[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
EXAMINING HRSA'S OVERSIGHT OF THE 340B DRUG PRICING PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 18, 2017
__________
Serial No. 115-46
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
GREG WALDEN, Oregon
Chairman
JOE BARTON, Texas FRANK PALLONE, Jr., New Jersey
Vice Chairman Ranking Member
FRED UPTON, Michigan BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
TIM MURPHY, Pennsylvania ELIOT L. ENGEL, New York
MICHAEL C. BURGESS, Texas GENE GREEN, Texas
MARSHA BLACKBURN, Tennessee DIANA DeGETTE, Colorado
STEVE SCALISE, Louisiana MICHAEL F. DOYLE, Pennsylvania
ROBERT E. LATTA, Ohio JANICE D. SCHAKOWSKY, Illinois
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia PETER WELCH, Vermont
ADAM KINZINGER, Illinois BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
GUS M. BILIRAKIS, Florida YVETTE D. CLARKE, New York
BILL JOHNSON, Ohio DAVID LOEBSACK, Iowa
BILLY LONG, Missouri KURT SCHRADER, Oregon
LARRY BUCSHON, Indiana JOSEPH P. KENNEDY, III,
BILL FLORES, Texas Massachusetts
SUSAN W. BROOKS, Indiana TONY CARDENAS, California
MARKWAYNE MULLIN, Oklahoma RAUL RUIZ, California
RICHARD HUDSON, North Carolina SCOTT H. PETERS, California
CHRIS COLLINS, New York DEBBIE DINGELL, Michigan
KEVIN CRAMER, North Dakota
TIM WALBERG, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
Subcommittee on Oversight and Investigations
TIM MURPHY, Pennsylvania
Chairman
H. MORGAN GRIFFITH, Virginia DIANA DeGETTE, Colorado
Vice Chairman Ranking Member
JOE BARTON, Texas JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas KATHY CASTOR, Florida
SUSAN W. BROOKS, Indiana PAUL TONKO, New York
CHRIS COLLINS, New York YVETTE D. CLARKE, New York
TIM WALBERG, Michigan RAUL RUIZ, California
MIMI WALTERS, California SCOTT H. PETERS, California
RYAN A. COSTELLO, Pennsylvania FRANK PALLONE, Jr., New Jersey (ex
EARL L. ``BUDDY'' CARTER, Georgia officio)
GREG WALDEN, Oregon (ex officio)
C O N T E N T S
----------
Page
Hon. Tim Murphy, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 1
Prepared statement........................................... 3
Hon. Diana DeGette, a Representative in Congress from the state
of Colorado, opening statement................................. 4
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 6
Prepared statement........................................... 8
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 9
Witnesses
Capt. Krista M. Pedley, PHARMD, MS, Director, Office of Pharmacy
Affairs, Health Resources and Services Administration, U.S.
Department of Health and Human Services........................ 11
Prepared statement........................................... 14
Answers to submitted questions............................... 96
Erin Bliss, Assistant Inspector General, Office of Evaluation And
Inspections, Office of Inspector General, U.S. Department of
Health and Human Services...................................... 20
Prepared statement........................................... 22
Answers to submitted questions............................... 102
Debra Draper, Director, Health Care, Government Accountability
Office......................................................... 31
Prepared statement........................................... 33
Submitted Material
Subcommittee memorandum.......................................... 82
EXAMINING HRSA'S OVERSIGHT OF THE 340B DRUG PRICING PROGRAM
----------
TUESDAY, JULY 18, 2017
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:18 a.m., in
room 2322 Rayburn House Office Building, Hon. Tim Murphy
(chairman of the subcommittee) presiding.
Present: Representatives Murphy, Griffith, Burgess, Brooks,
Collins, Barton, Walberg, Walters, Costello, Carter, Walden (ex
officio), DeGette, Schakowsky, Castor, Tonko, Clarke, Ruiz,
Peters, and Pallone (ex officio).
Staff present: Ali Fulling, Legislative Clerk, Oversight
and Investigations; Brighton Haslett, Counsel, Oversight and
Investigations; Brittany Havens, Professional Staff, Oversight
and Investigations; Katie McKeogh, Press Assistant; Jennifer
Sherman, Press Secretary; Alan Slobodin, Chief Investigative
Counsel, Oversight and Investigations; Sam Spector, Policy
Coordinator, Oversight and Investigations; Josh Trent, Deputy
Chief Health Counsel, Health; Natalie Turner, Counsel,
Oversight and Investigations; Christina Calce, Minority
Counsel; Jeff Carroll, Minority Staff Director; Chris Knauer,
Minority Oversight Staff Director; Miles Lichtman, Minority
Policy Analyst; Kevin McAloon, Minority Professional Staff
Member; Rachel Pryor, Minority Senior Health Policy Advisor;
and C. J. Young, Minority Press Secretary.
OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Murphy. Good morning.
Today's Subcommittee on Oversight and Investigation is
holding a hearing entitled, ``Examining HRSA's Oversight of the
340B Drug Pricing Program.'' The 340B program was created by
Congress in 1992 and mandates that drug manufacturers provide
outpatient drugs to eligible entities at reduced prices in
order for the manufacturers to remain eligible for
reimbursement through entitlement programs such as Medicaid and
Medicare.
Now, the 340B program covers entities, which are like
hospitals and other nonprofit health care organizations, that
have certain federal designations or receive funding from
specific federal programs. They are eligible for the 340B
program by receiving certain federal grants administered by
different agencies within HHS. Hospitals eligible for the 340B
program include certain disproportionate share hospitals,
children's hospitals, freestanding cancer hospitals, rural
referral centers, sole community hospitals, and critical access
hospitals.
The Health Resources and Services Administration, or HRSA,
an agency in the U.S. Department of Health and Human Services
is tasked with accepting applications and overseeing the
covered hospitals and clinics.
HRSA faces several challenges in conducting oversight of
the 340B program, one of which is the lack of reporting
requirements in the 340B statute. Participating hospitals save
between 25 to 50 percent of the average wholesale price for
covered outpatient drugs. They saved $6 billion on drug
expenditures in fiscal year 2016, according to the HHS Office
of Inspector General estimates. Hospitals are not required to
report their annual savings through participation in the
program or how they use the money saved.
For many of these covered entities, those savings are vital
to the entities' survival, particularly those that serve a
large percentage of indigent patients and operate at a loss
each year. Other entities reinvest those savings in patient
care, expanding access to patient care by opening centers in
rural and underserved areas or passing along the savings to
patients by providing discounted drugs. However, as with so
many federal programs, there are instances of errors and
misuse.
Specialists, oncologists in particular, have told stories
to us of their grave concerns about the way some entities use
the 340B program. For example, one store involves a doctor who
referred many uninsured young breast cancer patients to a 340B
hospital to receive cancer treatments but watched as 16 of
those patients were placed on a wait list for care, simply
waiting for treatment while their cancer progressed from
entirely treatable to potentially life threatening. According
to this doctor, the wait list was not due to an overall
capacity issue. Instead, it was because the hospital simply
chose to set a cap on the number of uninsured patients they
would treat.
I hope that instances like this are outliers--the exception
to the rule. The integrity of the 340B program must be
protected. HRSA must be able to conduct oversight in a way that
allows it to uncover fraud and noncompliance. Indeed, HRSA
audits from fiscal year 2012 to fiscal year 2016 demonstrate
that noncomplying entities violate program requirements through
duplicate discounts, diversion to ineligible patients and
facilities, and incorrect database reporting. Unfortunately,
while HRSA has made improvements to their oversight efforts in
recent years, the agency simply may not have the resources to
adequately safeguard the program.
The program has experienced dramatic growth in recent
years, due in part to program expansions in the patient
protections in the Affordable Care Act. At a hearing before the
Health subcommittee in 2015 we learned that from 2001 to 2011
the number of covered entities participating in the program
roughly doubled. The most recent data shows that from 2011 to
2017 the number of entities has nearly quadrupled. HRSA
indicates that as of October 2016, 12,148 covered entities were
participating in the 340B program.
Despite that growth, HRSA maintains only 22 staff to
oversee the 340B program and conducts roughly 200 audits per
year. While HRSA has increased the number of audits conducted
annually, which the committee applauds HRSA for, that number is
still dwarfed by the vast number of participating entities and
manufacturers. Now, listen to this. At the current level of
annual audits conducted, HRSA is auditing a mere 1.6 percent
covered entities. That's 1.6 percent. That is all. Further,
because HRSA's audits consist of only a sample of drugs within
each entity, these audits cover just a fraction of a fraction
of the program. Despite that, HRSA's audits have uncovered
between 63 and 82 percent of audited entities to be
noncompliant with program requirements since 2012. Needless to
say, that is a concern. What would more intensive oversight
including additional audits further reveal? What is the outcome
if the hospital is found to be in noncompliance with diversion,
duplication, or incorrect data?
Well, nothing. No one has ever lost a 340B eligibility
because of these problems. I thank HRSA for their cooperation
for using audit documents before this hearing in response to
the committee's request last month.
We are in the process of reviewing these documents to gain
a better understanding of the audit process and may have more
follow-up questions at a later date.
Now, I am a big supporter of the 340B program. I will
continue to defend them. But I don't buy the argument that some
have presented to me that says show me someone who got caught,
because chances are 94 percent that no one is even going to
look at you, and so you won't be audited, and 100 percent
chance that nothing is going to happen afterwards. That is why
we are here, to find out is there a concern or not a concern.
And we welcome all the witnesses today too and look forward
to hearing HRSA's oversight efforts, the challenges HRSA faces
and how this committee can best enable HRSA to overcome these
challenges.
I now yield 5 minutes to Ms. DeGette.
[The prepared statement of Mr. Murphy follows:]
Prepared statement of Hon. Tim Murphy
Today, the subcommittee is holding a hearing entitled
``Examining HRSA's Oversight of the 340B Drug Pricing
Program.'' The 340B program was created by Congress in 1992 and
mandates that drug manufacturers provide outpatient drugs to
eligible entities at reduced prices in order for the
manufacturers to remain eligible for reimbursements through
entitlement programs such as Medicaid and Medicare.
340B program-covered entities are nonprofit health care
organizations that have certain federal designations or receive
funding from specific federal programs. Federal grantees are
eligible for the 340B program by receiving certain federal
grants administered by different agencies within HHS. Hospitals
eligible for the 340B program include certain Disproportionate
Share Hospitals, children's hospitals, freestanding cancer
hospitals, rural referral centers, sole community hospitals,
and critical access hospitals.
The Health Resources and Services Administration, or
``HRSA,'' an agency in the U.S. Department of Health and Human
Services, is tasked with accepting applications and overseeing
covered entities.
HRSA faces several challenges in conducting oversight of
the 340B program, one of which is the lack of reporting
requirements in the 340B statute. Participating entities save
between 25-50 percent of the average wholesale price for
covered outpatient drugs, and according to the HHS Office of
Inspector General's estimates, covered entities saved $6
billion on drug expenditures in Fiscal Year 2016. However,
covered entities are not required to report their annual
savings through participation in the program, or how they use
the money saved.
For many of these covered entities, those savings are vital
to the entity's survival, particularly those that serve a large
percentage of indigent patients and operate at a loss each
year. Other entities reinvest those savings in patient care,
expanding access to patient care by opening centers in rural
and underserved areas or passing along the savings to patients
by providing discounted drugs. However, as with so many federal
programs, there are instances of errors and misuse.
Specialists, oncologists in particular, have told me
stories of their grave concerns about the way some entities use
the 340B program. For example, one story involves a doctor who
referred many uninsured, young breast cancer patients to a 340B
hospital to receive cancer treatments, but watched as 16 of
those patients were placed on a waitlist for care, simply
waiting for treatment while their cancer progressed from
entirely treatable, to potentially life-threatening. According
to this doctor, the waitlist was not due to an overall capacity
issue. Instead, it was because the hospital simply chose to set
a cap on the number of uninsured patients they would treat.
I hope that these instances are outliers--the exception to
the rule. The integrity of the 340B program must be protected.
HRSA must be able to conduct oversight in a way that allows it
to uncover fraud and non-compliance. Indeed, HRSA audits from
FY 2012 to FY 2016 demonstrate that non-complying entities
violate program requirements through duplicate discounts,
diversion to ineligible patients and facilities, and incorrect
database reporting. Unfortunately, while HRSA has made
improvements to their oversight efforts in recent years, the
agency simply may not have the resources to adequately
safeguard the program.
The program has experienced dramatic growth in recent
years, due in part to program expansions in the Patient
Protection and Affordable Care Act. At a hearing before the
Health Subcommittee in 2015, we learned that from 2001 to 2011,
the number of covered entities participating in the program
roughly doubled. The most recent data shows that from 2011 to
2017, the number of entities has nearly quadrupled. HRSA
indicates that as of October 2016, 12,148 covered entities were
participating in the 340B program.
Despite that growth, HRSA maintains only 22 staff to
oversee the 340B program, and conducts roughly 200 audits
annually. While HRSA has increased the number of audits
conducted annually, which the Committee applauds HRSA for, that
number is still dwarfed by the vast number of participating
entities and manufacturers. At the current level of annual
audits conducted, HRSA is auditing a mere 1.6% of covered
entities annually. Further, because HRSA's audits consist of
only a sample of drugs within each entity, these audits cover
just a fraction of a fraction of the program. Despite that,
HRSA's audits have uncovered between 63 and 82 percent of
audited entities to be non-compliant with program requirements
since 2012. What would more intensive oversight, including
additional audits, further reveal?
I thank HRSA for their cooperation in producing audit
documents before this hearing in response to the Committee's
request last month. We're in the process of reviewing these
documents to gain a better understanding of the audit process
and may have more follow-up questions at a later date.
I welcome the witnesses appearing before us today and look
forward to hearing about HRSA's oversight efforts, the
challenges HRSA faces, and how this committee can best enable
HRSA to overcome those challenges.
OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Ms. DeGette. Thank you so much, Mr. Chairman.
Mr. Chairman, Congress created the 340B drug discount
program 25 years ago to help safety net providers leverage
their scarce resources to serve more people, especially people
in low-income and vulnerable areas. Thanks to this program,
providers across the country have been able to purchase
discounted pharmaceuticals and expand and improve their
services.
I think we can stipulate that 340B is critical to provide
critical medical services to low-income people. But we also can
stipulate that we need to make sure that our oversight remains
robust.
340B drug discounts allow eligible hospitals and other
designated providers including community health centers, state
and local health departments and family clinics to make the
most of their limited resources. But as the Government
Accountability Office and the HHS Office of Inspector General
have found, there is a need for more oversight of this
important program to ensure that it achieves its critical
mission.
GAO and OIG have conducted several reviews of the 340B
program and have repeatedly underscored that it needs more
effective oversight. Of course, to conduct that oversight, HRSA
must have the tools it needs to implement better controls over
the program. These tools may require additional authority from
Congress, which I would like to explore today, and also, given
the size of the agency, if you want more robust oversight you
are going to have to give more funding.
I also want to point out, Mr. Chairman, that I am troubled
by the rule that the Centers for Medicare and Medicaid proposed
last week which would dramatically reduce reimbursements to
Medicare Part B drugs for 340B hospitals. The Trump
administration claimed that this proposed rule was an important
step to lower the cost of drugs to the American people.
Unfortunately, that statement seems more fantasy than reality.
The proposed rule will do nothing to achieve the goal of
making prescription drugs more affordable to the general
population. Reducing the repayment rate that 340B hospitals
receive for Medicare Part B drugs does nothing to get to the
root of high drug prices, and frankly, it tries to solve one
problem by creating many others. Rather than rolling up its
sleeve and attempting to address the actual cost of high drug
prices, the administration's proposed rule instead threatens to
undermine the important safety net mission of 340B hospitals.
Many 340B hospitals are what are called disproportionate
share safety net hospitals--the DSH hospitals. This means they
often serve low-income and rural communities and take on
patients other parts of the health care system either cannot or
will not impact. In my district in Denver, Colorado, we have a
number of these DSH hospitals including St. Joseph Hospital,
which is a part of SCL Health, and SCL Health operates six
other 340B hospitals and provides essential often uncompensated
care which 340B drug discounts have helped to fund.
Now, the reduced payment rate pulls the rug out from under
providers like St. Jo's and puts the patients they serve at
risk of losing access to care. As you know, Mr. Chairman, many
of my colleagues and I have asked this subcommittee to open an
investigation into why drug prices are so high and how we can
address this problem.
I think we need a robust investigation and a series of
hearings that explore in-depth the reasons for exorbitant costs
of drugs and why the prices continue to rise.
Unfortunately, I don't think this hearing nor the rule
proposed by CMS last week addresses the broad problem of high
drug prices. I know that all of us are dedicated to ensuring
that the 340B program achieves its critical mission of helping
providers serve the indigent. I want to make sure, like you do,
that sound controls are in place to prevent abuse.
And, Mr. Chairman, while I am glad to work with you to
address some of the problems of the 340B program, the concerns
associated with it are fundamentally separate from the high
cost of drugs in the U.S. and I believe the issue should be
treated differently. Put simply, the committee should hold
hearings, we should take meaningful action on the high cost of
drugs and the rising costs. In the meantime, I look forward to
hearing from the witnesses today about what we can to do
strengthen our safety net and to improve HRSA's oversight of
the 340B program.
With that, I yield back. Thanks.
Mr. Murphy. The gentlelady yields back.
I now recognize the chairman of the full committee, Mr.
Walden.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Thank you, Mr. Chairman, for this hearing. The
committee is already ramped up its top to bottom oversight of
many aspects of the cost drivers in our health care system and
we have more work to do.
The subcommittee's hearing on 340B drug pricing program and
the oversight role of the Health Resources and Services
Administration, or HRSA, is part of this broader review and we
appreciate our witnesses here today.
Since its creation by Congress in 1992, the 340B drug
pricing program has provided lifesaving medicines at reduced
prices to certain safety net health care providers. Indeed,
this program has helped these providers, known as covered
entities, stretch scarce federal dollars as far as possible to
better serve uninsured and under insured patients across the
country. HRSA estimated that in 2015 covered entities saved
about $6 billion on 340B drugs through their participation in
the program.
For a variety of reasons, participation by hospitals in the
340B program has grown substantially in recent years and the
number of unique hospital organizations participating in the
program has nearly quadrupled from 2011 to 2016, increasing
from 3,200 participating hospitals in 2011 to 12,148 as of
October of 2016.
Now, with this growth concerns have been raised about
HRSA's ability to adequately oversee this program, as the
witnesses from HHS Inspector General's office and GAO will
discuss in detail today. HRSA's oversight of the program has
improved in recent years through enhanced authority and
resources but program vulnerabilities still exist. So today we
will examine a number of important programmatic issues.
First, we want to learn how HRSA's oversight efforts can
best meet the challenges of 340B growth. While HRSA has made
improvements to its oversight efforts in recent years, HRSA's
audit activities remain at or below 200 annual audits of
covered entities since 2012, despite the rapid growth of the
program. That is one reason we are here today. That is to
answer the question: How can HRSA improve its audits to better
detect problems or somehow raise the annual number of audits?
Next, we will focus on the problems already discovered and
how HRSA can address them. HRSA's annual audits reveal a high
level of noncompliance with program requirements by covered
entities including the potential for duplicate discounts and
diversion of 340B drugs to ineligible patients.
We will also want to find out how HRSA can be more
transparent. Lack of transparency hinders HRSA's oversight
capabilities, and while the purpose of the program is to
stretch scarce resources as far as possible, reaching more
eligible patients, and providing more comprehensive services,
neither 340B nor HRSA guidance explains how 340B providers must
use savings from the program. That is an issue that has come to
our attention.
Finally, we need to discuss how HRSA's lack of regulatory
authority limits the agency's ability to adequately oversee the
program.
So the committee has been reviewing HRSA's oversight of the
340B program for pricing for 2 years and we plan to continue
this work after this hearing.And as we move forward it is
important not to overreact and create unnecessary red tape for
providers who are truly using the program to benefit patients.
And I have heard from hospitals in my district like those in
Bend and even down on the south coast outside of my district
just how important this program is to patients. While we do not
want to overburden these safety net providers, we also need
robust oversight over a program that has expanded this
dramatically.
Just last month, the committee sent a letter the HRSA to
gain more insight into the audits conducted in the 340B program
and we want to extend our appreciation to HRSA for their timely
production of information responsive to our requests. Thank you
for doing that and we look forward to hearing about the steps
that HRSA's taking to strengthen the program.
I also want to thank the Office of Inspector General at the
U.S. Department of Health and Human Services and the GAO for
your good work as well.
With that, I yield the balance of my time to the chairman
of the Subcommittee on Health, Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman, and thank you, Mr.
Chairman, for holding this hearing today.
As Chairman Walden pointed out, this program has saved
billions of dollars for patients, ensuring that those in need
could receive care and that the hospitals that provide that
care can continue to support their communities.
But the program has challenges and audits by HRSA have
found high levels of noncompliance among 340B-covered entities,
raising questions as to who is currently overseeing the program
and who should provide that oversight, going forward.
So I also want to thank our witnesses for being here today
and discussing this very important program with us. This is a
multifaceted problem.
The way forward isn't entirely clear but that is what this
hearing is to sort out. So I am grateful we are having the
hearing today and look forward for an opportunity to examine
the 340B landscape, going forward.
And I yield back.
[The prepared statement of Mr. Walden follows:]
Prepared statement of Hon. Greg Walden
Thank you, Mr. Chairman, for this hearing. This committee
has really been ramping up its top-to-bottom oversight of many
aspects of our health care system. The subcommittee's hearing
on the 340B drug pricing program and the oversight role of the
Health Resources and Services Administration, or HRSA, is part
of this broader overview.
Since its creation by Congress in 1992, the 340B drug
pricing program has provided life-saving medicines at reduced
prices to certain safety-net health care providers. Indeed,
this program has helped these providers known as ``covered
entities'' stretch scarce federal dollars as far as possible to
better serve uninsured and underinsured patients across the
country. HRSA estimated that, in 2015, covered entities saved
about $6 billion on 340B drugs through their participation in
the program.
For a variety of reasons, participation by hospitals in the
340B program has grown substantially in recent years. The
number of unique hospital organizations participating in the
program has nearly quadrupled from 2011 to 2016-increasing from
3,200 participating hospitals in 2011 to 12,148 in October
2016.
With this program growth, concerns have surfaced about
HRSA's ability to adequately oversee the program. As the
witnesses from the HHS Inspector General's office and GAO will
discuss in detail today, HRSA's oversight of the program has
improved in recent years through enhanced authority and
resources, but program vulnerabilities still exist. Today, we
will examine a number of important programmatic issues:
First, we want to learn how HRSA's oversight
efforts can best meet the challenge of 340B program growth.
While HRSA has made improvements to its oversight efforts in
recent years, HRSA's audit activity has remained at or below
200 annual audits of covered entities since 2012 despite the
rapid growth of the program. That's one reason we are here
today--to answer the question: how can HRSA improve its audits
to better detect problems or somehow raise the annual number of
audits?
Next, we will focus on the problems already
discovered and how HRSA can address them. HRSA's annual audits
reveal a high level of noncompliance with program requirements
by covered entities, including the potential for duplicate
discounts and diversion of 340B drugs to ineligible patients.
We will also want to find out how HRSA can be more
transparent. Lack of transparency hinders HRSA's oversight
capabilities. While the purpose of the program is to ``stretch
scarce resources as far as possible, reaching more eligible
patients and providing more comprehensive services,'' neither
the 340B statute nor HRSA guidance explains how 340B providers
must use savings from the program.
Finally, we will discuss how HRSA's lack of
regulatory authority limits the agency's ability to adequately
oversee the program.
The committee has been reviewing HRSA's oversight of the
340B drug pricing program for over two years, and plans to
continue this work after the hearing. As we move forward, it's
also important not to overreact and create unnecessary red tape
for providers who are truly using the program to benefit
patients. I've heard from hospitals in rural areas, like those
in my district, that use 340B discounts to help beneficiaries
in underserved parts of the country. While we do not want to
overburden these safety-net providers, we also need robust
oversight in the program to determine where these scarce
federal dollars are going.
Just last month, the committee sent a letter to HRSA to
gain more insight into the audits conducted into the 340B
program, and we want to extend our appreciation to HRSA for
their timely production of information responsive to our
requests. We look forward today to hearing from HRSA about the
steps that they have taken to strengthen the program and the
challenges they face in their efforts to oversee the program.
I also want to thank the Office of Inspector General at the
U.S. Department of Health and Human Services and the Government
Accountability Office for being here to discuss their important
work on this topic too. We look forward to hearing their
recommendations on how to best promote program integrity and
improve the program.
Mr. Murphy. Gentleman yields.
I now recognize the ranking member of the full committee,
Mr. Pallone, for an opening statement for 5 minutes.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman.
Twenty-five years ago, Congress passed bipartisan
legislation establishing the 340B program. Since its inception,
the 340B program has played a critical role in ensuring that
low-income and vulnerable individuals have access to affordable
health care.
The 340B program provides discounts on outpatient drugs
that have allowed safety net providers to be able to expand
access to essential health care services for vulnerable
patients. This program has been vital for safety net providers
like community health centers, inner city and rural hospitals,
HIV clinics, and hemophilia treatment centers. And the 340B
program has made the difference between patients getting the
lifesaving health care services and drugs they need or going
without.
The Congress created this program with the intention of
helping covered entities expand their capacity to serve their
patients. By purchasing drugs at a discounted rate, 340B
providers are able to stretch scarce resources to provide more
comprehensive health services. Resources provided through the
340B program directly augment patient care throughout the
country. It continues to support the mission of safety net
providers that serve low-income, uninsured, and under insured
patients. And the 340 program is a critically important health
care program and the Health Resources and Service
Administration, or HRSA, should have the authority it needs to
strengthen the integrity of the program.
GAO and OIG have identified weaknesses in the oversight of
the program which can have negative consequences for both the
participating providers and drug manufacturers. HRSA should
appropriately improve program integrity while protecting the
mission of the 340B program and be given the necessary
resources to oversee the program.
Last Congress, this committee worked on a bipartisan basis
to try to address the concerns from stakeholders on all sides
of this issue in a balanced and measured fashion. Our goal was
to strengthen and support the mission of 340B to provide health
services to those most in need. Unfortunately, we were not
successful. But I continue to believe and I think we can all
agree here today that the mission of this program is sound and
the continued emphasis on program integrity will make the 340B
program stronger now and in the coming years.
I want to be clear, however, that while I was always happy
to have a conversation about strengthening the 340B program, it
would be disingenuous for anyone on this committee to say that
this hearing today is in any way a hearing on rising drug
prices. The 340B program is not the problem or the solution to
rising drug prices and that is why I am so concerned about the
Trump administration's recently proposed rule containing a
provision that would slash reimbursements on Medicare Part B
drugs to 340B hospitals under the guise that doing so would
somehow address the rising cost of prescription drugs.
When Health and Human Services Secretary Price announced
the proposed rule change, he claimed that this rule will
somehow make drugs more affordable. And I want to be clear--
this rule would have zero impact on the actual price of
prescription drugs and would decimate the support that 340B
hospitals rely on to serve needy patients.
This proposal is nothing more than a deep cut to many of
the hospitals that serve as the bedrock of our safety net, and
committee Democrats have repeatedly asked that this committee
begin to have a real conversation about drug prices and this is
not it.
And again, I urge the chairman to hold the hearing on drug
pricing so we can hear from all the stakeholders involved and
so we can begin to develop real solutions that will begin to
drive down the cost of prescription drugs. Until then, I remain
dedicated to finding ways to strengthen the 340B program and
ensure that it continues to fulfil its essential mission. And I
am grateful to our witnesses for being here today to talk about
some of the challenges the program faces as well as its
successes and the important role it continues to play.
And I yield back. I yield the time remaining to the
gentlewoman from Florida, Ms. Castor.
Ms. Castor. Great. Thank you, Mr. Pallone.
I just wanted to say that at a time when high and
escalating drug prices are a top concern for all Americans, the
340B drug discount program is a real winner.
It is a very modest government initiative that has huge
benefits and helps our disproportionate share hospitals and
many community health centers and other clinics all across the
country provide affordable prescriptions to folks that need it
that may not have insurance, that are really struggling to get
by and then that helps those hospitals and those clinics
stretch the dollar and keep the burden off the taxpayer.
Doesn't mean that it is immune from oversight and that is
important for our hearing today but 340B is a real godsend for
so many families and health providers across the country.
Thank you, and I yield back.
Mr. Murphy. Gentlewoman yields back.
So now I ask unanimous that the members' written opening
statements be introduced into the record, and without objection
the documents will be entered into the record.
I would now like to introduce our panel of federal
witnesses for today's hearing.
First, we have Captain Krista Pedley, director of the
Office of Pharmacy Affairs at the Health Resources and Services
Administration. I just want to say you also got your pharmacy
degree from the University of Pittsburgh. Fine school. Fine
school.
Next is Ms. Erin Bliss, who serves as assistant inspector
general in the Office of Inspector General within the
Department of Health and Human Service. I think more of a Notre
Dame person there, right?
And Ms. Debra Draper, but you have a doctorate degree so I
am going to call you doctor today. Yes, she is the director of
health care for the Government Accountability Office.
Thank you all for being here today and providing testimony.
We look forward to a productive discussion of HRSA's oversight
of 340B drug pricing program.
You are all aware that this committee is holding an
investigative hearing and when doing so has the practice of
taking testimony under oath. Do any of you have any objections
to testifying under oath?
Seeing no objections, the chair then advises you that under
the rules of the House and rules of the committee you are all
entitled to be advised by counsel.
Do any of you desire to be advised by counsel during
testimony today?
OK. Seeing no things on that then we will proceed with
swearing you in. Please rise, raise your right hand. I'll swear
you in.
[Witnesses were sworn.]
Seeing all answered in the affirmative, you are now under
oath and subject to the penalties set for in Title 18 Section
1001 United State Code.
We ask you all to give a five-minute summary of your
written statement. Please try and stick with the 5 minutes. I
will tap the gavel when you are close to that.
Captain Pedley, you are recognized first. 5 minutes.
STATEMENTS OF CAPT. KRISTA M. PEDLEY, PHARMD, MS, DIRECTOR,
OFFICE OF PHARMACY AFFAIRS, HEALTH RESOURCES AND SERVICES
ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES;
ERIN BLISS, ASSISTANT INSPECTOR GENERAL, OFFICE OF EVALUATION
AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT
OF HEALTH AND HUMAN SERVICES; DEBRA DRAPER, DIRECTOR, HEALTH
CARE, GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF CAPT. KRISTA M. PEDLEY, PHARMD, MS
Ms. Pedley. Good morning, Chairman Murphy, Ranking Member
DeGette, and members of the subcommittee.
I appreciate the opportunity to appear before you today to
discuss the 340B program. HRSA shares the subcommittee's
commitment to ensuring program integrity and today I will
discuss steps we have taken to implement key provisions and
strengthen oversight including some of the current challenges
in managing the program.
The 340B program was authorized in 1992 to stretch scarce
federal resources by reducing the cost of covered outpatient
drugs to 340B-eligible entities. Approximately 12,300 entities
and 26,000 associated sites participate in addition to over 600
manufacturers. We appreciate the work of the Office of
Inspector General and the Government Accountability Office to
provide recommendations on strengthening safeguards which
inform our activities across all HRSA programs. Within our
statutory authority HRSA has worked to address the majority of
GAO and OIG recommendations through systematic efforts to
improve the program.
Two recommendations remain open from GAO's 2011 study which
direct HRSA to clarify hospital eligibility requirements and
the definition of a 340B patient. The OIG's 2005 and 2006
reports include open recommendations that HRSA develop a
pricing system to improve oversight and allow entities to
secure pricing data. Since 1992, HRSA has administratively
established many requirements of the program for a series of
guidance documents published in the Federal Register, typically
after public comment.
In 2014, HRSA planned to issue a proposed omnibus
regulation. However, that same year the U.S. District Court for
the District of Columbia invalidated a 2013 final rule on a
provision related to orphan drugs. HRSA then withdrew the
proposed omnibus regulation from the Office of Management and
Budget review. HRSA has prioritized rulemaking in areas in
which the D.C. circuit has clearly recognized our regulatory
authority.
The agency finalized a rule in January 2017 on a
calculation of ceiling prices and the imposition of civil
monetary penalties for manufacturers which will become
effective October 1, 2017. HRSA also proposed a rule in August
2016 on the dispute resolution process. All other program
policy areas were addressed in an August 2015 proposed omnibus
guidance and we are working on next steps to address these
policy issues.
The president's fiscal year '18 proposed budget commits to
developing a legislative proposal to improve 340B program
integrity and ensure that the benefits derived from
participation are used to benefit patients, especially the low-
income and uninsured. Specific legislative authority to conduct
rulemaking for all provisions in the 340B statute would be more
effective for facilitating HRSA's oversight and management of
the program. Specifically, regulatory authority would also
allow HRSA to provide greater clarity and specificity of
program requirements.
HRSA works to verify that both 340B entities and
manufacturers are in compliance. Regarding covered entity
program efforts, we conduct initial certification, annual
recertification and program audits. We have completed over 800
covered entity audits since 2012, which encompass nearly 11,000
offsite facilities and 18,000 contract pharmacy locations. HRSA
also reaudits a select number of entities with findings that
resulted in repayment to manufacturers. HRSA posts on our
website a summary of audit findings. The findings have varied
from minor database corrections to findings of diversion.
Through findings and audits, HRSA develops educational
tools and resources for all 340B stakeholders in order to
improve program integrity. The statute specifies the types of
entities eligible to participate but does not specify how a
covered entity may provide or dispense such drugs to its
patients.
HHS has issued guidance recognizing entity use of contract
pharmacies to dispense 340B drugs. The majority, or 73 percent,
of entities do not contract with pharmacies. HRSA guidance
outlines compliance requirements for entities that utilize
these contract pharmacies, which HRSA reviews as part of our
audits. If a covered entity is not providing oversight of its
contract pharmacy, the pharmacy arrangement is terminated from
the program.
HRSA is also actively engaged in manufacture oversight and
has the authority to conduct audits of manufacturers. HRSA has
conducted seven audits of manufacturers in addition to
developing regulations and guidance specific to manufacturer
compliance. In accordance with the statute, HRSA is required to
collect information from manufacturers to verify the accuracy
of 340B ceiling prices and then make those ceiling prices
available to the covered entities.
HRSA appreciates the work of the OIG and GAO to help
strengthen the program. We look forward to continuing our
partnership with them as well as with Congress to strengthen
program integrity and enforce program requirements as well as
increase transparency on how entities use the program to
benefit low-income and uninsured patients.
I appreciate the opportunity to testify today and look
forward to your questions.
[The prepared statement of Capt. Krista M. Pedley follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Murphy. Thank you.
Ms. Bliss, you are recognized for 5 minutes.
STATEMENT OF ERIN BLISS
Ms. Bliss. Good morning, Chairman Murphy, Ranking Member
DeGette, and other distinguished members of the subcommittee. I
am pleased to join you today to discuss ways to protect the
integrity of the 340B drug discount program.
OIG has found that HRSA has strengthened its oversight of
the 340B program over the years. However, more needs to be
done. Some longstanding and fundamental challenges persist and
they impede effective program oversight and operations. OIG
recommends two key improvements to 340B program integrity and
oversight: One, increase transparency to allow for payment
accuracy; and two, clarify rules to ensure that the program
operates as intended. I will explain both of these.
With respect to transparency, OIG recommends that HRSA
shares ceiling prices with 340B providers and states. For
providers, this will allow them to ensure that they are not
overcharged by drug manufacturers. Currently, 340B providers
cannot verify that they actually receive the required discount.
Congress has given HRSA authority to do so and HRSA is working
on it. Sharing ceiling prices with states will allow them to
ensure that Medicaid is not overpaying for 340B drugs. Making
this happen may require new authority from Congress. States
also need transparency as to which Medicaid claims represent
340B drugs. Even when states can determine how much they should
be paying for these drugs, they still may not know which claims
to reimburse at that price. This transparency is also essential
for states to correctly claim Medicaid rebates from drug
manufacturers. Without it, states put manufacturers at risk for
paying more rebates than they should by inappropriately
including 340B drugs. At the same time, states risk forgoing
rebates to which they are entitled by inappropriately excluding
non-340B drugs. OIG recommends that HRSA work with the Centers
for Medicare and Medicaid Services to help states accurately
identify 340B claims.
The second key improvement is to clarify 340B program
rules. For one, HRSA's guidance addresses patient eligibility
but leaves room for interpretation as to which of a patient's
prescription might be eligible in a retail pharmacy setting. In
these retail settings we found that providers in fact are
making different determinations about which prescriptions are
eligible for the 340B price.
Let me illustrate with an example. Let us imagine a doctor
sees a patient at a 340B community health center. Later, that
same doctor sees the same patient at her private practice. If
the doctor prescribes a drug to that patient at the private
practice, is that prescription eligible for the 340B price? One
provider in our study said yes and another said no, and another
said it depends. So who is right? We couldn't tell, based on
the current guidance, and so we recommend that HRSA more
clearly define this.
Furthermore, guidance does not address how to handle
uninsured patients. In our review of retail pharmacies, we
found that uninsured 340B patients sometimes received
discounted prices but sometimes they paid full price for 340B
drugs. In other words, uninsured patients are not always
receiving the benefit of the 340B discount on their
prescriptions. We recommend that HRSA address whether providers
must offer discounted prices to uninsured patients.
In closing, lack of transparency and clarity make it harder
to ensure integrity and harder to determine how well the
program is working. If HRSA needs new authorities to make these
key improvements, we encourage Congress to consider statutory
changes as appropriate to support increased transparency and
better clarity.
OIG appreciates and shares your interest in improving
program integrity and effectiveness for the 340B program. I
will look forward to answering your questions. Thank you.
[The prepared statement of Erin Bliss follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Murphy. Thank you, Ms. Bliss.
Dr. Draper, you are recognized for 5 minutes.
STATEMENT OF DEBRA A. DRAPER
Ms. Draper. Chairman Murphy, Ranking Member DeGette, and
members of the subcommittee, thank you for the opportunity to
be here today to discuss the 340B program including issues
concerning its oversight.
The 340B program was created by statute in 1992 and is
administered by HRSA. According to HRSA, the intent of the
program is to enable participating entities, also known as
covered entities, to stretch scarce federal resources to reach
more eligible patients and provide more comprehensive services.
Participation is voluntary but there are strong incentives to
do so. For covered entities such as certain hospitals and
federally-qualified health centers, substantial cost savings or
revenue on outpatient drugs can be obtained through
participation in the program.
For drug manufacturers, participation is required to
receive Medicaid reimbursement. Since the 340B program first
became operational in 1993, it has experienced exponential
growth in the number of covered entities. In 1993, the program
had approximately 400 covered entities and by 2017 there were
more than 12,000 representing approximately 38,000 covered
sites.
The 340B program has also seen exponential growth in the
number of contract pharmacies particularly since 2010. Prior to
March 2010, only one contract pharmacy was allowed for covered
entities without an in-house pharmacy. In March 2010, HRSA
lifted that restriction and as a result, the number of contract
pharmacies increased from about 1,300 in 2010 to nearly 19,000
in 2017, encompassing more than 46,000 arrangements.
In 2011, we reported that HRSA's oversight of the 340B
program was inadequate to provide reasonable assurance that
participants were in compliance with program requirements. As a
result of the identified weaknesses, we made four
recommendations. One recommendation was for HRSA to conduct
audits of covered entities to ensure compliance with program
requirements. This recommendation was a result of our findings
that HRSA primarily relied on participants to self-police and
ensure their own compliance.
In fiscal year 2012, HRSA initiated audits of covered
entities and now conducts 200 audits per year. While we are
pleased that HRSA is conducting these audits, 200 per year may
be insufficient, given the continued escalation and the number
of covered entities. A second recommendation was for HRSA to
clarify the guidance for cases in which the distribution of
drugs is restricted including required reviews of manufacture
plans to ensure that drugs are equitably distributed to all
entities regardless of 340B, program participation. This
recommendation was the result of our finding that in cases such
as when the drug is inherently limited, manufacturers may have
restricted distribution but the manner in which they did so was
not always clear.
HRSA issued updated guidance in fiscal year 2012, which
addressed their recommendation. The remaining two
recommendations were for HRSA to issue more specific program
guidance on the definition of a patient eligible to receive
discounted drugs through the program and the criteria that
hospitals must meet to be eligible to participate. These
recommendations were the result of our findings that the lack
of specificity in the guidance could be interpreted in ways
that were inconsistent with the programs intent. This was
particularly troubling given that the 340B program has been
increasingly used in settings such as hospitals where the risk
of diverting 340B drugs to ineligible patients is greater
because these settings are more likely to serve such patients.
HRSA has attempted but not succeeded in addressing these
two open recommendations. In 2014, it developed a comprehensive
340B program regulation but a court ruling found that HRSA's
rulemaking authority for the program was limited to specified
areas. In 2015, it issued proposed guidance but withdrew plans
to finalize it earlier this year following the administration's
directive for agencies to withdraw pending regulations and
guidance.
In summary, HRSA has undertaken efforts to improve
oversight of the 340B program. However, there are a number of
critical issues that remain unresolved including whether the
intent of the program, which was established nearly 25 years
ago, is still relevant today, given the vastly changed
healthcare landscape and 340B program environment. Continued
lack of specificity and program guidance, most notably the
definition of a patient and hospital eligibility criteria.
Until these issues are resolved there will continue to be
concerns about the integrity of the 340B program and HRSA's
ability to provide effective oversight.
Mr. Chairman, this concludes my opening remarks. I am happy
to answer any questions.
[The prepared statement of Debra A. Draper follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Murphy. Thank you, Doctor.
I now recognize myself for 5 minutes for questions.
Captain Pedley, let me just start off with this. There is a
lack of clarity in how the intent of the program is, which you
outlined in your testimony in your documents there.
The absence of reporting requirements and specific mandates
on how savings must be spent--can you elaborate a little bit
more on what that impact is?
Ms. Pedley. So the statute is silent regarding how covered
entities have to use their savings. Therefore, HRSA doesn't
have authority to require what these entities are doing with
their savings.
Mr. Murphy. So is that savings--does it go into the general
fund or the hospital or clinic or a separate account so even if
you were to audit that separate account you could see where
that money goes? Or is there no way to do that?
Ms. Pedley. I don't have insight into how a hospital may
manage those funds.
Mr. Murphy. OK. So you wouldn't know. But you don't audit
that anyway. So----
Ms. Pedley. Correct.
Mr. Murphy. But these entities are generally supposed to
serve specific vulnerable populations. But people who may go
into a hospital or entity that has a 340B program there is not
a means test by which says you can't go to this program based
upon your income. They could come in regardless of income,
correct?
Ms. Pedley. Correct. The statute is silent as well as to
whether a patient is insured or uninsured. They just have to
meet our patient eligibility guidance.
Mr. Murphy. And the patient eligibility guidance, I
understand, is that records have to be kept there and the
doctor treating them has to work there?
Ms. Pedley. Yes. There have to be records and HRSA audits
those records.
Mr. Murphy. OK. So do community health centers use a
sliding scale to discount policy to determine a patient's
ability to pay?
Ms. Pedley. I know under their separate grant requirements
they do have different things in place. I am not familiar with
those.
Mr. Murphy. OK.
Ms. Pedley. But that is under their grant requirements, not
under the 340B statute.
Mr. Murphy. My assumption is they would and that would be
one way of passing on savings. Do hospitals use a sliding scale
to discount policy to determine a patient's ability to pay?
Ms. Pedley. I don't have insight into that either as they
are not required under the 340B statute to pass on the savings.
Mr. Murphy. But hospitals and other covered entities can
acquire the drugs at a 25 to 50 percent discount, right?
Ms. Pedley. Correct.
Mr. Murphy. And then charge the patients full price for the
same drug?
Ms. Pedley. So the amount that they charge the patient
after they receive that discount, again, is a decision made at
the hospital. The price that they charge is outside of the 340B
statute.
Mr. Murphy. So if someone who is very, very low income,
struggling, could come in and purchase it under the intent of
the program.
But at that same clinic or hospital that was brought up
before about oncology, someone could be in there--for all we
know could be a multi-billionaire and also they would be
eligible to--the drug would be eligible.
The hospital could buy at a discount and sell it to the
person at the full price?
Ms. Pedley. So the statute is silent again on how the
savings are used and whether the patient is insured or
uninsured. If the patient is insured, then the entity would
bill the insurer at the higher rate and then obtain that
revenue to stretch their scarce federal resources.
Mr. Murphy. And so what happens, however, is that because
they are not required to collect this data, you don't know
what's really happening. If you audit, you don't know, for
example, how many people may come in there, what their income
level is because that is not a required thing for the eligible
patient, correct?
Ms. Pedley. That's correct. HRSA does not audit that
information as it is outside of our authority.
Mr. Murphy. And the money that comes through these savings,
you have no idea where that money goes because that information
is not collected and it is--correct?
Ms. Pedley. There are no requirements in the statute so we
do not----
Mr. Murphy. Do they voluntarily say, here's how we spent
the money? Does anybody do that?
Ms. Pedley. They do not voluntarily submit that information
to HRSA.
Mr. Murphy. And since the accounts may not be separate as
far as you know, even if they put the money in the general fund
that--we couldn't even trace that, how that is done?
Ms. Pedley. HRSA would not have access to that information.
Again, I reiterate for the grantees, however, they are required
under their grant requirements to report 340B program savings
as income and put that back into their grant.
Mr. Murphy. OK. But is there any data which would show the
level of charity care they are providing? Anything that they
are required to show you?
Ms. Pedley. They do not share anything with HRSA. They may
report charity care information on their cost reports that is
submitted to CMS.
Mr. Murphy. And we don't know if that charity care money
came from the 340B or came from something else?
Ms. Pedley. Yes, HRSA would not know that.
Mr. Murphy. So as I understand it so far with the vague
guidelines of eligibility for patients, the intent of the
program, of course, to help the indigent population--good.
The idea that other people who may not fit that definition
may still have the hospital or clinic purchasing at a discount
and can use that money in any way, shape, or form and you have
no way of finding out and they are not required to keep data
and the books aren't kept in such a way that anybody could
trace it if they wanted to?
Ms. Pedley. Yes. The statute, again, does not in any way
mention what covered entities----
Mr. Murphy. OK.
Ms. Pedley [continuing]. Do with that savings or that they
have to report it to HRSA.
Mr. Murphy. And operate under the assumption they are all
doing good works but we don't know, and since 60 to 80 percent
have some problems, we will see.
Ms. DeGette, 5 minutes.
Ms. DeGette. Thank you, Mr. Chairman.
I thought your line of questioning was quite interesting
and I would like to follow up on it a little bit.
The chairman was asking appropriately, I think, what do
hospitals do with the money. I don't think we have anybody here
who would be able to answer that question, right?
OK. So none of the three of you can answer that question. I
would assume there is probably somebody who can answer that
question and maybe we should have a follow-up hearing and have
some people from the hospitals come and talk about what they do
with that money.
Dr. Draper, I do know that one of the GAO findings was
that--well, first of all, is the GAO aware of a practice with
hospitals where they get the discounts under 340B and then they
pass those discounts along to billionaires and things like
that? Have you found any evidence of that?
Ms. Draper. We have not looked at that specifically.
And getting back to your earlier question----
Ms. DeGette. Yes.
Ms. Draper. In our 2011 work we did interview a small
number of covered entities to ask them what they did with the
revenues and most said they are not required to report that.
Ms. DeGette. Right.
Ms. Draper. So what they told us was that they use the
moneys to expand services to patients and to provide more
comprehensive services.
Ms. DeGette. So the limited evidence you got seemed to
indicate they were using that for the original intended
purpose?
Ms. Draper. Yes. It was very limited information and----
Ms. DeGette. Number one, Mr. Chairman, I think we should
try to get some hospitals in here to talk to us, but number
two, I think your inference is correct.
We probably do need to get more controls and that is why I
said in my opening statement that we may need to have more
legislative reporting and more transparency because you can't
have a program where nobody knows what's going on.
But let us get back for a minute to the original purpose of
the 340B program. Captain Pedley, what the 340B program was
intended to do was to help providers stretch scarce resources
and give services to people who are uninsured or lack insurance
altogether. Is that right?
Ms. Pedley. Yes. From report language, the intent of the
program was for these covered entities to be able to purchase
the drugs at a discount in order to stretch their resources and
provide more care to patients.
Ms. DeGette. Right. So if people didn't have this source of
revenue, hospitals, assuming they are using the revenue for the
originally intended purpose, they might have to cut back on
services that they would provide to these underserved
populations. Is that correct?
Ms. Pedley. So if the program were not----
Ms. DeGette. A yes or no will work.
Ms. Pedley. Yes.
Ms. DeGette. Thanks.
Now, so, Dr. Draper, I understand that in the GAO audits
you found some weaknesses in HRSA's ability to oversee the
program and also you found that the agency needs to issue
guidance that defines a 340B patient and clarify the standard
for hospital eligibility. Are those in general your concerns?
Ms. Draper. Well, to give you an example, the definition of
a patient is very ambiguous. It is that the patient has an
established relationship with the entity and the entity
maintains the medical records and that the provider of services
for that entity is either employed or under contract
arrangement or some other type of arrangement.
So we had concerns about the language about like some other
type of arrangement----
Ms. DeGette. Right.
Ms. Draper [continuing]. What specifically does that mean,
and I think it has been interpreted very broadly.
Ms. DeGette. So let me ask you, do you think the agency has
authority under the current statutory language to tighten those
definitions up or do you think that we need to do something
with the statute?
Ms. Draper. Well, since 1992 the agency has issued program
guidance to try to clarify the rules of the program. So we are
a little confused about why. I think there is some concern that
they need some regulatory authority versus having guidance
and----
Ms. DeGette. OK. So we might have to go and look at the
statute.
Ms. Draper. Perhaps.
Ms. DeGette. Yes. OK.
And Ms. Bliss, I just wanted to ask you quickly what tools
or authorities do you believe HRSA needs in order to
efficiently administer the 340B program?
Ms. Bliss. Thank you.
We believe that increasing transparency and clarity around
the program rules is very important, and while I can't offer a
legal opinion on HRSA's authority, our understanding is they
may need additional authority from Congress to do this.
Ms. DeGette. Great. Thank you.
Thanks, Mr. Chairman. I yield back.
Mr. Murphy. Thanks. Can I follow up on that quickly?
With regard to those definitions of entities, are any of
you receiving letters, pressures from other organizations,
hospital associations, pharma, et cetera, on recommendations
for these changes?
Ms. Draper. We have not.
Mr. Murphy. You have not? Ms. Bliss.
Ms. Bliss. No, not at all.
Mr. Murphy. Captain Pedley.
Ms. Pedley. So when we proposed in August 2015 our omnibus
guidance, patient definition was a part of that and we did
receive over 1,200 comments related to the entire guidance but
within those specifically to the patient definition.
Mr. Murphy. OK. Just with regard to there might be some on
this committee who would like to see some of those.
Ms. Pedley. Yes. I agree.
Mr. Murphy. We will sharpen our question to you. Thank you
very much.
Chairman Walden.
Mr. Walden. Thank you, Mr. Chairman. Thanks for having this
oversight hearing.
And I just want to follow up on a couple of things. Do we
or do we not know or audit how the savings are spent? That
seems to be one of the issues.
We all believe that everybody is a good actor and the money
is going to the people most in need, as well as savings.
But I also am not clear that HRSA actually--that there is a
clear definition of how the money should be spent or that we
track the money.
Is that correct?
Ms. Pedley. So the statute is silent as to how savings are
used. Therefore, HRSA does not audit or have access to that
information.
Mr. Walden. So we really don't have a trail of bread crumbs
as to--you know how much it saved, right? Or do you?
Ms. Pedley. The discount on the drug?
Mr. Walden. Right.
Ms. Pedley. So it is on average between 25 to 50 percent
but it depends on the specific drug.
Mr. Walden. Do we know if those savings get passed
specifically back to people who need reduction in prices on the
drugs?
Ms. Pedley. The statute is silent in that area. So HRSA
does not have that information.
Mr. Walden. OK. So we don't know that.
And of those savings, could the 340B hospitals take that
money and use it for good things but not necessarily back to
the same person that is buying the drugs?
Ms. Pedley. Because the statute is silent----
Mr. Walden. Silent.
Ms. Pedley [continuing]. We don't have access to that.
Mr. Walden. OK. All right.
And these are issues I think both of you have raised,
right, from GAO and from OIG that there is just lack of clarity
here?
Ms. Draper. Yes. We don't know how the savings are used.
The entities are not required to keep that information or to
track it.
We are currently doing some work on looking at contract
pharmacies and we are going to be looking at things like
discounts that are being provided to patients. So----
Mr. Walden. OK.
Ms. Draper. As far as the savings, there are really no
requirements and most of the entities in our 2011 work that we
talked to were not able to provide that information.
Mr. Walden. So could a 340B get the savings from the drug
manufacturer and not pass those on to the individual that
actually charged the individual through their pharmacies, like,
the retail price for that drug?
Ms. Draper. I think that is very possible. There is just no
way to know----
Mr. Walden. We don't know.
Ms. Draper [continuing]. Without the transparency around
that.
Mr. Walden. All right.
Yesterday, HRSA's website listed a total of 41,132
registered sites. That is an increase of 3,636 registered sites
since the budget justification was released.
So from HRSA's perspective, do you know how many of these
3,636 sites are new unique covered entities and how many are
these so-called child sites?
Ms. Pedley. I would have to go back and look at the
specifics of the data as to how many are new--the main facility
or a child site, as you mentioned.
Mr. Walden. Yes. Well, you just don't know off the top of
your head?
Ms. Pedley. Correct.
Mr. Walden. OK. All right.
Ms. Pedley. But we have that information.
Mr. Walden. And overall you are seeing a faster growth rate
for the new covered entities or new child sites? Which are you
seeing the fastest growth rate for?
Ms. Pedley. I would have to go back again and compare the
growth rate of the new entities versus child sites.
Mr. Walden. OK.
Ms. Pedley. We do have that.
Mr. Walden. And how many manufacturers are participating in
the 340B program?
Ms. Pedley. Over 600.
Mr. Walden. OK. And how has that number changed in the last
few years?
Ms. Pedley. It stays about the same. So the manufacturers
that participate in the program are based on the manufacturers
that participate in the Medicaid program.
They are required to participate in 340B if they are in
Medicaid. Again, so we monitor when manufacturers enter into
the Medicaid program to ensure that they also sign an agreement
with HRSA to participate in the 340B program.
Mr. Walden. And I don't know if this is a fair question to
ask you, Captain, but it is my understanding that HRSA was
given an additional $6 million in funding beginning in FY 2014
and I guess the question is how much does HRSA now receive in
funding to oversee the program and is that enough?
Ms. Pedley. So we did receive an additional $6 million in
fiscal year '15 for program integrity efforts and information
technology as well.
We continue to remain at the $10.2 million in total and
that is in our proposed budget as well for fiscal year '18 in
order to maintain our level of oversight in the program.
Mr. Walden. And you have got how many staff involved?
Ms. Pedley. We currently have 16 FTEs.
Mr. Walden. Do they have other responsibilities other than
just overseeing 340B?
Ms. Pedley. So they specifically work on the 340B program
anywhere from our information technology systems to registering
entities in the program to specifically the audit function.
Mr. Walden. So they are focused on 340B exclusively?
Ms. Pedley. Yes.
Mr. Walden. OK. All right.
This has been most helpful. Obviously, there are some
statutory issues here and some clarity issues on who is a
patient and transparency and who gets the benefit from the
program designed to help patients in one way or another.
So, Mr. Chairman, thank you for holding this hearing. I
appreciate the input of our talented witnesses.
Mr. Murphy. Thank you.
I now recognize the gentleman from New Jersey, Mr. Pallone,
for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman.
The 340B program is a critical component of the safety net
that serves the most vulnerable among us and 340B drug
discounts help safety net providers make the most of the
limited resources they receive.
As a result, they are able to reach more eligible patients
and provide those patients with more comprehensive health
services, and I believe in both protecting 340B and improving
the integrity of the program to ensure it remains strong for
the future.
My questions are, Captain Pedley, could you describe how
this program helps safety net hospitals and other covered
providers give care to needy populations? In other words, the
340B, if you could answer that question.
Ms. Pedley. So the intent of the program was for these
entities defined in statute to be able to purchase the drugs at
a discount so they can stretch those scarce federal resources.
Once they are eligible for the program and listed on our
database and we validate to ensure they are eligible for the
statute they are then able to purchase these drugs at a
discount, typically 25 to 50 percent lower than what they would
have otherwise paid.
Mr. Pallone. And so the discounts help ensure that all
individuals including the under insured and the uninsured have
access to care. Is that a correct statement on my part?
Ms. Pedley. Yes, based on the intent of the program.
Mr. Pallone. All right.
Now, Captain, can you please describe how the 340B drug
discounts generate savings for providers while expanding
services for patients?
Ms. Pedley. So the savings in the program are generated on
the up front discounts that they receive on the drug.
In addition, if the patient is insured they bill the
insurer at the higher rate in order to create revenue to
provide then the care to those that do not have insurance there
or the ability to pay.
Mr. Pallone. OK, and I know some members have already
expressed concerns that there is not sufficient transparency
with respect to how some 340B hospitals use their money. What
actions is HRSA taking, if any, to improve transparency in the
program?
Ms. Pedley. The statute is silent on the savings but in the
fiscal year '18 president's budget we did propose to intend to
work with Congress on a legislative proposal to ensure the
benefit of the program does benefit the low-income uninsured
populations.
Mr. Pallone. OK.
I wanted to ask Dr. Draper what are the most important
actions out of GAO's recommendations to improve program
integrity in 340B and how should Congress prioritize?
Ms. Draper. Well, I think one of the key pieces is really
clarifying the intent of the program. The intent was set up 25
years ago and, I think there is a misperception that it does.
It doesn't explicitly talk about uninsured or under insured
patients--to receive benefits through the program. That is
implied, depending on the types of covered entities. So that is
one issue.
The other issue is really clarifying the definition of a
patient. That would go a long way as well as hospital
criteria--the criteria to participate. So those are the
weaknesses that we currently see remaining that would really
help improve the integrity of the program.
Mr. Pallone. OK. So from what I am hearing, the 340B
program does play a valuable role in our efforts to provide a
robust safety net for vulnerable patients and while more can be
done to improve transparency those efforts should be tailored
towards helping the program serve more needy patients.
So I want to thank you all for being here this morning and
the comments, I think they are very helpful.
I yield back.
Mr. Murphy. Gentleman yields now.
I now recognize Mr. Barton or 5 minutes.
Mr. Barton. Thank you, Mr. Chairman.
This is a difficult hearing. We have got a program that I
think both political parties strongly support. I have got a
number of federally qualified health facilities and DSH
hospitals in my district that use 340B and it is an integral
part of the care they provide to the low-income population.
But it is a program that has just grown exponentially and,
quite frankly, I think HRSA has done a pretty amazing job,
given how many people you have--24 people at one time. That is
about this subcommittee. You did 200 audits. That's 10 per
month per person. I couldn't do 10 audits a month if I were a
CPA. And yet, nobody really knows what's going on in the
program because it is so big.
I don't even understand what we are talking about when you
talk about the money. So I am going to ask a very elementary
question and see if you can explain it to me. If the regular
price for a drug from a manufacturer is $10--I am making it as
easy as I can--and the average discount for 340B is 50 percent,
that means that the entity that is participating in the 340B
program is charged $5. Is that right? The hospital pharmacy,
their cost is $5. Now, if they prescribe that to an outpatient,
what does Medicaid pay for that prescription? Do they pay $5?
Do they pay $10? Do they pay $7.50? In other words, what, if
any, is the markup? Can anybody answer that?
Ms. Pedley. So, first, with the ceiling price, the price
that an entity pays is actually set in statute. The calculation
is set based on----
Mr. Barton. I don't need to know that. I am using my
example. Ten dollars is what the retail price would be--the
normal price if it wasn't a 340B drug and you said the discount
is 25 to 50 percent. So I made it 50. So the price is $5. What
I want to know is the patient who gets that drug--whoever is
paying for it, the patient or Medicaid--what do they pay? Do
they pay $5? Do they pay $10? Do they pay $15? Do they pay
something in between?
Ms. Pedley. So if the patient has insurance they would pay
their standard co-pay. If they are uninsured----
Mr. Barton. If they are covered by Medicaid.
Ms. Bliss. So CMS has a rule for state Medicaid programs
that they would reimburse at that $5 plus a dispensing fee.
Mr. Barton. Plus a dispensing fee. But there is no profit?
Ms. Bliss. Not in the Medicaid context.
Mr. Barton. OK. So, technically, whatever the discount is
that is passed through?
Ms. Bliss. Yes, to the Medicaid----
Mr. Barton. But you have no way to prove that it really is
passed through?
Ms. Bliss. State Medicaid agencies don't currently have
access to those ceiling prices.
Mr. Barton. So nobody knows?
Ms. Bliss. There is no check and balance.
Mr. Barton. It is voluntary compliance. I guarantee you
people are abusing that. I guarantee it. But let us forget
that. Let us forget that. So we really have no controls on that
end. If the dispensing pharmacy--they get the discount but let
us say they charge Medicaid the regular rate, $10. So they have
got a profit of $5. Is that illegal under current law? Are they
required to pass it through or can they keep it and in the best
case use it to defray the cost of another patient?
Ms. Draper. If it is not required it is how they pass or
whether they pass on discounts. Unless it is part of their
federal grants for a federally qualified health center their
grant may require them to pass on discounts but not for all
facilities.
Mr. Barton. So even though they are getting a lower rate
they could charge the higher rate and use that within their
facility for some other purpose?
Ms. Draper. That is correct. It is not clear how that is
being used.
Mr. Barton. It is not illegal. I am just trying to educate
the subcommittee how screwed up this program is.
My last question--my time has expired--if we created a
whistle blower option so that anybody in the country could turn
somebody in if they think there is abuse and if there is abuse
they got to keep some of the savings that was discovered would
that help police the program?
Ms. Draper. Well, I think you would have to make sure that
the rules are clear as to what--it goes back to patient
eligibility, hospital eligibility criteria.
I think some of that ambiguity is----
Mr. Barton. I am not even going down that trail.
Ms. Draper. Yes, but I think this----
Mr. Barton. I am assuming everybody in the program is
allowed to be in the program.
Ms. Draper. Right. But I think those rules are not clear.
So people have interpreted it very differently. So until the
rule is clear----
Mr. Barton. It is a mess.
Ms. Draper [continuing]. It is really difficult to do that,
I think.
Mr. Barton. This is a great opportunity for this
subcommittee. On a bipartisan basis, we all support the 340B
program. But it has grown topsy-turvy. We really need to put
the best minds of this subcommittee on a bipartisan basis and
see if we can come up with some solutions.
With that, I yield back.
Mr. Murphy. I will work on that. That is good.
Ms. Castor, you are recognized for 5 minutes.
Ms. Castor. Thank you, Mr. Chairman, and thank you to all
of you for helping us keep the 340B program strong and true to
its original purpose.
The providers in my local community that are covered
entities that participate are the ones that are providing
inordinate amounts of charity care. Most of them never recoup
the reimbursements that they need. For example, the St.
Joseph's Children's Hospital Chronic Complex Clinic for
medically fragile children--that is part of the BayCare Health
System--behavioral health and substance abuse services at
BayCare Behavioral Health and St. Joseph's Care Clinic that
stretches the federal Ryan White funding to support a continuum
of care to maintain a high retention rate of HIV patients.
Tampa General Hospital is our safety net hospital. They
provide multi-million dollars in charity care though that is
never recouped. So 340B has been a godsend to their mission in
our community. Captain Pedley, HRSA has already audited a third
of hospitals in the 340B program but only a small fraction of
the drug manufacturers.
Program integrity is appropriate for all stakeholders. Can
you please indicate your intention with regard to undertaking
audits and ensuring compliance for the drug manufacturers?
Ms. Pedley. So we audit manufacturers every year. We have
conducted seven audits thus far. We plan to conduct an
additional five this year. As with----
Ms. Castor. What percentage is that?
Ms. Pedley. So there are 600 manufacturers--whatever that
comes out to be.
Ms. Castor. What have the audits found so far?
Ms. Pedley. Thus far, we do post the audits on our website
and we have not had any findings whereby the manufacturers are
not in compliance with the statute. The manufacturers have a
more narrow focus than the 340B-covered and that is to provide
the drug at or below the ceiling price and that is what we
audit. But that is only one tool we use for manufacture
compliance. We also ensure that once they are in the Medicaid
program that they appropriately sign an agreement with HRSA to
provide the drugs at or below the ceiling price.
We also issue regulation and guidance in the program
related to manufacturer compliance. We also review all
allegations that we receive if a covered entity is not
receiving a price at or below the ceiling price and we
investigate each of those situations.
Ms. Castor. And I think a lot of folks don't know that
nearly one-third of the total of 340B discounts is due to a
penalty that is enforced against drug manufacturers for raising
the price of drugs higher than the rate of inflation or
voluntarily providing a discount lower than the 340B price and
that manufacturers could avoid the penalty by not increasing
their drug prices at such high rates. How does that work?
Ms. Pedley. So the 340B ceiling price, again, it is in
statute and it is informed by components reported under the
Medicaid drug rebate program and that is the average
manufacturer price and the unit rebate amount and we receive
those components from CMS to calculate the price.
However, if the drug company does raise the price of their
drugs higher than the rate of inflation there is a penalty that
kicks in and that causes the 340B ceiling price to equal a
zero. HRSA has policy in place and a final regulation that is
effective October 1 that when that ceiling price equals a zero
that the manufacturer charge a penny.
Ms. Castor. So that is a very important incentive and,
again, helps keep the burden off the taxpayers that I think
needs to be maintained as we move forward.
Captain Pedley, all the witnesses here--and you can hear
the comments from the committee--said HRSA needs regulatory
authority to properly administer 340B and I strongly favor
appropriate HRSA oversight to ensure the highest level of
program integrity. But HRSA's proposed Mega-Guidance last year
would have dramatically limited the use of 340B well beyond
congressional intent and harm many hospitals and their ability
to provide charity care and the whole continuum of care. For
example, it would have prohibited discharge prescriptions
needed to prevent unnecessary readmissions, eliminated 340B in
infusion centers for patients with no other options for cancer
care, and created a complex and unworkable definition of who is
a patient.
If the Congress provides HRSA with such regulatory
authority, how can we be assured that harmful proposals such as
these wouldn't go beyond the congressional intent?
Ms. Pedley. So HRSA's proposal in 2015 and the omnibus
guidance we did address patient definition, and based on some
of the things that we were seeing in our program integrity
efforts such as audits informed our decisions around how to
define certain elements in that guidance.
We did receive over 1,200 comments that we took into
consideration very seriously in drafting a final guidance that
was sent to OMB in the fall but was then withdrawn. So we do
take the stakeholders' comments very seriously.
Ms. Castor. To be continued. Thank you very much.
Mr. Murphy. Dr. Burgess is not here so it will be Mrs.
Brooks.
Mrs. Brooks, you are recognized for 5 minutes.
Mrs. Brooks. Thank you, Mr. Chairman.
Captain Pedley, I would like to talk a bit about what it
means for diversion to occur in the 340B program and how common
is it for you to find evidence of diversion in your audits.
Ms. Pedley. So the statute states that 340B drugs can only
go to an eligible patient but the statute does not further
define what a patient is in the program.
So we have historically defined in guidance what it means
to be a patient. We have guidance currently in place from 1996.
We did attempt in 2015 in the proposed guidance to further
clarify the definition of a patient and we do audit that
information when we audit.
I don't have the specific numbers on findings for diversion
and we can make sure to get those to you. But that is one of
the areas that we specifically look at when we audit covered
entities.
Mrs. Brooks. Could you provide, though, some examples of
diversion that you have found in audits?
Ms. Pedley. So an example may be that a covered entity sees
a patient. That patient is also seen at an outside provider at
their private practice, and if that patient comes back to the
hospital, for example, to see that patient.
There may not have been sensitive enough systems in place
to know where the drug was prescribed from because the private
practice doctor, unless it was a referral arrangement, would
not have been eligible for the program. So that is an example
of an ineligible patient.
Mrs. Brooks. And so that would be a finding against that
hospital or provider?
Ms. Pedley. Correct.
Mrs. Brooks. And then what happens? What happens next when
you do have a finding like that?
Ms. Pedley. So when there is a finding of diversion, the
statute does require that the covered entity offer repayment to
the manufacturer. They are also required to submit a corrective
action plan to HRSA which we review and approve and then
monitor the covered entity to ensure that that corrective
action plan is appropriately implemented. They do, again, have
to offer the manufacturer repayment for any drugs that were
diverted.
Mrs. Brooks. And how long is the duration of a corrective
action plan, typically?
Ms. Pedley. It varies on the covered entity type and how
severe the issue was, for example, whether it was one issue of
diversion or many issues of diversion. So it does depend on
that.
But we do follow follow up with the entity and monitor them
throughout the process.
Mrs. Brooks. Do you have any recollection of what is
probably one of the more egregious issues involving a
corrective action findings in audits?
Ms. Pedley. So in terms of corrective action plans, we do
assess. Many times it may be that they have to make corrections
to their software systems that track eligible patients and they
will have to adjust those accordingly. That is a common error
that we will see.
Mrs. Brooks. And so what steps would you say that HRSA
takes to minimize the amount of diversion that occurs in a 340B
drug pricing program?
Ms. Pedley. So I would say first and foremost we provide
education to the covered entities regarding the definition of a
patient, best practices in this space, and how to ensure
against diversion. The covered entities have to annually
recertify and attest to compliance with program requirements
and then again through our audits we do ensure that there is no
diversion. If there is diversion or any audit whereby there is
repayment, we do consider those entities for reaudit so that we
can go back and check to make sure the corrective action plan
has been appropriately implemented and that not continuing.
Mrs. Brooks. Have you ever terminated an entity?
Ms. Pedley. We have terminated one covered entity for not
submitting a corrective action plan. We were able to terminate
them through that mechanism. We have terminated contract
pharmacies through the program where a covered entity was not
providing oversight and there were a few cases where we
terminated a child or offsite clinic of a hospital because they
were not eligible for the program. But that is just through the
audit process. We also terminate through our recertification
process and some other quarterly integrity checks that we do to
ensure compliance.
Mrs. Brooks. And Ms. Bliss, can you please let us know what
recommendations does OIG have to help reduce diversion? What
recommendations have you made?
Ms. Bliss. We have recommended that the patient definition
be clarified so that it is more clear which patients and which
prescriptions in particular are eligible for the 340B
discounted price.
We have also examined how covered entities work with their
contract pharmacies and raise concerns that the covered
entities themselves need to conduct additional oversight and
independent audits of their contracted pharmacies to help
ensure there is not diversion.
Mrs. Brooks. Thank you. My time is up. I yield back.
Mr. Murphy. OK. Mr. Tonko, you are recognized for 5
minutes.
Mr. Tonko. Thank you, Mr. Chair.
As we have heard today, the 340B program is a critical
component of the safety net that serves our nation's most
vulnerable patients. Congress created 340B drug discounts to
enable these safety net providers to stretch scarce resources
and provide comprehensive services to vulnerable patients.
However, HHS's recent proposed rule calls for drastic cuts in
Medicare payments to 340B hospitals. I am deeply concerned that
these proposed cuts would greatly limit 340B hospitals' ability
to provide vital services.
So Captain Pedley, can you elaborate on the types of
services that 340B hospitals provide to vulnerable patients?
Ms. Pedley. So under the 340B program, they are able to
purchase the drugs at a discount and, again, provide those
drugs to their patients. But beyond that, that would be outside
of HRSA's authority regarding the other types of services that
they provide.
Mr. Tonko. Yes. If the CMS rule is successful and results
in certain safety net hospitals having less revenue, what
impact might that have on their ability to provide services for
low-income populations?
Ms. Pedley. It is a CMS rule and because it is going
through the rulemaking process I am unable to comment because
it is out for public comment.
Mr. Tonko. Anyone on the panel able to suggest what that
impact would be?
Ms. Draper. No.
Ms. Bliss. Not in a measured way. The CMS rule is proposing
to reduce Medicare Part B reimbursement for separately payable
340B drugs in the hospital outpatient setting. So it would
potentially reduce the savings generated by the 340B discount.
There are other proposed changes to payments through the
outpatient prospective payment system included in that rule. So
I don't have a way to say how that would net out.
Mr. Tonko. Yes.
Ms. Draper. We did conduct work in 2015, looking at the
intersection of 340B and the Medicare Part B program and we did
find that for DSH hospitals that their Part B spending on drugs
was substantially higher than non-DSH hospitals--almost twice
as much--and we found that it suggested prescribing patterns of
providers perhaps prescribing more and more expensive drugs
than 340B hospitals.
Mr. Tonko. Yes. The 340B discounts are also critical for
disproportionate share hospitals which provide care to
uninsured and under insured populations. A recent study found
that 340B disproportionate share hospitals provided some $23.7
billion of uncompensated care in 2014 alone.
So, Captain Pedley, the discounts provided through the 340B
program are one reason why 340B hospitals are able to provide
those services to patients who are under insured or uninsured.
Is that your understanding?
Ms. Pedley. So the intent of the program was for the
entities to purchase the drugs at a discount in order to
stretch their resources. The statute is silent regarding
whether the patient is insured or uninsured.
Mr. Tonko. But, obviously, it is going to help some in
those categories?
Ms. Pedley. That was the intent of the program.
Mr. Tonko. Right. And GAO has previously found that for all
the covered entities it reviewed, 340B savings, and I will
quote, ``allowed them to support their missions by maintaining
services and lowering medication costs for patients,'' which is
consistent with the purpose of the program.
So, Dr. Draper, can you elaborate on the ways entities use
340B revenue to maintain services?
Ms. Draper. Yes. We talked to a small number of covered
entities when we did our 2011 work and, for example, some
federally qualified health centers talked about perhaps
expanding their number of sites to reach more patients and to
expand their services. So that was one example of how they use
the money. But, again, the money is not specifically tracked so
we don't know how much of that was used specifically for that
but that is what they told us.
Mr. Tonko. Yes. Thank you.
And, Captain Pedley, I understand the proposed rule was
issued by CMS and not HRSA. But is it fair to say that a
drastic reduction in payments to 340B hospitals would have a
significant impact on covered entities in your program?
Ms. Pedley. I am unable to comment due to the fact that it
is in proposed format.
Mr. Tonko. Right. Well, thank you.
Mr. Chair, I am all for finding solutions to rising drug
costs. But this proposed rule does nothing to address that. It
would be a disaster for 340B hospitals and certainly for the
critical services they provide.
With that, I yield back.
Mr. Griffith. I thank the gentleman.
The gentleman from New York, Mr. Collins, is now recognized
for 5 minutes.
Mr. Collins. Thank you, Mr. Chairman.
I want to thank the witnesses as well and maybe, to start
with a summary, we all understand the importance of 340B
including the pharmaceutical companies, what the intent was in
1992.
I think the reality is that the landscape of the cost of
drugs, especially in the oncology world, especially as we have
gotten into some of the biologics and the treatments, which are
great for any and all of these patients. But the costs are
astronomical. And as a result then these discounts become very
significant and much more so than a generic drug type of thing.
So it has been a very changing pharmaceutical world,
certainly the last 10 or 15 years compared to '92. I think all
of us are worried about the transparency--clearly, the lack
thereof. The definition of a covered patient--because none of
us want to see this program implode unto itself. And I guess
the example I use, if you are an airline and you are flying a
plane with 200 seats and the average price on the plane is $400
but you do know that you have got to discount 10 seats on that
airplane. So you have got a revenue piece that gets into your
pricing model that you have got 190 seats at $400 and 10 seats
at $200, you got that model.
But what we are starting to see, especially in the oncology
world, is private hospitals buying up oncology practices. There
is only one reason they are buying the oncology practices.
Those are the most expensive pharmaceutical drugs prescribed
and a 50 percent discount on a $60,000 drug is real money, and
we don't know where the money is going. We don't know if the
patients are getting it properly or whether there is a
diversion.
But as that percentage goes up, think of the airplane
taking off now with 200 seats and half of them are at $400 and
the other half are at a 50 percent discount. There is only one
thing that is going to happen. The $400 price is going to $500.
So here we are. We always are worried about the cost of
pharmaceutical drugs but potential abuse in the 340B program--
there is no free lunch in America. At least that is what we
were taught growing up. The price of the drugs will go up
because the abuse results in the most expensive drugs grabbing
this discount.
So the transparency is critical and I think our committee
can work together on that. I do know factually there are
hospitals that have a line item in their P&L and it is called
340B discounts. 340B discounts is an actual line item on their
profit and loss statement and they don't use it for additional
services. It is simply a line item on the P&L and that is where
we need to know where the money is going.
These are not the grantees. The grantees, the Ryan White
AIDS clinics, we know exactly what they are doing and that was
the intent back in 1992. And some of the grantees are very
worried--because I have met with them--that if we don't get
this under control there could be impacts on them and nobody
wants to impact any of the grantees.
So I guess it comes back, Captain Pedley--as we have heard
the others, the OIG and the GAO state, we need this clarity on
patient definition. We need clarity on requirements for
transparency and we need perhaps clarity out of HRSA. What do
you need from us? Because guidance is guidance. Regulations and
regulatory authority is that.
But there seems to be almost a disconnect of what you are
allowed to do, what you are not allowed to do. Do you need more
regulatory authority for Congress or don't you? You see my
worries and I hope--I tried to give you an example of why we
have got to get this under control.
Ms. Pedley. Based on the court ruling in 2014, the court
held that the statute only provides HRSA regulatory authority
in three specific places and that is the ceiling price and
civil monetary penalties for manufacturers and administrative
dispute resolution process. The first two are combined.
All other areas of the program we do not have specific
regulatory authority. We do propose in the fiscal year '18
president's budget to provide that regulatory authority for
HRSA. Regulatory authority does provide us the ability to be
more clear and the requirements of the program, which is why we
did include that in the president's budget.
Mr. Collins. So are you saying right now--for instance, I
also serve on the Health Subcommittee of Energy and Commerce--
do we on the Health Subcommittee have the language you would
like? Because I would think fairly quickly we could move that
language into a bill and I think, in a bipartisan way, move
that through Congress. Have they been that specific? Has HRSA
been that specific?
Ms. Pedley. I would have to check with my department
colleagues on whether there has been specific language.
Mr. Collins. If there is, could you provide that to the
committee and to myself? Because I think that could be a very
quick starting point.
Thank you, Mr. Chairman. I know my time is up. Thank you
all for your testimony.
Mr. Griffith. Thank you.
The gentleman from California, Mr. Ruiz, is recognized for
5 minutes.
Mr. Ruiz. Thank you, Mr. Chairman. Thank you for this
conversation. I have worked very closely with FQHCs and rural
clinics. In fact, my medical career--I grew up in an FQHC,
essentially, that was a block from my house, that took care of
farm workers and I have seen patients that go in that couldn't
afford their medications, and the 340B program is very
essential for a clinic to be able to provide lower cost or at
least cover the uncompensated under insured patients' costs and
expand their services. So this is something that we definitely
need to strengthen and to get right. But we are not talking
about the big picture here. Why are drugs so expensive to begin
with? That is the common sense question.
This is another band-aid approach to figuring out how can
we make medications more affordable. But we are really not
addressing the elephant in the room, which is why are these
medications so expensive and perhaps in addition to
transparency for this program where we want information from
FQHCs and people that are struggling to meet the needs of
underserved communities we should also have transparency on the
big pharmaceutical companies on their costs and their pricing
and where are their moneys going to so that we can figure out
how we can help protect patients and other entities who have
the focus on providing care for our neediest patients
throughout America and our middle class families who are under
insured and who are still struggling to make ends meet.
So we need to protect this crucial program which allows
thousands of entities across the country to provide lifesaving
prescriptions and care for the most vulnerable in our
communities. And we know that these providers operate on very
narrow margins and this program allows them to stretch their
money to serve more patients. For example, the Desert AIDS
Project in my district has a Hepatitis C program through which
patients have access to the medication to treat their disease
that otherwise can be cost prohibitive. And I have seen day in
and day out how not having access to the proper medication is
devastating to the overall health of patients.
Ms. Bliss, you talk about transparency. If you were to have
a wish list of what you want to know in transparency within
these programs, what would that wish list be like and what is
the number-one information that you would most advocate for in
terms of transparency?
Ms. Bliss. Thank you.
In the current program as it stands, we are advocating for
increased transparency in the ceiling prices and identifying
which claims are subject to the 340B discount and that is
because there are existing program rules around those features
of the program. So coming from an oversight entity, our link is
to those criteria. Where we advocate that there be new
information, new guidance is where there are missing rules.
So at this point, we are focused on the program as it
stands. But we would, in an environment with additional rules,
then we would certainly recommend transparency go hand in hand
with new requirements so that we would be able to tell whether
the program is working as intended.
Mr. Ruiz. For example, what kind of transparency would you
place on hospitals and clinics?
Ms. Bliss. Well, at this point, there are no reporting
requirements, as Captain Pedley has described, about how those
savings get spent. But there are also no requirements about how
they should be spent. So if hospitals were to start reporting
those today, we wouldn't have a measure to judge the success or
the outcomes or whether they would meet program intent. So
reporting requirements tied to actual program criteria and
goals are what would be most effective.
Mr. Ruiz. What would be most helpful for you, Captain
Pedley, in being able to enforce these in terms of
transparency?
Ms. Pedley. So the statute is silent on the savings piece.
But we did propose in the budget to work with Congress on
ensuring that the program does benefit patients, especially
those that are low-income uninsured. We are also working in
terms of transparency, as mentioned, on the 340B ceiling
prices. We are working on a system to provide those ceiling
prices to the covered entities so that they can see the prices
that they are to be charged.
Mr. Ruiz. Well, I certainly appreciate and would advocate
fiercely in order to see those cost savings translated into
real patient out-of-pocket savings. I do also know as well that
some of those savings are used for other programs that are in
dire need in those underserved communities. And so, I think
that a combination of both are very wise for these entities who
work under very strained under resourced conditions to provide
an enormous amount of help for patients who actually need it.
So thank you very much for your efforts.
Mr. Griffith. Gentleman yields back.
The gentleman from Michigan, Mr. Walberg, is recognized for
5 minutes.
Mr. Walberg. I want to start by thanking the chairman for
holding this hearing.
The 340B program assists some of the most needy patients in
our communities, including those who receive their care at
community health centers, hemophilia treatment centers, and HIV
clinics. As the number of entities participating in the 340B
program has quadrupled since 2011, we have learned of greater
oversight challenges and we are hearing of those today. I am
hopeful and expectant that this hearing will help us clearly
identify those challenges as we seek to preserve and strengthen
this 340B program. So it continues to truly meet needs.
Captain Pedley, I see that HRSA first began auditing
covered entities in 2012, as recommended by a 2011 GAO report.
As has been noted, HRSA has fewer than 30 staff devoted to
oversight of the 340B program. So it is understandable that
HRSA has conducted relatively few audits over the years when
compared with the size of the program--51 audits in fiscal year
2012, building up to 200 audits in fiscal year 2016.
What concerns me is the high rate of noncompliance that
HRSA uncovered in a very small sample size of the program.
Based on the available data, HRSA found noncompliance in 63
percent of 2012 audits. In 2013, that number rose to 79 percent
of audits showing noncompliance in 2014. Eighty-two percent of
audits in 2015--that number dropped slightly to 78 percent. And
finally, in 2016, of the audits that have been completed so
far, 66 percent show noncompliance. Those numbers are just
staggering.
Can you explain to me how HRSA selects the entities it
audits and why those numbers are so high?
Ms. Pedley. So HRSA determines the audits on two different
models. The first is a risk-based approach whereby we factor in
certain risk factors and then randomly select based on those
risk factors. We then separately specifically target audit some
of the entities either based on specific allegations we have
received about the entities already being in noncompliance or
information that we have that we are unable to resolve an issue
with an entity. Then we may go in and target audit an entity
already known with an issue. So the entities that we choose are
already at higher risk.
Mr. Walberg. Am I correct that the audits only cover small
number of the drugs that an entity might purchase through
participation in the 340B program rather than a full audit of
all drug purchases by that entity?
Ms. Pedley. So we use the standard auditing process whereby
we do sample based on a statistical methodology, a certain
percentage of the drugs to ensure that they meet program
requirements specific to diversion and duplicate discounts.
However, we do review all other aspects of the program outside
of the sample in addition to looking at their policies and
procedures, interviewing staff, and looking at all other
documents necessary to ensure that compliance beyond just the
sample of drugs.
Mr. Walberg. So even the small number of audits connected
by HRSA only cover a fraction of that entity's participation in
the program?
Ms. Pedley. So the sampling is specific to the diversion
and duplicate discounts that we sample and that is a standard
process used in auditing. But we look at the entire program to
ensure compliance, policies and procedures, interviews, looking
at their software systems and how they track drugs.
Mr. Walberg. OK. Thank you.
Ms. Bliss, has the OIG considered whether the 340B program
encourages the use of brand drugs and discourages the use of
generic drugs?
Ms. Bliss. We have not studied that particular issue.
Mr. Walberg. Is there any incentive to study that? An
incentive to prescribe more drugs and more expensive drugs
because the entity has received those drugs that reduce price?
Ms. Bliss. In theory, there is certainly financial
incentives to maximize the spread and your payments and your
reimbursements.
Mr. Walberg. Ms. Bliss, has the OIG reviewed whether the
340B program has created an incentive for hospitals to acquire
practices?
Ms. Bliss. We have not specifically examined hospital
incentives. I believe my colleague from HRSA had some work
touching upon that issue.
Ms. Draper. Yes.
Mr. Walberg. Ms. Draper.
Ms. Bliss. Oh, I am sorry.
Ms. Draper. That is OK. Actually, in 2015 we did look at
Medicare Part B, the intersection of that with the 340B program
and we did find the average number of oncology patients
increased for all hospital groups but the most for the 340B DSH
hospitals.
And we also found that the Part B drug spending was
substantially higher at 340B DSH hospitals which suggests that
the financial incentives may influence prescribing patterns to
prescribe more and more expensive drugs.
Mr. Walberg. OK. Thank you.
I yield back.
Mr. Griffith. I thank the gentleman.
The gentlewoman from Illinois, Ms. Schakowsky.
Ms. Schakowsky. Thank you.
Well, I am happy to see that everyone on the committee has
expressed their support--just about everybody--for the 340B
program because it certainly is a vital source for health care
providers that really underpins our safety net programs. And I
am all in favor of doing everything we can to make sure that we
provide the proper oversight. But I wanted to make a couple of
comments. One may seem irrelevant but I would hope that members
of this committee would have as great enthusiasm for audits of
the Defense Department and where big money is really spent.
And I would also like to comment my support for and
associate myself with the remarks of Dr. Ruiz, who was talking
about hep C patients being able, under this program, to be able
to afford drugs that could offer a cure, but that we also want
to look at why the pharmaceutical companies are charging tens
of thousands of dollars for this drug and charging so much for
other drugs and I think that this committee needs to look at
more than--this is really not, I don't think a discussion about
the price of drugs as much it is a particular small program.
I am concerned with the CMS-proposed rule and I know,
Captain Pedley, that you said it is under advisement and so you
can't talk about it. But can you describe it so that I
understand it better what this proposed rule would do? Because
what it sounds to me is at the end of the day that the entities
like hospitals and FQHCs would receive less money. Can you
describe it?
Ms. Pedley. I don't know the details of that rule. That is
under the purview of CMS and we could help connect you with
them. But I would be unable to go into any detail.
Ms. Schakowsky. OK. And you were also asked the question
describe the types of comprehensive services 340B covers. You
were just strictly talking about the discount drugs. Is there
anything else that you can add about that?
Ms. Pedley. HRSA does not track or have information on how
the entities use the savings to provide or care to more
patients.
Ms. Schakowsky. OK. The 340B program has a demonstrable
effect in helping disproportionate share hospitals and rural
hospitals save their patients and that is a key part of the
program that they are able and actually required to spend that
money into engaging in meaningful and beneficial work to
support the most vulnerable.
So let me ask you then what you think are the key--Captain
Pedley, the key areas that we ought to be looking at to support
your work in making sure that your audits are as effective as
they can be and that this program is as effective as it can be.
Ms. Pedley. As proposed in the fiscal year '18 president's
budget, HRSA only, again, has regulatory authority in the three
specific areas and we have proposed guidance in all other
areas. The regulatory authority across the program is critical
for us to be able to provide clarity in our program
requirements and assist HRSA in our oversight efforts to be
able to then enforce those requirements. So regulatory
authority is key.
Ms. Schakowsky. So this program has just been described as
a real mess by some others on the other side of the aisle. Dr.
Draper, would you agree that that is accurate, based on what
GAO has looked at?
Ms. Draper. Well, we have identified weaknesses in
oversight and we believe that the oversight needs to be
improved and there are things that can be undertaken to make
that happen.
Ms. Schakowsky. What is the most important thing that we
ought to do?
Ms. Draper. Well, we talked a little bit about--I want to
reemphasize about hospital eligibility. I think it is really
important to think about HRSA's role with oversight related to
participating hospitals. In 2011, about a third of U.S.
hospitals were participating in the 340B program and by 2015
they are 40 percent. HRSA may have more updated numbers.
But I think the issue, because other grantees have specific
requirements based on their grants that they have to follow in
treating under insured or uninsured patients, you have a range
of hospitals participating in this program and they operate in
settings that provide both inpatient and outpatient services.
So the risk for diversion is really--there is more risk.
Because this is an outpatient program, drugs are not to be used
for an inpatient setting. Hospitals also tend to have more
complex contracting arrangements in organizational settings,
which is really different than the federal grantees, and then
they provide a larger volume of drugs in multiple settings. So
I think the risk is probably higher for a hospital and that is
why I think that the hospital eligibility criteria is really
critical as well as the definition of a patient.
Ms. Schakowsky. In my home state of Illinois there are over
a hundred hospitals participating in the 340B program, and by
and large, I think, and I am not disagreeing that we want to
look at this carefully, but that helps those institutions
better serve their patients. The 340B program helped a 9-year-
old patient with a brain tumor who receives care at the
University of Illinois in Chicago and they were able to afford
a drug that she needed for her chemotherapy regimen that is not
covered by her insurance.
So, we all have anecdotal information, I think. But I just
worry that we don't want to throw out the baby with the bath
water.
Ms. Bliss, what would you say is the most important thing?
Ms. Bliss. Clear program rules are fundamental to ensuring
program integrity, accountability, and even assessing to what
degree the program is working.
Ms. Schakowsky. OK. I yield.
Mr. Griffith. I appreciate that. Thank you very much for
yielding back and I now recognize the gentlelady from
California, Mrs. Walters.
Mrs. Walters. Thank you, Mr. Chairman, and I would like to
thank the panelists for being here today.
Captain Pedley, I understand that the number of entity
child sites has more than doubled in the past 6 years, rising
from roughly 16,500 in 2011, according to GAO, to 41,132 as of
yesterday, according to HRSA. Two weeks ago on July 5th, HRSA
listed the number of registered child sites at 40,745.
Yesterday, July 17th, that number had increased by almost 400
sites. That is a drastic increase in child sites. And I would
like to get a sense of what is driving that increase in sites
and how that affects program integrity. How much can this rise
in child sites be attributed to consolidation--that is, the
trend of larger entities often DSH hospitals find smaller
clinics and physician practices that as a result fall under
their 340B umbrella?
Ms. Pedley. The statute is very specific as to which
entities are eligible for the program and HRSA's role through
that process is to ensure that when an entity applies that they
do meet the statutory requirements. So everyone that we do list
in the program does meet the statutory requirements and is
eligible.
Mrs. Walters. OK. When a covered entity acquires another
practice as a child site, it is my understanding that the drugs
dispensed to that child site's patients often becomes eligible
for 340B discounts. Does that child site take on any new
statutory or regulatory obligations such as providing the kind
of care that originally qualified the parent site for 340B
status?
Ms. Pedley. So specifically for a hospital, and it may be
different for a grantee, but for a hospital if they do acquire
an outpatient facility they do first have to be reimbursable on
that hospital's Medicare cost report before they are eligible
for the 340B program because that is our test to ensure that
they are an integral part. Once they are in that cost report
then they also have to enroll, be listed on our database. They
can then purchase drugs at that clinic as well and they have to
meet all other 340B requirements just as the main facility
does.
Mrs. Walters. OK. And to what extent is consolidation
guided by perverse incentives? For example, a recent report has
shown that there has been a 172 percent increase in the
consolidation of community oncology practices into hospitals
since 2008.
Ms. Pedley. HRSA's role is to ensure that everyone that
does register does meet statutory requirements. I am unable to
speculate on business decisions a hospital may make to acquire
those facilities. Our role is to ensure that they are eligible
for the program.
Mrs. Walters. OK. And as you know, oncology drugs can be
quite expensive, and I know we talked a little bit about this
before. If the covered entity is purchasing oncology drugs at
the 340B discount but not charging the patients at a discounted
rate for those drugs, this can be profitable for the covered
entity.
Does this function to serve vulnerable patient populations
and, if not, does it run counter to the intent of the program
and how does this consolidation affect patient care?
Ms. Pedley. The statute is only specific around the
different compliance elements related to the 340B program--for
example, the patient definition and duplicate discounts. It
does not provide HRSA the authority around how the entity uses
those savings.
Mrs. Walters. OK. And how does this consolidation affect
patient care?
Ms. Pedley. I am unable to comment on those business
decisions made by the hospital.
Mrs. Walters. OK. I yield back the balance of my time.
Thank you.
Mr. Murphy. Ms. Clarke, you are recognized for 5 minutes.
Ms. Clarke. I thank you, Mr. Chairman, and I thank our
panelists for enlightening us today with this discussion.
I have been an ardent supporter of the 340B program. In
fact, I have six nonprofit safety net 340B hospitals as well as
multiple federally qualified community health centers and
clinics in my district. Having the access to affordable
medications provided through this program has saved countless
lives in my district as well as improved the quality of life
for many of my constituents. It is due in large part to this
program that one of the hospital systems in my district was
able to increase uncompensated care by 34.68 percent.
With the current debate raging around the repeal of the ACA
and my Republican colleagues' attempt to systemically dismantle
the Medicaid program by their health care reform bills, the
340B program is needed now more than ever. However, I can't
overlook numerous government reports citing the vulnerabilities
in this program. Drug manufacturers have also expressed their
concerns about the reports of such vulnerabilities.
To be clear, I support the intent of the program, but I do
believe that more transparency and accountability is required.
Therefore, additional oversight and reasonable checks and
balances are needed to strengthen the program.
So my question is to you, Captain Pedley. The first
question is can you provide me with the dates by which some of
the oversight tools stemming from the GAO and OIG
recommendations will be fully implemented? Specifically, what
is the estimated completion date for the ceiling price website
which can help ensure that covered entities are paying the
appropriate drug price? And can you tell me the date by which a
centralized mechanism similar to the 340B Medicaid exclusive
file will be up and running for Medicaid managed care
organizations?
Ms. Pedley. The 2011 study from GAO did recommend
information for us but specific to the ceiling price system
that you mentioned we received funding in fiscal year '14. We
honored that and we had a contract put in place that September
in order to start development of that system. It is complex.
There are over 40,000 drugs as part of that system.
We also have to ensure that it is developed in a way to
ensure the confidential and proprietary nature of those prices
and to ensure that the information in that system is not
redisclosed. We are getting close to the release of that system
and plan for it to be released in the coming months so the
covered entities are able to view the ceiling prices.
Ms. Clarke. So that would be this year?
Ms. Pedley. In the coming months.
Ms. Clarke. 2017. Coming months. Months are always coming.
[Laughter.]
Ms. Pedley. We do hope that it is soon and we have an
education plan in place to ensure that those that are going to
be able to use the system have adequate time to learn it so
they can understand more about that system and the information
it will contain.
Ms. Clarke. The 340B Medicaid exclusive file--is that part
of the system that you are speaking of?
Ms. Pedley. No. That is a separate document--the Medicaid
exclusion file. There is currently one in place for Medicaid
fee for service and the purpose of that file is to ensure that
states and manufacturers have the information necessary to
prevent a duplicate discount in the program, meaning to prevent
a 340B drug discount and a Medicaid rebate on the same drug and
the file is used for that purpose. We are separately going
through the process of developing policy around duplicate
discounts and Medicaid managed care.
Amendments were added to the statute in 2010 that did
include now Medicaid managed care under the duplicate discount
provision. We proposed in our 2015 omnibus guidance policy
related to that matter and we received comments.
We are also in discussion with CMS related to that as there
will also have to be policy in place by CMS in the states in
order to make that process work.
Ms. Clarke. Well, that process is of interest to me since I
have a significant portion of the recipients in my district are
now in Medicaid managed care plans.
Are there no completion dates that are up and running and
when can those dates be really confirmed for us?
Ms. Pedley. So we first have to address the policy matters
as to how to handle duplicate discounts related to Medicaid
managed care and we are working with the administration
currently on next steps related to that policy.
And then from there we would develop some type of file or
information that would be used to prevent those duplicate
discounts.
Ms. Clarke. Well, let me close by congratulating you
because I know that HRSA has been working on this item for a
while and I am happy to see them finally done.
I yield back, Mr. Chairman.
Mr. Murphy. Thank you, Ms. Clarke.
I recognize the gentleman from Pennsylvania, Mr. Costello,
for 5 minutes.
Mr. Costello. Following up on Ms. Clarke's line of inquiry,
Captain Pedley, do you agree that given that two-thirds of the
more than 70 million Medicaid enrollees are in managed care
that whatever policy changes you are proposing there would
probably go further in terms of addressing the issue of
duplicate discounts than anything else?
Ms. Pedley. So under Medicaid managed care we do have to
first develop that policy for how duplicate discounts are to be
prevented under Medicaid managed care and that involves many
parties through the process. Our authority specifically over
how an entity prevents those duplicate discounts. CMS would
have to separately address this issue with the states and the
Medicaid managed care organizations.
Mr. Costello. Do you agree that the policy change can occur
within the regulatory realm and that no legislative action will
be required?
Ms. Pedley. HRSA does not have regulatory authority related
to duplicate discounts.
Mr. Costello. CMS?
Ms. Pedley. I do not know the answer.
Mr. Costello. So at this point, you do not know, and I
don't mean this to be an unfair question--you don't know
whether this will require legislative action in order to
address the policy change required in order to drill down and
prevent duplicate discounts in the managed care realm?
Ms. Pedley. We have the authority to present guidance as we
have presented in our proposed guidance. In order to regulate
on this issue, we would need a legislative change.
Mr. Costello. OK. Do you have an opinion on what policy is
required or legislative change is required in order to address
that?
Ms. Pedley. So in the fiscal year '18 proposed budget we
did propose for broad regulatory in the program in order for
HRSA to better clarify our policy and to ensure that those
policies are enforceable.
Mr. Costello. Shifting gears, this is in the testimony of
Ms. Bliss, HRSA worked with CMS and with Congress to obtain any
needed authority to share ceiling prices with state Medicaid
agencies. Do you have sufficient statutory authority to carry
out that recommendation of providing ceiling prices to state
Medicaid agencies?
Ms. Pedley. The statute is very specific to allow HRSA to
provide the ceiling prices to covered entities. Therefore, we
would need a legislative change to provide that information to
the states.
We are currently in discussion with CMS regarding some
possible administrative options. But we would need up front a
legislative----
Mr. Costello. OK. So let us talk about that for a second.
Let us assume that state Medicaid agencies have the ability to
learn of the ceiling prices. Can you share for this
subcommittee how that would positively impact the program
integrity?
Ms. Pedley. So in terms of providing the ceiling prices to
states, it would not address any issues around duplicate
discounts under the 340B statute. The ceiling prices would be
in place to help inform the prices being paid for those drugs
so that the states could reimburse the covered entity according
to CMS rules.
Mr. Costello. Can you share with me if you were to use
claims level methods to identify claims for 340B purchased
drugs and HRSA's guidance were updated related to same, what
would that do in terms of program integrity? Would it improve
it?
Ms. Pedley. So claims level data as suggested by the OIG in
their study would make transparent the specific 340B drugs that
are being purchased in order to prevent duplicate discounts.
Mr. Costello. Do you believe that there is an insufficient
technology platform right now in order to provide the type of
transparency and accountability in order to make sure that this
program operates the way that it should?
Ms. Pedley. So related to the recommendation made by the
OIG for HRSA to provide more clarity regarding Medicaid managed
care and how to prevent duplicate discounts we have been
working very closely with CMS and we have convened many of the
stakeholders in this space regarding how a solution may play
out to prevent duplicate discounts----
Mr. Costello. Right.
Ms. Pedley [continuing]. And an IT solution is very
important to that process.
Mr. Costello. There are the clarity issues. The clarity
issues, because there is ambiguity, people can interpret things
differently and thus you have different results given the same
set of facts.
The question I have is for the enforcement side of this,
you are doing, I think, less than 1 percent of all of these
340B facilities get audited, right, because of a manpower
issue.
If you have the right IT in place, a lot of that sort of
speaks for itself, does it not? And so the question is really
geared more towards the IT side of this and if you have the
right IT platforms in--well, here is a question.
I know my time has expired. If you had the right IT
platform, do you feel that you could perform more audits in the
same amount of time or in the same--could you provide more
audits in a given year if you had a better IT platform?
Ms. Pedley. We have not explored IT related to whether we
could conduct more audits or not. But that is something that we
could look into.
Mr. Costello. Well, the IT would be on the side of the
reporting, right?
My time is up. I yield back.
Mr. Murphy. Mr. Carter, you are recognized for 5 minutes.
Mr. Carter. Thank you, Mr. Chairman. I thank all of you for
being here. This is an extremely interesting subject on a very
important subject as well.
I am going to start with you, Dr. Pedley, and by the way,
Mr. Chairman, she is a doctor. She had a PharmD degree as well
as being a captain. I know that Dr. Draper mentioned earlier
when she was asked a question about what could we do to improve
the program she mentioned about the hospital eligibility. But
one thing that I am concerned about is the patient eligibility.
If I have heard to, Dr. Pedley, say once I've heard you say it
50 times during this hearing the statute is silent. The statute
is silent.
What do we need to do to clarify patient eligibility? Do we
need to do it legislatively or can you do it?
Ms. Pedley. So the statute is silent on what entities do
with their savings. It is--it does, however, mention that it
has to go to a patient and HRSA does have authority related to
creating guidance on who is an eligible patient.
And we have done that. We have a guidance currently on what
defines a patient from 1996 and we proposed in 2015 additional
guidelines related to the definition of a patient.
However, we do not have regulatory authority to regulate on
what----
Mr. Carter. That comes from Congress? So we need to do
that?
Ms. Pedley. We would need a legislative change.
Mr. Carter. OK. Count on it.
I want to go to you, Dr. Draper, because something is very
important to me and that is--and I know that Representative
Collins mentioned this and it is just something that I want to
get clarified here because I think that there is a lot more
that goes on here than we recognize--a lot more ramifications,
if you will, and that is the GAO has released a number of
reports including the report in June of 2015 that said the
financial incentive to maximize Medicare revenues through the
prescribing of more or more expensive drugs at 340B hospitals
also raises concerns. You acknowledge that. You acknowledge
that you have seen a tendency for more 340B drugs to be used in
those hospitals that are eligible for this.
Not only does excess spending on Part B drugs increase the
burden on both taxpayers and beneficiaries who finance the
program through their premiums, it also has a direct financial
effect on beneficiaries who are responsible for 20 percent of
the Medicare payment for their Part B drugs. This is something
that is very important. Throughout this hearing, I have heard,
well, this isn't really talking about prescription drug costs.
Well, it is really talking about prescription drug costs
because I can assure you this is helping to increase
prescription drug costs.
One of the things that you were asked by Representative
Collins is about the incentive for hospitals to buy up
physician practices in order to gain that authority or in order
to gain that ability to have them participate in 340B programs.
Is that something that you see happening?
Ms. Draper. On our 2015 work we did find that the average
number of--I know there has been a lot of discussion about
oncology practices in particular, but the number of oncology
patients increased for all hospital groups but the most for
340B hospitals.
Mr. Carter. Absolutely, and the less competition we have
within the healthcare system the higher the prices are. So it
is just a merry-go-round here.
I am not naive enough to believe that this is the worst
administered program that we have in the federal government but
I think it is an example of how a program that was set out with
the best of intentions can mushroom into a program that is just
out of control.
Listen, it is not just the pharmaceutical manufacturers who
aren't making as much money as they will. If I have insurance
and I am being charged through the 340B program, the hospital
is making money off of me. They are making money off my
insurance. They are causing me to have higher premiums in the
end. It has just as much an impact on me as it has on anyone.
Even though I have insurance, it is causing insurance to go up.
It's causing prescription drug prices to go up. Hospitals are
right when they say, we are in compliance. They are in
compliance because what is compliance?
Nobody can really define what compliance is. They can point
to just about any program that they have and many of them have
fine programs that they are administering. But until we make
sure that we are setting the record straight on what they are
supposed to be doing with this, no one is going to be out of
compliance. Not only that, but the repercussions when we do
find someone who is out of compliance there aren't even there--
there aren't even any penalties there. You have said that over
and over again.
There is one word that we can sum up prescription drug
pricing, that we can sum up this program with, and that is
transparency. We need transparency within prescription drug
pricing. We need it here. We need it in the individual
markets--transparency. Whatever happened to the ability to just
buy directly from the pharmaceutical manufacturer?
Right now there has got to be all kind of discounts, and I
apologize for getting on my soapbox here but I am telling you
it is out of control. Until we have transparency, we are never
going to get this under control.
This program is a good program but it lacks clarity and it
lacks oversight, and we have got to do something about it.
Mr. Chairman, I yield back.
Mr. Murphy. Gentleman from Virginia for 5 minutes.
Mr. Griffith. Thank you very much, Mr. Chairman. Thank you
all for being here today to testify.
Let me start with Ms. Draper. By the way, it is always nice
to have you here and always love it when I see the Medical
College of Virginia listed in your bio.
Ms. Draper. Great school.
Mr. Griffith. Great school. Yes, ma'am.
This metric for qualifying DSH hospitals is an inpatient
measurement yet 340B is for outpatient drugs. So does it make
sense for us to use an inpatient metric for an outpatient
program?
Ms. Draper. Well, we do believe that that is one of the
weaknesses of the DSH measure. The other is that it really--the
formula is based on covered patients and that would be those
covered by Medicare and Medicaid. So, there are weaknesses
inherent in that measure.
Mr. Griffith. That's just another one of the many stones
you all have turned over and said, whoops, we can't see
anything there.
Ms. Draper. Yes.
Mr. Griffith. Yes. And what is the DSH threshold? Do you
know?
Ms. Draper. Well, it ranges for different hospital types.
For some hospitals, it is 8 percent--the DSH adjustment--and
for others like the general DSH hospitals it is 11.75 percent.
So that is another issue--whether or not that is an appropriate
level or not and, again, that has been pretty consistent over
time with the program.
So, whether that needs to be reassessed that would also be
a question.
Mr. Griffith. Yes, ma'am. Thank you so much.
Captain Pedley, earlier Ms. Draper referenced that prior to
the shift or the change there were 1,300--and if I get the
numbers wrong you all correct me--1,300 contract pharmacies
with the various entities or hospitals and now there are
19,000, if I wrote it down correctly when you said that
earlier.
I got all kinds of complicated questions on that that I
have been given. But why the great expansion in the number of
contract pharmacies? Is it just because we lifted the cap of
one or how did that happen?
Ms. Pedley. The 340B statute is silent on how these covered
entities dispense and get these drugs to their patients. We had
understood that through state law entities were contracting
with pharmacies. So in recognition of that, we did develop
guidance in 2010 that stated if they were going to have these
contract pharmacies they needed to ensure they were also
complying with the statutory requirements of diversion and
duplicate discounts and we audit that information on those
contract pharmacies when we go in to audit a covered entity.
Mr. Griffith. All right. I am going to get to that in a
second. But I have also heard that the contract pharmacies are
not only allowed to charge a dispensing fee but some of them
ask for part of the savings on the drug. Is that correct or is
that incorrect?
Ms. Pedley. I don't have the information on that. That's a
business matter between the parties and their contract.
Mr. Griffith. But it is not prohibited?
Ms. Pedley. It is not prohibited.
Mr. Griffith. OK. Now, let us get back to the audits. You
have asked the hospitals to do the audits of the contracting
pharmacies. When you go in and you check on those, obviously,
you don't have enough people to check on 19,000 individual
contracts with the various providers to the various entities.
So have you uncovered problems and if you do, do you suspend
somebody? Do you suspend the pharmacy or do you suspend the
entity if they are not doing the proper oversight of the
contracting pharmacies?
Ms. Pedley. So we have audited now over 800 covered
entities but it doesn't stop there. We also do conduct the
audits within those of their contract pharmacies. So we have
audited over 18,000 contract pharmacy arrangements related to
those audits. We do ensure that the covered entity is providing
oversight. We sample 340B drugs dispensed from those pharmacies
to ensure that they have not been diverted or have a duplicate
discount, and if we do find the entity is not providing
oversight of those contract pharmacies we will remove the
pharmacies from the program.
Mr. Griffith. All right. Now, that raises an interesting
issue. If you have done the audits, and you touched on 18,000
contract pharmacies, those audits didn't reveal to you if some
of them were getting a split of the savings with the entity?
Ms. Pedley. That is a matter outside of our authority so we
don't review it when we audit them.
Mr. Griffith. OK. Would you like to have that authority? I
mean, as long as we are going in to look at this, and it looks
like it is a bipartisan way, should we give you that authority
as well?
Ms. Pedley. We would be happy to work with Congress on a
specific proposal.
Mr. Griffith. I appreciate that very much. Yes, ma'am.
All right. I might be the last one up. I have got about 40
seconds left. Anybody have something that they really want to--
--
Mr. Carter. I do. I do.
Mr. Griffith. I yield to the gentleman from Georgia. Oh,
OK. I yield to the gentleman from Georgia, though.
Mr. Carter. Dr. Pedley, I just want to make sure and
understand. Most of the problems that you see, are they with
the contracting pharmacies? Is it not true that most of the
hospitals dispense these medications that are covered under
340B through their own providers, especially with oncology? I
mean, they dispense them out of the office.
Ms. Pedley. It is a combination of their in-house pharmacy
and whether they contract with pharmacies. I think, as you
mentioned, it also depends on the types of drugs. But it is a
combination of both.
Mr. Carter. Thank you. I yield back.
Mr. Murphy. I yield back to myself. OK.
That being done, we are finished with the regular committee
members. We have Mr. Welch, who, I assume, by unanimous
consent, is allowed to participate today.
So I recognize the gentleman from Vermont, Mr. Welch, for 5
minutes.
Mr. Welch. Thank you, Mr. Chairman, I appreciate it, and I
thank the panel.
A couple of things. One, Mr. Chairman, with respect to
transparency, I am all on board. We need that across the board.
Number two, with respect to whatever auditing has to be done in
order to get our hands around this program, I am all for that
and I think you are doing a good job.
But I want to bring this back to what this means to rural
Vermont and I think rural America. We are talking about the
audit as though these nonprofit hospitals, like North Country
Hospital in Newport, Vermont, is playing some kind of game and
that just ain't the case. Folks there in a hospital are working
hard, not making a lot of money, and are the vital community
institution in Newport, Vermont.
And I know, Mr. Chairman, you have got that and, Mr.
Carter, I know you have that as well. They are focused on
trying to get costs down. That is their focus, and that cost
going down means that they can serve other people in this rural
and pretty poor community.
The pharma companies, frankly, are focused on shareholder
profit. That is their job. But there is a tug of war here, and
whatever it is we do--transparency, better audits--I do not
want to compromise the ability of those rural community
hospitals to do the job and get the services out to folks, and
that has got to be the bottom line. For me, that is the bottom
line. Rural America is getting hammered and it is not just
Vermont.
The other issue, Mr. Griffith, you and I worked on to some
extent--the 340B issue where these orphan drugs get mislabeled
and the pharmaceutical companies take advantage of the fact
that there is an orphan designation for a small component of
what the use of that drug is and then they get the higher price
on everything--and I would hope that would be part of it.
But just let me tell you about the North County Hospital.
If we lost the 340B designation, that would be $2.7 million a
year. That is what would happen to them. When Porter Hospital
in Middlebury, Vermont--the nearest other hospital is about 40
miles away--when the orphan drug rule change was made that cost
them $500,000. That is big money in a rural community hospital.
So that is the focus here--I think ultimately at the end of
the day whatever we do in transparency and on the audit and
oversight, the bottom line for me is those community hospitals.
Commander Pedley, I do want to ask you about some of the
challenges that you face in regulating in this area and share
your best understanding of what you believe Congress intended
when it enacted the provision on 340B.
Ms. Pedley. In terms of regulatory authority, due to the
district court ruling in 2014, the courts did hold that we only
have explicit authority in three areas: that is related to the
ceiling price, civil monetary penalties for manufacturers, and
the administrative dispute resolution process.
But we do not have that authority for all other areas of
the program. We have developed guidance in those areas but we
did propose in the budget to provide comprehensive regulatory
authority for HRSA to oversee around.
Mr. Welch. All right. Now, on the current application of
the exclusion that has an effect on access to products in the
340B, is that something you have the ability to track?
Ms. Pedley. I am sorry. Did you say orphan drugs?
Mr. Welch. Yes.
Ms. Pedley. So related to orphan drugs, there was an
amendment in the statute in 2010 that the newly eligible
hospitals, mainly, rural hospitals, are unable to purchase
orphan drugs under the program at the 340B discount.
There was a lawsuit involving HRSA's interpretation related
to that matter. Currently, under the program the policy is that
the manufacturer does not have to provide the 340B discount to
those newly eligible hospitals for drug----
Mr. Welch. All right. Thank you.
Ms. Draper, it is very nice to see you. Thank you.
On the orphan drug issue, and the specific question of how
many drugs have been recently pulled out of the program, is
that something the GAO has reviewed?
Ms. Draper. We have not reviewed that.
Mr. Welch. That information would be helpful and important,
given the anecdotal evidence about real access. Is that
something you would agree with?
Ms. Draper. I think anything that would help improve the
transparency and integrity of the program would be good.
Mr. Welch. OK. Thank you.
I thank the panel. Mr. Chairman, thank you for allowing me
to participate.
Mr. Murphy. Thank you very much.
That concludes this committee hearing. I would like to
thank all the witnesses and members who have participated in
today's hearing.
I would remind members that they have 10 business days to
submit questions for the record, and I ask that the witnesses
all agree to respond promptly to those questions.
Hearing nothing else, the committee is adjourned.
[Whereupon, at 12:31 p.m., the subcommittee was adjourned.]
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