[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                EXAMINING THE 340B DRUG PRICING PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 24, 2015

                               __________

                           Serial No. 114-25

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



      Printed for the use of the Committee on Energy and Commerce
                        energycommerce.house.gov
                                 ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
GREG WALDEN, Oregon                  GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                 Massachusetts
RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota

                                 _____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
BRETT GUTHRIE, Kentucky              GENE GREEN, Texas
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas            G.K. BUTTERFIELD, North Carolina
MARSHA BLACKBURN, Tennessee          KATHY CASTOR, Florida
CATHY McMORRIS RODGERS, Washington   JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILLY LONG, Missouri                 JOSEPH P. KENNEDY, III, 
RENEE L. ELLMERS, North Carolina         Massachusetts
LARRY BUCSHON, Indiana               TONY CARDENAS, California
SUSAN W. BROOKS, Indiana             FRANK PALLONE, Jr., New Jersey (ex 
CHRIS COLLINS, New York                  officio)
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)













                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     3
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
    Prepared statement...........................................     6
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     8
    Prepared statement...........................................     8

                               Witnesses

Diana Espinosa, Deputy Administrator, Health Resources and 
  Services Administration, Department of Health and Human 
  Services.......................................................     9
    Prepared statement...........................................    12
    Answers to submitted questions...............................    76
Krista M. Pedley, Director, Office of Pharmacy Affairs, Health 
  Resources and Services Administration, Department of Health and 
  Human Services \1\
Debra A. Draper, Director, Health Care, Government Accountability 
  Office.........................................................    18
    Prepared statement...........................................    20
    Answers to submitted questions...............................    95
Ann Maxwell, Assistant Inspector General, Office of Evaluation 
  and Inspections, Office of Inspector General, Department of 
  Health and Human Services......................................    36
    Prepared statement...........................................    38
    Answers to submitted questions...............................   102

                           Submitted Material

Documents for the record, \2\ submitted by Mr. Pitts.............     3
Statement of Ascension, March 24, 2015, submitted by Mr. Green...    67
Letter of March 24, 2015, from Daniel R. Hawkins, Jr., Senior 
  Vice President, Public Policy and Research, National 
  Association of Community Health Centers, to Mr. Upton, et al., 
  submitted by Mr. Green.........................................    70
Statement of Ryan White Clinics for 340B Access, March 24, 2015, 
  submitted by Mr. Green.........................................    73

----------
\1\ Ms. Pedley did not offer an oral or written statement.
\2\ The information has been retained in committee files and also is 
available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=103082.

 
                EXAMINING THE 340B DRUG PRICING PROGRAM

                              ----------                              


                        TUESDAY, MARCH 24, 2015

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:02 a.m., in 
room 2322, Rayburn House Office Building, Hon. Joseph R. Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Guthrie, Shimkus, 
Murphy, Blackburn, Lance, Griffith, Bilirakis, Long, Ellmers, 
Bucshon, Brooks, Collins, Upton (ex officio), Green, 
Butterfield, Castor, Sarbanes, Schrader, Kennedy, Pallone (ex 
officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Gary 
Andres, Staff Director; Noelle Clemente, Press Secretary; 
Michelle Rosenberg, GAO Detailee, Health; Chris Sarley, Policy 
Coordinator, Environment and the Economy; Adrianna Simonelli, 
Legislative Clerk; Heidi Stirrup, Policy Coordinator, Health; 
Josh Trent, Professional Staff Member, Health; Gregory Watson, 
Staff Assistant; Traci Vitek, Detailee, Health; Ziky Ababiya, 
Policy Analyst; Christine Brennan, Press Secretary; Jeff 
Carroll, Staff Director; Tiffany Guarascio, Deputy Staff 
Director and Chief Health Advisor; Meredith Jones, Director, 
Outreach and Member Services; Rick Kessler, Senior Advisor and 
Staff Director, Energy and the Environment; Rachel Pryor, 
Health Policy Advisor.
    Mr. Pitts. The subcommittee will come to order.
    The Chair will recognize himself for an opening statement.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Today we will hear from witnesses about the 340B Discount 
Drug Program. Section 340B of the Public Health Service Act 
requires drug manufacturers who wish to participate in Medicaid 
to provide discounted outpatient drugs to eligible healthcare 
organizations known as covered entities who serve uninsured, 
low-income populations.
    This program designed to stretch scarce Federal dollars is 
critically important for indigent and low-income patients who 
may otherwise be unable to access needed drugs or afford 
treatment.
    Eligible covered entities are defined in statute and 
include HRSA supported health centers and look-alikes, Ryan 
White Clinics, State AIDS Drug Assistance programs, Medicare 
and Medicaid disproportionate share hospitals, children's 
hospitals, and other safety-net providers.
    The Health Resources and Services Administration, HRSA, the 
agency that administers the 340B Drug Discount Program, 
indicates that approximately 11,000 covered entities currently 
participate in the program, with more than 1 in 3 hospitals 
participating. Some 800 or more manufacturers also participate 
in the program.
    Although the program was created in 1992, recent years have 
seen significant changes and expansions of the program. For 
example, from 2001 to 2011, the number of covered entities 
roughly doubled. Since HRSA issued guidance related to contract 
pharmacies in 2010, their use in the program has grown 
exponentially.
    Today we will hear from three witnesses who are experts on 
the program. The witnesses from GAO and the Inspector General's 
Office have both helped author reports advising Congress on the 
program and continue to monitor HRSA's management of the 
program.
    GAO and OIG have reported that unclear program guidelines 
and inconsistent oversight is partially responsible for some of 
the challenges the program currently faces in being accountable 
to taxpayers, patients, and stakeholders. Covered entities and 
manufacturers understandably cannot comply with rules that are 
unclear.
    We benefit today from hearing directly from HRSA about the 
agency's day-to-day work to respond to the findings of those 
reports as they seek to more effectively oversee and 
efficiently operate the 340B Program.
    HRSA has taken steps and made improvements in recent years, 
so we are glad they can be here today. Recent developments have 
hamstrung their ability to promulgate regulations to better 
manage the program, so we look forward to hearing from them.
    One thing I hope we can all agree on is that to preserve 
the 340B Program and ensure that it is serving those who most 
need help, greater oversight and transparency is needed to 
increase the program's accountability. Today's hearing marks 
the first step in that direction.
    I would like to welcome all of our witnesses today. We look 
forward to your testimony on this important subject.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    Today, we will hear from witnesses about the 340B Drug 
Discount Program.Section 340B of the Public Health Service Act 
(PHSA) requires drug manufacturers, who wish to participate in 
Medicaid, to provide discounted outpatient drugs to eligible 
health care organizations known as ``covered entities'' who 
serve uninsured, low-income populations.
    This program, designed to stretch scarce Federal dollars, 
is critically important for indigent and low-income patients 
who may otherwise be unable to access needed drugs or afford 
treatment.
    Eligible covered entities are defined in statute and 
include HRSA-supported health centers and look-alikes, Ryan 
White clinics and State AIDS Drug Assistance programs, 
Medicare/Medicaid Disproportionate Share Hospitals, children's 
hospitals, and other safety net providers.
    The Health Resources and Services Administration (HRSA), 
the agency that administers the 340B drug discount program, 
indicates that approximately 11,000 covered entities currently 
participate in the program, with more than one in three 
hospitals participating. Some 800 or more manufacturers also 
participate in the program.
    Although the program was created in 1992, recent years have 
seen significant changes and expansions of the program.
    For example, from 2001 to 2011, the number of covered 
entities roughly doubled. Since HRSA issued guidance related to 
contract pharmacies in 2010, their use in the program has grown 
exponentially.
    Today we will hear from three witnesses who are experts on 
the program. The witnesses from GAO and the Inspector General's 
office have both helped author reports advising Congress on the 
program, and continue to monitor HRSA's management of the 
program.
    GAO and OIG have reported that unclear program guidelines 
and inconsistent oversight is partially responsible for some of 
the challenges the program currently faces in being accountable 
to taxpayers, patients, and stakeholders. Covered entities and 
manufacturers understandably cannot comply with rules that are 
unclear.
    We benefit today from hearing directly from HRSA about the 
agency's day-to-day work to respond to the findings of those 
reports as they seek to more effectively oversee and 
efficiently operate the 340B program. HRSA has taken steps and 
made improvements in recent years, so we are glad they can be 
here today. Recent developments have hamstrung their ability to 
promulgate regulations to better manage the program, so we look 
forward to hearing from them.
    One thing I hope we can all agree on, is that to preserve 
the 340B program and ensure that it is serving those who most 
need help, greater oversight and transparency is needed to 
increase the program's accountability. Today's hearing marks 
the first step in that direction.
    I would like to welcome all of our witnesses today. We look 
forward to your testimony on this important subject.

    Mr. Pitts. And at this point, I have a UC request today. 
There are 31 documents that I would like to submit for the 
record. There are letters, articles, policy statements, 
reports, testimony, and various white papers on the 340B 
program included submitted by a wide range of stakeholders we 
have shared. Without objection, so ordered. \1\
---------------------------------------------------------------------------
    \1\ The information has been retained in committee files and also 
is available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=103082.
---------------------------------------------------------------------------
    Mr. Pitts. And I yield the rest of my time to Ms. 
Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    And I concur with everything that you have had to say on 
this. We all appreciate the 340B Program. We do have questions 
and we do have concerns. And we know we are responsible for the 
oversight. We want to be diligent in that manner. I think the 
rapid growth in the program has raised concerns including the 
adequacy of oversight, so I appreciate the hearing.
    Also questions on accountability and how that 
accountability may vary from grantees who receive 340B funds 
and hospitals who also receive those funds. Additional 
questions have been raised concerning the definition of a 
patient and how those 340B revenues are distributed.
    And so I thank you all for being here.
    And, Mr. Chairman, I yield back the balance of my time.
    Mr. Pitts. The Chair thanks the gentlelady, and now 
recognizes the ranking member of the subcommittee, Mr. Green, 
for 5 minutes for an opening statement.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman.
    And good morning and thank you all for being here today. 
And I want to thank our witnesses for coming here to testify.
    The 340B Drug Pricing Program was created by Congress to 
help safety-net providers care for their most vulnerable 
patients and afford drugs that would otherwise be out of reach. 
Since its inception in 1992, stakeholders and policymakers have 
been discussing and debating the intended purpose and 
appropriate scope of the 340B Program.
    I thank the chairman for having this hearing today to 
examine this critical program and the role that it plays in our 
healthcare system.
    It was the hope of policymakers when designing 340B that 
lower drug prices would enable safety-net providers to stretch 
scarce Federal resources as far as possible to reach more 
patients and provide a more comprehensive service through these 
savings.
    The law does not specify how these savings incurred under 
340B discounts must be used by covered entities, a point that 
has been brought up by both opponents and proponents of the 
program, yet a GAO study in 2011 confirmed that at large, 
covered entities use these savings to provide more care to more 
patients including medications that would otherwise be 
unaffordable to those they serve.
    For example, Houston Harris Health System which primarily 
serves the indigent population in Houston, Harris County, Texas 
saves approximately $17 million a year through participating in 
the 340B Drug Program. Harris Health uses savings from the 
program on patient care services which includes the cost of 
treatment, administration, management of services and 
facilities, and improving access to quality healthcare for our 
community.
    Harris Health System has, like other safety-net hospitals 
across the country, provide access to cost-effective, quality 
healthcare delivered to all the residents of Harris County 
regardless of their ability to pay.
    There is always more patient need than we have the capacity 
to provide and the community's access to care depends upon the 
contribution of every possible source of funding such as the 
340B Drug Program.
    I cannot underscore enough how important the 340B Program 
continues to be for hospitals and other entities that provide 
care to under-served patients in every district across the 
country. It is a key part of the multi-prong approach to 
provide all individuals with access to quality care.
    With that said, the program has grown significantly and 
oversight is appropriate to ensure that it is working properly. 
Since 1992, the 340B Program has expanded significantly both 
directly due to the categories of covered entities and 
indirectly due to the broader eligibility criteria for existing 
categories.
    According to the GAO, the number of 340B covered entities 
has doubled in a little over 10 years to more than 16,500 
sites. Similarly, the number of contract pharmacy agreements 
has expanded dramatically over the last decade, particularly 
since April of 2010 when 340B entities were allowed to contact 
multiple pharmacies.
    The 2011 GAO study found that the Health Resources and 
Services Administration or HRSA oversight of 340B was, quote, 
``inadequate to provide reasonable assurance that covered 
entities and drug manufacturers are in compliance with the 
program requirements,'' unquote.
    HRSA has taken great steps to implement recommendations 
made by the GAO in its 2011 study including conducting selected 
audits and clarifying 340B nondiscrimination policy. But 
additional administration action and potentially additional 
authorities may be needed for HRSA to conduct proper oversight 
of such a large and important program.
    I understand HRSA has been working to establish a formal 
set of regulations to standardize the definition of an eligible 
patient, compliance requirements for contract pharmacy 
agreements, clarify hospital eligibility criteria, and 
eligibility of off-site facilities.
    Steps such as updating HRSA guidance on the definition of a 
patient could address challenges that arise from different 
interpretations of the current guidance. This would further 
program integrity efforts and make certain that the 340B 
Program is achieving its intended outcomes and maintaining the 
long-term viability.
    Congress should let HRSA release its guidance and analyze 
its impact before making changes to the 340B Program that would 
harm safety-net hospitals and our vulnerable patients. I know 
HRSA strives to achieve the best outcomes for those they serve. 
The agency does great work to fulfill its mission of improving 
access to healthcare services for people who are medically 
under-served.
    As we examine the 340B Program and oversight efforts during 
today's hearing, it is important to remember that for 23 years, 
340B's mission has been to lower drug costs for safety-net 
providers so they can buy more comprehensive services and reach 
more individuals.
    The program enables providers to decide how to best serve 
their communities through obtaining and leveraging savings from 
manufacturers so more patients can receive more care in their 
communities.
    I thank the agency for their continued efforts to implement 
and oversee 340B and GAO and OIG for their work and look 
forward to the hearing.
    And, Mr. Chairman, I would also like to ask unanimous 
consent to place into testimony a statement submitted by 
Ascension on the 340B Program.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. The Chair now recognizes the chair of the full 
committee, Mr. Upton, 5 minutes for an opening statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Good morning. Since its inception in 1992, the 
340B Program has provided critically important pharmaceutical 
drugs at a discounted price to a range of entities providing 
healthcare to some of our Nation's most needy and most 
vulnerable patients. These facilities include community health 
centers, Ryan White Clinic, State AIDS Drug Assistance 
programs, as well as a range of qualifying hospitals.
    Through the years, the program has allowed covered entities 
to stretch scarce resources to better serve millions of 
patients in Michigan and across the country who are uninsured, 
under-insured, or dependent on programs like Medicaid and 
Medicare.
    I have seen firsthand the great work that this program does 
in my district in southwest Michigan. From the Bronson Health 
System in Kalamazoo, to Lakeland in Berrien and Cass Counties, 
to Allegan General Hospital in the north, to numerous family 
health centers, the 340B Program has ensured that many of my 
under-served constituents have access to affordable, life-
saving medicines that they otherwise would not be able to 
afford.
    There is no doubt that the 340B Program has played an 
important role in helping reduce costs while also extending 
access.
    I am pleased that this committee today will have the 
opportunity to learn more about some of these issues facing the 
340B Program. This committee has not held a hearing on the 
program since 2005, but there have been some very important 
changes to the program in recent years.
    The program was expanded, as we know, under the Affordable 
Care Act and more types of providers were allowed to 
participate as covered entities. Since HRSA guidance in 2010, 
there has been a rapid expansion of the use of contract 
pharmacies.
    GAO and the Inspector General's Office have raised some 
concerning findings for sure about the mixed successes of 
current oversight of the program that need to be examined. And 
more recently, HRSA, the agency charged with overseeing the 
340B Program, has found itself unable to successfully 
promulgate binding regulations, thus hampering its ability to 
effectively manage the program as we would like to see it.
    As a strong supporter of the 340B Program, I believe that 
there has been and will continue to be an important role for 
this program to continue. However, some of the findings from 
the careful work conducted by the GAO and the IG's Office are 
of concern.
    I appreciate GAO, OIG, and HRSA coming today to help the 
committee better understand the challenges before us. We look 
forward to learning what steps HRSA has taken to strengthen the 
program for all patients, the uninsured, seniors, Medicaid 
patients, and the insured patients which are served by covered 
entities.
    It is in the interest of good Government to see program 
integrity strengthened, the program's operating parameters 
clarified, and the program's rules consistently enforced.
    I believe that the biggest supporters of the program should 
be the biggest champions of ensuring that the 340B Program is 
well run in a manner that is transparent and accountable to all 
stakeholders.
    And I yield back the balance of my time.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Since its creation in 1992, the 340B program has provided 
critically important pharmaceutical drugs at a discounted price 
to a range of entities providing health care to some of our 
Nation's most needy and vulnerable patients. These facilities 
include community health centers, Ryan White clinics, State 
AIDS Drug Assistance programs, as well as a range of qualifying 
hospitals.
    Through the years, the program has allowed covered entities 
to stretch scarce resources to better serve millions of 
patients in Michigan and across the country who are uninsured, 
underinsured, or dependent on programs like Medicaid and 
Medicare.
    I've seen the great work this program does in my district. 
From the Bronson Health System in the Kalamazoo area, to 
Lakeland in Berrien and Cass Counties, to Allegan General 
Hospital in the north, to the numerous Family Health Centers, 
the 340B program has ensured that many of my underserved 
constituents have access to affordable, lifesaving medicine. 
There's no doubt that the 340B program has played an important 
role in helping reduce costs while also extending access.
    I am pleased that our committee today will have the 
opportunity to learn more about some of the issues facing the 
340B program. This committee has not held a hearing on the 
program since 2005, but there have been important changes to 
the program in recent years.
     The program was expanded under the Affordable Care 
Act and more types of providers were allowed to participate as 
covered entities.
     Since HRSA guidance in 2010, there has been a 
rapid expansion of the use of contract pharmacies.
     GAO and the Inspector General's office have raised 
some concerning findings about the mixed successes of current 
oversight of the program.
     More recently, HRSA--the agency charged with 
overseeing the 340B program--has found itself unable to 
successfully promulgate binding regulations, thus hampering its 
ability to effectively manage the program.
    As a strong supporter of the 340B program, I believe there 
has been, and will continue to be, an important role for the 
program. However, some of the findings from the careful work 
conducted by the GAO and Inspector General's Office are of 
concern. I appreciate GAO, OIG, and HRSA coming today to help 
the committee better understand the challenges HRSA and the 
program face.
    We look forward to learning what steps HRSA is taking to 
strengthen the program for all the patients--the uninsured, 
seniors, Medicaid patients, and the insured patients--which are 
served by covered entities. It is in the interest of good 
Government to see program integrity strengthened, the program's 
operating parameters clarified, and the program's rules 
consistently enforced. I believe that the biggest supporters of 
the program should be the biggest champions of ensuring the 
340B program is well-run in a manner that is transparent and 
accountable to all stakeholders.
    I look forward to hearing from our witnesses.

    Mr. Pitts. Anyone on the majority side seeking time? We 
still have 1 minute.
    Mrs. Ellmers, you are recognized.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    And thank you to our panel for being here.
    And, Mr. Chairman, thank you so much for holding this 
hearing on 340B.
    I just want to start off by saying that I realize HRSA 
received several million dollars in our last appropriations 
bill and appropriate steps you have taken to increase oversight 
in the program.
    For the record, I would like to make it clear that I 
understand and appreciate the importance of the 340B Program 
and the critical role it plays for many patients in the U.S. To 
be clear, this is a program set up by the Federal Government, 
yet the Federal Government does not know where the money is 
going. That is a big concern.
    For example, an analysis by IMS Institute for Healthcare 
Informatics calculated prices of 10 common chemotherapy 
treatments and found that hospitals charge 189 percent more on 
average or nearly triple what the same infusion would cost an 
independent doctor's office.
    These are the questions that we have. My hope is that we 
are going to get transparency and we are going to understand 
how the program is being utilized. Covered entities 
participating in the 340B Program must be fully transparent and 
accountable for dispensing medicines and ensuring the program's 
integrity.
    As the program has exploded in growth over the past 2 
decades, Congress should have a clear understanding as to how 
that money is being spent to ensure that it is still serving 
its intended purpose.
    Thank you very much. I yield back the remainder of my time.
    Mr. Pitts. The Chair thanks the gentlelady, and now 
recognize the ranking member of the full committee, Mr. 
Pallone, 5 minutes for an opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman.
    In 1992, a bipartisan Congress established the 340B Program 
to expand access to affordable healthcare by limiting the cost 
of outpatient drugs paid for certain safety-net providers. And 
since that time 22 years ago, the 340B Program has played a 
critical role in our healthcare system to ensure that low-
income and vulnerable individuals have access to affordable 
healthcare.
    In supporting our vital Nation's safety net from community 
health centers to safety-net hospitals, HIV clinics, and 
hemophilia treatment centers, the 340B Program has made the 
difference between patients getting access to life-saving 
healthcare services and drugs or going without.
    And Congress' intention when this program was created was 
to help covered entities expand their capacity to serve their 
patients. Through savings from the drugs purchased at a 
discounted rate, 340B providers are able to stretch scarce 
resources to reach more eligible patients and provide more 
comprehensive health services.
    It is without a doubt that the resources provided through 
the 340B Program have a direct impact on augmenting patient 
care throughout the country and will continue to play an 
integral role in the future by supporting the mission of 
safety-net providers to serve low-income, uninsured, and under-
insured patients.
    Of course, for this program to continue to function as 
Congress intended, proper oversight of 340B is of paramount 
importance. And I think we can all agree here today that the 
mission of this program is sound and a continued emphasis on 
program integrity will make the 340B Program stronger now and 
in coming years.
    So I wanted to thank the chairman again for calling this 
long-overdue hearing. I don't know if anybody on my side, I 
don't think, wants any additional time, so I will just yield 
back the balance of my time, Mr. Chairman.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    I would like to thank the chairman for calling this hearing 
on the 340B Program. And thank the witnesses for their 
testimony here today.
    In 1992, a bipartisan Congress established the 340B Program 
to expand access to affordable health care by limiting the cost 
of outpatient drugs paid for certain safety net providers.
    Since that time 22 years ago, the 340B Program has played a 
critical role in our health care system to ensure that low-
income and vulnerable individuals have access to affordable 
health care. In supporting our vital Nation's safety net--from 
community health centers to safety net hospitals to HIV clinics 
and Hemophilia treatment centers--the 340B Program has made the 
difference between patients getting access to lifesaving health 
care services and drugs or going without.
    Congress' intention when this program was created was to 
help covered entities expand their capacity to serve their 
patients. Through savings from the drugs purchased at a 
discounted rate, 340B providers are able to stretch scarce 
resources to reach more eligible patients, and provide more 
comprehensive health services.
    It is without a doubt that the resources provided through 
the 340B Program have a direct impact on augmenting patient 
care throughout the country and will continue to play an 
integral role in the future by supporting the mission of safety 
net providers who serve low-income, uninsured, and underinsured 
patients.
    Of course, for this program to continue to function as 
Congress intended, proper oversight of the 340B program is of 
paramount importance. I think we can all agree here today that 
the mission of this program is sound, and a continued emphasis 
on program integrity will make the 340B program stronger now 
and in the coming years.
    I thank the chairman again for calling this long-overdue 
hearing, and I yield back the balance of my time.

    Mr. Pitts. All right. The Chair thanks the gentleman.
    As always, written statements from all Members, opening 
statements, will be made part of the record.
    We have 1 panel today and I will introduce them in the 
order that they will present testimony.
    First, Ms. Diana Espinosa, Deputy Administrator at the 
Health Resources and Services Administration. She is 
accompanied by Commander Krista Pedley, the Director of the 
Office of Pharmacy Affairs at the Health Resources and Services 
Administration; Dr. Debbie Draper, Director of Health Care at 
the Government Accountability Office; and Ms. Ann Maxwell, the 
Assistant Inspector General for Evaluation and Inspections in 
the Office of the Inspector General at HHS.
    Thank you all for coming. Your written testimony will be 
made a part of the record. You will each be given 5 minutes to 
summarize your testimony. And at this point, the Chair 
recognizes Ms. Espinosa for 5 minutes for her summary.

  STATEMENTS OF DIANA ESPINOSA, DEPUTY ADMINISTRATOR, HEALTH 
RESOURCES AND SERVICES ADMINISTRATION, DEPARTMENT OF HEALTH AND 
  HUMAN SERVICES, ACCOMPANIED BY KRISTA M. PEDLEY, DIRECTOR, 
   OFFICE OF PHARMACY AFFAIRS, HEALTH RESOURCES AND SERVICES 
ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES; DEBRA 
  A. DRAPER, DIRECTOR, HEALTH CARE, GOVERNMENT ACCOUNTABILITY 
  OFFICE; ANN MAXWELL, ASSISTANT INSPECTOR GENERAL, OFFICE OF 
   EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

                  STATEMENT OF DIANA ESPINOSA

    Ms. Espinosa. Good morning, Chairman Pitts, Ranking Member 
Green, and Members of the subcommittee. I appreciate the 
opportunity to appear before you today to discuss the steps we 
have taken to strengthen the oversight of the 340B Drug Pricing 
Program and the challenges we face.
    The Health Resources and Services Administration or HRSA is 
the primary Federal agency within the Department of Health and 
Human Services charged with improving access to healthcare 
services for people who are medically under-served.
    HRSA works to strengthen our primary care infrastructure, 
bolster the healthcare workforce, and achieve health equity. 
HRSA strives to achieve the best outcomes for those we serve 
and make the best use of taxpayer dollars. To that end, program 
integrity is essential to all HRSA programs including the 340B 
Program.
    The program was authorized to stretch scarce Federal 
resources by substantially reducing the cost of covered 
outpatient drugs to participating eligible entities also known 
as covered entities.
    In fiscal year 2013, covered entities saved an estimated 
$3.8 billion on covered outpatient drugs. While the law does 
not specify how 340B Program savings must be used, covered 
entities have indicated that they use the savings to provide 
more care to more patients and provide medications to those who 
may not otherwise be able to afford them.
    As part of our oversight of the 340B Program, HRSA verifies 
that both 340B covered entities and manufacturers are in 
compliance with program requirements. The Congress provided 
HRSA with an additional $6 million in fiscal year 2014 which 
has allowed us to expand our oversight.
    In 2012, HRSA began conducting selective audits and 
clarified the 340B nondiscrimination policy. As a result, GAO 
closed 2 recommendations related to those issues from its 2011 
report. The remaining 2 recommendations direct HRSA to clarify 
hospital eligibility requirements and the definition of a 340B 
patient. HRSA plans to address them in a proposed guidance we 
will be issuing for public comment later this year.
    The HHS Office of the Inspector General recommended that 
HRSA develop a pricing system and we expect this pricing system 
to be operational later this year.
    HRSA uses a comprehensive approach to ensure compliance by 
covered entities. An entity must apply for participation in the 
program and recertify annually. Additionally, HRSA conducts 
risk-based and targeted on-site audits of covered entities.
    Entities are required to develop and implement corrective 
action plans to respond to audit findings. Summaries of the 
findings are posted for the public on the HRSA Web site and 
this information is also used to help inform our technical 
assistance efforts.
    HRSA also has mechanisms in place to ensure manufacturers 
comply with statute and offer the 340B ceiling price to covered 
entities. In addition, we are currently developing protocols 
for conducting additional audits of manufacturers.
    Let me now turn to the forthcoming HRSA omnibus proposed 
guidance and speak to our rule-making authority. As many of you 
know, last year, HRSA planned to issue a proposed omnibus 
regulation for the 340B Program to establish additional clear, 
enforceable policy to advance our program oversight.
    Before HRSA was scheduled to issue the omnibus proposed 
regulation, the U.S. District Court issued a ruling 
invalidating the 340B orphan drug regulation finding that HRSA 
lacked explicit statutory authority to issue it. In light of 
this ruling, HRSA withdrew the omnibus proposed regulation from 
Office of Management and Budget review.
    There are 3 areas of the 340B statute with explicit 
regulatory authority, calculation of the 340B ceiling price, 
imposition of manufacturer civil monetary penalties, and 
implementation of a dispute resolution process.
    We expect this year to issue notices of proposed rule 
making on all 3 of these areas. We lack explicit regulatory 
authority for the other provisions in 340B Program statute. 
Absent that authority, HRSA intends to release a proposed 
omnibus guidance for public comment later this year. We will 
then consider the public comment and finalize the guidance.
    HRSA will continue to use the full extent of agency 
authorities in its efforts to ensure the integrity of the 340B 
Program. With support from the Congress, we have strengthened 
our management and operations to manage this program as 
effectively and efficiently as possible.
    I appreciate the opportunity to testify today and look 
forward to your questions. Thank you.
    [The prepared statement of Ms. Espinosa follows:]
    
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    Mr. Pitts. The Chair thanks the gentlelady.
    Commander Pedley, do you have an opening statement?
    Ms. Pedley. I do not.
    Mr. Pitts. All right. Dr. Draper, you are recognized for 5 
minutes.

                  STATEMENT OF DEBRA A. DRAPER

    Ms. Draper. Chairman Pitts, Ranking Member Green, and 
Members of the subcommittee, I appreciate the opportunity to be 
here today to discuss the 340B Program including issues 
concerning its oversight.
    Administered by HRSA, the 340B Program was initially 
created in 1992 with various legislative changes in the ensuing 
years. While participation is voluntary, there are strong 
incentives to do so.
    For participating entities such as federally qualified 
health centers and certain hospitals, substantial cost savings, 
20 to 50 percent of the cost of outpatient drugs, can be 
realized through the program. For drug manufacturers, 
participation is required to receive Medicaid reimbursement.
    The 340B Program has seen significant growth in recent 
years. According to HRSA, for example, there were over 11,000 
unique entities participating as of January 2015, a 30 percent 
increase since 2008. Additionally, spending on 340B drug 
purchases was estimated at $7.5 billion for 2013, up from $6 
billion for 2011.
    My comments today focus on inadequacies in 340B Program 
oversight that we identified in our September 2011 report as 
well as progress HRSA has made in implementing related 
recommendations.
    We found that HRSA primarily relied on participating 
entities and manufacturers to self-police and ensure their own 
compliance with program requirements. Beyond that, HRSA engaged 
in few other oversight activities of the program.
    At the time of our review, for example, the agency had 
never conducted audits of participating entities to ensure 
compliance with the program. We found that HRSA's guidance was 
often inadequate, increasing the risk for interpretation of 
requirements that might result in misuse of the program.
    For example, HRSA's guidance was not specific in the 
practices drug manufacturers were to follow to ensure that 
drugs were equitably distributed to both participating and 
nonparticipating entities when distribution was restricted, 
such as when a drug was in short supply.
    Additionally, HRSA's guidance on the definition of a 
patient did not clearly define when an individual was 
considered eligible for discounted drugs under the program.
    Furthermore, HRSA had not issued guidance specifying the 
criteria for participation in the program for hospitals that 
were not publicly owned or operated.
    To address these oversight inadequacies, we made a number 
of recommendations to ensure the appropriate use of the 340B 
Program. And in response, HRSA has taken actions to implement 
them.
    We recommended that HRSA conduct audits of participating 
entities to better ensure compliance including ensuring that 
340B drugs are not being diverted to ineligible patients. In 
response, HRSA began conducting audits of participating 
entities which they have done since 2012.
    Through these audits, instances of noncompliance have been 
identified including violations related to drug diversion. The 
agency has developed a process to address noncompliance through 
corrective action plans. Among other things, participating 
entities may be required to repay manufacturers if they 
inappropriately receive discounts.
    We recommended that HRSA provide more specific guidance on 
cases in which drug manufacturers restrict the distribution of 
drugs at 340B prices. In response, HRSA issued updated guidance 
in 2012 which outlined the agency's policy for manufacturers 
who intend to restrict the distribution of a drug.
    Although HRSA took steps to address our other two 
recommendations, it has not yet implemented them. We 
recommended that HRSA provide more specific guidance on the 
definition of a patient eligible for drug discounts under the 
340B Program. We also recommended that HRSA issue guidance to 
clarify the criteria that hospitals not publicly owned or 
operated must meet to be eligible for participation in the 340B 
Program.
    HRSA planned to address both of these recommendations in a 
comprehensive regulation which had been developed and submitted 
to OMB in 2014. However, a Federal Court ruling narrowly 
defined HRSA's statutory rule-making authority for the 340B 
Program which prompted the agency to withdraw its comprehensive 
regulation.
    HRSA officials told us that they expect to issue guidelines 
that will address these remaining recommendations this fiscal 
year.
    Moving forward, it is essential that HRSA continue its 
oversight activities including monitoring and audits of 340B 
Program participants. Because of the complex nature of and 
significant growth in the program, it is also critical that 
program requirements are clearly and explicitly laid out in 
guidance or regulations. Otherwise, much is left to 
interpretation, increasing the risk of misuse of the 340B 
Program.
    Mr. Chairman, this concludes my opening remarks. I am happy 
to answer any questions.
    [The prepared statement of Ms. Draper follows:]
   
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    Mr. Pitts. The Chair thanks the gentlelady, and now 
recognizes Ms. Maxwell 5 minutes for opening statement.

                    STATEMENT OF ANN MAXWELL

    Ms. Maxwell. Good morning, Chairman Pitts, Ranking Member 
Green, and other distinguished Members of the subcommittee. I 
am pleased to join you today to discuss the integrity and the 
effectiveness of the 340B Drug Discount Program.
    This program allows safety-net providers to purchase 
outpatient drugs at a discount from drug manufacturers. 
Specifically the law establishes a maximum ceiling price that 
drug manufacturers are allowed to charge these providers.
    To ensure robust program integrity, the OIG has recommended 
numerous actions to improve this program. In response to OIG 
and GAO recommendations as well as congressional action 
informed by those recommendations, HRSA has strengthened its 
oversight, but there is more that could be done to strengthen 
program integrity.
    OIG work shows some continuing challenges. These challenges 
affect 340B providers like community-access hospitals, 
community health centers, critical-access hospitals, and 
children's hospitals, as well as State Medicaid agencies and 
drug manufacturers.
    OIG's work highlights two major areas of concern. One is 
lack of transparency in the program and the other is a lack of 
clarity in program guidance.
    With respect to transparency, key stakeholders are in the 
dark. Neither providers nor State Medicaid agencies have all 
the information needed to ensure the integrity of 340B 
transactions.
    OIG recommends three steps HRSA can take to increase 
transparency and ensure the program achieve its goals. The 
first two have to do with sharing ceiling prices. We recommend 
that HRSA shares ceiling prices with providers. This will allow 
providers to ensure they are not being overcharged by drug 
manufacturers.
    We also recommend that HRSA shares ceiling prices with 
State Medicaid agencies. This will allow State Medicaid 
agencies to ensure they are not overcharged when they reimburse 
340B providers for Medicaid patients. Making this happen would 
require a new authority from Congress.
    Finally, we recommend greater claims transparency. HRSA 
should further improve tools intended to make 340B claims 
transparent to Medicaid. Medicaid agencies need this 
information to protect drug manufacturers from providing 
rebates on drugs that have already received an up-front 
discount through the 340B Program.
    In addition to the lack of transparency, program guidance 
lacks clarity, failing to keep up with the evolving and complex 
marketplace. One key change that has taken place over the past 
5 years is a growing reliance on retail pharmacies.
    In retail pharmacy settings, we found that providers made 
different determinations on what prescriptions were eligible 
for the discount. Let me illustrate that with an example.
    Let's imagine a doctor sees a patient at a community health 
center. Later that same doctor sees the same patient at her 
private practice. If that doctor prescribes a drug to that 
patient at her private practice, is that prescription eligible 
for the 340B discount?
    One provider we talked to in our study said yes. Another 
provider in our study said no. And yet another provider said 
maybe. So who is right? We couldn't tell based on current 
guidance.
    HRSA's guidance addresses patient eligibility, leaving room 
for interpretation as to which of a patient's prescriptions 
might, in fact, be eligible for the program.
    Furthermore, guidance doesn't address how to handle 
uninsured patients at retail pharmacies. We found that because 
of the way retail pharmacies operate, uninsured patients may 
end up paying full price for their prescriptions.
    We believe it is important that HRSA update program 
guidance to more clearly and specifically define patient 
eligibility as well as address other complexities introduced by 
the use of retail pharmacies. Without more clarity, it is hard 
to determine or enforce compliance.
    We appreciate and share your interest in the integrity and 
the effectiveness of the 340B Program. Towards that end, we 
have ongoing work in this area that we plan to issue later this 
year and can share with you at that time.
    At this time, I am happy to be of assistance if you have 
any questions. Thank you.
    [The prepared statement of Ms. Maxwell follows:]
    
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    Mr. Pitts. The Chair thanks the gentlelady.
    And we will now begin questioning. I will recognize myself 
5 minutes for that purpose.
    First for the GAO. Dr. Draper, in your report, you noted 
that using the DSH adjustment percentage as part of the 340B 
eligibility criteria for hospitals has the effect of making 
eligibility for 340B expand as more people become insured due 
to broader Medicaid coverage.
    Since your report was written, we have seen the uninsured 
rates decline at hospitals in States that have expanded 
Medicaid.
    The question is, do you think it makes sense for hospitals 
in those States to gain full access to 340B just as their 
charity care burden is decreasing due to patients gaining 
Medicaid or do you think there might be another metric for 340B 
eligibility that could work better than the DSH metric to help 
ensure the program reaches the hospitals that are truly serving 
a disproportionate share of uninsured and vulnerable patients?
    Ms. Draper. Well, it is probably best if I first explain 
what DSH is. It is actually an inpatient indicator. The 340B 
Program is an outpatient program. DSH is actually the sum of 
the percentage of Medicare inpatient days attributable to 
patients entitled to both Medicare Part A and Supplemental 
Security Income and the percentage of total inpatient days 
attributable to patients eligible for Medicaid but not eligible 
for Medicare Part A.
    So it really is an inpatient indicator and it is sometimes 
used as a proxy for uncompensated care or the amount of low-
income clients a particular facility serves.
    So the question is an interesting one. And part of the 
issue is that it is a difficult question to answer because much 
has changed in the healthcare landscape over the last several 
years since the 340B Program was created in 1992.
    One of the big things, of course, is the healthcare reform 
that was recently enacted which provided coverage for more 
people than originally was the case when the program was 
initially established.
    However, I think the bigger question is, what is the intent 
of the 340B Program. And there is a lot of uncertainty or lack 
of clarity around what is this program intended to do.
    In our prior work when we issued our 2011 report, there 
were a lot of varying interpretations of what the 340B Program 
was. HRSA talks about the program. And the purpose of the 
program is to enable covered entities to stretch scarce Federal 
resources to reach more patients and provide more comprehensive 
services. And this was based on the committee report for the 
House Energy and Commerce that accompanied the--when this was 
first created in 1992.
    Others believe that this is a program to assist low-income 
individuals in need of medications. And while it does that, 
there is no criteria in terms of patient eligibility, no 
criteria related to level of income. So it could benefit 
anyone, any level of income as long as they meet the other 
criteria for an eligible patient.
    And I can just tell you when we conducted our work in 2011, 
we found a range of payer mixes in the hospitals that we 
interviewed. We asked them about their Medicaid and uninsured 
payer mix and it ranged anywhere from 15 percent to 85 percent.
    So it is really all over the board, and I think it is just 
really being able to add more clarity. It is important to add 
more clarity and more specificity to what is the intent of the 
program, what is it intended to do.
    Mr. Pitts. Thank you.
    Ms. Espinosa, under the 340B Program, prisons and jails are 
not 340B covered entities eligible to purchase drugs under the 
340B Drug Pricing Program. However, according to HRSA's prime 
vendors Web site, in some case, quote, ``State law or other 
arrangements create programs where a covered entity provides 
healthcare services to incarcerated persons such that the 
incarcerated persons can be considered patients of the entity 
eligible for 340B drugs,'' end quote.
    In these cases, to receive 340B drugs, incarcerated persons 
must meet the 340B patient definition. But given HRSA's own 
statements about the lack of a clear, enforceable standard 
definition of the patient, this rings a bit hollow.
    What is HRSA doing to address this issue?
    Ms. Espinosa. The definition of a patient is a key aspect 
of our oversight practice. And we plan to address that in the 
omnibus proposed guidance that we will be issuing later this 
year. We understand that clarifying the patient definition is 
essential to oversight and it is a priority for us. We will 
clarify it to the greatest extent that we can within our 
ability.
    Mr. Pitts. How many covered entities provide healthcare 
services to incarcerated persons?
    Ms. Espinosa. I don't think we have that specific data 
point with us, sir, but certainly we can provide it to you in 
follow-up.
    Mr. Pitts. My time is expired. The Chair recognizes the 
ranking member, Mr. Green, 5 minutes for questions.
    Mr. Green. Thank you, Mr. Chairman.
    Ms. Espinosa, HRSA was given more funding for the past two 
budget cycles for program integrity activities in the 340B 
Program.
    Can you detail the actions that were taken with this 
funding?
    Ms. Espinosa. Yes, sir. We use the funding to strengthen 
our oversight using various strategies. We have increased the 
number of audits that are performed and we have also used it to 
hire auditors. Those audits are conducted by auditors in one 
part of HRSA that work together with program staff. So we have 
that check and balance of different parts of our organization 
that can kind of discuss the issues and ensure that we are 
applying a uniform standard.
    We have also strengthened and modernized the system, the 
340B system that we use for keeping track of eligible entities 
and their compliance. Frankly, we had a lot of disparate 
systems and we have been working to connect them all to help 
facilitate our oversight and use different pieces of 
information to check against each other and also----
    Mr. Green. Let me just----
    Ms. Espinosa. Sure.
    Mr. Green. Have you shown any savings and the audits have 
been useful to HRSA, additional audits?
    Ms. Espinosa. The additional audits are always useful to us 
because they help us understand the areas where we can be 
helpful and provide additional assistance to the covered 
entities to provide technical assistance on how to comply. So 
they are always helpful to us in that regard as well as 
identifying any potential issues that need to be corrected.
    Mr. Green. Is it too early to quantify what those audits 
did and the savings or reallocation of funds?
    Ms. Espinosa. We have not summed the information from the 
audits in that fashion.
    I think, ask my colleague Commander Pedley if that is 
information that we have available that we could potentially--
--
    Ms. Pedley. In terms of savings, where it comes into play 
is if we do find a covered entity, for example, has diversion 
or duplicate discounts, they are now required to repay 
manufacturers.
    So there is money exchanged there. HRSA does not get 
involved in the amounts of money that are involved through that 
process, but we do ensure that they repay and have a corrective 
action plan in place moving forward.
    Mr. Green. So there is no direct savings to the Federal 
Government to actually reimburse the manufacturers?
    Ms. Pedley. Correct.
    Mr. Green. OK. Well, my next question is, do you need 
additional Federal appropriations, that is where I was looking 
for, to carry forward with the remaining recommendations from 
GAO and OIG?
    Ms. Espinosa. We are moving forward with the IG and GAO 
recommendations. As I mentioned, the pricing system will be 
operational later this year with the resources that we already 
have. And we are moving forward to clarify the guidance.
    We have requested in the President's budget an increase to 
continue to expand our oversight to get greater coverage of 
both covered entities and manufacturers to ensure that they are 
meeting the program requirements.
    Mr. Green. OK.
    Ms. Espinosa. So we have requested additional funds, but we 
are moving forward on the IG and GAO recommendations with our 
current budget.
    Mr. Green. OK. Both today and in the past, Congress has 
weighed in a lot about the program integrity and oversight of 
340B.
    I want to ask you directly today what were the specifics of 
the court decision last year that resulted in HRSA pulling back 
from the so-called mega regulations from the Office of 
Management and Budget, and I would like specifically what 
regulations HRSA can issue in light of the court decisions on 
340B?
    Ms. Espinosa. Uh-huh. So the court decision was not based 
on the merits of the orphan drug regulation but rather on the 
method that we--the court found that we did not have explicit 
rule-making authority for orphan drugs. And so as a result, we 
have, as I mentioned, pulled back the proposed regulation that 
we had in process and we are developing that through guidance.
    The three areas where we do have explicit rule-making 
authority are civil monetary penalties for manufacturers, 
dispute resolution process, and----
    Ms. Pedley. And the ceiling price.
    Ms. Espinosa [continuing]. The ceiling price.
    Mr. Green. OK. So I guess for practical purposes under 
current law, unless it is one of these three items mentioned, 
HRSA is prohibited from issuing regulations on the 340B 
Program?
    Ms. Espinosa. Yes, sir. The court ruling was very clear 
that without explicit rule-making authority, HRSA cannot issue 
regulations.
    Mr. Green. Mr. Chairman, I have some other questions that I 
would like to submit, but I would like that last one for us to 
consider. And I yield back my time.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentleman from Illinois, Mr. Shimkus, 5 minutes 
for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Welcome. It is good to have you. And it is always good that 
we look at a program that was established a long time ago, 
especially when there is some interest in rural America. When 
you have small rural hospitals and federally qualified health 
clinics, it has been very, very helpful.
    But we also know that that is not true in every case. And 
so it is important to, you know, follow the money and see the 
qualifications and the payment structures.
    So I want to go to Dr. Draper. On covered entities who 
participate in the 340B Program through grants are required to 
follow strict reporting requirements about how the funds are 
used. However, DSH hospitals do not have a similar requirement. 
The OIG previously found a significant difference in how 
community health centers support needy patients through 
contract pharmacies compared to DSH hospitals.
    Have any of your research, have you been able to do work to 
track revenue generated by 340B prescriptions and what 340B 
entities do with those dollars?
    Ms. Draper. It is really likely to vary by facility because 
it is not a program requirement that facilities track how they 
use the revenue generated from the 340B Program. I will say 
that----
    Mr. Shimkus. Let me, just to have a discussion, based upon 
the intent of the original law, I mean, wasn't there basically 
intent that the revenue be provided to be helpful to the low-
income population?
    Ms. Draper. For our past report, the report that we issued 
in 2011, we did interview entities including hospitals and 
other like community health centers and other grantees. And it 
was a small sample of entities, but they were all reporting 
using the revenues generated consistent with their missions.
    So, for example, they use the revenues to provide more 
comprehensive services in terms of case management services or 
patient education. Some facilities reported using the revenue 
to expand services to other locations.
    So they all reported using it consistent with their 
missions, which is required for grantees like community health 
centers and other types of grantees. It gets a little bit more 
difficult to track for hospitals just because of the complex 
nature of those organizational environments.
    Mr. Shimkus. And that is a great statement. So there are 
differences based on the type of eligible entity in the 
reporting?
    Ms. Draper. There are differences in just how they use the 
340B Program, yes.
    Mr. Shimkus. And the reporting. And so the follow-up debate 
is really, should be now, I think you alluded to, the 
complexity of hospitals may not be as easy to identify where 
the benefit goes to, but I think part of our internal debate is 
really?
    Ms. Draper. Well, this might provide some help because the 
majority of growth in the 340B Program has really been in 
hospitals. As of January, there were just over 2,000 unique 
entities, which represented about 20 percent of the total 
unique entities. But if you add on their affiliated sites or 
outpatient clinics, it does represent about 51 percent of the 
total 340B sites.
    HRSA report told us that about 78 percent of all current 
340B drug purchases are made by DSH hospitals. So the majority 
of the spending is through the DSH hospitals.
    Mr. Shimkus. And just following up on this line of 
questioning, don't you think just as we debate the program and 
the benefits, information provided by all users of the program 
regardless of the entity would be helpful in us making a 
determination of the credibility of the program and the value 
to the identified population?
    Ms. Draper. I think that it is important for the program to 
ensure that the program is working as intended and benefitting 
the intended populations.
    Mr. Shimkus. Ms. Maxwell, do you want to add anything to 
that?
    Ms. Maxwell. Yes. Our work points to a need for greater 
transparency not exactly the way that you are talking about, 
but I do believe we have concerns about program integrity that 
then compromise the ability of the program to achieve its 
goals. So more clarity around how the savings are used would 
allow us to understand the benefits of the program.
    Mr. Shimkus. And, Ms. Espinosa, any comments on this?
    Ms. Espinosa. Yes. I wanted to just offer a clarification. 
So the program requirements that have been discussed, for 
example, on the health centers, I mean, those are in the health 
center statute.
    So the 340B Program overall does not impose any 
requirements on recipients regarding how they use the savings. 
It is in the case where they are paired together with other 
grant programs and so, for example, the health centers. In that 
program, there is a requirement that any savings or revenue 
generated in the program benefit the grant, so----
    Mr. Shimkus. Yes. My time is expired, but I guess that is 
the point of a hearing to identify if you want to do a 
legislative fix to make sure there is greater transparency and 
give you the authority to do that.
    Ms. Espinosa. Sure. I just wanted to clarify where the----
    Mr. Shimkus. I know. That is what we are looking at.
    So thank you, Mr. Chairman. Yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the ranking member of the full committee, Mr. 
Pallone, 5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    My questions are for Ms. Espinosa. Congressional history 
states that the 340B Drug Pricing Program was created to help 
designated healthcare providers stretch scarce resources to 
provide more comprehensive care to more patients. So, in other 
words, the program was established to support these designated 
providers.
    You stated in your testimony that this is still the intent 
of the program. But for the record, can you provide a practical 
example of how the structure of the 340B Program has helped 
providers to get patients more comprehensive services?
    Ms. Espinosa. Sure. The way the program works is that we 
could use a health center example, you know, a patient that is 
insured may get a prescription at a health center. That 
prescription is purchased by the health center at a 340B price, 
which has a discount.
    And then the health center is able to charge that patient's 
insurer, a third-party insurer for the full price. So that 
margin, which, as has been discussed, is about 25 to 50 percent 
of the drug cost, that helps to support the cost of the health 
center running the pharmacy, even just having a pharmacy.
    And in the cases with the health centers where there are 
additional savings beyond just operating their pharmacy, many 
have reported that they use them to enhance services. One 
example was on patient education--so educating patients on drug 
interactions, something that is very important for people who 
have multiple chronic conditions--and expanding hours of 
pharmacies. Those are the types of services that we hear the 
health centers and many of the other grantees report that they 
use the funding for.
    Mr. Pallone. OK. Thanks a lot.
    It is my understanding that HRSA intends to issue a mega 
guidance which deals with many of the outstanding program 
integrity issues that are being raised today. And you touched 
on this somewhat in your testimony.
    However, I wanted to ask you, can you describe in more 
detail the items that HRSA will tackle in the forthcoming 
guidance and how those items relate to the GAO and OIG 
recommendations that we have heard today?
    Ms. Espinosa. Sure. As I mentioned, the patient definition 
will be addressed in the proposed omnibus guidance. That 
relates both directly to the GAO recommendation and also to 
some of the IG's findings as far as being able to track 
prescriptions.
    There is also language on hospital eligibility that we 
would like to include in proposed guidance. And just to mention 
that these will all be put out for public comment because we do 
value the input from stakeholders and others.
    A third area is contract pharmacies, guidelines on contract 
pharmacies. I think those are kind of the big key areas and 
then there are other aspects of policy that we would use the 
opportunity to clarify where we can.
    Mr. Pallone. Is the guidance on these outlier issues that 
GAO and OIG identified an adequate, long-term solution in your 
opinion?
    Ms. Espinosa. Well, sir, we will continue to oversee this 
program using all the tools that we have available to us. 
Certainly we see the guidance as bolstering our efforts. I 
think that we will need to see, you know, if additional tools 
were available, we would certainly use those as well.
    Mr. Pallone. And then what about the difficulties, other 
difficulties with enforcing guidance in the absence of rule-
making authority?
    Ms. Espinosa. Generally rule making allows an agency to be 
more specific about its requirements and that is clearly 
something that has been identified by both the GAO and IG. So 
greater specificity, clarity on the requirements. It also has a 
stronger enforcement ability than guidance. So, yes, overall, 
rule making is a stronger enforcement tool than guidance.
    Mr. Pallone. Let me just get 1 more question. Well, the 
auditing practices HRSA has undertaken over the past couple of 
years have gone a long way towards improving program integrity. 
And I understand that audits are risk based and targeted.
    But could you describe in a little detail how HRSA's risk-
based methodology helps to best target which of those entities 
to audit?
    Ms. Espinosa. So we have been in--the risk-based criteria 
take into account the level of complexity of the program. So 
understanding that covered entities that have more sites 
dispensing prescriptions are going to be more complex and will 
require greater oversight.
    So our risk-based criteria take into account the number of 
sites that a covered entity has as well as the number of 
contract pharmacies. So those are two examples of things that 
might trigger us to select a covered entity for an audit.
    Mr. Pallone. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentleman from Virginia, Mr. Griffith, 5 minutes 
for questions.
    Mr. Griffith. Thank you, Mr. Chairman.
    Do appreciate this hearing. I am learning a lot and that is 
why I like coming to these hearings. But let me ask some 
questions on some of the answers that have come up.
    Ms. Espinosa, you indicated that you only had rule-making 
authority on civil penalties, dispute resolution, and ceiling 
price. Does that mean you don't have rule-making authority on 
what constitutes a 340B patient?
    Ms. Espinosa. That is right. We do not have explicit rule-
making authority on that.
    Mr. Griffith. And when did the court case that defined this 
come down?
    Ms. Espinosa. It was over the summer.
    Mr. Griffith. So summer of 2014?
    Ms. Espinosa. Yes.
    Mr. Griffith. All right. And you pulled back your omnibus 
guidance that you were working on at the time?
    Ms. Espinosa. At the time, we were working on a regulation.
    Mr. Griffith. OK. All right. But how much difference is 
there particularly--and I am looking at defining the patient 
under 340B--how much difference would there be between your 
regulation and your guidance? It seems to me you just change a 
few words and you are ready to go on that portion of it. 
Wouldn't that be true?
    Ms. Espinosa. Well, not according to our attorneys. But I 
think essentially it keys into the fact that there is different 
enforcement authority associated with each one. And because of 
that, we cannot be as perhaps clear or definitive in the 
requirements----
    Mr. Griffith. Well, I understand the court case----
    Ms. Espinosa [continuing]. Depending on what the rule----
    Mr. Griffith [continuing]. Got in the way, but it still 
bothers me, and this is a criticism of the Federal Government 
as a whole, that the recommendations came out in 2011 and even 
with the guidance, if you hadn't had the court case or the 
rules, you probably were looking at late 2014 or early 2015. A 
student could get an undergraduate degree in that period of 
time and we are having a hard time defining what a patient is 
in that same period of time.
    And I love lawyers. I am one. But sometimes you have just 
got to move forward with common sense and you might be held 
back by that. Also, sometimes you don't need to have an 
omnibus.
    The definition of a patient seems to be a problem GAO 
pointed out. Why not get that one moved along and let some of 
the more complicated things stay behind for the harder work, 
get the simple things done quickly?
    I do want to congratulate you, Dr. Draper, on a small point 
that is 1 of my pet peeves. Thank you for listing the Medical 
College of Virginia in your bio because so many people think 
that it is all VCU. And, of course, they are united, but there 
wouldn't be a U in VCU if it hadn't been for the Medical 
College of Virginia being added to the Richmond facility. So 
thank you for listing that and appreciate your hard work on 
this.
    Ms. Draper. Thank you.
    Mr. Griffith. Are there other suggestions you think that 
would be simple things that they could work on and get them out 
more quickly that Ms. Espinosa ought to be focused on in the 
short run as opposed to some of the more difficult things?
    Ms. Draper. Well, one of the things I mentioned in my 
testimony was that this is a very complex program. You have a 
lot of different types of entities and no one entity looks like 
another type of entity. So it is a very complex program. And 
the growth in the program in recent years has been really 
significant.
    So I think those factors really make it clear that the 
program rules and regulations really need to be very clear and 
explicitly laid out either in guidance or in regulation. But on 
top of that, I can't stress enough the importance of continuing 
oversight and enhancing the oversight to ensure that program 
participants are using the program as intended.
    Mr. Griffith. And let me say this to Ms. Espinosa: Thank 
you so much for your comments, but we are here for a reason. 
And if the court said you didn't have authority, I would think 
that we would be willing to give you--now, we have the same 
problem. Everybody wants an omnibus bill. But I would think 
that we would give you authority to define what a 340B patient 
is if you all wanted to ask for it.
    Ms. Maxwell, let's go to you. We have got the national 
trends in healthcare provider consolidations where a hospital 
goes out and buys up an outpatient clinic and then takes a 
clinic perhaps that is break even but once they qualify that 
clinic as a part of their hospital, they can get 340B money.
    Can you tell me what problems you see with that because a 
Berkeley research group said that that led to about $200 
million in additional costs for the Federal Government? Your 
comments?
    Ms. Maxwell. That is an area that we have not looked at yet 
in the Office of Inspector General, so I don't really have a 
lot of data at my disposal to comment on that topic.
    Mr. Griffith. All right. Well, I appreciate it.
    My time is just about up. Thank you all for being here and 
thank you so much for an interesting hearing.
    I yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentlelady from Florida, Ms. Castor, 5 minutes 
for her questions.
    Ms. Castor. Well, thank you, Mr. Chairman, for calling this 
hearing.
    I want to start by saying that 340B is a lifesaver for so 
many hard-working Americans. Whenever I visit children's 
hospitals or community health centers or safety-net hospitals 
back home in Florida, they emphasize to me how important 340B 
is to meeting their mission of taking care of families and to 
ensuring that the cost of pharmaceuticals doesn't put care out 
of reach for so many.
    So I really appreciate the work that all of you are doing 
to ensure that 340B is functioning as intended, that the 
program has integrity, that money is being spent appropriately.
    So thank you, HRSA, for following up on the important 
recommendations of GAO and the Office of Inspector General and 
because in 2011, GAO made recommendations. They said the 
discounts offered in the 340B Program provide substantial 
benefits, but HRSA has got to improve its oversight.
    So in 2012, HRSA began doing both risk-based and targeted 
audits. Is it true, Ms. Espinosa, you did 51 audits in 2012?
    Ms. Espinosa. Yes.
    Ms. Castor. That is correct?
    And then to my colleagues, thank you for working on a 
bipartisan basis to give HRSA the funds last year, an 
additional $6 million to support program integrity efforts.
    I understand that now in 2015, the agency is on track to do 
200 audits; is that correct?
    Ms. Espinosa. Two hundred and ninety-five.
    Ms. Castor. Two hundred and ninety-five.
    And, Dr. Draper, can you confirm that they have started 
doing the audits and they have been able to ratchet up year 
over year?
    Ms. Draper. Yes. In 2012, they did 51. They went to 94 the 
next year and 99. And then they told us that it is actually 
200, so 200 audits----
    Ms. Espinosa. Yes. I am sorry. I misspoke.
    Ms. Draper [continuing]. This fiscal year. So we are happy 
to see that. Prior to our work, no audit had been done of any 
participating entities, so we see that they are working to 
implement that recommendation.
    Ms. Castor. Good.
    Ms. Espinosa, when Congress created the 340B initiative in 
1992, it intended that eligible providers use the 340B drugs 
for any patient of the entity regardless of insurance status.
    For the program to have any meaningful value to providers 
and the patients they serve, 340B providers must be able to 
generate savings by using 340B drugs for all eligible patients 
including those with insurance.
    So as noted in the GAO report, these savings are then used 
to cover the cost of providing comprehensive healthcare 
services to more vulnerable patients or those who would 
struggle to afford high-priced pharmaceuticals.
    My understanding is that the law does not nor was it ever 
intended to require that discounted drugs only be provided to 
uninsured patients or that program savings only be used to 
lower the cost of drugs or health services for uninsured 
patients.
    Do you agree with that?
    Ms. Espinosa. Yes, that is correct. The law does not 
specify how the savings are to be used, and it also does not 
specify the status of any of the patients that could 
potentially benefit from the program.
    Ms. Castor. And that goes back to what I hear and I know 
other Members hear from all of the children's hospitals, 
safety-net hospitals, health centers, Ryan White Centers that 
the reason why 340B is so important to their overall mission.
    I also wanted to ask a different question. Ms. Maxwell, we 
talk a great deal about compliance on the part of covered 
entities and HRSA's work to ensure proper program integrity.
    However, I am curious about how we actually know that 
manufacturers are offering the 340B price for drugs fairly to 
all entities because there have been press reports in the past 
that manufacturers are overcharging for 340B drugs.
    In OIG's review of these issues, have you found evidence of 
manufacturers overcharging for 340B products?
    Ms. Maxwell. Yes. Our work looking at the oversight of 340B 
spans back about a decade. In our early work in 2005, we did, 
in fact, find instances of manufacturers overcharging. At that 
time, it was 13 percent of interactions we found actually had 
been overcharged resulting in $13.9 million for the month that 
we looked at which is why our recommendations continue to be to 
allow for greater transparency, to share those prices with the 
providers so they know they are not being overcharged.
    We also have an outstanding recommendation to improve 
HRSA's oversight of how manufacturers calculate the 340B 
ceiling price as well as doing spot checks of transactions so 
they know that the correctly calculated prices are what, in 
fact, are being charged.
    Ms. Castor. Thank you very much.
    I yield back.
    Mr. Pitts. The Chair thanks the gentlelady, and now 
recognize the gentleman from Missouri, Mr. Long, 5 minutes for 
questions.
    Mr. Long. Thank you, Mr. Chairman.
    And thank you all for being here today.
    Ms. Espinosa, let me start with you. There are 435 Members 
of Congress, and approximately half of the Members of Congress 
were not here 5 years ago.
    HRSA has yet to share 340B ceiling prices with covered 
entities since it was provided that authority to do so 5 years 
ago when half the Members of Congress weren't here, were not in 
Congress.
    Why has it taken so long for HRSA to do this and when does 
HRSA plan to begin sharing this information with these covered 
entities?
    Ms. Espinosa. I think, as I mentioned, we are working on 
the pricing system which will be operational later this year. 
The issue of the gap in time between the authority and 
implementing it relates to funding. It was the funding that the 
Congress provided in 2014 that allowed us to move forward on 
this particular system.
    The 340B Program historically, you know, originally did not 
receive an appropriation. Then it received an appropriation and 
HRSA provided additional funds through some of its program 
funding. But until the Congress provided that increase, we did 
not have the resources to implement.
    Mr. Long. OK. Does HRSA believe it would be useful to have 
similar authority to share 340B ceiling prices with State 
Medicaid agencies and if such authority is provided, how long 
would it take HRSA to begin sharing that information with the 
States?
    Ms. Espinosa. That would require a legislative change. So 
we currently do not have authority to share that information.
    Mr. Long. OK. Sticking with you, Ms. Espinosa, with respect 
to the comprehensive guidance which is expected later this 
year, how does HRSA intend to ensure adoption of the policies 
by the covered entity?
    Ms. Espinosa. We would continue to implement our current 
practices, which have multiple aspects to them. First, entities 
have to register before they can participate, so this guidance 
would provide more specificity as far as those requirements.
    And then there is annual recertification, and that is kind 
of a regular process, regular time that we have to ensure 
compliance. Entities at that time also attest they are 
complying. And then finally, we have the audit process that we 
use to go in, as has been discussed, for the targeted and the 
risk-based audits.
    Mr. Long. What can we as Members of Congress do to help 
HRSA promote the integrity of the 340B Program?
    Ms. Espinosa. I think Congress has already been quite 
supportive of HRSA's activities. As I mentioned, the additional 
resources that we got beginning in 2014 were a real boost to 
our program integrity efforts.
    The President's budget for fiscal year 2016 also requests 
additional funding for 340B to continue to modernize our 
oversight practices as well as to enhance and expand them.
    Mr. Long. OK. Thank you.
    And, Ms. Draper, somewhat recently a study published in 
Health Affairs suggests that generic dispensing rates are lower 
for 340B prescriptions than for all prescriptions overall, 
possibly leading to greater spending under Medicare Part D and 
Medicaid.
    Is that an issue that GAO has looked into in any detail?
    Ms. Draper. We have not looked at that, but I am aware of 
that study that was published in 2012. And there were a couple 
factors that the authors described as potentially leading to 
the lower dispensing rates for generics. One was related to not 
having generic equivalents for HIV/AIDS and antiviral, which is 
a population that is served by the 340B Program.
    Another factor that they talked about was that the 
underlying comorbidities and complexities of the 340B patients 
may not compare to the patients at large, so they may require 
more--so generic drugs may not be appropriate. So those were 
the two factors that the authors discussed in that study.
    Mr. Long. OK. OK. I think everyone realizes how important 
this is to a lot of entities in our congressional districts. 
And this is a very important hearing. I thank you all for being 
here today and for your testimony.
    With that, Mr. Chairman, I yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentleman from North Carolina, Mr. Butterfield, 5 
minutes for questions.
    Mr. Butterfield. Let me thank you, Mr. Chairman, for 
holding this important hearing on the 340B Program.
    And I thank the witnesses for your testimony today.
    As my colleague, Ms. Castor, said a few moments ago and Mr. 
Long from Missouri just reiterated it a moment ago, this is a 
big deal back at home. 340B is critical to the communities that 
I represent in eastern North Carolina and it its importance 
cannot be overstated.
    North Carolina's first district has one of the highest 
poverty rates in the country and prior to the Affordable Care 
Act, many of my constituents were uninsured or under-insured. 
Even now many remain uninsured because the Governor and the 
General Assembly have been unwilling to expand the Medicaid 
Program.
    For many North Carolinians, the only way to access the care 
they need is through 340B. This bipartisan program helps bring 
providers together with pharma to ensure our most vulnerable 
populations do not go without necessary medicine.
    The integrity of the program is very important. To that 
end, I ask that we proceed with caution to avoid disruption to 
the patient populations that heavily depend on hospitals for 
their healthcare needs.
    I, too, would like to go to you, Ms. Espinosa. I would like 
to discuss the purpose of the 340B Program to highlight how 
important it is to communities like the one that I represent.
    Can you describe the type of populations who benefit most, 
the very most, from the 340B Program?
    Ms. Espinosa. Yes, sir. As has been discussed, many of the 
340B entities are the ones that are essential to providing the 
safety net for individuals who have limited access to 
healthcare or are low income or have other chronic conditions 
that may limit their access to healthcare.
    So as we have discussed, the Health Center Program is one 
example that serves anybody who walks through their doors, 
basically, regardless of insurance status or income. And so for 
those programs, the 340B savings allow them to continue 
operations and to continue to serve those individuals.
    Mr. Butterfield. Well, it is obvious to me that the amount 
of covered entities participating in the 340B Program has 
actually exploded. It has grown exponentially.
    What do you attribute that growth to?
    Ms. Espinosa. Well, there are a couple of factors. One is, 
just in general, there has been kind of a decentralization of 
health care with care being provided in more sites. And then 
there is also that we, in the 340B Program, have beginning in 
2012 changed the way that we were accounting for eligible 
entities. And so we started counting not only the organization 
but also all of its sites, and that was done to also bolster 
our oversight effort so that we knew all the sites that were 
using 340B.
    So that is somewhat of a technical aspect, but it does make 
the numbers go up. But I should note since there have been 
several comments about the growth in 340B that over the last 
several years, the 340B sales have remained at about 2 percent 
of overall pharmaceutical sales. So while the number of 
entities has increased, the sales, the 340B as a proportion of 
the pharmaceutical sales has stayed about 2 percent.
    Mr. Butterfield. OK. Your testimony indicates that the $6 
million in additional funding for HRSA has helped implement 
additional program oversight. Specifically, the additional 
funding helped increase HRSA's ability to improve compliance by 
hiring additional investigators and increasing your 
administration's capability to review participants.
    Can you explain the relationship between the additional 
money and HRSA's ability to provide greater oversight?
    Ms. Espinosa. Sure. I think I am going to ask Commander 
Pedley, who is accompanying me, just to describe some of the 
specific things that we have done with that additional funding.
    Mr. Butterfield. Yes.
    Ms. Pedley. Sure. There are a few aspects that we have been 
able to utilize with the additional funding. One is around IT 
systems, specifically the pricing system that we have been 
talking about. We are now able to operationalize that system to 
make ceiling prices available to the covered entities the end 
of this year.
    We are also able to implement a system that we are able to 
internally track compliance across the board. Right now there 
are a lot of different manual systems that we can now combine 
and use the system as early warning signs to help trigger any 
issues that may be occurring.
    And another major area again is around issuing the proposed 
guidance and the regulations that we spoke to in addition to 
being able to really double the number of audits in this fiscal 
year to 200 as we were able to hire more auditors in the field 
to conduct these audits to really pay more attention to the 
compliance efforts.
    Mr. Butterfield. All right. Thank you very much, Mr. 
Chairman. I yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognizes the gentlelady from North Carolina, Mrs. Ellmers, 5 
minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    And, again, thank you to the panel for being here today.
    Ms. Espinosa, I am going to start with you on HRSA. Some 
private nonprofit hospitals enter the program through their DSH 
percentage, yet provide very modest amounts of charity care. In 
fact, 1 recent report found that the level of charity care 
provided by DSH hospitals enrolled in the 340B Program is lower 
than the national average of all hospitals.
    Does HRSA collect the information from hospitals about how 
they use the program's dollars and how they support the poor 
and indigent patients in a manner that reconciles the 340B 
Program's intent to serve this as a safety-net program?
    Ms. Espinosa. The statute for the 340B Program does not 
impose any requirements on how savings are used by covered 
entities and as such, HRSA has not systematically collected 
that information since it doesn't tie to a statute.
    Mrs. Ellmers. Would HRSA support requirements for 
additional transparency for those DSH hospitals with the use of 
the 340B?
    Ms. Espinosa. I think we would need to see those 
requirements. And I can't speak hypothetically, but certainly 
we would support greater clarity to hospital eligibility. And 
that is one of the items that we are including in our omnibus 
guidance that we will release later this year.
    Mrs. Ellmers. Thank you.
    Ms. Draper, your 2011 report had a section that focused on 
covered entities reporting that they use the program and the 
revenue generated to support or expand access to services. 
However, some reports suggest that for two-thirds of the 340B 
hospitals, charity care as a percentage of patient cost is less 
than the national hospital average of 3.3 percent.
    Other than self-reporting data, is there objective data on 
how hospitals are using the 340B Program or savings in the 
program, I guess I should say?
    Ms. Draper. Yes. There is no program requirement for 
hospitals to report how they are using the savings. For some of 
the grantees, the community health centers, they have to use it 
in accordance with their grant program.
    In our report in 2011, we did interview entities about how 
they were using savings and entities that we talked to were 
using it consistent with their particular missions, so----
    Mrs. Ellmers. With their particular mission statement?
    Ms. Draper. Right. And they were using it for things like 
to add additional sites, provide patient education, help pay 
for patient's co-pays or help them get the drugs that they 
needed, so things like that.
    Mrs. Ellmers. Uh-huh. OK. I am just keeping an eye on time.
    Ms. Maxwell, the agency has certified the results of 178 
audits since fiscal year 2012. Out of the total of 295 audits 
conducted with more than 11,000 entities participating in the 
program, do you think that the current level of audits are 
appropriate or given the vulnerabilities that have been 
identified, should the agency be more for leaning in its audit 
work?
    Ms. Maxwell. I think the fact that HRSA now conducts audits 
of covered entities is a significant strengthening of their 
oversight. I am encouraged to see HRSA take that step and to 
hear they are going to be auditing manufacturers as well.
    As to the correct number of audits, without more 
information about how HRSA actually targets those audits, I 
couldn't really say how many audits would be sufficient to 
provide coverage.
    I would say 1 area in which our work speaks to that would 
be helpful for their audit program and could really strengthen 
their audit program is that they strengthen the clarity of the 
guidance.
    Mrs. Ellmers. The clarity of the guidance?
    Ms. Maxwell. What we found with respect to the contract 
pharmacy setting is the guidance was not clear enough to make 
determinations about whether or not entities were, in fact, in 
compliance or out of compliance.
    Mrs. Ellmers. Ms. Espinosa, I have one more question for 
you. There again, getting back to the issue of transparency and 
how the savings are used, isn't it true that under current 
guidelines some insured patients may receive lower cost drugs 
from a covered entity participating in the program while other 
uninsured patients may not receive that same discount from 
other covered entities in the program?
    So I guess my question is, there just seems to be too 
much--it is too muddy as to how an uninsured patient might end 
up being charged the full cost of a drug. Can you just give us 
a little bit of information on that? There again, I get back to 
the fact that, for the DSH hospitals or the 340B hospitals that 
are getting a 20 to 50 percent discount for the commercial 
price, how can an uninsured patient be charged that full price 
being part of that program?
    Ms. Espinosa. Because the statute does not include any 
requirements for how savings are used, we have not imposed any 
requirements or stipulated for covered entities. We don't have 
the statutory authority to do that. What they do now is based 
on their own business decisions and their own needs.
    Mrs. Ellmers. Uh-huh. Which, there again, in my 9 seconds, 
I will just say that--or, I am sorry. I take it back. I have 
gone over time. And, there again, if this is going to be a 
safety net for those who are the most vulnerable, we have got 
to ensure transparency on this issue.
    Thank you again to the panel.
    Mr. Pitts. The gentlelady yields back.
    The Chair recognizes the gentlemen from Indiana, Dr. 
Bucshon, 5 minutes for questions.
    Mr. Bucshon. Thank you, Mr. Chairman.
    This is to Ms. Draper and this has kind of partially been 
answered, but currently about one-third of all hospitals 
qualify for 340B. GAO's 2011 report noted that HRSA did not 
have specific eligibility criteria for nonpublic DSH hospitals. 
Instead noting that hospitals with contracts provide a small 
amount of care to low-income individuals not eligible for 
Medicaid or Medicare could claim 340B discounts which may not 
be what the agency intended.
    After the report was issued, HRSA did release some 
eligibility criteria for nonpublic hospitals. However, these 
criteria potentially allow hospitals with very limited 
contracts for specific populations to qualify hospitals for 
340B for all of their patients.
    Do you think HRSA's guidance addresses your concerns?
    Ms. Draper. First of all, it is now up to 40 percent of DSH 
hospitals that are eligible for 340B.
    Mr. Bucshon. There you go.
    Ms. Draper. That is the most recent data. Basically the 
guidance that was issued was a restatement of what already 
existed, so there was really nothing new related to when we had 
done our 2011 work.
    Mr. Bucshon. OK. So you can still----
    Ms. Draper. It was 2013 they issued a policy that restated 
what their existing policy was from our read of that issuance.
    Mr. Bucshon. OK. So I am assuming you think additional 
steps are needed for the program's eligibility criteria for 
hospitals to be consistent with the program's mission to 
support entities that care for uninsured and vulnerable 
patients?
    Ms. Draper. Yes. We believe the guidance needs to be clear 
as to who participates.
    Mr. Bucshon. OK. Ms. Espinosa, I understand that when 340B 
hospitals acquire physician practices, the drugs dispensed to 
those practices' patients often are converted to 340B.
    When this happens, do the acquired practices take on any 
new statutory or regulatory obligations to provide access to 
their practices for indigent patients?
    Ms. Espinosa. Our policy is that when an outpatient 
facility is reported as part of the cost report, then it is 
part of the same entity and can use 340B, as far as the first 
part of your question.
    On the second, because there is no statutory requirement 
for how savings are used, there is no requirement that the 
savings be used for any particular types of patients.
    Mr. Bucshon. OK. And do you think hospitals should make a 
profit off the program? What I mean is, do you think that we 
should have a prescriptive way that people that participate 
need to show us with oversight how they are using the savings 
versus just including it as part of their larger budget for 
their entire facility? Does that make sense?
    Ms. Espinosa. Well, sir, since we implement the statute and 
the specificity that is in the statute, right now the statute 
does not have those requirements. And so it is challenging for 
us to go beyond that. Our guidances can interpret statute, but 
to go and provide greater specificity is challenging without--
--
    Mr. Bucshon. Because my understanding is hearing through 
kind of the grapevine, so to speak, is that there are some 
facilities out there who are budgeting for profit from the 340B 
Program into their regular budget.
    And so I think we have all pointed out that we probably 
need to address that because that is not the intent of the 
program. The intent of the program would be to use savings to 
help further the education or healthcare of the serviced 
population of people, not have it a line item in a budget as 
here is our profit from 340B next year and going into the 
general budget. Whether that is true or not, I don't know, but 
that is what I have heard.
    So I just want to at the end with my remaining time state 
this is a critical program for many institutions in my district 
as well as across the country to serve the individuals that it 
serves. But clearly if we want to maintain a program that seems 
to be exploding in size and make sure that these patients 
continue to have access to this type of program, more 
aggressive oversight and probably congressional action may very 
well be needed to maintain that long-term program integrity.
    Thank you. I yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentleman from New York, Mr. Collins, 5 minutes 
for questions.
    Mr. Collins. Thank you, Mr. Chairman.
    A lot of the questions I was going to ask have been asked. 
That is the problem of being last. But I think there is a lot 
of misunderstanding here when it comes to 340B, so maybe just 
as I am going last some clarification.
    Who sets, and this would be for Ms. Espinosa, who sets the 
ceiling price? Is that a fixed price for a particular drug? Who 
sets that price?
    Ms. Espinosa. I am going to ask Commander Pedley to 
describe the ceiling price.
    Ms. Pedley. Sure. It is defined in the law for how it 
works. It is based on components that manufacturers report to 
CMS, average manufacturer price and unit rebate amount. They 
are subtracted from each other to get the ceiling price. So it 
is actually defined in the law.
    Mr. Collins. So once a manufacturer has a ceiling price, is 
that price then the 1 price charged throughout the entire 
United States to every covered entity?
    Ms. Pedley. Not necessarily. They can then go below that 
price to certain types of entities, but stay at the ceiling 
price for other entities. They just can't charge anyone above, 
but they don't need to charge everyone the same exact price.
    Mr. Collins. What would be a reason why they would give 
someone a discount and someone else not below the ceiling 
price?
    Ms. Pedley. It could depend on market, the type of entity 
that they serve, the volume of drugs that they purchase, for 
example.
    Mr. Collins. That is interesting. So when we talk about 
transparency and the need to publish the ceiling price, have we 
found cases where they would charge more than the ceiling 
price?
    Ms. Pedley. On occasion, we do get reports from covered 
entities that they believe they may have been overcharged. We 
investigate that and research it with the manufacturer. Those 
are often resolved between the manufacturer and the entity, 
usually an error in some type of pricing calculation, but we do 
follow-up and ensure that they do not overcharge. And if they 
do, they are required to refund the covered entity.
    Mr. Collins. If they have a ceiling price, how often can 
they modify that, monthly, quarterly, yearly?
    Ms. Pedley. It is changed quarterly.
    Mr. Collins. It is? OK.
    Ms. Pedley. Based on the pricing submitted to CMS.
    Mr. Collins. And that is where transparency would at least 
be helpful, I think, to everyone. I think this is 1 of the 
common-sense things we could do.
    Now, we have talked about clarifying a patient definition. 
So another point which I don't think is fully understood by a 
lot of our Members, myself included. If an entity, a DSH 
hospital is a covered entity and they are allowed to get 340B 
pricing, does it also link to a particular patient that meets 
the definition or is it for every patient in the hospital every 
time they use that particular drug, they get 340B pricing?
    Ms. Espinosa. The 340B pricing would only be available to 
those patients that meet the criteria of our patient 
definition. So that would be outpatient services and other 
aspects of the definition that we currently have.
    Mr. Collins. Which is what I thought, but I think through 
some of the questions today, on occasion, it sounded like every 
patient in the hospital got the discount pricing.
    Ms. Espinosa. No.
    Mr. Collins. And that is why it is important to define who 
is a covered patient.
    Now, the ceiling price versus a Medicaid price for a 
particular drug, are they different? Are they the same? Is one 
higher? Is one lower?
    Ms. Pedley. We have some information that usually the 340B 
price is slightly lower than the Medicaid price, but it depends 
on the type of drug it is. For example, if it is brand or 
generic, it can vary.
    Mr. Collins. So tell me how does a 340B drug end up with a 
negative price because I have heard there are occasions it is a 
negative number and then they have the penny pricing that said, 
all right, we are not going to make the manufacturer give you 
the drug and give you cash on top of that. They should at least 
get a penny for that. So in the common-sense world, I guess 
could you help me understand?
    Ms. Espinosa. Go ahead.
    Ms. Pedley. So in the calculation, as I mentioned, the 
average manufacturer price minus the unit rebate amount, that 
can calculate out to a zero. Obviously we do not expect 
manufacturers to charge a zero ceiling price, so we have a 
policy in place that they charge a penny per unit when that is 
the case.
    Mr. Collins. I am sure they appreciate the penny, but it 
was actually a negative number.
    Ms. Pedley. It can actually, I believe. Since the 
Affordable Care Act has passed, because of how the calculation 
works, it can no longer be negative. It can just be a zero.
    Mr. Collins. OK. So now, when does a drug become eligible 
for 340B pricing and in particular, I have only got 38 seconds, 
but the new Hep C drug that we have all talked about that is a 
cure for Hep C, it is extraordinarily expensive, but a single 
treatment regime cures that disease? Is that one on the 340B 
Program now?
    Ms. Pedley. So the drugs that are covered, the manufacturer 
that participates in Medicaid signs an agreement with HRSA, 
then all of their covered outpatient drugs have to be priced at 
the 340B ceiling price.
    And then on the entity level, as long as the drug is used 
on an outpatient basis and that patient meets the patient 
definition, the drug can be covered. So in this instance, if 
the drug is specifically used on an outpatient basis, the 
manufacturer has an agreement with HRSA, it would be 340B 
eligible.
    Mr. Collins. All right. Well, thank you for that. It was 
very educational.
    Mr. Chairman, thank you, and I yield back.
    Mr. Pitts. The Chair thanks the gentleman, and now 
recognize the gentleman from Florida, Mr. Bilirakis, 5 minutes 
for questions.
    Mr. Bilirakis. Thank you. I appreciate it, Mr. Chairman.
    Administrator Espinosa, I appreciate the steps HRSA has 
taken to step up its compliance efforts for manufacturers and 
covered entities.
    In the interest of having a level playing field and 
increasing accountability, do you think it would be prudent to 
subject manufacturers to similar compliance and auditing 
standards as covered entities have? Now, if they are covered 
and they are subjected to this compliance, that is fine, but I 
am asking that question. Do you feel that it should be a level 
playing field?
    Ms. Espinosa. We have efforts in place for manufacturer 
compliance as well. For manufacturers, though, their 
requirements under the law are much narrower. Their 
requirements are just that they offer the ceiling price.
    So the establishment of the pricing database will help to 
ensure that that is happening to a greater extent than our 
ability to ensure today. And then also we have authority to 
audit manufacturers and we are developing protocols to audit 
manufacturers as well.
    Mr. Bilirakis. OK. Thank you.
    Administrator Espinosa, one thing many of us like about the 
340B Program is that it doesn't cost taxpayers dollars. Of 
course, we love the program because it helps out our 
constituents. So I am hopeful you can shed some light on the 
financial impact of the 340B Program.
    In GAO's testimony, it was noted that according to the most 
recent estimate available from HRSA, covered entity spending on 
340B drug purchases was estimated to be approximately $7.5 
billion in 2013, yet HRSA's fiscal year 2015 budget 
justification estimated that the annual savings attributable to 
the program in 2013 was $3.8 billion.
    If I am reading that right, it would be significant amount 
of savings, roughly 50 percent of the total covered entities' 
drug expenditure in the year.
    Can you explain how HRSA calculated the savings 
attributable to the program?
    Ms. Espinosa. I am going to defer to Commander Pedley to 
answer that question.
    Ms. Pedley. So how we do that calculation is, on average, 
the 340B pricing is about 25 to 50 percent lower than what they 
would have otherwise paid. So we do base that number and their 
savings on the highest, which would be $3.8 billion in savings.
    Mr. Bilirakis. OK. Thank you.
    Again for Administrator Espinosa, I understand that HRSA 
received about $6 million in the Consolidated Appropriations 
Act of the fiscal year 2014 and you are using those funds for 
IT systems, new auditors, and staff.
    Can you walk us through when you think the capacity 
developed with those funds will be fully operational and 
deployed?
    Ms. Espinosa. We have various systems that we are rolling 
out. We have mentioned the system that we use, the 340B system 
that we use for compliance monitoring. Aspects of that system 
will be operational this year, but we are continuing to enhance 
its functionality.
    We find that the system is also helpful in reducing the 
burden of reporting for covered entities and manufacturers. So 
it is something that helps us kind of tie together our 
oversight activities but also be more efficient in the way that 
they provide information to us.
    We also, with those funds, are establishing the protocols 
for the manufacturer audits which we will begin this year and 
that will continue. And then we have the pricing system which 
will be operational this year with expanded functionality into 
next year.
    So that investment has laid the groundwork for many aspects 
of our oversight activities, but we are going to continue to 
improve and enhance them as we implement them and identify 
other opportunities for increased oversight.
    Mr. Bilirakis. OK. Thank you.
    This is for the panel. I walked in a little late because I 
had another event that I had to go to, but name some of the 
entities that are eligible for the 340B Program. I heard the 
federally qualified community health centers, the DSH 
hospitals, what have you. Can you name some other nonprofit 
clinics, for example?
    Ms. Pedley. So there is about 22 different types of 
entities, as you mentioned, federally qualified health centers, 
hemophilia treatment centers, federally qualified health 
centers, as I mentioned, HIV/AIDS clinics, Indian Health 
Service clinics, disproportionate share hospitals, critical 
access hospitals, rural referral centers, a lot of the rural 
hospitals.
    Mr. Bilirakis. OK. Thank you very much.
    I yield back, Mr. Chairman. Thank you.
    Mr. Pitts. The Chair thanks the gentleman.
    That concludes the questions of the Members present. We 
will have follow-up questions that we will provide to you in 
writing. We ask that you please respond promptly.
    I have a UC request from the ranking member.
    Mr. Green. Mr. Chairman, I ask unanimous consent to place 
in the record a letter of support that Congresswoman Capps has 
from the National Association of Community Health Centers in 
support of the program and also from Congressman Matsui from 
the Ryan White Clinics for 340B access. And I ask unanimous 
consent to place it in the record.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. I remind Members they have 10 business days to 
submit questions for the record. That means Members should 
submit their questions by the close of business on Tuesday, 
April 7th.
    Very interesting, informative hearing. It looks like 
Congress has some follow-up responsibilities. Thank you very 
much for your attendance today.
    And without objection, the subcommittee is adjourned.
    [Whereupon, at 11:37 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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