[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."  

