices with the covered entities or
the vendors, right?
MR. VON OEHSEN. That's what they say. We strongly disagree
with that, though. We think the statute allows them to disclose to
the extent necessary for the proper administration of the 340B
program. We think this is fundamental to the proper
administration of the 340B program. Why can't they disclose it? It
would solve all of these problems.
MR. WHITFIELD. So, Mr. Brown, ever since I have been
involved in politics, I have always heard that drug manufacturers
are very protective of pricing and want to maintain the
confidentiality. So why all of a sudden did Glaxo just decide to
provide this information?
MR. BROWN. Mr. Chairman, we do believe that the pricing
information is confidential, but we also believe that the entity
should have the right to the prices that they are due, access to the
information to see the prices that they are due, and we felt that by
going through the website that we were able to maintain the
confidentiality and be able to supply that information.
MR. WHITFIELD. You do not see any reason why other
manufacturers would not be willing to do the same, I am
assuming?
MR. BROWN. Mr. Chairman, I cannot speak for other
manufacturers, but I can speak for GSK. We again believe that its
entities should have access to the pricing that they are due,
information.
MR. WHITFIELD. Mr. Hatwig, from the Prime Vendor Program,
you mentioned single ceiling price list. Would you all support a
system whereby manufacturers would submit ceiling prices to
HRSA? You would support that, I am assuming?
MR. BROWN. Again, Mr. Chairman.
MR. WHITFIELD. You are speaking only for yourself.
MR. BROWN. Yes, we are speaking only for ourselves.
Actually, we do feel that the current legislation and the current
mechanisms in the law are sufficient to resolve the issues set in the
OIG, and we do support --
MR. WHITFIELD. I do commend you for doing it. I think it is
the right thing to do. I think it does help on transparency.
Mr. von Oehsen, you pointed out in your testimony there is
often a shortage of drugs at 340B prices, even though these drugs
can be purchased elsewhere at higher prices. How significant is
this problem?
MR. VON OEHSEN. It is a very significant problem, with respect
to IVIG, which is a very expensive drug, and it's a drug which a lot
of the patients of these hospitals need.
The problem that they are encountering is that if they go to the
manufacturer and ask for the drug at the 340B price it's not
available. However, if they were to purchase the drug through
their group purchasing organization at a higher price, the drug is
available. We frankly don't understand how a drug can be
available at a higher price and not at a lower price.
MR. WHITFIELD. So when you raised this issue, what
explanations or justifications are you given?
MR. VON OEHSEN. Well, we are hearing that there is a drug
shortage problem, and that manufacturers have prior commitments
on how they allocate the drugs to other purchasers, and they
allocated all of their drugs that are in short supply to commercial
purchasers, which leaves nothing left over for 340B.
MR. WHITFIELD. Mr. Brown, what do you say about that, this
drug shortage issue?
MR. BROWN. Mr. Chairman, it is not really an issue I am
familiar with. So I cannot really comment. It is not a practice at
GSK.
MR. WHITFIELD. So you can't comment on that then? You are
just not aware of it?
MR. BROWN. I am not aware of that issue.
MR. WHITFIELD. Okay.
Mr. Hatwig, does the prime vendor currently have access to
ceiling price calculations?
MR. HATWIG. No, sir.
MR. WHITFIELD. I am assuming it would be quite helpful if you
did have that information.
MR. HATWIG. Well, my preference would be just to have
access to the ceiling prices and not to actually have all the data, to
actually have to calculate them yet again ourselves.
MR. WHITFIELD. Since you are the head of this program, and
you deal with it on a day-to-day basis, what do you consider the
biggest operational problems that you confront?
MR. HATWIG. Well, with our program, the prime vendor many
practice, my biggest challenge in running this program is
everything is voluntary. We have to go out and recruit the covered
entities to participate in a program that does nothing but save them
money. We have to recruit the members in. We also have to -- it
is also voluntary for pharmaceutical manufacturers to offer
additional discounts through the program.
That is our biggest challenge day to day is building the value of
this program. When we won this contract in September of 2004,
we really started with nothing. We didn't have participants. We
didn't have suppliers. We had to slowly build this program up to
where we thought it would actually make it and it could survive.
We are at a point now where we have a critical mass of
customers that pharmaceutical manufacturers are paying attention
to it now.
MR. WHITFIELD. What percent of the covered entities would
you say are participants with you?
MR. HATWIG. As far as percentage, if you look at the numbers
out there, I hear 12,000 eligible covered entities, we are a little
over 2,000. But if you were to look at actual purchase, actual
340B-related purchases, I would say we are probably closer to --
we are representing 60 percent of the volume in the country. The
word spreads much slower to the smaller entities, because the
people at those entities are not at national meetings and things like
this. They don't have those resources.
MR. WHITFIELD. I see my time has expired.
Mr. Stupak, you are recognized.
MR. STUPAK. Thank you, Mr. Chairman.
Mr. Hatwig, if you don't have access to any of the ceiling prices
then how are you negotiating sub-ceiling prices?
MR. HATWIG. That's a very good question, Mr. Stupak. We are
in negotiations with the manufacturers. We demand to know what
the 340B ceiling prices are, and in those negotiations, you know,
do I know for sure? No, I do not. But I trust that they are sharing
their ceiling prices with us, because in many cases we are
negotiating a discount off of the actual ceiling price. Because I
want to be sure that our contract pricing is staying there, it would
be nice to be able to have that price available to us from the OPA.
MR. STUPAK. Sure. Is there any reason not to make it available
to the members themselves then?
MR. HATWIG. No, in my opinion, especially when you have got
a system like we do. We can share that information with our
customers on a secured website with log-ons and passwords. It's
certainly a problem, if you, I think, were to throw that information
out into the public domain. But as long as there's a secured way of
delivering the pricing to the entities that need to know, it's an
excellent move for the program.
MR. STUPAK. If you had it and your 2,000 members had access
to it, that certainly would help out. But wouldn't it also help be
sort of an enhancement mechanism to make sure the program is
being run properly?
MR. HATWIG. Yes.
MR. STUPAK. Mr. von Oehsen, I have some questions for you.
I know I did. In your testimony, you state that the integrity of the
340B program will remain compromised until the program has the
resources, authorities, and the requisite systems in place to assure
that this happens. Mr. Williams, I think, if my memory of his
testimony is correct, seems to think that everything is under
control. Have you observed any additional resource authorities or
systems going into this program, the 340B program?
MR. VON OEHSEN. Do I recommend that there be?
MR. STUPAK. No, no. Do you recognize, do you recognize
anything that has been changed or additional resources to make it
better in the last 18 months or so?
MR. VON OEHSEN. Oh, yes, I think a couple of years ago Office
of Pharmacy Affairs lost some personnel, but they have regained a
number of them over the past year. They have also -- there was a
reorganization of HRSA, and they moved it from just a branch
level up to an office level. So that gave them more direct access, I
guess, to the HRSA Administrator.
MR. STUPAK. Could you explain to me the problems with the
calculation of the DSH payments to the hospitals and its impact on
the 340B program?
MR. VON OEHSEN. Well, this is vitally important to the
hospitals, because they can only qualify for the program if their
disproportionate share budget is over 11.5 percent, which means
they are serving a lot of Medicaid and low-income patients.
The calculation of the DSH adjustment is a fairly complicated
one, and I think through litigation and other means it has been
determined that there have been some inaccuracies in the
calculation of the DSH adjustment.
Unfortunately, it is CMS that really administers the
Disproportionate Share Program, and yet it is the eligibility criteria
for HRSA. This is one of the areas where we think we need much
better communication and cooperation between HRSA and CMS.
What happens is if a hospital says no, our DSH adjustment is
really above 11.5, we are really qualified to join this program,
HRSA will say, well, we don't administer that program. You need
to talk to CMS. Well, CMS will say 340B is not our program, you
need to talk to HRSA, and there is really no place to go.
MR. STUPAK. Well, we had hoped that CMS would be here
because those are some of the questions I had, but unfortunately
we don't have them here today. Maybe our next hearing we can
get them, Mr. Chairman. We would like to ask them some of those
questions.
MR. STUPAK. Let me ask Mr. Brown, if I can, under the 340B
pharmaceutical pricing agreement are you providing those same
drugs to the 340B entities in the Medicaid agreement?
MR. BROWN. Congressman, the covered drugs that are covered
under Medicaid are offered on the 340B BBA.
MR. STUPAK. There was a little bit of discussion about
shortages, and can you shed any light on that for us?
MR. BROWN. Shortage. No, sir, I can't.
MR. STUPAK. Chronic shortages?
MR. BROWN. No, sir, I can't.
MR. STUPAK. Who in your company could, do you know?
MR. BROWN. I can take your request back and provide it to the
appropriate people and get that answer back to you, yes, sir.
[The information follows:]
MR. STUPAK. I think I mentioned in the last panel that we are
talking about those letters, and I think Glaxo received one of those
letters from HRSA -- I think Mr. Williams said it might have been
in 2004 -- about overcharges to the 340B program. As we know,
the OIG did not review every single drug and Glaxo settled, I think
I said, with Flonase, right?
MR. BROWN. Correct.
MR. STUPAK. What about the -- have there been some other
overcharges with Glaxo or something with Glaxo, and has that
been resolved?
MR. BROWN. Congressman, first we do not believe we have
overcharged the 340B entities. GSK and the government did
disagree on the interpretation of the law for calculating best price.
The matter was investigated by the Department of Justice, to
include a review of all the products and relevant transactions, and
GSK fully cooperated with that investigation. At the end of the
day, we decided it was appropriate to settle this matter. Part of our
settlement did include payments to the 340B entities.
MR. STUPAK. On Paxil, you mean?
MR. BROWN. On the drugs that were covered under the
settlement.
MR. STUPAK. Good, and Paxil was one of them, I take it.
MR. BROWN. For one quarter, yes, sir.
MR. STUPAK. For one quarter.
MR. BROWN. To the best of my knowledge, Department of
Justice has closed the investigation, and we believe this matter is
resolved.
MR. STUPAK. You know, you testified earlier that you are
providing ceiling prices on a secure website, right?
MR. BROWN. Yes, sir.
MR. STUPAK. For some of the 340B entities that are covered
there. Are any other drug companies doing that that you know of?
MR. BROWN. Not to my knowledge at this time.
MR. STUPAK. Since you are doing it, do you see any downside
in providing this information? I guess I am a little bit wondering
why you are doing it and they are not. Is that part of the settlement
or anything?
MR. BROWN. Congressman, no, it was not. I think it is a
voluntary thing that we are doing. Again, the one downside is
always the confidentiality that the price could be given to entities
that are eligible for it or to our competitors, but we do feel that the
benefit to the 340B entities outweighs that.
MR. STUPAK. You haven't found that to happen, the
information has been secured with the website; have any troubles
with that?
MR. BROWN. Congressman, to the best of my knowledge it has
been secured, yes.
MR. STUPAK. I know it's only been up for a short time, a couple
of months or so, but have there been any problems with that? I am
just trying to get as much as I can on the record, because I want the
other companies to do the same thing.
MR. BROWN. Sure. As I understand, there have been some
problems but it has gotten almost no activity. But Mr. Hatwig
could answer that better.
MR. STUPAK. Any problems that you are aware of, Doc?
MR. HATWIG. No, no problems that we have. We have -- since
approximately October 1st to December 5th, we had 790 hits on
the site. We had members -- that's viewing the pricing, and we had
10 percent of the customers actually download the pricing. So
there's interest in the pricing for sure.
MR. STUPAK. I would think if we did this, and I think we
should be able to come up with some kind of simple computer
program just to be able to do the comparisons, if we have the two
prices, the HRSA price, the manufacturer's price, part of
enforcement, make it clean, we wouldn't have to have all these
hearings and all of these other things, right? Solved that problem,
let's go home?
MR. WHITFIELD. I think there are some people out there who
would like to go home.
Ms. DeGette.
MS. DEGETTE. Thank you, Mr. Chairman.
Mr. von Oehsen, I just wanted to clarify something you had
said in response to Mr. Whitfield's question. You said that you
believed that the agency has the authority to require disclosure,
correct? You need to answer verbally.
MR. VON OEHSEN. Yes, disclosure of their 340B ceiling prices,
that priority.
MS. DEGETTE. So my follow-up question to that is, do you
think then that the company should be required to make disclosure
or should it be voluntary as it is now?
MR. VON OEHSEN. I think it should be mandatory. I just don't
see how the government is going to be able to verify that the prices
are correct unless they are checking their calculations against the
manufacturer's calculation.
MS. DEGETTE. Right. And if you only have one manufacturer
that is qualifying, that doesn't give you the full information, does
it?
MR. VON OEHSEN. Well, it is my understanding that there are a
number of drug companies that are actually submitting their 340B
price lists, and certainly not all drug companies, but a fair number
of them are. I think what GlaxoSmithKline has done is unique in
that they are disclosing the prices to the covered entities directly, at
least the ones in the Prime Vendor Program.
MS. DEGETTE. Why do you think that is an important addition?
MR. VON OEHSEN. Well, because there are really two
challenges here: one, just to make sure that the manufacturers are
pricing the drugs correctly, actually paying, and being charged the
right price, and there are errors that can occur in that process as
well. I mean, I think it would be onerous to ask the government to
be, you know, auditing every single input.
MS. DEGETTE. Micromanaging?
MR. VON OEHSEN. Right. So it would be better to give the
covered entity the 340B price so that it can do its own
comparisons.
MS. DEGETTE. Do you want to add to that response?
MR. HATWIG. I just support that same opinion that I think it is
impossible to expect HRSA to monitor and police this with the
covered entities, but if at least we give the covered entities the
ceiling prices that are participating in the program they can police
it themselves.
MS. DEGETTE. And you think that can be done without
revealing confidential or proprietary information?
MR. HATWIG. Yes. Through a secured site, I think it can be
done.
MS. DEGETTE. Would you agree with that, Mr. Brown?
MR. BROWN. We do agree that you can give the covered
entities the ceiling price information voluntarily, as we have done,
to a secure site and maintain the confidentiality.
MS. DEGETTE. Great.
Now, Mr. von Oehsen, I wanted to ask you about the OIG report.
It is clear that participating entities in the 340B program at best
have, and you testified to this, have had incomplete information
about purchasing drugs through the program, and at worst are
paying inflated prices.
Now, your coalition represents the DSH hospitals throughout
the country. So my question is, how much money do you think
that the DSH hospitals have overpaid since the program's inception
because of the lack of information? Do you have any idea?
MR. VON OEHSEN. We don't. We really don't.
MS. DEGETTE. Do you have the sense that there have been
overpayments?
MR. VON OEHSEN. Oh, absolutely.
MS. DEGETTE. Why? Why do you have that sense?
MR. VON OEHSEN. Well, again, referring to this submission that
FASHP made to the Office of Pharmacy Affairs, varies. Back in
2000 for six hospitals there were over 100 drug prices where there
was significant variation of prices. Something just didn't look
right. So we asked the government to let us know whether any of
these were overcharges.
Now, back then, HRSA had to rely on the CMS calculations.
So they looked at the CMS calculations and they came back and a
very large number of those prices were apparently overcharges. So
that by itself gave us, you know, real concern that overcharging
might be a rampant problem. Then again, manufacturers may be
doing a good job, and you know, maybe it was more of a problem
earlier in the program than it is now. We just don't know. But it is
important that we have a system in place to make sure that it
doesn't happen, and if it does happen, that there is some recourse
for covered entities to get refunds.
MS. DEGETTE. Well, that is my next question. Currently, what
recourse does a covered entity have if it thinks it is being
overcharged?
MR. VON OEHSEN. I can't tell you how many e-mails we have
sent to Pharmacy Affairs saying, you know, we have a member
that was charged this price, it looks like their GPO or someone in
the private market is getting a better price. Under 340B these
covered entities are entitled to a best price in the market.
Now, there are some exceptions to that, but it doesn't look right,
so we send the e-mails to the Office of Pharmacy Affairs asking
them to let us know whether an overcharge has occurred, and we
don't hear back. There is not much we can do.
MS. DEGETTE. So let me stop you. Have your members
received any kind of money back or any kind of responses at all?
MR. VON OEHSEN. We have, and there has been an awful lot of
education that has had to go on. There have been some settlements
where there have been some best price violations which have --
which has entitled the Medicaid program to certain refunds. For a
long time the negotiators of those settlements didn't realize that
this had a direct impact on 340B, so it was not included. We have
educated the Department of Justice and the OIG, and we do feel
that henceforward, we are going to be included in all of those
settlements.
There have been some, GlaxoSmithKline was one of them, and
there was -- in fact, there have been some refunds as a result of
those settlements with the Department of Justice. Some
manufacturers have discovered errors and have voluntarily issued
refunds, but some manufacturers really are reluctant to, you know,
to issue refunds, and the problem is that there is no refund process
in place.
MS. DEGETTE. Right, okay. I got you.
Mr. Brown, I just have one follow-up question for you. This
website that you were talking about earlier, I just want to know, for
Glaxo has the development and maintenance of the website caused
a significant financial or resource burden on your company?
MR. BROWN. Congresswoman, no, it has not.
MS. DEGETTE. Mr. Chairman, I want to thank you for having
this hearing. I think it is pretty clear after listening to both of these
panels that this is a valuable program, but it is one that is so loose
as to have little enforcement, little -- is no quantification as to what
is going on. I think everybody would agree it really needs to be
tightened up, so I hope we can do more work on this, and I yield
back.
MR. WHITFIELD. Thank you, Ms. DeGette. I certainly agree
with you, and I think all of the witnesses agree, with maybe very
few exceptions. We feel like we have spent the whole afternoon
with most of you, and we have enjoyed getting to know you.
One follow-up question I would like to make to Mr. Hatwig. I
have been told that during your interview with committee staff you
mentioned wanting to see a single unified ceiling price list that
would be given to wholesalers; is that correct?
MR. HATWIG. Yes. What I had mentioned was a lot of the
discrepancies and all that can happen with the system, there are so
many players in delivering pricing to the marketplace. We were
just hypothetically thinking about it and talking about the audits
and things that could be going on. What if the Office of Pharmacy
Affairs worked directly with the manufacturers to create a master
price file? One single master price file, and you could even argue
technically at that point if it was validated, worked together on and
validated before the beginning of the quarter, then the covered
entities might not have to see the pricing. You wouldn't have to go
through different steps of exposing that pricing, but there would be
one single master price file that is created, and then it could be
pushed to all distributors through like the Prime Vendor Program
and the relationships with HRSA there. So then, at that point, you
are cutting out all of the variations, the fail points in the system
that pharmacy wholesalers may make with these price files,
because the pharmacy wholesalers are working with every single
manufacturer in the marketplace loading their own pricing. There
are humans involved.
So if you could go, I guess, go up the food chain, if you will,
and address the problems and create a master file there and then
push that same price file to everyone, the integrity of the program
would be greatly improved.
MR. WHITFIELD. Right.
Mr. von Oehsen, one other question to just follow up on Ms.
DeGette. We were talking about these overcharges and little
enforceability as far as getting refunds. I am assuming as a
representative of your group you have had conversations with your
manufacturers about overcharges. What do they basically say to
you, generally speaking?
MR. VON OEHSEN. Well, it is a real mixed bag. Some
manufacturers are quite willing to cooperate and in fact voluntarily
issue refunds. Others say that they will, but then don't follow
through, and others just refuse to talk to us or simply claim that
they don't owe refunds.
MR. WHITFIELD. And there is not anything you can do, really.
MR. VON OEHSEN. You know, absent some big lawsuit which
we would prefer not to do, frankly.
MR. WHITFIELD. Right. Well, I want to thank you all very
much. I think it is quite obvious, as Ms. DeGette said, that there
are some areas that we need to pursue on this. I am sure we will be
back in touch with many of you. I want to thank you for your time
and hopefully the next time you come to testify it won't be all
afternoon.
So thanks again. The record will remain open for those
members who would like to submit additional data or information
or opening statements.
With that, this hearing is concluded.
[Whereupon, at 5:25 p.m., the subcommittee was adjourned.]
42 USC 1396r8(b)(3)(D)
1 As noted by the Office of Inspector General in its recent October 2005 Report (OEI-05-02-00072),
according to HRSA "it is acceptable for wholesalers to charge covered entities 340B Ceiling Prices
plus a distribution fee, which varies based on standard business practice."