[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


         OPPORTUNITIES TO IMPROVE THE 340B DRUG PRICING PROGRAM

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 11, 2018

                               __________

                           Serial No. 115-147


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                        
                        
                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
35-163                        WASHINGTON : 2019                     
          
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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
MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
STEVE SCALISE, Louisiana             DIANA DeGETTE, Colorado
ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
CATHY McMORRIS RODGERS, Washington   JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
BILL JOHNSON, Ohio                   YVETTE D. CLARKE, New York
BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
BILL FLORES, Texas                   JOSEPH P. KENNEDY, III, 
SUSAN W. BROOKS, Indiana                 Massachusetts
MARKWAYNE MULLIN, Oklahoma           TONY CARDENAS, California
RICHARD HUDSON, North Carolina       RAUL RUIZ, California
CHRIS COLLINS, New York              SCOTT H. PETERS, California
KEVIN CRAMER, North Dakota           DEBBIE DINGELL, Michigan
TIM WALBERG, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina
                         Subcommittee on Health


                       MICHAEL C. BURGESS, Texas
                                 Chairman
BRETT GUTHRIE, Kentucky              GENE GREEN, Texas
  Vice Chairman                        Ranking Member
JOE BARTON, Texas                    ELIOT L. ENGEL, New York
FRED UPTON, Michigan                 JANICE D. SCHAKOWSKY, Illinois
JOHN SHIMKUS, Illinois               G.K. BUTTERFIELD, North Carolina
MARSHA BLACKBURN, Tennessee          DORIS O. MATSUI, California
ROBERT E. LATTA, Ohio                KATHY CASTOR, Florida
CATHY McMORRIS RODGERS, Washington   JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         KURT SCHRADER, Oregon
GUS M. BILIRAKIS, Florida            JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                     Massachusetts
LARRY BUCSHON, Indiana               TONY CARDENAS, California
SUSAN W. BROOKS, Indiana             ANNA G. ESHOO, California
MARKWAYNE MULLIN, Oklahoma           DIANA DeGETTE, Colorado
RICHARD HUDSON, North Carolina       FRANK PALLONE, Jr., New Jersey (ex 
CHRIS COLLINS, New York                  officio)
EARL L. ``BUDDY'' CARTER, Georgia
GREG WALDEN, Oregon (ex officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     1
    Prepared statement...........................................     3
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     4
    Prepared statement...........................................     6
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     7
    Prepared statement...........................................     9
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................    10
    Prepared statement...........................................    12

                               Witnesses

Debra Draper, Director, Health Care Team, U.S. Government 
  Accountability Office..........................................    13
    Prepared statement...........................................    15
Debra Patt, Executive Vice President, Texas Oncology.............    60
    Prepared statement...........................................    63
Frederick Cerise, President and CEO, Parkland Hospital...........    75
    Prepared statement...........................................    77
Charles Daniels, Pharmacist-in-Chief and Associate Dean, 
  University of California, San Diego............................    84
    Prepared statement...........................................    86

                           Submitted Material

Statement of the Association of American Medical Colleges........   119
Statement of Mission Health......................................   128
Statement of patient groups......................................   134
Statement of 340B Health.........................................   137
Statement of the American Society of Health System Pharmacists...   145
Article entitled, ``How Abuse of the 340B Program is Hurting 
  Patients,'' the Community Oncology Alliance, September 2017....   149
Statement of America's Essential Hospitals.......................   154
Statement of Ascension, Texas....................................   159
Statement of the American Society of Clinical Oncology...........   162
Statement of the Catholic Health Association of the United States   165
Statement of the US Oncology Network.............................   168
Statement of the Children's Hospital Association.................   170

 
         OPPORTUNITIES TO IMPROVE THE 340B DRUG PRICING PROGRAM

                              ----------                              


                        WEDNESDAY, JULY 11, 2018

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2123 Rayburn House Office Building, Hon. Michael Burgess 
(chairman of the subcommittee) presiding.
    Members present: Representatives Burgess, Guthrie, Barton, 
Upton, Shimkus, Latta, Lance, Griffith, Bilirakis, Long, 
Bucshon, Brooks, Mullin, Hudson, Collins, Carter, Walden(ex 
officio), Green, Engel, Schakowsky, Butterfield, Matsui, 
Castor, Sarbanes, Schrader, Kennedy, Cardenas, Eshoo, DeGette, 
and Pallone (ex officio).
    Staff present: Jennifer Barblan, Chief Counsel, Oversight & 
Investigations; Mike Bloomquist, Staff Director; Adam Buckalew, 
Professional Staff Member, Health; Daniel Butler, Staff 
Assistant; Karen Christian, General Counsel; Margaret Tucker 
Fogarty, Staff Assistant; Adam Fromm, Director of Outreach and 
Coalitions; Caleb Graff, Professional Staff Member, Health; 
Brighton Haslett, Counsel, Oversight & Investigations; Ed Kim, 
Policy Coordinator, Health; Caprice Knapp, Fellow, Health; Drew 
McDowell, Executive Assistant; Mark Ratner, Policy Coordinator; 
Austin Stonebraker, Press Assistant; Josh Trent, Deputy Chief 
Health Counsel, Health; Hamlin Wade, Special Advisor, External 
Affairs; Jeff Carroll, Minority Staff Director; Evan Gilbert, 
Minority Press Assistant; Tiffany Guarascio, Minority Deputy 
Staff Director and Chief Health Advisor; Rachel Pryor, Minority 
Senior Health Policy Advisor; Samantha Satchell, Minority 
Policy Analyst; and Andrew Souvall, Minority Director of 
Communications, Outreach and Member Services.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Let me ask all of our guests to take their 
seats.
    The Subcommittee on Health will now come to order. I now 
recognize myself 5 minutes for the purpose of an opening 
statement.
    And this morning, we are convening today to learn about 
opportunities to improve the 340B Drug Pricing Program. This 
hearing builds on previous work done by the Committee on Energy 
and Commerce and the Oversight and Investigations Subcommittee 
in this Congress and the last Congress.
    The Subcommittee on Oversight and Investigations has held 
hearings on aspects of the program over the past several years. 
That subcommittee also issued a comprehensive oversight report 
on the program earlier this year.
    As we start this morning, it is important to emphasize that 
members of this committee, both sides of the dais, each 
understand the importance of the 340B program to safety net 
health care providers and many communities large and small 
across our nation.
    The program enjoys strong bipartisan support and it helps 
many health care providers give care to vulnerable Americans. 
At the same time, it is worth noting that Congress established 
the 340B Drug Pricing Program over 25 years ago through the 
enactment of the Veterans Health Care Act of 1992. So just for 
purposes of references, the Cold War was still going on or 
right at the end of the Cold War, right at the beginning of the 
internet age.
    Certainly, we can all agree that our health care system has 
evolved significantly since that time, and it is reasonable to 
review how the program is working with today's realities.
    The 340B program is a success. At the same time, there are 
ways in which the program's current operation raises valid 
concerns. Multiple reviews by nonpartisan auditors have 
identified challenges within the program's current operation 
and oversight.
    For example, we know that the Health Resources and Services 
Administration, the agency charged with oversight of the 340B 
program, lacks some key regulatory authorities.
    Additionally, the Health Resources and Services 
Administration has delayed multiple program regulations 
repeatedly without a compelling and clear rationale.
    We have learned that, in 2016, HRSA audited less than 2 
percent of total entities participating in the program. There 
has also been uncertainty about where the savings from this 
program are going and how certain covered entities may be 
utilizing the revenue generated from the program.
    The newest concern with the program's oversight has been 
highlighted by the Government Accountability Office. Today, we 
will hear from Government Accountability Office, who recently 
released a ground-breaking report on contract pharmacies. We 
all know that the number of contract pharmacies has grown 
rapidly since HRSA issued guidance in 2010 that allowed covered 
entities to contract with multiple pharmacies.
    Since then, the number of pharmacies that covered entities 
have contracts with has increased from 1,300 to over 20,000 
last year.
    I think Government Accountability Offices raises a number 
of serious challenges with HRSA's current oversight of contract 
pharmacies. I think we all should be concerned by the fact that 
many of the covered entities that the GAO reviewed do not have 
in place a policy that ensures uninsured low-income patients 
are not hit with a big hospital bill for their outpatient 
drugs.
    Certainly, concern about health care costs, drug costs, 
hospital costs, other costs, is an ongoing concern. I have a 
discussion draft today which outlines one possible solution to 
this issue--to ensure that covered entities stretch resources 
through the 340B program while making certain that some of the 
most vulnerable patients see financial benefit.
    Overall, I found this is an eye-opening report and I hope 
we will each review it carefully as we seek to ensure it is 
effectively implemented.
    I appreciate that members here approach the 340B program 
with different backgrounds and a variety of perspectives. I 
trust we all share the same goal of ensuring that this federal 
program operates with integrity and that the program is 
appropriately transparent and accountable to patients.
    Ultimately, today's hearing is an opportunity to engage in 
a dialogue and exchange ideas about what may be the best way to 
move forward with improving the accountability and transparency 
of the 340B program.
    In addition to what I anticipate will be a lively debate, 
we will be evaluating more than a dozen legislative proposals 
that address some of the concerns that members have.
    These bills, whether drafts to generate discussion or 
introduced bills, are members' ideas from both sides of the 
dais to improve the 340B program.
    I support several of the policies outlined in these bills. 
Others have caused me to have some questions. But we also need 
to hear from the wide range of stakeholders impacted by this 
program.
    We do want to welcome Debra Draper, the director of Health 
Care at the Government Accountability Office. Thank you for 
your time this morning and welcome to our hearing and want to 
thank you in advance for your willingness to testify before us 
and answer our questions.
    I also want to give a welcome to Dr. Fred Cerise, the CEO 
of Parkland Hospital in Dallas. I wasn't born at Parkland 
Hospital but I spent the better part of my life there, or it 
seemed like the better part of my life for 4 years, during my 
internship and residency.
    I also want to welcome Dr. Debra Patt, Vice President of 
Texas Oncology. Both of those witnesses will be on our next 
panel, as well as Dr. Charles Daniels from California.
    Today's hearing promises to offer a number of thought-
provoking ideas to inform our next steps to improve the 340B 
program. Thanks to each of our witnesses.
    I now yield to Mr. Green of Texas, the ranking member of 
the subcommittee, 5 minutes for an opening statement, please.
    [The prepared statement of Mr. Burgess follows:]

             Prepared statement of Hon. Michael C. Burgess

    Today, we convene to learn about opportunities to improve 
the 340B drug pricing program. This hearing builds on previous 
work by the Energy and Commerce Committee this Congress and 
last Congress. Our subcommittee and the Oversight and 
Investigation Subcommittee have held hearings on various 
aspects of the program over the last several years. The 
Committee also issued a comprehensive oversight report on the 
program earlier this year.
    As we start, it is important to emphasize that members of 
this committee each understand the importance of the 340B 
Program to safety net health care providers and many 
communities large and small across our nation. The program 
enjoys strong bipartisan support as it helps many health care 
providers provide care to vulnerable Americans.
    At the same time, it is worth noting that Congress 
established the 340B Drug Pricing Program over 25 years ago 
through the enactment of the Veterans Health Care Act of 1992--
that was around the end of the Cold War and birth of the 
Internet. Surely, we can all agree that our health care system 
has evolved significantly since that time, and it is reasonable 
to review how the program is working in today's health care 
system.
    In many ways, the 340B Program is certainly a success. Yet, 
at the same time, there are numerous ways in which the 
program's current operation raises valid concerns. Multiple 
reviews by nonpartisan auditors have identified notable 
challenges with the program's current operation and oversight.
      For example, we know the Health Resources and 
Services Administration (HRSA), the agency overseeing the 340B 
Program, lacks key regulatory authorities.
      Additionally, HRSA has delayed multiple program 
regulations repeatedly without a compelling and clear 
rationale.
      We learned that, in 2016, HRSA audited less than 
two percent of total entities participating in the program.
      There has also been uncertainty about where the 
savings from this program are going and how certain covered 
entities may be utilizing the revenue generated from the 
program.
    The newest concern with the program's oversight has been 
highlighted by the Government Accountability Office. Today we 
will hear from GAO who recently released a ground-breaking 
report on contract pharmacies. We all know that the number of 
contract pharmacies has grown rapidly since HRSA issued 
guidance in 2010 that allowed covered entities to contract with 
multiple pharmacies. Since then, the number of pharmacies that 
covered entities have contracted with has increased from 
approximately 1,300 to almost 20,000 in 2017.
    I think GAO raises a number of serious challenges with 
HRSA's current oversight of contract pharmacies. I am also 
troubled by the fact that many covered entities GAO reviewed do 
not have in place a policy that ensures uninsured, low-income 
patients are not hit with a big hospital bill for their 
outpatient drugs. Certainly, concern about high health care 
costs--drug costs, hospital costs, and other costs--is an 
ongoing concern. So, I am proud to have a discussion draft 
today which outlines one possible solution to this issue--to 
ensure that covered entities stretch resources through 340B 
while making sure some of the most vulnerable patients see the 
financial benefit. Overall, I found this an eye-opening report 
and I hope we will each review it carefully as we seek to 
ensure the program helps patients effectively.
    I appreciate that members approach the 340B program with 
different backgrounds and from a variety of perspectives. But, 
I trust we all share the goal of ensuring this Federal program 
operates with integrity, and the program is appropriately 
transparent and accountable to patients.
    Ultimately, today's hearing is an opportunity to engage in 
a dialogue and exchange ideas about what might be the best way 
to move forward with improving the accountability and 
transparency of the 340B Program. In addition to what I 
anticipate will be a lively debate, we will be evaluating more 
than a dozen legislative proposals that address some of the 
concerns members have. These bills--whether drafts to generate 
discussion, or introduced bills--are members' ideas from both 
sides of the aisle to improve the 340B Program. I support 
several of the policies outlined in these bills but have 
questions on others. We also need to hear from the wide range 
of stakeholders impacted by this program.
    Now, I would like to welcome Debra Draper, Director of 
Health Care, at GAO to our hearing and thank her in advance for 
her willingness to testify before us and answer our many 
questions.
    I also want to give a warm Texas welcome to Dr. Frederick 
Cerise, President and CEO of Parkland Hospital in Dallas, and 
Dr. Debra Patt, Vice President of Texas Oncology on our next 
panel. Both Drs. Cerise and Patt will be able to share their 
unique perspectives on the role the 340B Program has in 
providing care to their patients. We also welcome Dr. Charles 
Daniels from California.
    Today's hearing promises to offer thought-provoking ideas 
and insights to inform our next steps to improve the 340B 
Program. Again, thank you to each of our witnesses for being 
here, and I look forward to a constructive dialogue today.

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

    Mr. Green. Thank you, Mr. Chairman, for holding today's 
hearing. I thank all of our witnesses for coming here to 
testify on this important issue.
    The 340B Drug Pricing Program was created by Congress in 
1992. It helps safety net providers care for their most 
vulnerable patients and afford drugs that would otherwise be 
out of reach.
    Since its creation in 1992, stakeholders and policymakers 
have debated the intended purpose and appropriate scope of the 
34B program.
    And Mr. Chairman, I am glad we are having this hearing. 
Since I've been on the subcommittee this is our first, I think, 
oversight hearing on 340B, and I agree with you. It was created 
in 1992. I didn't get here until 1993, so I don't remember us 
having an oversight hearing on this.
    But I think we ought to share how important the 340B 
program is needed to stretch scarce Federal resources as far as 
possible to reach more eligible patients and provide more 
comprehensive services.
    The law does not specify how savings incurred from 340B 
discounts must be used by covered entities, a point that's 
highlighted both by the supporters and opponents of the 
program.
    GAO studies have confirmed that large and covered entities 
use these savings to provide more care to more patients, 
including medications that otherwise would be unaffordable to 
those who serve.
    For example, the Harris Health System--our public hospital 
system in the Houston area--primarily serves the indigent 
population of Harris County, Texas, saves $90 million a year 
through its participation in the 340B program.
    Harris Health uses the savings from the program on patient 
care services which include the cost of treatment, 
administration, management of services and facilities, and 
improves access to quality health care for our community.
    We also have MD Anderson Cancer Center, Texas Children's 
Hospital, and Memorial Hospital Systems who benefit from that. 
Harris Health System and the other safety net hospitals across 
the United States provide access to cost-effective quality 
health care delivered to their patients regardless of their 
ability to pay.
    There will always be more patient need than capacity to 
provide and the community's access to care depends upon the 
contribution of every possible source of funding, including 
340B.
    The 340B program has grown significantly in recent years 
and oversight is appropriate. Our uninsured has grown over the 
last number of years, too.
    According to the GAO, the number of 340B entities have 
nearly doubled in the past 5 years to over 38,000. Similarly, 
the number of contract pharmacy agreements have grown 
dramatically since 2010 from 1,300 to 18,700 in 2017.
    It's important that Congress protect the integrity of 340B 
and ensure the program will continue to serve low-income 
Americans in need of care.
    I look forward to hearing what the GAO found in its latest 
investigation and from our stakeholder witnesses on the 
importance of 340B.
    I think we can always improve the program. I'd like to add 
this record of statement from the American Hospital Association 
and the Association of American Medical Colleges in today's 
hearing.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Green. Thank you, Mr. Chairman, and I yield the 
remainder of my time to my colleague, Congresswoman Matsui from 
California.
    [The prepared statement of Mr. Green follows:]

                 Prepared statement of Hon. Gene Green

    Good morning and thank you, Mr. Chairman, for holding 
today's hearing. I also thank all of our witnesses for coming 
here to testify on this important issue.
    The 340B Drug Pricing Program was created by Congress to 
help safety net providers care for their most vulnerable 
patients and afford drugs that would otherwise be out of reach.
    Since its creation in 1992, stakeholders and policymakers 
have debated the intended purpose and appropriate scope of the 
340B Program.
    I hope we all agree on the importance of 340B and the need 
to stretch scarce federal resources as far as possible to reach 
more eligible patients and provide more comprehensive services.
    The law does not specify how savings incurred from 340B 
discounts must be used by covered entities, a point that has 
been highlight by both supporters and opponents of the program.
    GAO studies have confirmed that large, covered entities use 
these savings to provide more care to more patients, including 
medications that would otherwise be unaffordable to those they 
serve.
    For example, Harris Health System, which primarily serves 
the indigent population of Harris County, Texas, saves $90 
million a year through its participation in the 340B Program.
    Harris Health uses savings from the program on patient care 
services, which include the costs of treatment, administration 
and management of services and facilities, and improving access 
to quality health care for our community.
    Harris Health System, and other safety net hospitals across 
the United States, provide access to cost effective, quality 
health care delivered to their patients, regardless of their 
ability to pay.
    There will always more patient need than capacity to 
provide, and the community's access to care depends upon the 
contribution of every possible source of funding, including the 
340B Program.
    The 340B Program has grown significantly in recent years 
and oversight is appropriate to ensure it is working properly. 
According to GAO, the number of 340B covered entities has 
nearly doubled in the past five years to over 38,000.
    Similarly, the number of contract pharmacy agreements has 
grown dramatically since 2010, going from 1,300 to 18,700 in 
2017.
    It is important that Congress protect the integrity of 340B 
and ensure that the program will continue to serve low income 
Americans in need of care.
    I look forward to hearing what GAO found in its latest 
investigation and from our stakeholder witnesses on the 
importance of 340B and ways we can improve the program.
    I would like to have added to the record a statement from 
the American Hospital Association and the Association of 
American Medical Colleges on today's hearing.
    Thank you, Mr. Chairman. I now yield the remainder of my 
time to my colleague, Congresswoman Matsui of California.

    Ms. Matsui. Thank you very much for yielding.
    I hope we can all agree that the 340B discount drug program 
is incredibly vital to low-income and vulnerable communities.
    Hospitals and clinics serve our communities every day. They 
are on the front lines of the opioid crisis right now and this 
program supports that work.
    Unfortunately, there seems to be some misunderstanding 
about the original intent of the program. 340B was intended as 
a creative and flexible way to allow community providers to 
stretch scarce resources without using taxpayer dollars.
    It was never intended to be a drug discount program 
directly for patients. Rather, it is discounted to providers so 
that they may better serve patients.
    For example, Ryan White HIV Clinics can use the savings to 
truly address the social determinants of health surrounding 
medication adherence. That is not always direct medical care.
    Instead, it is a public health approach that addresses the 
barriers that keep people from taking their medication 
appropriately.
    I have concerns about some of the bills and drafts we are 
discussing today. No one has a problem with the concept of 
transparency. I am afraid that the true purpose of this 
legislation is just to narrow the scope of the program rather 
than to increase transparency.
    There is also very little discussion about drug 
manufacturer transparency in the program despite the fact that 
only a handful of audits have been conducted on manufacturers 
and the civil monetary penalties for noncompliance have not 
been implemented.
    The 340B program keeps drug prices lower for providers 
serving low-income and vulnerable patients. Changing the 340B 
program would do nothing to reduce high drug prices, as some 
claim.
    It is important to recognize a good thing when you have it, 
and the 340B Drug Discount Program is exactly that, and that's 
why I authored H.R. 6071, the Serve Communities Act, which will 
codify the program's true intent, improve program integrity, 
and further extend it to mitigate the opioid crisis.
    I look forward to continuing to work with the committee to 
support the services provided by the community health 
providers, and thank you, and I yield back.
    Mr. Burgess. The gentleman yields back?
    Mr. Green. Yes.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
from Oregon is now recognized, the chairman of the full 
committee, Mr. Walden, 5 minutes for an opening statement, 
please.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you very much, Mr. Chairman, for holding 
this legislative hearing to examine ideas to improve the 340B 
program. Since its creation by Congress more than 25 years ago, 
the 340B program has helped provide lifesaving medicines that 
reduced prices to certain safety net health care providers.
    Now, through this program, many providers have been able to 
reach more patients, serving more uninsured and underinsured 
patients due to the savings this program enables.
    The Health Resources and Services Administration estimates 
that in 2015 covered entities saved about $6 billion on 340B 
drugs through their participation in the program.
    For some participating health care providers known as 
covered entities, though, this program and the savings it 
generates are critical not just to their mission to help 
patients, but also it undergirds their financial viability and 
their ability to keep their doors open.
    And I've met with hospitals. I've met with health centers 
in Oregon, including those in Bend and Germiston, among other 
locations, and they've told me about how they are using 340B 
savings to increase access to health care for the underserved. 
So it is really an important program.
    But it's important to note that a lot has changed since the 
program was created. The number of unique hospital 
organizations participating in the program has nearly 
quadrupled in just 5 years, from 3,200 participating hospitals 
in 2011 to 12,148 in October of 2016. So quadrupling in 5 
years.
    While the actual number of 340B contract pharmacy 
arrangements is unknown because it is not tracked, the 
Government Accountability Office has informed us that 1,645 
covered entities had a total of 25,481 registered contract 
pharmacy arrangements.
    GAO warns this sprawling complex of arrangements increases 
the likelihood of covered entities being out of compliance with 
Federal law.
    GAO's latest report follows others from nonpartisan 
auditors expressing concerns about a variety of issues that are 
a challenge to the integrity and the accountability of the 
program.
    For example, both HHS' Office of the Inspector General and 
GAO have identified the lack of a clear definition of the 340B 
patient as a structural challenge to HRSA having clear rules of 
the road.
    We've also heard serious concerns from stakeholders. 
Because the 340B program does not specify how program savings 
must be utilized by a covered entity, many have questioned 
whether or not all covered entities are sufficiently 
transparent with how their participation in the program 
ultimately benefits patients.
    Others suggest this program is in need of a tune up. 
Regulations need to be finalized, rules of the road need to be 
made clear, audits need to be more comprehensive, and 
enforcement needs to be more consistent.
    There are also reports following the Committee's 2-year 
investigation by our own Oversight and Investigations 
Subcommittee. That report detailed a lack of oversight, a lack 
of reporting requirements, and a lack of reliable data.
    Earlier this week, HHS Secretary Azar spoke about the 
department's plans to move forward with finalizing regulations 
that have been repeatedly delayed.
    I am encouraged by his comments, but also know there is 
more HHS should do to improve the oversight and operations of 
this program.
    Our committee has an important responsibility to carefully 
evaluate a number of ideas from members on both sides of the 
aisle about how to improve this program.
    I fully expect my colleagues will bring different views and 
ideas forward in examining these bills to improve the 340B 
program. I hope we will examine the bills from the shared 
premise that we all want to ensure some of our most vulnerable 
patients receive the care that they need and that they deserve.
    Finally, I would like to highlight one bill in particular--
that's H.R. 6273. It's a bill I've introduced along with 
Representative Mimi Walters.
    This bill would require 340B DSH hospitals that have an 
emergency department to establish a plan for getting victims of 
sexual assault access to a Sexual Assault Forensic Examiner 
facility so they can be properly examined and treated by a 
qualified health provider.
    I'd also like to highlight Mission Health Systems in North 
Carolina, who told us how they are already using their 340B 
savings to provide care and examinations to sexual assault 
victims.
    And, Mr. Chairman, I request that this letter from Mission 
Health Systems in North Carolina be entered into the record.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Walden. So I'd like to thank our two panels of 
witnesses for being with us today. I appreciate your feedback 
on these pieces of legislation.
    We know we have a lot to discuss and will learn a lot by 
your testimony as we work to strengthen this program in a 
bipartisan manner.
    And with that, Mr. Chairman, I'll yield back and give the 
caveat that I think we have multiple hearings going on and so I 
have to jet between them and a meeting over in the Capitol. But 
we do appreciate your participation in this. We want to get 
this right and modernize this program.
    Thank you, Mr. Chairman. I yield back.
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    Thank you, Mr. Chairman, for holding this legislative 
hearing to examine ideas to improve the 340B Drug Pricing 
Program (340B Program). Since its creation by Congress more 
than 25 years ago, the 340B Program has helped provide life-
saving medicines at reduced prices to certain safety-net health 
care providers.
    Through this program, many providers have been able to 
reach more patients--serving more uninsured and underinsured 
patients due to the savings this program enables. The Health 
Resources and Services Administration (HRSA) estimates that in 
2015, covered entities saved about $6 billion on 340B drugs 
through their participation in the program.
    For some participating health care providers, known as 
``covered entities,'' this program and the savings it generates 
are critical not to just their mission to help patients--but it 
undergirds their financial viability and their ability to keep 
their doors open. I've met with hospitals and health including 
those in Bend, and Hermiston, and they've told me about how 
they're using 340B savings to increase access to health care 
for the underserved.
    But it's important to note that a lot has changed since the 
program's creation. The number of unique hospital organizations 
participating in the program has nearly quadrupled in just 5 
years--increasing from 3,200 participating hospitals in 2011 to 
12,148 in October 2016.
    While the actual number of 340B contract pharmacy 
arrangements is unknown because it is not tracked, GAO has 
informed us that 1,645 covered entities had a total of 25,481 
registered contract pharmacy arrangements. GAO warns this 
sprawling complex of arrangements increases the likelihood of 
covered entities being out of compliance with Federal law.
    GAO's latest report follows others from nonpartisan 
auditors expressing concerns about a variety of issues that are 
a challenge to the integrity and accountability of the program. 
For example, both HHS' Office of the Inspector General and GAO 
have identified the lack of a clear definition of a 340B 
patient as a structural challenge to HRSA having clear rules of 
the road.
    We've also heard serious concerns from stakeholders. 
Because the 340B Program does not specify how program savings 
must be utilized by a covered entity, many have questioned 
whether or not all covered entities are sufficiently 
transparent with how their participation in the program 
ultimately benefits patients.
    Others suggest this program is in need of a tune up--
regulations need to be finalized, rules of the road need to be 
made clearer, audits need to be more comprehensive, and 
enforcement needs to be more consistent.
    There's also the report following the committee's 2-year 
investigation by our own Oversight and Investigations 
Subcommittee. That report detailed a lack of oversight, 
reporting requirements, and reliable data.
    Earlier this week, HHS Secretary Azar spoke about the 
department's plans to move forward with finalizing regulations 
that have been repeatedly delayed. I am encouraged by his 
comments, but also know there is more HHS should do to improve 
the oversight and operation of this program.
    Our committee has an important responsibility to carefully 
evaluate a number of ideas from members on both sides of the 
aisle about how we can improve the 340B Program.
    I fully expect that my colleagues will bring different 
views and ideas forward in examining these bills to strengthen 
the 340B Program. I hope we will examine the bills from the 
shared premise that we all want to ensure some of our most 
vulnerable patients receive the care they need and deserve.
    Finally, I would like to highlight one bill in particular, 
H.R. 6273, a bill I've introduced along with Representative 
Walters. This bill would require 340B DSH hospitals that have 
an emergency department to establish a plan for getting victims 
of sexual assault access to a Sexual Assault Forensic Examiner 
(SAFE) facility, so they can be properly examined and treated 
by a qualified health provider.
    I'd like to thank our two panels of witnesses for being 
with us today and for your feedback on the bills before us. 
There is certainly a lot to discuss, and I look forward to 
working with my colleagues on both sides of the aisle to 
strengthen this vital program.

    Mr. Burgess. Thank you, Mr. Chairman.
    The chair now recognizes the gentleman from New Jersey, Mr. 
Pallone, the ranking member of the full committee, 5 minutes 
for an opening statement, please.

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 and since that time 
it has played a critical role in ensuring that low-income and 
vulnerable individuals have access to affordable health care.
    Congress created this program with the intention of helping 
health care providers expand their capacity to serve low-
income, uninsured, and under insured patients in their 
communities.
    By purchasing drugs at a discounted rate, 340B providers 
can stretch resources to provide more comprehensive health 
services and, after all, many of these drugs have experienced 
dramatic prices increases over the years.
    So I commend the work that our hospitals, community health 
centers, and all our safety net providers do and, make no 
mistake about it--they do a lot.
    What I do not support is the process for this hearing. It 
is not thoughtful, it is not bipartisan, and is it not 
productive.
    Having one hearing for a 65-page GAO study and 14 bills, 
many that are drafts that were given to us just days ago is 
ridiculous. We should be working closely with each other and 
with stakeholders on such an important issue.
    First of all, the GAO study should have a hearing on its 
own. Second, we should have had actual witnesses who are part 
of the 340B program or who run the program that can give their 
expert opinions on the consequences and effects of these 
policies.
    Today's hearing is counter to the purpose of why we hold 
legislative hearings at all. Democrats are, clearly, interested 
in working to strengthen the 340B program, but this is 
certainly not the approach I would take to find bipartisan 
consensus.
    In the past, I've worked in a bipartisan fashion to try to 
address the concerns from stakeholders on all sides of this 
issue in a balanced and measured fashion to strengthen and 
support the mission of 340B.
    But it's simply too difficult to be appropriately 
substantive with this many items before us in so short a time 
frame.
    That said, let me comment briefly on some of the bills. I 
want to commend Representative Matsui for her leadership on 
H.R. 6071, the Serve Communities Act. This bill would ensure 
balanced oversight of both 340B-covered entities and 
manufacturers.
    It would also ensure that HRSA implements the regulations 
they were required to issue eight years ago and includes many 
other provisions that will strengthen the program.
    There are also bills that would enhance 340B operations and 
give HRSA more resources and authority to operate the program 
and collect covered entity and manufacturer information.
    This is an example of an important area where we could have 
a realistic conversation about strengthening the 340B program 
had this process looked a little differently.
    As the investigation of our Oversight and Investigations 
Subcommittee found, the 340B program is working as intended. 
Savings on the cost of outpatient prescription drugs makes it 
possible for these providers to shift resources to services 
that benefit the entire community--services such as offering 
primary care clinics at little to no cost--delivering 
medication to patients with limited transportation and 
maintaining a traveling children's dental clinic.
    It was clear from the responses we received from the 340B 
providers they are using their savings to serve the community 
and Congress should commend and support these efforts.
    Limiting the 340B program would severely undermine covered 
entities' ability to support this critical work. That's why I 
do not support legislation that would curtail or restrict the 
program.
    Legislation like H.R. 4710 that includes a 2-year 
moratorium on new hospital enrollment in the program is 
unnecessary and unfounded. Or the Protecting Safety Net 340B 
Hospitals Act, which would not actually protect anyone at all.
    Instead, this bill would lead to the termination of 573 DSH 
hospitals. That's 51 percent of all DSH hospitals currently 
enrolled in the program.
    I would note that these hospitals provided, roughly, $10.8 
billion in uncompensated and unreimbursed care. If this bill 
ever became law, nearly 75 percent of our states will see 50 
percent or more of their DSH hospitals cut from the program 
with five states having all the DSH hospitals cut from the 
program.
    And these types of bills are not about improving or 
strengthening the 340B. They are about gutting the program, 
which I, obviously, will not support.
    Instead, I remain dedicated to finding ways to strengthen 
the 340B program and ensure that it continues to fulfill its 
vital mission.
    I yield back, Mr. Chairman. Thank you.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    Twenty-five years ago, Congress passed bipartisan 
legislation establishing the 340B program. Since that time, it 
has played a critical role in ensuring that low-income and 
vulnerable individuals have access to affordable health care.
    Congress created this program with the intention of helping 
health care providers expand their capacity to serve low-
income, uninsured, and underinsured patients in their 
communities. By purchasing drugs at a discounted rate, 340B 
providers can stretch resources to provide more comprehensive 
health services. After all, many of these drugs have 
experienced dramatic price increases over the years. I commend 
the work that our hospitals, Community Health Centers, and all 
our safety net providers do--and make no mistake about it--they 
do a lot.
    What I do not support is the process for this hearing. It 
is not thoughtful, it is not bipartisan, and it is not 
productive. Having one hearing for a 65-page GAO study, and 14 
bills--many that are drafts that were given to us just days 
ago--is absurd. We should be working closely with each other 
and with stakeholders on such an important issue.
    First of all, the GAO study should have a hearing on its 
own. Second, we should have had actual witnesses--who are part 
of the 340B program or who run the program--that can give their 
expert opinions on the consequences and effects of these 
policies. Today's hearing is counter to the purpose of why we 
hold legislative hearings at all. Democrats are clearly 
interested in working to strengthen the 340B program but this 
is certainly not the approach I would take to find bipartisan 
consensus.
    In the past, I've worked in a bipartisan fashion to try to 
address the concerns from stakeholders on all sides of this 
issue in a balanced and measured fashion to strengthen and 
support the mission of 340B. But it is simply too difficult to 
be appropriately substantive with this many items before us on 
so short a time frame.
    That said let me comment briefly on some of the 
legislation. I want to commend Rep. Matsui for her leadership 
on H.R. 6071, the SERV Communities Act. This bill would ensure 
balanced oversight of both 340B covered entities and 
manufacturers. It would also ensure that HRSA implements the 
regulations they were required to issue 8 years ago, and 
includes many other provisions that would strengthen the 
program.
    There are also bills that would enhance 340B operations, 
and give HRSA more resources and authority to operate the 
program. and collect covered entity and manufacturer 
information. This is an example of an important area where we 
could have a realistic conversation about strengthening the 
340B program--had this process looked a little different.
    As the investigation of our Oversight and Investigations 
Subcommittee found, the 340B program is working as intended. 
Savings on the cost of outpatient prescription drugs makes it 
possible for these providers to shift resources to services 
that benefit the entire community. Services such as offering 
primary care clinics at little to no cost, delivering 
medication to patients with limited transportation, and 
maintaining a traveling children's dental clinic. It was clear 
from the responses we received that 340B-providers are using 
their savings to serve the community, and Congress should 
commend and support these efforts.
    Limiting the 340B program would severely undermine covered 
entities' ability to support this critical work. That is why I 
do not support legislation that would curtail or restrict this 
program. Legislation like H.R. 4710 that includes a 2-year 
moratorium on new hospital enrollment in the program is 
unnecessary and unfounded. Or the Protecting Safety-Net 340B 
Hospitals Act, which would not actually protect anyone at all. 
Instead, this bill would lead to the termination of 573 DSH 
hospitals--that's 51 percent of all DSH hospitals currently 
enrolled in the program. I would note that these hospitals 
provided roughly $10.8 billion in uncompensated and 
unreimbursed care. If this bill ever became law nearly 75 
percent of our states would see 50 percent or more of their DSH 
hospitals cut from the program, with five states having all 
their DSH hospitals cut from the program.
    These types of bills are not about improving or 
strengthening 340B-they are about gutting the program--which I 
will not support. Instead, I remain dedicated to finding ways 
to strengthen the 340B Program and ensure that it continues to 
fulfill its vital mission.

    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    This concludes member opening statements. All members are 
reminded that their opening statements will be made part of the 
record.
    I certainly want to thank our witness for being there this 
morning and taking time to testify before the subcommittee.
    So we have two panels of witnesses and each witness will 
have an opportunity to give an opening statement. This will be 
followed by questions from members.
    On the first panel today we will hear from Ms. Debra 
Draper, the director of Health Care Team, the United States 
Government Accountability Office. We appreciate you being here 
with us this morning, Ms. Draper.
    You're recognized for 5 minutes for the purpose of your 
opening statement, please.

  STATEMENT OF DEBRA DRAPER, DIRECTOR, HEALTH CARE TEAM, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Draper. Chairman Burgess, Ranking Member Green, and 
members of the subcommittee, thank you for the opportunity to 
be here today to discuss our recently issued report on the use 
of contract pharmacies in the 340B program.
    We are going to be projecting some slides to go along with 
my opening statement to provide some illustrative examples.
    So the 340B program requires drug manufacturers to provide 
discounts on outpatient drugs to certain hospitals and federal 
grantees, also known as covered entities, who have their drugs 
covered by Medicaid.
    A covered entity typically dispenses 340B drugs through 
pharmacies, either in-house pharmacies through contracts with 
outside pharmacies, or both.
    In March 2010, HRSA lifted the restriction limiting the use 
of contract pharmacies, allowing any covered entity to contract 
with an unlimited number of pharmacies.
    As a result, the number of contract pharmacies increased 
significantly from 1,300 to 20,000. For our report, we examined 
a number of issues.
    We first examined the extent to which covered entities 
contract with pharmacies to distribute 340B drugs.
    We found that about a third of the more than 12,000 covered 
entities in the program had at least one contract pharmacy. A 
number of contract pharmacies range from one to 439 with an 
average of 12 per covered entity.
    Compared to other covered entity types, hospitals will more 
likely have contract pharmacies and have a larger number of 
them.
    The distance between covered entities and their contract 
pharmacies range from zero to more than 5,000 miles with a 
median distance of 4.2 miles.
    Second, we examined the financial arrangements that covered 
entities have with contract pharmacies and third-party 
administrators related to the dispensing of 340B drugs and 
program administration.
    Of the 30 contracts we review, we found that covered 
entities generally pay their contract pharmacies a flat fee 
ranging from $6 to $15 per 340B prescription.
    Some covered entities paid additional fees based on a 
percentage of revenue. We also found that covered entities 
reportedly paid their third-party administrators using one of 
two main payment methods--either per prescription process or 
per contract pharmacy.
    Third, we examined the extent to which covered entities 
provide discounts on 340B drugs dispensed by contract 
pharmacies to low-income uninsured patients.
    We found that 30 of the 55 covered entities responding to 
our questionnaire reported providing discounts at some or all 
of their contract pharmacies, with Federal grantees more likely 
than hospitals to provide discounts.
    And finally, we examined HRSA's efforts to ensure 
compliance with 340B program requirements at contract 
pharmacies.
    We found that, first, HRSA does not have complete data on 
all contract pharmacy arrangements, which is critical to 
informing its oversight efforts, including audits of covered 
entities.
    Specifically, HRSA does not require covered entities to 
specify which of its sites have a contractual relationship with 
each pharmacy.
    Second, HRSA's audits identified a number of issues at 
contract pharmacies. However, the audits understate the extent 
of the noncompliance with a 340B program prohibition on 
duplicate discounts for drugs prescribed to Medicaid 
beneficiaries because they do not assess the potential for 
duplicate discounts in Medicaid-managed care where the majority 
of beneficiaries are enrolled.
    HRSA requires covered entities with noncompliance issues 
identified during audits to assess the extent of the 
noncompliance, it does not provide guidance as to how these 
assessments should be made nor does it review the methodology 
used.
    Fourth, HRSA does not require most covered entities to 
provide evidence that they have taken the necessary corrective 
actions and are in compliance with program requirements prior 
to closing an audit, relying instead on entities self-
attestation of compliance.
    And, lastly, HRSA's guidance on contract pharmacy oversight 
lacks specificity, providing covered entities considerable 
discretion on the scope and frequency of their oversight 
practices with some performing very minimal activities.
    In conclusion, we made several recommendations for HRSA to 
strengthen its oversight of the use of contract pharmacies in 
the 340B program.
    HRSA did not concur with three of these, stating that 
implementation would be burdensome for covered entities and the 
agency.
    We disagree and believe that the implementation of these 
recommendations is critical to improving the integrity of the 
program.
    There are also two additional points that I wanted to make. 
First, it is critical that HRSA ensure that it has the 
necessary oversight, infrastructure, and resources when making 
major programmatic changes such as lifting the restriction on 
the number of contract pharmacies.
    And second, it is essential that HRSA optimize the value of 
its oversight activities including audits of covered entities 
conducted through a contract costing nearly $4 million 
annually.
    Mr. Chairman, this concludes my opening remarks. I will be 
happy to answer any questions.
    [The prepared statement of Ms. Draper follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Burgess. Our thanks to our witness this morning. We'll 
move to the question and answer part of the hearing and I will 
recognize myself 5 minutes for questions.
    So I have the report that the GAO published and the 
recommendations for executive activities. Let me just ask you, 
on the issue of the contract pharmacies, is there any evidence 
that--and this program was expanded, correct, in early March of 
2010?
    Your microphone may need to be on.
    Ms. Draper. Prior to March 2010 an entity was allowed to 
have one contract pharmacy if it did not have an in-house 
pharmacy.
    After that, the restriction was limited so that entities 
could contract with an unlimited number of pharmacies.
    Mr. Burgess. So do we have evidence that increasing the 
number of contract pharmacies has happened in 2010? Do we have 
evidence that more patients now are reached with the increases 
in the contract pharmacies as they were expanded in 2010?
    Ms. Draper. Yes, that's difficult to monitor. But, HRSA 
would say that one of the reasons for lifting that restriction 
was to increase access points for pharmacy for patients.
    We also know that it does create some oversight issues 
around--a rapid increase in the number of contract pharmacies 
as we know from the audits that a lot of the issues around 
diversion are really related to diversion at contract 
pharmacies.
    So of the 813 audits that have been conducted, there were 
380 incidents of diversion found in those audits and 249 were 
at contract pharmacies.
    Mr. Burgess. And is it a concern that when the expansion 
occurred in 2010 there was not a commensurate increase of 
resources for HRSA to be able to adequately monitor that?
    Ms. Draper. For HRSA, the group that oversees the 340B 
program or administers the program is a very small group and 
they really haven't had any major increases in staffing related 
to--not commensurate with the increase in the number of covered 
entities and contract pharmacies through the years.
    Mr. Burgess. So is it safe to say they're still at 2010 
levels as far as their funding or their resources?
    Ms. Draper. I don't believe they're at the 2010 level but 
they're not far from that.
    Mr. Burgess. OK.
    Ms. Draper. So they made some increases but they're still a 
very small shop.
    Mr. Burgess. So of your seven recommendations--and, again, 
thank you for providing those--recommendation number two is one 
that, certainly, caught my eye about the duplicative discounts 
under Medicaid-managed care.
    So, obviously, there are unintended consequences of not 
having the guidance that has been recommended. Are there 
currently any incentives to encourage states to oversee the 
340B program in their managed care environment?
    Ms. Draper. Well, currently, HRSA has not issued guidance 
on how to handle duplicate discounts in Medicaid-managed care.
    Now, there are--60 percent of the Medicaid drug spending 
is--currently in Medicaid is in the managed care program. 
Seventy percent of the Medicaid prescriptions are written for 
Medicaid-managed care beneficiaries.
    So this is where the bulk of the beneficiaries are enrolled 
and where the greatest level of activity is located in 
Medicaid-managed care, and when we were doing our audits we did 
find evidence that there was evidence of duplicate discounts.
    In one of the audit files we found there was a letter from 
a state that recognized that there was--duplicate discounts 
were found in Medicaid-managed care, and because there's really 
no guidance at this point from HRSA, it's not clear to covered 
entities how they're supposed to handle that and it also 
creates, I think, issues for manufacturers, it puts them in the 
middle of whether they go after the state or the covered entity 
to regroup there to reclaim the duplicate discount.
    So it creates a lot of different issues.
    Mr. Burgess. And just to be clear, when we are talking 
about duplicate discounts we are talking about discounts in the 
340B program and discounts in the Medicaid drug rebate program?
    Ms. Draper. That's correct. And it is a prohibition in the 
340B program that the covered entities are not to subject 
manufacturers to duplicate discounts.
    Mr. Burgess. But there is a concern that it may be 
happening and it would not be intuitively obvious to the casual 
observer because of the structure of a Medicaid-managed care 
contract?
    Ms. Draper. I would say it's unclear to the extent that 
it's happening. I know that it's happening to some extent and I 
think that entities that we talk with express concern.
    It's anecdotal evidence but they express concern about the 
extent to which this is happening and how they're supposed to 
address it.
    Mr. Burgess. I can see how it could be completely 
unintentional if you have a capitated contract with an MCO and 
you also have a discount. How do you allocate whether that 
discount is coming from a 340B program or the Medicaid drug 
rebate program.
    So I can see how just the bookkeeping could be difficult 
and an unintentional violation could occur. But do you think it 
possibly is more than that?
    Ms. Draper. It's hard to say. I think that that was why we 
made a recommendation. HRSA will need to work with CMS to 
provide guidance on how to deal with potential duplicate 
discounts in Medicaid-managed care.
    It has not yet happened and I think it's something that's 
really important that that needs to happen and, as you noted, 
that was one of our recommendations.
    Mr. Burgess. And I agree with you.
    That concludes my questions. Mr. Green, you're recognized 5 
minutes for questions, please.
    Mr. Green. Thank you, Mr. Chairman.
    Dr. Draper, thank you again for your excellent work on this 
issue and I am particularly interested in the discounts provide 
for drugs to low-income and uninsured patients.
    While 340B is not a program based on actually giving 
discounted drugs directly to patients, I think it still 
wouldn't sit right with most people to think about anyone 
gaining revenue from people that need medications and cannot 
afford them.
    Regarding three of the GAO recommendations, HHS disagrees, 
says that they don't have enough resources, and two, the 
requirements would be significantly burdensome on covered 
entities, especially smaller providers such as federally-
qualified health clinics.
    In your report did you examine whether that's a major 
hospital system or a community health center, the difference in 
how they would comply with that?
    Ms. Draper. So they disagree with three of our 
recommendations, one of which was the extent--well, the first 
one was to register all their contract pharmacy arrangements so 
that would mean that they would register each or have some 
record of each--besides the parent entity, each child site as 
well that has a relationship with each pharmacy. They said that 
that would be burdensome.
    Our point was that they already require that when they 
register their--when they register their entities. So we didn't 
feel like that was really excessively burdensome to ask to be 
done.
    So that was one issue that they had. The other issue that 
they didn't comply with or didn't concur with is that looking 
at the--when we talk about the extent of noncompliance, looking 
at the methodology used and the extent of noncompliance.
    So what they talked about was that they thought that that 
would be administratively burdensome. When there are issues of 
noncompliance that come up they have to do a corrective action 
plan.
    So, really, that information is detailed and what we were 
asking for is just additional information about specific 
methodology and how that was reviewed. So, again, we didn't 
feel like that was excessively burdensome.
    Mr. Green. Didn't some covered entities then proactively 
note some of the other ways they care for patients?
    Isn't it true that some covered entities that do not 
provide discounts on 340B drugs at their contract pharmacies 
actually, for instance, provide free or discounted 
prescriptions elsewhere and oftentimes broader free medical 
care?
    The GAO's report on 340B contract pharmacies was published 
last month. HHS disagreed again with those recommendations and, 
again, it seemed like they did a blanket rejection of the 
recommendations.
    But I think our subcommittee and the committee can decide 
what needs to be done. But, again, HHS is the one who deals 
with that on an everyday basis. So we need to----
    HHS stated that many of the GAO's recommendations impose a 
significant burden on covered entities, especially smaller 
entities which are resource constrained. That's why I said it's 
different between a five-hospital system and federally-
qualified health clinic that may only have one facility or 
maybe two or three and on a much smaller scale.
    Ms. Draper. And to answer that partly as well is that most 
of the covered entities that have child sites they're going to 
be the larger entities. So it's going to be hospitals and 
federally qualified health centers.
    Most of your smaller grantees are not going to have child 
sites. So, really, these are larger entities that most likely 
have the capacity and the capability to have the resources to 
do what we are asking to do.
    Mr. Green. Since HRSA implemented a systematic approach to 
auditing covered entities in 2012, has oversight of the 340B 
program improved?
    Ms. Draper. Well, the implementation of the audits came as 
a result of our 2011 report and recommendation. So we believe 
that the audits have been beneficial.
    I think one of our concerns is that in 2012--so for the 
last several years they have audited 200 entities annually and 
that represents about 1.5 percent of total covered entities.
    So the number of audits are not keeping pace with the 
growth in the number of covered entities.
    Mr. Green. You believe----
    Ms. Draper. They have found quite a number of issues with 
diversion, duplicate discounts, and also some entities not 
providing the oversight of the contract pharmacies as they're 
supposed to.
    Mr. Green. Do you think as part of the oversight for 340B 
would improve if Congress appropriated additional funds for HHS 
specifically for those purposes?
    Ms. Draper. Well, it's difficult to say but my thought is 
that probably resources are an issue about why the number of 
audits haven't been expanded.
    They have a contract that they've had in place for the last 
2 years for a contractor to conduct the audits. So, they do 
have limited resources. So I would expect that it's probably 
something to do with the resource limitation around whether or 
not they're able to increase their oversight activities.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Burgess. The gentleman yields back. The chair thanks 
the gentleman.
    The chair recognizes the gentleman from Kentucky, vice 
chairman of the Health Subcommittee, Mr. Guthrie, 5 minutes for 
questions.
    Mr. Guthrie. Thank you. Thank you, Chairman.
    Thank you, Ms. Draper, for being here. And you touched on 
some of this in your testimony but I will give you a chance to 
kind of expand.
    So in your testimony you stated that the number of contract 
pharmacies increased from 1,300 in 2010 to approximately 20,000 
in 2017.
    Why do you think the number of contract pharmacies 
increased dramatically within this timeframe, particularly in 
the last couple of years?
    Ms. Draper. This really has to do with HRSA lifting the 
restriction about lifting the restriction to now allow covered 
entities that have an unlimited number of contracts with 
outside pharmacies.
    Mr. Guthrie. OK. And then bases on your knowledge of these 
types of contracts between covered entities and pharmacies, do 
you think HRSA should regulate how contract pharmacies are 
paid?
    Ms. Draper. Well, HRSA has no legal authority over that and 
they will tell you that it is a private business decision 
between the covered entity and both contract pharmacies and in 
cases where they use a third party administrator as well as 
with third party administrators.
    Mr. Guthrie. Well, yes, I understand they don't have any 
legal authority. But that would be something we would look to 
address. Do you have an opinion on that, whether it should be 
regulated by HRSA?
    Ms. Draper. Well, that's an interesting question because in 
their comments to us when they were responding to our report, 
they were very concerned. We looked at the authority contracts 
and looked at the financial arrangements between covered 
entities and their contract pharmacies and third party 
administrators, and HRSA is very concerned about us publishing 
the payment rate information.
    That information had never been made public and they were 
concerned about it being disruptive to the drug pricing market 
and would cause fluctuations in the prices charged for covered 
entities.
    We disagree because the sample size was pretty small--30. 
But, I think it would be something that probably would need to 
be addressed if you're thinking about more broadly making that 
more transparent across all contracts.
    Mr. Guthrie. Well, in your study, did you notice or see or 
could you identify any best practices and payments that 
probably should be adopted across the board?
    Ms. Draper. Well, we saw a wide variation. So it's really 
difficult to say, and we really didn't look at the impact. So 
we looked at the financial arrangements but not at the back end 
what were the most effective.
    Mr. Guthrie. OK. Well, thank you, and that does conclude my 
questions. I know I have 2 \1/2\ minutes. I will yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentlelady from California, Ms. 
Matsui, 5 minutes for questions, please.
    Ms. Matsui. Thank you, Mr. Chairman.
    Dr. Draper, GAO asserts in the report that the study was 
conducted in part because a number of pharmacies that covered 
entities have contracted with has increased a substantial 
amount since 2010.
    I know we've been having a discussion. Now, critics do cite 
similar statistics, saying that the program has exploded 
because the number of covered entities had increased since 
2010.
    Now, I would just like to set the record straight that 
Congress intentionally expanded the 340B program in the 
Affordable Care Act.
    We recognize the success of the program in allowing 
hospitals and clinics to better serve their communities and we 
extended that success to rural hospitals, which I believe is 
really very important.
    I am going to talk some about the audits here. Much of this 
GAO report uses data recovered from HRSA audits of covered 
entities.
    Dr. Draper, is that correct? Yes or no.
    Ms. Draper. Yes. Our report talks about covered entities 
audits.
    Ms. Matsui. OK. How many audits did you find HRSA conducted 
on covered entities from 2012 to 2017?
    Ms. Draper. There were 831 conducted in the last few years. 
It's been 200 each year.
    Ms. Matsui. So a total of how many?
    Ms. Draper. Out of 12,050. That's about 1.6 percent, 1.5 
percent of total covered entities.
    Ms. Matsui. OK. So in your work at GAO studying the 340B 
program, have you received any audits of drug manufacturers in 
the program?
    Ms. Draper. We have not done that work, no.
    Ms. Matsui. And why is that?
    Ms. Draper. We've not had a request or a mandate to look at 
that issues.
    Ms. Matsui. So we should request that it be done if we 
wanted to have that done. Is that correct? Because my records 
show that there were less than 20 audits of drug manufacturers 
in the history of the program.
    Ms. Draper. Yes, actually there were--I think Dr. Pelley 
said at a recent hearing that there have been 12 conducted to 
date. There was one in 2015 and five in each of the years 2016 
and 2017 and I think they're at or doing five this year.
    And according to the website, there have been no findings 
related to--they've had no findings on those manufacturer 
audits.
    Ms. Matsui. So----
    Ms. Draper. Out of 600 manufacturers, about .5 percent.
    Ms. Matsui. OK. So we have had many audits on the covered 
entities but very few or nothing on the drug manufacturers 
then?
    Ms. Draper. Well, compare 831 versus, I guess, 12 have been 
completed.
    Ms. Matsui. Yes. Right. OK.
    Does HRSA require that drug manufacturers take corrective 
action if found in noncompliance with program requirements?
    Ms. Draper. That's correct.
    Ms. Matsui. OK. Since GAO's 2011 recommendations, has HRSA 
taken steps to improve its oversight of covered entities in the 
program including a systematic approach to conducting audits of 
covered entities?
    Ms. Draper. Yes.
    Ms. Matsui. OK. Has HRSA taken any steps to improve 
oversight of drug manufacturers in the program?
    Ms. Draper. I can't answer that. We haven't looked at that 
issue.
    Ms. Matsui. OK. And I understand that you have not studied 
this or made any recommendations, and I would think that we 
should plan to have more oversight on the drug manufacturers if 
we are going to be looking at the contribution of drug 
manufacturers and also the use from the covered entities.
    Ms. Draper. That may be some potential work that we do in 
the future.
    Ms. Matsui. OK. Great.
    Mr. Chairman, I would like to ask unanimous consent to 
submit a few letters for the record. The first is a letter to 
leadership from a long list of patient groups that emphasizes 
the importance of the 340B program for people living with 
diseases like hemophilia, HIV/AIDS, epilepsy, hepatitis, mental 
illness, lupus, and more, and I also have letters from 340B 
health a long list of doctors from across the country and the 
American Society of Health System Pharmacists, again, 
emphasizing the importance of the program.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Ms. Matsui. Thank you, and I yield back.
    Mr. Burgess. The chair thanks the gentlelady. The 
gentlelady yields back.
    The chair recognizes the gentleman from Texas, vice 
chairman of the full committee, Mr. Barton, 5 minutes for 
questions.
    Mr. Barton. Thank you, Mr. Chairman, and thank you for 
holding this very important hearing.
    There's a saying that a lot of us use quite a bit. It's 
called no good deed goes unpunished. The 340B program was set 
up to be a really good deed, and word spread and now, in my 
opinion, that program is being abused.
    In the report that GAO did, they claim that the number of 
hospitals that are participating in 340B is up to 12,722 and 
it's tripled in the last four years.
    The report further states that that's about 40 percent of 
the hospitals. But according to the American Hospital 
Association, there are only 15,598 hospitals in America. So if 
the AHA number is right, 82 percent of the hospitals in the 
United States are now participating in the 340B program.
    This is a program that's supposed to help lower drug costs 
for hospitals that serve a disproportionate share of low-income 
patients or patients that participate in low-income Medicare 
and Medicaid.
    It's obvious that, to me, anyway, this program is being 
abused. So the question is what do we do about it. Well, in a 
perfect world, which this is not, the Republicans and the 
Democrats on this committee would work in a bipartisan basis 
and we'd come up with a solution, and there's a chance, Mr. 
Chairman, that we may actually do that. I don't know. But----
    Mr. Burgess. Will the gentleman yield?
    Mr. Barton. I will be happy to yield.
    Mr. Burgess. Hope springs eternal. Yield back.
    Mr. Barton. OK. And I am a hopeful guy, Mr. Chairman.
    But in any event, I, with committee staff, have put forward 
a discussion draft that says one thing we could do is just 
raise the percentage of disproportionate share patients that 
the hospital serves.
    And, we are going to have Parkland Hospital, which is a 
low-income hospital for Dallas County and Dallas, Texas--their 
chairman is here on the next panel--they serve over 50 percent 
of their patients would qualify, and the current law says you 
only have to have 11.75 percent. So the discussion draft says 
let's raise that percentage a little over 18 percent. I don't 
think that's a draconian increase, and I could be wrong.
    But let me ask you, ma'am, do you believe, based on the 
study, that it would be good public policy to raise the DSH 
percentage requirement a little bit, or maybe a lot?
    Ms. Draper. Well, I've testified on this several times 
before. I think a major issue with this program is that the 
intent of the program is not very clear. Intent was set up when 
the program was first set up in the early '90s.
    A lot has changed in the health care landscape over that 
time and whether that intent is still, you know, relevant today 
I think that is something that is one of the first things that 
need to be done because a lot of people assume that it's a 
program for low-income people.
    That's not explicit in the intent and so then that gets to 
the whole issue about discounts and whether discounts are 
supposed to be provided and----
    Mr. Barton. Well, is there any question that the intent was 
not to let every hospital in America participate?
    Ms. Draper. Well, at the time I think it was more that--the 
intent was really, to me, closer to what a covered--like, a 
grantee.
    It was to stretch scarce federal resources to provide more 
comprehensive services and reach more patients, really using 
the Federal grants that were available to the covered entities 
at the time.
    Mr. Barton. Well, I agree with you. The intent was not 
clear. There's enough ambiguity in the program you can drive a 
Mack truck through, and word's gotten around in--not every 
hospital. There's still 18 percent that, apparently, don't read 
the newsletters so----
    Ms. Draper. Well, if you're talking about the 12,000 
covered entities, that includes both hospitals and Federal 
grantees. So it's not just hospitals.
    A hospital is probably a little bit more than 50 percent of 
that number and----
    Mr. Barton. OK.
    Ms. Draper [continuing]. The Federal grantees are the 
remaining.
    Mr. Barton. So the 40 percent number----
    Ms. Draper. It's probably 40--the last number I saw was 45 
percent.
    Mr. Barton. So pure hospitals would be 6,000?
    Ms. Draper. Something along that line.
    Mr. Barton. OK. Well, my time has expired, Mr. Chairman, so 
I am going to have to yield back.
    I think it's good to have this and I think it's very good 
that we try to work to tighten up and, as the gentlelady just 
said, let's determine what the real intent is and then 
legislate accordingly.
    With that, I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentlelady from Florida 5 minutes 
for questions, please.
    Ms. Castor. Thank you, Mr. Chairman.
    Dr. Draper, I want to return to GAO's recommendations on 
the audit process for 340B covered entities. These 
recommendations appear to create a lack of parity between 
HRSA's audit process for covered entities and the agency's 
audit process for manufacturers.
    For instance, I do not think that HRSA has any requirement 
or guidance regarding how long manufacturers must look back for 
340B overcharges nor are manufacturers require to submit any 
documentation demonstrating that an error leading to 340B 
overcharges to covered entities has been corrected.
    Did GAO consider this lack of parity in manufacturer audits 
when they were constructing their recommendations?
    Ms. Draper. We did not, because the scope of this work 
really related to the use of contract pharmacies and, as I 
mentioned earlier, we have not done work looking at audits of 
manufacturers and HRSA does post that on their website and, as 
I said, I think they talked about 12 completed today.
    Ms. Castor. That wasn't in your scope this time and then 
that hasn't been a focus in the past at all?
    Ms. Draper. It hasn't been a focus. Audits of 
manufacturers, from my understanding, started in 2015. So this 
most recent report that we did really looked at the use of 
contract pharmacies in the 340B program.
    Ms. Castor. So you would need the Congress to suggest that 
that would be a good idea if we are going to do it?
    Ms. Draper. Yes. We do our work either through mandate or 
congressional request.
    Ms. Castor. I just think it's an important piece of it 
because it seems like something is afoot here--that the 
manufacturers have--and drug companies have really been playing 
offense when it comes to 340B and I think it would be fair to 
take a look at their overcharges.
    We are struggling right now in America with how to contain 
these huge cost increases for drug prices.
    When I am at home and I sit down with my neighbors and ask 
them what's important, this is always the top of their list and 
it's a little bizarre to me that the committee is having a 
hearing on this rather than really doing a much broader look at 
how we contain the escalating cost of prescription drugs for 
folks.
    There are some great Democratic bills out there. We've 
tried to get some Republican support. But there seems to be a 
real disconnect here. The 340B is so vital to my hospitals.
    It's the one initiative out there that helps our safety net 
hospitals and community health centers provide affordable 
prescription drugs and it seems like the big drug manufacturers 
and drug companies just--they're never satisfied, and I don't 
know why we are taking up a great deal of time.
    I appreciate GAO's work. It's important. You can always 
improve certain initiatives but. It really gives me pause that 
this is the direction of the committee rather than really 
tackling the bigger issue for folks back home, which is much 
broader, much more severe. And I know you all are hearing it 
like I am hearing it.
    So thank you, again.
    Ms. Draper. Yes. I would just want to add that I think, you 
know, clarifying the roles, rules, and responsibilities of all 
the stakeholders in this program is really critical for this 
program tto have this program to be of the highest integrity 
and I think that the growth in this program--the pace of the 
oversight has not kept pace with the growth and I think there 
are a lot of ambiguity and lack of transparency in this 
program--that improving those will go a long way to helping 
improve the ----
    Ms. Castor. I agree with that. I agree with that strongly, 
because we have to protect program integrity because it is so 
vital for folks back home and it enables our safety net 
hospitals and community health centers to make sure that they 
are serving their broader mission.
    But I am talking about the larger context. So I appreciate 
GAO's work here and, really, I would hope the committee would 
be bolder in tackling this critical problem for our folks back 
home and their pocketbooks.
    Thank you. I yield back.
    Mr. Burgess. The chair thanks the gentlelady. The 
gentlelady yields back.
    The chair recognizes the gentleman from Illinois, Mr. 
Shimkus, vice chairman of the Energy and Environment 
Subcommittee, 5 minutes for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    I appreciate you being here and I appreciate your opening 
statement.
    There is a concern in why it's important because in your 
opening statement we saw hospitals grow from, I think, 1,300 to 
20,000 people in the program.
    We saw contract pharmacies go from one to 439--I just was 
scribbling--based upon your opening statement. The distance of 
contract pharmacies from zero to 5,000 miles away from a 
hospital--I don't know what the 30 to 55 was.
    I also wrote down that I was going to get the definition of 
diversion, which is not knowing who the drug pricing really 
follows, from what I understand, in trying to get staff 
definition--and no patient definition.
    Is that all part of that opening statement, Ms. Draper, 
that you said?
    Ms. Draper. Yes. The patient definition is pretty 
ambiguous. So----
    Mr. Shimkus. So if you want to serve people who can't 
afford it, it might not be bad to ask the person what----
    Ms. Draper. Well, one of our recommendations from 2011 that 
still remains to be implemented is to clarify the eligibility 
criteria for our patient.
    Mr. Shimkus. And that's why I am not averse to talking 
about and getting in this debate. Listen, I am from rural 
small-town America. I have hospitals that rely upon this 
because of the patient area and who they cover.
    They're unafraid about being in this debate because they 
know they're covering the right people. The question is about 
the other ones and the expansion and getting some type of 
confidence.
    I got a letter from a state rep who talks about evidence of 
taking advantage of a system for their financial benefit and 
not properly serving vulnerable uninsured populations. We ought 
to look into that.
    This is State Rep. Charlie Meier. This was sent in 
September of 2017. I have a letter from a pharmacist who's 
concerned about disproportionate hospitals--he says these 
pharmacies will bill the patient's private insurance at usual 
and customary pricing but can fill that prescription using 340B 
medications at significantly lower cost, kind of like gaming 
the system.
    The challenge in health care policy is that the national 
government--we are a big payer--Medicaid, Medicare. Also with 
Medicaid we participate with the state but we always really 
underpay.
    So then health care providers try to find other ways to 
make up the cost and that maybe billing higher to private 
insurers and all sorts of stuff, and I think that's kind of 
what's going on here to some extent.
    It's another way for hospitals to make up the shortfall 
from the federal government not compensating, and it is right 
that we looked into this and follow this debate.
    So a couple questions in my time remaining. In your report 
it states that 69.3 percent of hospitals versus only 22.8 
percent of Federal grantees had at least one contract pharmacy 
arrangement. Why do you think that is?
    Ms. Draper. Well, hospitals are much larger. Their 
catchment areas are much larger, probably than Federal 
grantees. They also have much more complex organizational 
structure than they're more likely to have and some of the 
grantees have multiple child sites that may be a far distance 
from----
    Mr. Shimkus. Could it be that the grantees have in-house 
pharmacies?
    Ms. Draper. Well, they could. Yes.
    Mr. Shimkus. I think that's probably something we should 
look at. The report states that some covered entities 
maintained contracts with pharmacies that they do not use to 
dispense 340 drugs. Why would a covered entity maintain this 
arrangement?
    Ms. Draper. Yes, that was an interesting finding for us, 
and what the covered entities talked about, when there are very 
expensive drugs, for hepatitis C or a hemophilia drug or HIV, 
that what happens is even if a patient rarely needed it maybe 
once every 2 years, that it was more advantageous to keep that 
arrangement, in the case where that one patient might need that 
very expensive drug.
    Mr. Shimkus. And I think you answered this before, but just 
before registering contract pharmacies with a given covered 
entity, does HRSA review the covered entities' plans for 
oversight to ensure it is sufficient?
    Ms. Draper. They do not. But they will collect those 
policies and procedures if they conduct an audit of the covered 
entity. So at that point they'll pull the policies and 
procedures and look at those.
    Mr. Shimkus. I appreciate your testimony.
    Mr. Chairman, I yield back. Thank you very much.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Oregon, Dr. 
Schrader, 5 minutes for questions, please.
    Mr. Schrader. Thank you, Mr. Chairman. I appreciate it. I 
appreciate Ms. Draper being here and the work that GAO does.
    A question that came up in the hearing so far about, why do 
we have this program, and I think it's pretty clear, frankly.
    We established back in 1992 and supposed to stretch scarce 
federal resources as far as possible, reaching more eligible 
patients and providing more comprehensive services. End of 
discussion.
    Now, if we don't think that's the appropriate use of the 
resources of the discounts, then let's have that discussion. I 
am OK with that.
    But I think it's pretty clear that the goal of the program 
is to, frankly, allow people and allow modern medicine to use 
the discounts from some of our pharmaceutical friends who saved 
millions and millions of lives in a much more conducive setting 
than being in a hospital by making sure people have access to 
these medications that we should embrace that. That's a good 
thing.
    The other piece that I am a little concerned about and the 
tone of the conversation so far is that having this vast 
increase in people using the 340B program is wrong. I would 
argue that's a success. It means that hospitals are beginning 
to realize, especially with the advent of the Affordable Care 
Act that brought services to a lot of very vulnerable people 
that there's an opportunity for them financially and for them 
from the standpoint of their Hippocratic Oath providing 
excellent care to my constituents that they're able to do those 
wraparound services.
    We don't have the money in our system right now to give 
these folks the opportunity to develop this wraparound service 
and it's paid for, largely, at least some of it, out of the 
340B discount program, and what population is served by that is 
not specified, although I think your audits show, hopefully, 
for the most part, it seems like, at least in my state, that 
the program is being used appropriately.
    The discounts are on drugs for those people that are 
eligible. I think that's great. So far in my state, I am not 
aware of a lot of problems. We've had some audits.
    I've met with some of my providers just a few weeks ago and 
they've been recently audited. They seem to be indicating 
they're getting audited on a little more regular basis than you 
have talked about so far and they're meeting their goal.
    So I would argue respectfully that since we do have a 
fairly significant lack of resources here in Washington, D.C., 
to help our hospitals deal with our Medicaid population and 
those other low-income folks with this wraparound service 
prevents them from coming in and actually costing the system 
and the taxpayer a lot more, and that's a discussion I think we 
have to have a little more of before we start adding new rules 
and regulations.
    I came in a little late and I apologize for that, and 
haven't gotten through the entire report. What was the finding 
on terms of duplicate discounts by the different hospitals and 
covered entities?
    They're not supposed to have a Medicaid rebate discount and 
take 340B. What was the finding in that regard, Ms. Draper?
    Ms. Draper. Well, there is evidence that there are 
duplicate discounts in Medicaid-managed care and HRSA will say 
that they haven't issued guidance to covered entities.
    Covered entities express concern that that may be 
occurring. But they don't really have guidance as to how they 
handle it.
    Most recently, HRSA added a change so if they become aware 
of a potential for duplicate discount in one of their audits, 
they will put it in the audit finding letter but they will not 
require the entity to really do anything about it unless there 
are other findings related to audits.
    Mr. Schrader. I would like to see those specific instances 
that your report identified, what percentage of the hospital--
there's other entities, too.
    Hospitals are a smaller percentage of the covered entities 
that the program applies to. So I would like to see if it's 
possible where you found that and also if there's some 
geographical differences--there's more prevalence.
    Ms. Draper. So this was based on 20 completed audits and we 
found it in one of the files.
    Mr. Schrader. One out of 20?
    Ms. Draper. Out of 20, yes.
    Mr. Schrader. All right. Well----
    Ms. Draper. And then HRSA----
    Mr. Schrader. To your point earlier, I think we need to do 
more audits. It's hard to get statistically relevant 
information out of 18,000 or 16,000 covered entities or 
hospitals. It's----
    Ms. Draper. Right. I think the other issue is that the 
majority of beneficiaries in Medicaid are in managed care. So 
that is an important place for that----
    Mr. Schrader. Last question. I am sorry. I am running out 
of time.
    Ms. Draper. That's OK.
    Mr. Schrader. You talk about an increase in 25 percent of 
the discounts paid. What portion of that is a result of the 
increase costs to the pharmaceuticals over the same time period 
from 2010 until now?
    Ms. Draper. The 25 percent increase in costs paid?
    Mr. Schrader. Yes.
    Ms. Draper. Well, you have to look at the proportion of 
the, the cost of the----
    Mr. Schrader. If the program is costing us 25 percent more 
since 2010, some of that is, obviously, increased in 
popularity. People are realizing they can actually do that nice 
wraparound service.
    The other piece is potentially increased costs as a result 
of new age drugs that are, again, maybe very, very good.
    But I think we need to have that information, Ms. Draper. 
That would be really helpful for us to decide how much of this 
is appropriate and how much is not.
    So I am fine with clarifying the rules. I think they're 
pretty explicit at this point and make sure that everyone's 
following and being enforced, do more audits that we are 
currently doing.
    They seem to be working. But I would rather that than have 
a whole bunch more of new regulation. Let's enforce what we 
already have.
    And I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Ohio, Mr. Latta, 5 
minutes for questions, please.
    Mr. Latta. Thank you, Mr. Chairman, and Director, thanks 
very much for being with us today. If I could maybe just touch 
on some questions in the transparency area.
    In the report, GAO states that HRSA does not require 
covered entities to share contracts made with pharmacies to the 
agency. Do you believe that sharing this type of information 
for all contracts would improve program oversight?
    Ms. Draper. Well, you're probably talking about tens of 
thousands of contracts. So it would be probably pretty 
burdensome.
    The other issue is that HRSA doesn't have legal authority 
over those arrangements. They discuss it as a private business 
matter between the covered entity and contract pharmacies and 
third-party administrators.
    Mr. Latta. Well, let me follow up on that then. Should such 
contracts be made public to ensure that the financial 
arrangement between the covered entity and the contract 
pharmacy are consistent with the requirements and purpose of 
the program?
    Ms. Draper. Well, as I mentioned before, HRSA was very 
concerned about us publishing the financial information from 
the 30 contracts that we reviewed, discussing that it could be 
potentially disruptive to the drug pricing market and cost 
fluctuations and the fees that covered entities pay.
    We disagree with that, but I think it's something that--if 
you're thinking about this on a larger scale it's something 
that would have to be looked at and probably include HRSA in 
the discussion about that, what their concerns are and whether 
they're valid.
    Mr. Latta. All right.
    In the report, GAO states that the covered entities must 
have a plan with the contract pharmacy to ensure compliance 
with the statutory prohibitions on the 340B diversion of 
duplicate discounts.
    Should Congress require such plans be made public?
    Ms. Draper. Currently, HRSA does not require those unless 
they do an audit of the covered fee and then they collect that 
information.
    I am not sure what the public would do with that 
information. It would seem that that would be something more 
important for HRSA to have rather than the general public. But 
it seems like an administrative process--an oversight issue 
with HRSA.
    Mr. Latta. On Page 19 of the report, GAO states that the 
number of contract pharmacy arrangements is unknown because 
HRSA does not require a covered entity to register pharmacies 
with each of its child sites.
    And should such registration be required?
    Ms. Draper. Well, that's what we recommended. So I can give 
you an example. So of the covered entities that register only 
one contract pharmacy, there were 1,645 of those.
    They had 25,000 arrangements. So that could have resulted 
in more than 800,000 separate contract pharmacy arrangements.
    So HRSA does not have really that information and it does 
go to inform the complexity of the covered entities and the 
different arrangements that they have. It does inform their 
oversight efforts, particularly the audits of covered entities.
    It also makes it difficult for manufacturers to know 
whether a particular entity is actually included on the 
contract and it's a valid contract so that they can actually 
provide the drugs to that entity.
    Mr. Latta. OK.
    What is the most important recommendation to improve the 
program integrity?
    Ms. Draper. What's the most important one?
    Mr. Latta. Right.
    Ms. Draper. I would say all seven are important. They all 
go to, really, program integrity.
    Mr. Latta. Anything you have listed at the very top of 
your--as you were putting them in the report, one to seven?
    Ms. Draper. Well, it's really hard to distinguish because I 
think they all address different areas but they all culminate 
in improving the integrity of the program, which is really 
critical, and I would hate to say one over the other because I 
think they're all equally important, and we agonize over 
recommendations before we make them to make sure that they are 
valid. And so I would like to say that all seven are important.
    Mr. Latta. OK. Well, as you're looking at the GAO side, on 
the HRSA side, how should HRSA prioritize the implementation of 
your report of the GAO recommendations?
    Ms. Draper. Again, I think that they disagree with three of 
them and we disagree that they disagreed. I think that they 
need to implement all of them.
    I think one of the big ones is the duplicate discounts. 
That needs to be clarified because no one knows the potential 
for the amount of duplicate discounts and that's definitely a 
clear prohibition of the program.
    So I think that's one area and that's going to probably 
require--they're going to have to work with CMS on that to get 
that implemented.
    So I think just the timeline for that and the importance of 
that--that that would be one that I would probably focus on 
initially. But I think all seven are important.
    Mr. Latta. Well, thank you very much.
    Mr. Chairman, I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back. The chair recognizes the gentleman from Indiana, 
Dr. Bucshon, 5 minutes for questions, please.
    Mr. Bucshon. Thank you, Mr. Chairman.
    I would just remind everyone, 1992, no internet, and the 
Cold War was just ending. Times have changed, and the original 
intent of the program is important. But, again, today is today. 
It's not 1992.
    I just want to make it clear that I am a strong supporter 
of the 340B program. It's critical to many of the rural 
hospitals in my district.
    I called every CEO of every hospital and, honestly, all of 
them talked about the critical nature of the program but also 
none of them had a problem with more oversight.
    You know why? Because they're doing what they're supposed 
to be doing. If everyone out there is following the intent of 
the program, either original intent or in its current goals, 
then no one, I repeat, no one has anything to worry about with 
increasing oversight of the program, being required to report 
their activities.
    And those that are not, honestly, should be ashamed of 
yourselves, and you know who you are. It's ridiculous. As a 
provider, the intent of this is to get low-income fellow 
citizens access to very important critical lifesaving 
medications.
    And so those of you who are opposing more transparency, the 
lady doth protest too much, me thinks. So you can Google that 
and see what that means.
    But we know what the reason behind this is, OK. The reason 
is money, and so we need to get the focus off money and back 
onto the intent of why this program was put in place and we've 
lost that, and it's appalling.
    Again, I want to say people that are fighting against more 
transparency, in my view, it's shameful, and if they ought to 
quit doing that and cooperate with the committee and help us 
improve the program for everyone.
    So, Ms. Draper, the reach has expanded way beyond--and has 
led to the creation of, in my view, a cottage industry almost 
to maximize the profits including vendor, software developers, 
consultants, contract pharmacies.
    Again, I know you have said this but would you agree that 
further oversight of entities beyond the program's covered 
entities is warranted.
    Ms. Draper. I would say there should be oversight of all 
the stakeholders in this program.
    Mr. Bucshon. Agreed. So I don't think we have any partisan 
issue with that. From your perspective, considering the lack of 
transparency about the vendors, is there potential for program 
abuse there?
    Ms. Draper. Well, I would say that----
    Mr. Bucshon. Third party vendors.
    Ms. Draper. I would say when things are not transparent or 
they're--ythe rules are ambiguous that there's always, at least 
a lot of interpretation and why the interpretation.
    So I think, if you don't have clear roles and 
responsibilities and rules then, there is a lot to be 
interpreted and it does pose a risk for potential undesirable 
effects.
    Mr. Bucshon. Do you know how many third party 
administrators there are?
    Ms. Draper. I don't know.
    Mr. Bucshon. You have no idea? And does the GAO have any 
information regarding how much money on average covered 
entities spend on contract pharmacies and vendors, because 
these costs presumably could limit the amount of care provided 
to low-income and uninsured patients?
    Ms. Draper. We don't have that information. That 
information, as far as we know, is not available.
    Mr. Bucshon. So it's not transparent so there's no way to 
know. And then the final thing I will say is I think someone 
mentioned--I think you mentioned it's important to have 
transparency to HRSA. I am going to argue that it's important 
to have transparency to constituents that I represent.
    The only way that things change is if the people that I 
represent and every member here represents know what's 
happening out there.
    Things don't change, in my view, is if a federal agency 
understands better what's happening because as you see, HRSA 
has said they don't agree with three of your recommendations, 
and you have made recommendations.
    When's the first time there were recommendations made about 
this program? What year do you think?
    Ms. Draper. Yes. We made recommendations in 2011 and they 
still have two yet to be implemented.
    Mr. Bucshon. OK. That's roughly 7 years, right, depending 
on the time of year that they're implemented.
    So my point is transparency to HRSA to get more information 
to the federal agency hasn't worked. It's not working, right. 
Nothing's been changed. Is that true?
    Ms. Draper. Well, some things have changed but a lot of it 
is we haven't had this discussion about HRSA--whether they can 
issue rules and responsibilities through guidance or 
regulation.
    Mr. Bucshon. Right.
    Ms. Draper. Their belief is that they need regulation--on 
the two open recommendations that we currently have that they 
need regulation versus guidance.
    Mr. Bucshon. OK. And let me guess--they're blaming it on 
Congress, saying that we need to do a legislative fix. This is 
a classic agency approach where when they're not acting on 
recommendations from you or others that they hide behind the 
``legislative fix'' so they can't improve things.
    So my major push is this. In health care in general, only 
in 340B the only way that we are going to get health care costs 
down and ensure all of our citizens is if everyone in this 
industry is completely open and transparent to the people that 
I represent and to the people of America.
    Thank you, Mr. Chairman. I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Missouri, Mr. Long, 
5 minutes for questions, please.
    Mr. Long. Thank you, Mr. Chairman.
    Dr. Draper, the GAO report indicates that a 
disproportionate share of hospitals have, on average, 25 
contract pharmacies per hospital with 45 percent have at least 
one contract pharmacy that is more than 1,000 miles away from 
the hospital itself.
    Your report also notes the guidance from HRSA--the Health 
Resources Services Administration--gives covered entities 
discretion on how to determine compliance for contract 
pharmacies.
    Could you discuss the effectiveness of covered entities' 
current oversight practice of contract pharmacies, given the 
lack of specific guidance from HRSA?
    Ms. Draper. Well, when a covered entity contracts with a 
pharmacy they are to have specific policies and procedures how 
they're going to conduct that oversight. HRSA does not collect 
that information. They do collect it during the course of an 
audit. If an entity is audited they will pull that information 
and make sure that they're in compliance.
    HRSA gives wide discretion about what that oversight means 
and, just for example, their 2010 guidance says that the exact 
method of ensuring compliance was left up to the covered 
entities.
    So we found wide discretion about how entities are 
overseeing contract pharmacies. So, for example, one covered 
entity reported auditing claims of five randomly selected 
patients quarterly when they serve 900 patients on a monthly 
basis.
    And then one critical access hospital that serves about 
21,000 patients annually, their independent audit review of 
five claims per year. So a wide variation.
    Again, this is not specific guidance as to how entities are 
supposed to conduct oversight.
    Mr. Long. Yes. Well, that was my question. Excuse me.
    In your report, you also note that weaknesses in HRSA's 
audit process impede effectiveness of its oversight, mainly, 
that HRSA does not have complete data. How is HRSA able to 
determine that contract pharmacies are complying with program 
requirements?
    Ms. Draper. Well, again, the audits are a major oversight 
mechanism.
    Mr. Long. Their what? I am sorry.
    Ms. Draper. Their audits of covered entities. So what 
happens is that when a covered entity contracts with the 
pharmacy, there's one or two ways that they can contract.
    One is that they can do a comprehensive contract, so the 
contract is with the covered entity and the pharmacy and then 
at their child sites, and all the child sites have to be listed 
on that one contract.
    The other method is to individually contract for each 
parent and child site with that covered entity. So that's one 
of two ways. That's how they contract.
    But when they register the pharmacies with HRSA, HRSA, 
again, they can register the pharmacy for parent and child site 
or they can just register the parent site alone, which doesn't 
cover individual child sites. So they don't really have that 
information readily accessible in their records.
    Mr. Long. OK. Grantees such as community health centers 
typically must demonstrate that they are serving a specific 
vulnerable population and are required to reinvest in 
additional resources into services for those populations.
    They also have substantial reporting requirements on how 
they use their funding. However, no similar requirement exists 
for hospital entities even though we've seen a significant 
growth in the number of hospitals participating in the program.
    Would it make sense to put in place similar requirements 
for all participating entities?
    Ms. Draper. Well, I can tell you that many of the grantees 
have specific requirements as part of their grants to how they 
use their revenue or savings and what discounts they might 
provide patients. There's not similar requirements necessarily 
for hospitals that participate in the program. So that's the 
difference between the two.
    Mr. Long. OK. Do you believe the consistently stringent 
oversight across all entities is necessary for appropriate 
governance of the program?
    Ms. Draper. Yes, I do.
    Mr. Long. OK. Thank you.
    And, Mr. Chairman, I yield back.
    Mr. Burgess. The gentleman yields back. The chair thanks 
the gentleman.
    The chair recognizes the gentleman from New York, Mr. 
Engel, 5 minutes for questions, please.
    Mr. Engel. Thank you, Mr. Chairman.
    340B is a small but essential program that lets qualified 
providers stretch limited resources to better serve their 
patients and communities, and in my district at more than a 
hundred New York safety net hospitals 340B discounts allow for 
greater access to prescription drugs and more comprehensive 
care for patients, many of whom have nowhere else to turn.
    Now, I am all for ensuring program integrity. It's 
essential if we want the 340B program to continue helping 
vulnerable patients get the care they need, and it's my 
understanding that hospitals are subject to random audits of 
the Health Resources and Services Administration to make sure 
that 340B is working as it should.
    Some of the policies we are considering today, though, 
don't seem to be aimed at better program integrity. Rather, it 
seems to me that the goal is really to make participants' 
participation in the 340B program more onerous for providers or 
cut providers from this program altogether and I am concerned 
that were these policies to go into effect providers would be 
forced to cut back on the care they offer to patients and 
curtail the work they're doing to improve the health of our 
communities overall.
    Now, this would come on the heels of the Centers for 
Medicare and Medicaid Services' decision earlier this year to 
slash the amount Medicare reimburses for drugs purchased 
through 340B.
    In New York, this will result in more than $100 million in 
cuts to eligible 340B hospitals. That, in turn, leaves these 
providers with fewer resources to care for the same patients 
340B is supposed to benefit in the first place.
    So I am a co-sponsor of Congressman McKinley's bipartisan 
bill to reverse these misguided cuts and I hope this committee 
will act on legislation quickly.
    Dr. Draper, I want to ask about GAO's recommendations that 
HRSA should mandate additional registration requirements for 
contract pharmacies.
    It's my understanding that HHS did not agree with this 
recommendation, something that does not happen frequently, as 
there are already contract pharmacy registration requirements 
in place.
    HHS argued that new needless burdensome requirements 
wouldn't do much to improve program integrity. I think we can 
all understand why contract pharmacies are important. Forcing 
patients to visit a hospital pharmacy when there is a more 
convenient option just doesn't make much sense.
    But I worry that the policies GAO has recommended would 
ultimately result in the loss of 340B discounts eligible 
patients just because of where that patient chooses to get 
their drugs and, as a result, hospitals will lose out on 
savings that allow them to better care for these vulnerable 
patients.
    So, Dr. Draper, isn't it true that HHS had ``significant 
concerns regarding many of the findings in the draft report,'' 
and did not agree with three of the seven GAO recommendations 
because they felt that it wasn't the best use of resources to 
actually improve program integrity?
    Ms. Draper. They did not concur with three of our 
recommendations and the one that you were talking about 
specifically about registering, making sure that each site was 
registered with each contract pharmacy, they already have that 
information available and that part when a covered entity 
registers their contract pharmacies that information is 
available.
    It's just not available in their database, and the problem 
with that is that they use that information to--the complexity 
of a covered entity is used in their decision about the--90 
percent of their audits are risk-based audits.
    So they use that information of the complexity of an entity 
to determine which entities get selected for audits. So that's 
really important information to have.
    The other--the other piece of that is that it's important 
for manufacturers to have that information available to them 
because if they don't have that that they can't really verify 
that the entity that they're providing drugs for is really a 
covered entity under the contract.
    Mr. Engel. Thank you. Thank you.
    I yield back, Mr. Chairman. Thank you.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from New Jersey, Mr. 
Lance, 5 minutes for questions, please.
    Mr. Lance. Thank you, Mr. Chairman. Good morning to you and 
thank you for your public service.
    As I have read your report, there is an indication that 
flat fees paid to pharmacies by covered entities for brand name 
and specialty drugs were higher than going the other way.
    Does this make sense and could you just explain that a 
little more to me?
    Ms. Draper. Yes, it made sense because those drugs are much 
more expensive. So, the flat fee for a generic, which probably 
is much lower cost--the thing that you want to do is make sure 
that the fees are proportional to the cost of the drugs. So, I 
think there's been some talk about making the fees the same----
    Mr. Lance. Yes.
    Ms. Draper [continuing]. And the problem with that is that 
then you might end up that a patient pays more for being in the 
340B program than if they weren't because--it gets out of 
proportion.
    So that would make some sense.
    Mr. Lance. Thank you.
    But it also states that some contracts exclude generic 
drugs from being purchased at the 340B price. Why would 
contracts only allow for the purchase of brand name drugs?
    Ms. Draper. And, again, it's the same kind of issue that it 
may put the drug into a negative revenue situation for the 
covered entity. If the fee associated with that and the costs 
of the drugs puts it into a negative revenue or savings, then 
that really sometimes doesn't work.
    And what we've heard from some contract pharmacies if they 
find that that happens, then they will consider it not to be a 
340B prescription but a regular prescription so it doesn't put 
the covered entity into a negative revenue or savings situation 
like that.
    Mr. Lance. Should we go to a system where they can decide 
which to choose or is the system as it currently exists the 
better system, from your perspective?
    Ms. Draper. Yes, I think that will require more study to 
find out how best to do that because, again, you don't want to 
create negative incentives related to this.
    You want to make sure that whatever fee that's being 
charged is not creating--that the patient would come out in a 
worse situation by participating in the 340B program than not.
    Mr. Lance. Thank you, and I look forward to continuing to 
work with you and, Mr. Chairman, I yield back two minutes and 
27 seconds.
    Mr. Burgess. The chair rejoices.
    The chair is prepared to recognize the gentleman from North 
Carolina if he is ready.
    Mr. Hudson. I will be ready in just a second, Mr. Chairman. 
Thank you for that.
    Thank you, Ms. Draper, for----
    Mr. Burgess. Five minutes.
    Mr. Hudson [continuing]. Providing your testimony. In the 
8th District of North Carolina, I have four major hospital 
networks, each of which uses the 340B program. I've toured 
their facilities and they've shown me ways that they use the 
340B program to better serve their patients.
    I believe this program is vital to our communities and I 
believe in its mission. But the program can and should be 
improved.
    I applaud Chairman Burgess and Ranking Member Green for 
holding this hearing to allow us to explore solutions to help 
preserve and strengthen this program for the next generation.
    One idea that I've been exploring is elevating the 340B 
program to an administrator level program within HRSA. Right 
now, the 340B program is administered by the Office of Pharmacy 
Affairs within HRSA. But there's no figurehead for Congress to 
address its concerns to.
    A recurring theme I've heard from both covered entities and 
pharmaceutical manufacturers who've come in to talk to me about 
changes they'd like to see in the program is that they want to 
see more transparency and accountability.
    Further, both in the GAO and Energy and Commerce Oversight 
and Investigations Subcommittee reports recommended this 
program be given more authority to conduct oversight and 
resources to ensure proper implementation.
    The 340B program is utilized by over 12,000 covered 
entities and there are close to 20,000 contract pharmacies. It 
plays a vital role in our health care system.
    However, it's critically under resourced to appropriately 
administer this program. By elevating the 340B program to a 
Senate-confirmed administrator level program, I believe we can 
make this program more accountable to Congress, proving more 
visibility to the program, and improve the administration of 
the program. I believe these are goals that hopefully we can 
all support.
    Ms. Draper, do you foresee any issues with elevating the 
340B program to a Senate-confirmed administrator level program 
within HRSA?
    Ms. Draper. I haven't really thought about that. But I 
think the more visibility that that position has will be--would 
be helpful.
    Mr. Hudson. Great. Well, if you have any further thoughts I 
would love to hear your feedback. I appreciate the work you put 
into this and I think it's benefited this committee.
    Ms. Draper. Thank you.
    Mr. Hudson. With that, Mr. Chairman, I will yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from New York, Mr. 
Collins, 5 minutes for questions.
    Mr. Collins. Thank you, Mr. Chairman.
    I think, Ms. Draper, you have actually answered a lot of 
our questions. The GAO report was a very specific audit on the 
contract pharmacies and I think we've kind of covered that.
    So maybe I will spend a few minutes just stepping back for 
a second, I think, sometimes, to summarize things.
    Everyone in this room agrees 340B is a great program. It's 
been around 25 years. But in 25 years, a lot has changed.
    Certainly, the types of drugs and the treatments we have to 
cure diseases, treat diseases, vary significantly different 
today than 25 years ago and many of these drugs are 
extraordinary as they've gone through billion-dollar trials and 
the like, and I think all of us have the same concern--that the 
bad actors are identified and we stop those actions.
    Certainly, you identified some of the issues with contract 
pharmacies a thousand miles away, diversion, getting double 
discounts and so forth.
    So I think, as we are going to maybe nuance some things we 
should always keep stepping back and saying this program has 
been there 25 years--it's a good program--the pharmaceutical 
companies support it. Covered entities need it, the grantees 
need it, et cetera, et cetera.
    So it comes back to--there's a saying there's no free lunch 
and as we have seen some bad actors take advantage of the 340B, 
50 percent discounts and they're providing them to patients who 
are fully insured, so Blue Cross-Blue Shield is paying the full 
bill.
    The hospital is taking that money, adding it to their 
operating income, if you will, to cover expenses not--in some 
cases, the bad actor not telling us what they're using it for 
versus grantees who do, in fact.
    So I absolutely think the transparency is important here. I 
think we should all remember because of what you're saying--one 
of my bills is a one-tenth of 1 percent user fee for hospitals 
using the program to get into HRSA.
    While they may not like it actually the fewer bad actors we 
have the more confidence we'll have this program will continue, 
and I think we've all heard HRSA needs the resources.
    You, I am assuming, agree with that. So that one-tenth of 1 
percent, which is one of the things we'll be talking about is 
to address that need.
    The other one is patient definition. I have a bill here on 
patient definition that's quite controversial but it says this 
program was intended for the uninsured, the low income, and we 
are seeing some folks talking advantage and buying, in many 
cases, oncology practices where the vast majority of the 
patients are fully insured, and today those are not 340B 
entities.
    They are getting purchased and the next thing you know all 
these patients with full insurance, the person who's purchasing 
it is pocketing that difference. I would call that an abuse.
    So under the patient definition that I am pushing, the 
qualified patient would be a person who's uninsured or low-
income. If someone has insurance they would not be covered by 
340B.
    I am not sure if you have an opinion on that. That's 
probably one of the most controversial pieces because, clearly, 
if it only applied to the uninsured and the low income, that 
would, certainly, today be removing money from hospitals who 
use the funds for their operation expenses. Do you have an 
opinion on that patient definition piece being only the 
uninsured and the low-income?
    Ms. Draper. I would just say that the patient definition 
needs to be clear and it needs to be clear--I think that's a 
major issue with the program overall.
    There's a lot of ambiguity in the rules and regulations and 
it leaves a lot to interpretation. So if that's what Congress 
intends then, that should be clear in the program. That should 
be a clear definition.
    Mr. Collins. Well, and I think that's why, again, Mr. 
Chairman, this is such a good hearing because we are covering 
these things from A to Z to start a dialogue, starting with the 
fact everyone wants 340B to continue to serve what it was 
intended to serve.
    But we need to know where it's going and what we can't have 
are the bad actors taking advantage of loopholes or otherwise 
to pad their bottom line when in fact they should have a 
responsibility to run their operation and everyone needs more 
money.
    Everyone would like more money. But to take it off the 
backs of pharmaceutical companies inappropriately could lead to 
higher prices overall. At some point, if people are taking the 
money out, you're going to see increases, just the opposite of 
what we want to see today.
    Ms. Draper. And I would say what will go a long way is the 
intent of the program clarify that, clarify the rules, and make 
sure that there's a really strong oversight infrastructure in 
place.
    Those will go a long way to improve the integrity of the 
program.
    Mr. Collins. Which is what all of us want. So thank you for 
your testimony.
    And, Mr. Chairman, this is a great hearing. Thank you for 
holding it. I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentlelady from Indiana, Mrs. 
Brooks, 5 minutes for questions, please.
    Mrs. Brooks. Thank you, Mr. Chairman. And I apologize--I 
was in another hearing as well.
    A May 2018 brief by MACPAC highlights the Medicaid 
exclusion file that HRSA maintains to help prevent duplicate 
discounts does not apply to the drugs dispensed by contract 
pharmacies, and while I certainly recognize that identifying 
and preventing duplicate discounts is the legal responsibility 
of the covered entity, given your research and the complexity 
of the program, do you think it is likely that a significant 
percentage of covered entities with contract pharmacies are at 
risk of violating the law by providing those duplicate 
discounts?
    And if you could go into a little bit of detail.
    Ms. Draper. I think there's certainly a risk related to 
Medicaid-managed care. Sixty percent of all Medicaid drug 
spending is in managed care and 70 percent of all Medicaid 
drugs prescriptions are written for Medicaid beneficiaries and 
managed care.
    So I think the potential risk is pretty large. We don't 
know the extent. We haven't looked at it. But we actually will 
be starting work very soon looking at duplicate discounts in 
the 340B program.
    Mrs. Brooks. Is that a separate study you're doing?
    Ms. Draper. Yes, and we are the team that did this work, we 
will be moving over to that work very soon.
    Mrs. Brooks. And can you talk to us a little bit about the 
parameters of that work?
    Ms. Draper. We haven't really scoped it yet but we will be 
looking at, basically, duplicate discounts related to the 340B 
program including managed care.
    We actually haven't staffed it yet but the staff from this 
job will move over to that job and we'll begin work very soon.
    Mrs. Brooks. And do you have any sense of the approximate 
timing of how long that work might take?
    Ms. Draper. Yes. It's hard to say. But I would say 9 to 12 
months, something like that. We'll have to scope it and see how 
broad the scope will be. We will be happy to provide that 
information subsequently.
    Mrs. Brooks. I think that would be very helpful to this 
committee.
    Let me shift with respect to third party administrators. To 
your knowledge, does the use of third-party administrators 
prevent findings of noncompliance and, if so, at what cost to 
the covered entity?
    Ms. Draper. Well, the role of third party administrators is 
to review claims to make sure that patients are 340B eligible.
    So, it is I guess a risk-aversion process and if the TPA 
doesn't do it then someone within the covered entity needs to 
ensure that those patients that are getting the drugs are 
actually eligible patients.
    So what we found is that we had a limited number of TPAs 
but they charge anywhere from $3.50 to $10 per prescription I 
think is what they told us, or they may do it on a per contract 
basis or per covered entity, like, $25,000 for a year.
    Mrs. Brooks. So if the TPAs are paid a flat fee for 
contract pharmacy, do you believe that incentivizes less 
oversight and/or increase noncompliance of that contract 
pharmacy when it is a flat fee?
    Ms. Draper. Yes, it's hard for me to say. I don't think we 
really had the evidence to suggest either way.
    Mrs. Brooks. OK.
    Ms. Draper. It was really more of a descriptive piece to 
really get some insights into the financial arrangements.
    Mrs. Brooks. Thank you. I have no further questions.
    Yield back.
    Mr. Guthrie [presiding]. The gentlelady yields back.
    I now recognize Mr. Carter from Georgia, 5 minutes for 
questions.
    Mr. Carter. Thank you, Mr. Chairman.
    Ms. Draper, thank you for being here. This has been very 
informative and I appreciate the work that you have done.
    Just full disclosure, before I became a member of Congress 
I was a practising pharmacist, actually participated in some 
340B programs.
    But I will be quite honest with you, I did not know the 
extent to what this program was being done until I got into 
Congress. I thought it was for rural hospitals and for low-
income patients to get discounts on medications, and it was 
only until I got here that I discovered that it was being 
exploited, if you will, not illegally, but just it wasn't 
defined well enough to call people to not be able to exploit it 
like they were.
    I am not saying that they were doing anything illegal. I am 
just simply making an observation and it appears to me that 
Congress never made it clear exactly what we intended for the 
program to be.
    One of the things that's been discussed here today has been 
the number of contract pharmacies, and I want to make sure I 
understand.
    Accessibility to these medications is very important. So it 
appears that the theme has been is if we can cut down on the 
number of contract pharmacies we can control the program 
better.
    Whereas, I would submit that it would be better if we could 
have a better patient definition of who is eligible and who is 
not eligible and not necessarily to have to cut down on the 
number of contract pharmacies.
    Would you agree with that?
    Ms. Draper. Yes, I don't think their work suggests cutting 
down on the number of contract pharmacies. I think it just 
suggests having more rigorous oversight and the rules be clear.
    Mr. Carter. Well, and I appreciate that. One of the things 
that concerns me is that there's legislation being proposed now 
to codify the current patient definition that dates back all 
the way to 1996. We've got staff members who weren't even born 
then.
    So, that's, to me, ludicrous to even think about doing 
that. It has to be updated. But as I understand it, GAO and HHS 
have both identified the unclear patient definition as being 
one of the major problems. Is that true?
    Ms. Draper. Yes.
    Mr. Carter. And that's one of the problems that HRSA is 
having with, really, overseeing the program is that the patient 
definition is not clear.
    Ms. Draper. Well, it isn't clear and that's one of our 
outstanding recommendations from 2011 that still needs to be 
implemented.
    Mr. Carter. Right. Let me ask you something. Are you aware 
of a memo from the Congressional Research Service to Senator 
Cassidy that was dated on June 18th of this year?
    Ms. Draper. Yes, I am.
     Mr. Carter. So is it fair to say that the gist of that 
memo was to confirm that under the current patient definition 
that is being proposed to be codified into the system that it's 
possible for a 340B hospital near Hollywood to get a discount 
from Botox then to be given to a movie star and then to get a 
340B discount?
    Ms. Draper. Well, outpatient drugs are covered.
    Mr. Carter. So yes or no?
    Ms. Draper. Yes. It's possible.
    Mr. Carter. Yes. So it's possible for Botox to be under the 
340B program and for a Hollywood start to get a discount and 
for that hospital to get a discount of that drug.
    The thing is, Mr. Chairman, I don't think there's anyone 
here who doesn't think that this is a good program. It is a 
good program.
    But, obviously, it needs some safeguards. Obviously, we 
need guardrails on this program. We need to do some things and 
change some things to make this program better. If, indeed, 
when the program was established in 1992, as some have 
suggested, that it was not clear exactly what it was intended 
for we need to make that clear in Congress. This is incumbent 
upon us in Congress to make that clear and that's what I want 
us to do.
    Let me ask you one other thing and that's about the 
duplicate payments and the claims modifiers. I understand that 
some hospitals are getting discounts for both Medicaid and for 
the 340B program.
    Would a claims modifier not work to solve that problem?
    Ms. Draper. The guidance isn't clear. There's been no 
guidance related to Medicaid-managed care. That's where the 
issue is. There is a process in place for Medicaid fee for 
service but there is no process for Medicaid-managed care, 
which is----
    Mr. Carter. Right.
    Ms. Draper [continuing]. Where the problem is.
    Mr. Carter. And that's what you said in your report. It 
says the potential for duplicate discounts related to Medicaid-
managed care has existed since 2010 when manufacturers were 
require to pay Medicaid rebates under managed care and 
currently there are more Medicaid enrollees prescriptions and 
spending for drugs under managed care than for fee for service.
    Ms. Draper. Yes, that's correct.
    Mr. Carter. So that just needs to be clarified, right?
    Ms. Draper. Right. There needs to be----
    Mr. Carter. The resolution to all this seems to be simple. 
We just need to update the code.
    Ms. Draper. Somebody mentioned this, that covered 
entities--they would like to have the guidance issued----
    Mr. Carter. Absolutely.
    Ms. Draper [continuing]. So that they're clear about what 
they're supposed to do as well.
    Mr. Carter. Well, I hate to put this on record but this is 
one time I kind of feel bad for the agency because we certainly 
haven't given you any guidance at all and we need to do 
something about that.
    And I want to thank you, Mr. Chairman, for holding this 
hearing and for us addressing this issue, and I yield back.
    Mr. Guthrie. Thank you. Appreciate that. The gentleman's 
time has expired and yields back.
    The chair now recognizes Ms. Eshoo of California 5 minutes 
for questions.
    Ms. Eshoo, you're recognized.
    Ms. Eshoo. Thank you. I was just in deep thought for a 
couple of seconds there.
    Thank you, Mr. Chairman, and thank you, Dr. Draper.
    I hope that you will be able to enlighten me in the 
following area. Do you think that the reporting requirement 
relative to the qualification for how 340B savings are spent 
differently among the types of hospitals currently eligible to 
participate in the 340B program? Do you think that anything 
needs to be done relative to reporting requirements?
    Ms. Draper. Right now, there are no reporting requirements. 
So----
    Ms. Eshoo. There are what?
    Ms. Draper. There are no reporting requirements around--are 
you talking about savings and revenues generated from the 340B 
program?
    Ms. Eshoo. Well, they all have reporting requirements when 
they have the 340B program. But I don't believe that the 
reporting requirements are all the same.
    Do you think that something needs to change with that? Or 
do you think that what's in place is appropriate?
    Ms. Draper. Well, there are no requirements for covered 
entities to account for what savings or revenues they generate 
from the program.
    Ms. Eshoo. Do you think that there is an inconsistency in 
reporting requirements that limit HRSA's ability to effectively 
oversee and administer the 340B program?
    Ms. Draper. I am not aware of anything that's inconsistent 
there.
    Ms. Eshoo. Does GAO have recommendations regarding what 
information should be reported by all covered entities?
    Ms. Draper. We have not made recommendations around that 
issue.
    Ms. Eshoo. What do you think the major issue is? Let me ask 
it this way--what do you think is broken, if anything?
    Ms. Draper. As I said, the intent of the program needs to 
be clarified that the rules and regulations----
    Ms. Eshoo. What does that mean? Clarify it.
    Ms. Draper. So the intent was developed in the early '90s 
when the program first became operational. There's a lot that's 
happened in the health care landscape.
    I think some folks have talked about the increase in the 
price of drugs, the new technologies in health care. I think 
just the types of entities that are currently serving people--
these entities, particularly hospitals are much more complex 
organizations than they used to be.
    So there's so much that has changed and I am not sure that 
the intent of the program has--and also health care reform is a 
big piece. So it's not clear that the changes in the health 
care landscape really support the current intent of the 
program.
    And it's funny because we talk to folks and they think that 
the intent of the program is to serve low-income people. Well, 
that might an indirect----
    Ms. Eshoo. But it's not to track individuals. It's for 
institutions that are----
    Ms. Draper. Right. Covered entities.
    Ms. Eshoo [continuing]. The entities that are responsible 
for taking care of poor people. But that principle hasn't 
changed. That's why I am not so sure what you're specifically 
recommending.
    Ms. Draper. Well, I think we are recommending that the 
intent, the oversight, the more rigorous oversight, which will 
help improve the integrity of the program.
    Ms. Eshoo. You're saying that Congress should do more 
oversight?
    Ms. Draper. No, I am talking about the HRSA should have 
more rigorous oversight of the program and----
    Ms. Eshoo. How? Give me something specific. I asked you 
about----
    Ms. Draper. I think we made----
    Ms. Eshoo [continuing]. Reporting and that I think that 
there are different reporting requirements of institutions. But 
give me a specific.
    Ms. Draper. So we've made several recommendations in the 
current report. One was to institute a process for ensuring 
that duplicate discounts don't happen in Medicaid managed care. 
So that's a clear prohibition of the program that they don't 
have guidance for at this point.
    I think that's one. Another recommendation was that the 
number of contract pharmacy arrangements is clear that they 
track each one of those because right now they're really 
understated.
    So HRSA understates the number in their database of the 
number of contract pharmacy arrangements that currently exist 
and that's an important piece for oversight because that 
information is helpful to inform which covered entities they 
select for audits because it does increase the complexity level 
of an entity does factor into their audit selection.
    So those are a couple issues.
    Ms. Eshoo. Thank you.
    Thank you, Mr. Chairman.
    Mr. Burgess. The chair thanks the gentlelady. The 
gentlelady yields back.
    The chair recognizes the gentleman from Virginia, Mr. 
Griffith, 5 minutes for questions.
    Mr. Griffith. Thank you very much, Mr. Chairman.
    HRSA does not require all covered entities to provide 
evidence that they have taken corrective action and are in 
compliance with program requirements prior to closing an audit.
    Instead, HRSA generally relies on each covered entity to 
self-attest that all audit findings have been addressed and 
that the entity came into compliance with the 340B program 
requirements.
    Ms. Draper, does HRSA reaudit a covered entity after a 
corrective action plan is submitted to ensure compliance before 
they close the audit?
    Ms. Draper. They don't before they close an audit but they 
have conducted 21 reaudits over the course of, I don't know, a 
couple years. In the findings of those, one, they found the 
covered entity in one of the audits where the entity did not 
implement their corrective action plan, as they said.
    They found 12 other instances where the noncompliance 
findings were similar. Three were for the exact same issues. 
So, even in the reaudits they find, the audits probably should 
not have been closed.
    Mr. Griffith. The audits still exist. And so wouldn't it be 
a better practice if they would at least do a mini audit or 
something to make sure that the problems were addressed before 
they just close the audit and say, here are your problems but 
we are not coming back to check on you?
    Ms. Draper. Or require some kind of documentation. At GAO, 
it's a very similar process. We don't close a recommendation 
unless we have specific documentation that something has 
actually been implemented.
    A lot of times an agency will submit to us that they have a 
plan. Well, a plan doesn't do it. It has to be actually 
implemented.
    So I think more rigorous information that they require from 
the covered entities as to what they've done.
    Mr. Griffith. I would agree with that, and I know that some 
of the hospitals are saying that they used the--I am switching 
gears on you--but they used the moneys that they generate or 
that they get from using the 340B program to help somehow.
    But I notice that about half of the covered entities that 
you all reviewed the uninsured patient discounts just didn't go 
to the patient.
    And I know they may be using it somewhere else, but don't 
you think that's a little bit of a problem--that we ought to 
have some way to track that to see that it's at least going to 
help folks who are low income?
    Ms. Draper. Yes. So what we found of the 55 respondents 
that responded to our questionnaire, 30 said that they provide 
discounts at some or all of their contract pharmacies.
    Twenty-five said that they did not. But of those, four 
actually provided discounts in their in-house pharmacies and so 
and then some others talked about that they provide benefits 
through, like, their charity care program that may cover----
    Mr. Griffith. And I get that. I just think that we----
    Ms. Draper [continuing]. That as well. So----
    Mr. Griffith [continuing]. That since we are putting this 
program out we ought to have some way to track that to make 
sure, in fact----
    Ms. Draper. Yes. There are no requirements for discounts, 
that the program provide discounts.
    Mr. Griffith. Right. And I noticed that on Page 32 of your 
report you all found that some patients are even required to 
cover the cost of a 340B dispensing fee.
    So not only are they maybe not getting the benefit but then 
they're having to take money out of their pocket to pay the 
contract pharmacy a dispensing fee.
    Should Congress establish a new policy prohibiting that 
practice?
    Ms. Draper. Well, so what we did find was some of the 
covered-- some of the contract pharmacies said that if a 
patient is uninsured or low income that they would discount 
that fee or just eliminate it altogether.
    So, again, there's a wide range. It's hard to make 
generalizations because we saw so much variation in how these 
arrangements worked and the financial arrangements. So it's 
just----
    Mr. Griffith. I will tell you it troubles me when I see 
that we've put the program together to make it less expensive 
for folks and then we find that through the process in some 
places they're actually charging these folks a dispensing fee. 
That troubles me.
    Ms. Draper. Well, you certainly don't want to discourage 
people from getting the drugs that they need.
    Mr. Griffith. Exactly.
    I am looking at my various questions and my time runs out. 
Do you think that or what would the effect be of limiting the 
fair market value of the fees a contract pharmacy could charge 
a covered entity?
    That is, what if HRSA were to take the profit motive away 
from contract pharmacies and ensure that the benefits of the 
program would actually flow to the covered entities and not the 
contract pharmacies?
    Ms. Draper. Yes, again, that's a really difficult question. 
I think the issue is----
    Mr. Griffith. I try not to ask all the easy ones.
    Ms. Draper [continuing]. That you don't want to create 
negative incentives that the program doesn't work as intended 
and I think that, it's hard to make a blanket generalization 
because I think some of these things really do require a 
further look to see what the impact actually is.
    Mr. Griffith. All right. And I think that's fair and I 
appreciate your time and your testimony here today and I 
appreciate it, and thank you very much.
    And I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair would observe that as we finish the first panel 
we will go immediately into the second panel. So to the members 
of the second panel, consider this your 5-minute warning that 
if you need to take a break before we go into the second panel 
this might be the time to do it.
    The chair is now pleased to recognize the gentlelady from 
Illinois 5 minutes for questions, please.
    Ms. Schakowsky. Thank you, Mr. Chairman, and I want to 
thank you so much for being here. 340B is absolutely essential 
to people in my district. With skyrocketing drug prices, 340B 
is literally a lifesaver.
    In my district, Advocate Health has used its 340B savings 
to provide support for uninsured or under insured patients 
through the child vaccination programs and the medication 
assistance program.
    340B is not the driver of high drug prices. The 
pharmaceutical corporations' unlimited power to set the list 
price is the driver. The 340B program is one that actually 
attempts to lower drug prices.
    There are many things Congress could be doing right now to 
lower drug prices. For example, a California law went into 
effect earlier this year that requires drug makers to give 
advanced notice of large price increases.
    In response to that, Bloomberg reported that in the past 3 
weeks Novartis, Gilead, Roche, and Nova Nordisk sent notices to 
California's health plans rescinding or reducing previously 
announced price hikes on at least 10 different drugs.
    If we really want to get serious about lowering drug prices 
a first step would be a bill that I have, H.R. 2439, the Fair 
Drug Pricing Act. Like the California law, this bill would 
require basic transparency for drug prices spikes.
    There's been a lot of discussion about greater transparency 
in the 340B program and we can strengthen the 340B program by 
increasing accountability for pharmaceutical corporations that 
currently have very little oversight.
    I want to follow up on Representative Matsui's questions 
because I am also concerned with the disparity between audits 
of covered entities and pharmaceutical manufacturers.
    So, Ms. Draper, you stated that 831 covered entities have 
been audited where only 12 pharmaceutical manufacturers have 
been audited. So I am wondering when a pharmaceutical 
corporation is audited by HRSA, what is being evaluated?
    Ms. Draper. Yes. So I would correct--it was 813 covered 
entities.
    Ms. Schakowsky. Oh, I got the numbers changed around. I am 
sorry.
    Ms. Draper. I said it wrong to begin with.
    Ms. Schakowsky. OK. Thirteen. Maybe I read it wrong.
    Ms. Draper. So, we haven't looked at manufacturer audits. 
But our understanding is that HRSA has done 12 to date. They 
began in 2015 with one and then five each year thereafter and I 
think they're on schedule to do five this year.
    So our understanding is that they look at the drug pricing, 
the ceiling, and some other policies and processes and, it's 
also our understanding, just based on the information that we 
found from their website is that they've had no findings 
related to the manufacturer audits to date.
    Ms. Schakowsky. Say that last sentence.
    Ms. Draper. They've had no findings related to the 
manufacturer audits. So I don't know the extent that we haven't 
looked at that so I don't know what they've looked at or the 
extent, their scope, or methodology.
    Ms. Schakowsky. So, in other words, as far as you know, 
HRSA has not punished or penalized or otherwise fined a 
pharmaceutical corporation participating in 340B for exceeding 
the statutory ceiling?
    Ms. Draper. Not based on the audits, that I understand. 
There's still some things that--they have statutory authority 
to do--posting the ceiling prices on a website, creating civil 
monetary penalties, and also dispute the resolution process.
    Those things have been delayed. So those are things that 
are still outstanding for HRSA to implement related to 
manufacturers.
    So I don't know when those are projected to be implemented. 
But there have been continual delays in getting those 
implemented.
    Ms. Schakowsky. So would you expect that if they actually 
did those kinds of inspections that maybe at least one or two 
might have exceeded the--the fact that there's nothing, no 
action?
    Ms. Draper. Yes. It's hard for me to say because, as I 
said, we haven't looked at it. But there are 600 manufacturers. 
So to do, you know, five annually that's about .5 percent.
    The covered entities is about 1.5 percent of the audits.
    Ms. Schakowsky. You stated that compliance measures have 
been required of pharmaceutical manufacturers. What were those 
compliance measures and were those in response to an audit?
    Ms. Draper. I am sorry. What was the question?
    Ms. Schakowsky. That you stated the compliance measures 
have been required of pharmaceutical manufacturers and were 
those in response to some audit?
    Ms. Draper. Well, manufacturers are required not to 
discriminate based on 340B participation and so, as far as I 
know, I assume that that's one of the things that HRSA is 
looking at.
    They did revise their guidance on that a few years ago 
based on a recommendation that we made. But I really can't give 
you details about what their audits entailed or, so----
    Ms. Schakowsky. Thank you very much. I appreciate it, and I 
yield back.
    Mr. Burgess. The chair thanks the gentlelady. The 
gentlelady yields back.
    Seeing that all members of the subcommittee have had a 
chance to ask a question, it's now in order to recognize Mr. 
Welch of Vermont, a member of the full committee, 5 minutes for 
questions.
    Mr. Welch. Thank you very much, Mr. Chairman, for having 
this hearing, and I've been listening to the questions of my 
colleagues and have been in agreement with a lot.
    The transparency that Dr. Bucshon mentioned is important 
and, Mr. Griffith, the point you made about the benefit going 
to the patient actually raises a pretty serious question 
because I bet a lot of the hospitals in your district and mine 
are similar.
    For them, for those hospitals, this is really not a 
question of exploitation. For them, it's a question of 
survival, and there's a tough call to make because most of 
these folks who were dependent on that hospital are really 
quite low income in my state.
    These are nonprofit hospitals in every case in my state and 
this question of whether the benefit goes directly to the 
patient where they're getting significant taxpayer help for the 
health care versus the institution which, in Vermont, is so 
critical. So that's a challenge. I just want to say I 
appreciate your point. But this is about survival.
    Mr. Griffith. If the gentleman would yield.
    Mr. Welch. This is about survival for many of our 
hospitals, and if they weren't in those communities we have 
some like in your communities where those local hospitals not 
only provide health care but they're like the center of life in 
many of our communities and we've got to make them successful.
    Mr. Griffith. And if the gentleman would yield for just a 
second.
    Mr. Welch. I will for----
    Mr. Griffith. I would just say to the gentleman that I 
appreciate that point and that was not directly where I was 
going, although I think I needed to ask the question.
    But I would like for us to be able to see that the benefit, 
if not going directly to the patient, is going into low income 
coverage as opposed to just speculation that it is.
    Mr. Welch. Well, I am willing to work with you on that. But 
here's the way I see it and this is why this is important. Any 
program we have, whatever program it is, we should be 
monitoring it and making certain that it is doing what it's 
supposed to do.
    And it might be something you propose or something I 
propose. Accountability matters. I believe that.
    But there's also a larger issue here about the pharma 
prices that are just killing us. They are enormous, and it is 
the fastest rising cost of health care and if this program is a 
small component of what the pharma--the pharma profits are 
very, very substantial and this program, for whatever issues 
people are raising, really is like 4 percent of the discounts 
overall for pharma and the prices to these hospitals are really 
pretty brutal.
    One bill that Mr. Harper and I have, and as you know, Mr. 
Harper has good news, we hope--he's waiting for his first 
grandchild. Otherwise, he'd be here with us. So let's wish him 
well.
    But he and I have the orphan drug bill and I think I will 
ask the witness about this. That orphan designation--talking 
about things getting a little bit out of control, when it was 
originally passed by Congress it was to give a preference for 
drugs that were used to treat ``orphan'' diseases, rare 
diseases, but the pharmaceutical companies have managed, 
through litigation, to have that designation apply even when 
the drug is being used for a very common disease and it's 
resulting in the congressionally-conferred benefit going for 
congressionally unintended consequences.
    Do you have any information about how much the orphan drug 
bill is being utilized for nonorphan diseases?
    Ms. Draper. I don't, other than to know that a lot of those 
orphan drugs are used for other indications. That's about the 
extent of what I know.
    Mr. Welch. Yes. And Mr. Chairman and my colleagues, I would 
hope that we'd give some opportunity for the Harper-Welch bill 
to be considered by the committee to address that.
    Thank you, Mr. Chairman.
    Mr. Burgess. Will the gentleman yield?
    Mr. Welch. Yes.
    Mr. Burgess. The purpose of the hearing today.
    Mr. Welch. Yes, I appreciate that, Mr. Chairman.
    The other issue I just--this is more of a statement than 
anything--I appreciate your work, but these pharmaceutical 
prices are brutal for everyone, but these small hospitals, 14 
of them in Vermont, if they lost the 340B program it would be 
the difference between black ink and red ink.
    It's really that dire, and somehow some way--Mr. Carter, 
you have been talking about this too--we've got to address 
those pharmaceutical costs.
    So I yield back and thank the chairman for this hearing and 
allowing me to participate.
    Mr. Burgess. The gentleman yields back. The chair thanks 
the gentleman.
    The gentleman would remind members of the committee that we 
did have a rather extensive supply chain hearing not too many 
weeks ago where a lot of these issues received a great deal of 
discussion.
    In fact, there are legislative products that are in the 
works as a consequence of those discussions.
    Seeing no other members wishing to ask questions, this 
concludes our first panel.
    Ms. Draper, thank you very much for your time and your 
testimony. You have answered a lot of questions this morning 
and given us a lot to think about.
    We will now not actually but recess but you are excused 
from the first panel and we will immediately seat our second 
panel and while we are gathering name plates.
    And I don't mean to hurry things along but we will have 
votes on the floor and out of respect for our panellists, some 
of whom have travelled a great distance, we want to try to 
conclude their testimony and questions before we get distracted 
with votes on the floor.
    So as the second panel is being seated, each of our 
witnesses on the second panel will have 5 minutes to provide an 
opening statement and, once again, questions from members after 
that.
    Today, we are very fortunate to have with us Dr. Debra 
Patt, who is the Executive Vice President of Texas Oncology, 
Dr. Fred Cerise, the President and CEO of Parkland Memorial 
Hospital, and Dr. Charles Daniels, Pharmacist-in-Chief and 
Associate Dean, University of California San Diego.
    We appreciate all of you being here today. Dr. Patt, let's 
start with you and you're recognized 5 minutes for an opening 
statement.

   STATEMENTS OF DEBRA PATT, EXECUTIVE VICE PRESIDENT, TEXAS 
  ONCOLOGY; DR. FREDERICK CERISE, PRESIDENT AND CEO, PARKLAND 
 HOSPITAL; CHARLES DANIELS, PHARMACIST-IN-CHIEF AND ASSOCIATE 
           DEAN, UNIVERSITY OF CALIFORNIA, SAN DIEGO

                  STATEMENT OF DR. DEBRA PATT

    Dr. Patt. Chairman Burgess and Ranking Member Green, thank 
you for the opportunity to testify today on the opportunities 
to improve the 340B program and the impact it is having on 
patients with cancer.
    I am Dr. Debra Patt, a practicing community oncologist in 
the great State of Texas. I serve as a national leader in 
health care policy, clinical informatics, and cancer research 
within my practice and in partnership with national 
organizations like U.S. Oncology, the Community Oncology 
Alliance, and ASCO.
    I also volunteer my time and work collaboratively with 
Seton, my local 340B hospital, and their medical school 
affiliate. As a Clinical Professor at the University of Texas 
Dell Medical School, I co-chair the Access to Care Working 
Group to serve vulnerable patients in my community.
    I share in this committee's commitment to improve the 340B 
program and will illustrate why providing transparency 
oversight and accountability to 340B hospitals would help to 
ensure that the vulnerable patients that need it can benefit.
    In recent years, the 340B program has experienced explosive 
growth, exceeding $19 billion in drug purchases last year. This 
rapid growth suggests powerful economic incentives are at work 
as 340B hospitals and contract pharmacies get substantial 
economic benefits from participation.
    In cancer care we have many oral drugs that cost more than 
$10,000 a month. Hospital and contract pharmacies may purchase 
the drug for $5,000, then sell the drugs to patients for 
$10,000. This 50 percent margin is pure profit for the 
hospitals without verification that it is helping patients.
    Furthermore, GAO underscores that 340B contract pharmacies 
are also big businesses, sometimes with healthy 15 to 20 
percent profit margins.
    Some 340B hospitals have enjoyed more than a $100 million 
in savings and have used those profits to acquire independent 
community oncology clinics and increase market share. This 
arbitrage opportunity on drugs in 340B to buy low and sell high 
provides a clear incentive to do this.
    A recent Community Oncology Alliance report indicates that 
nearly 700 private community oncology clinics have closed or 
become affiliated with hospital systems in the last decade.
    When this happens, the cost of care for patients doubles 
and it costs Medicare billions. How do we know that this 
program is used to enhance care for vulnerable patients? This 
is by far the most important issue that we face today with the 
340B program.
    Parkland Hospital in Dallas is a great example of a 
hospital that needs and is using the 340B program as it should 
be. It's almost 50 percent DSH, far exceeding the requirements, 
and clearly needing the program.
    Unfortunately, Parkland is not the typical 340B hospital. 
As of 2015, there was only a 1 percent difference in the amount 
of uncompensated care provided by 340B hospitals compared to 
non-340B hospitals.
    A National Academies report noted that nonprofit hospitals 
are increasingly displaying business characteristics of for-
profit hospitals, and many nonprofit hospital executives have 
seven or even eight-figure annual salaries.
    Because there is no mandate to spend profits on vulnerable 
patients, some hospitals may use these to build towers or 
enhance executive compensation.
    Across the country, there are pervasive and deep access to 
care issues for vulnerable patients that I see every day in 
clinic, and I want to share with you some of these experiences, 
because in the end it's all about patient care.
    In Longview, Texas, about two hours east of Dallas, a 340B 
hospital declines to provide chemotherapy to honor under 
insured patients without up front cash payments.
    In Austin, there are widespread shortcomings, delays, and 
detours in care for uninsured patients with cancer who, for 
some example, are placed on wait lists for months.
    Last year, I saw a 50-year-old Austin musician who had a 
clinical stage three breast cancer and was refused services at 
the 340B hospital. She watched it progress in her chest for the 
next 3 months until she came to us for care.
    A 34-year-old pregnant woman with stage four colon cancer 
had to start her chemotherapy during pregnancy. We treated her 
for five cycles as a hospital inpatient under emergency care 
because the 340B hospital took 8 to 10 weeks to get her an 
appointment.
    Another 16 patients I am aware of sat for more than 6 
months last year to wait for gynecologic oncology appointments 
in the 340B hospital. Some had curable advanced cervical cancer 
and presented to the emergency room while waiting for 
treatment.
    In Kentucky in February, a lung cancer patient was refused 
treatment at the 340B hospital due to lack of insurance and 
waited three months before seeking treatment elsewhere.
    In Boulder, a patient with aggressive lymphoma who had 
Medicare Part A but was waiting on Medicare Part B was referred 
to the local 340B hospital to receive therapy. They would not 
see or schedule him until he got Part B and he died several 
weeks later without ever being seen.
    I urge the committee and Congress to support legislation to 
provide for the integrity and viability of the 340B program so 
that we can ensure that it's about helping patients, not 
hospital bottom lines.
    Without action, the program will continue to grow, 
Americans fighting cancer will have less access to care, and 
patients, payers, and taxpayers will pay more.
    Once again, thank you for the opportunity to address the 
committee. I am happy to answer any questions regarding my 
testimony.
    [The prepared statement of Dr. Patt follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Burgess. And thank you for your testimony. And Dr. 
Patt, I apologize. I mispronounced your name as I introduced 
you. So, again, thank you for your testimony today.
    Dr. Cerise, you're recognized 5 minutes for an opening 
statement, please.

               STATEMENT OF DR. FREDERICK CERISE

    Dr. Cerise. Thank you, Mr. Chair.
    Chairman Burgess and Ranking Member Green and members of 
the subcommittee, thank you for the opportunity to speak to you 
regarding the importance of the 340B program.
    I commend your leadership in ensuring the integrity of the 
program and hope to give your committee meaningful feedback on 
our policy--on your policy proposals.
    My name is Fred Cerise and I serve as the President and CEO 
of Parkland Health and Hospital System. I am a member of the 
Medicaid and CHIP Payment and Access Commission, the Chair of 
the Teaching Hospitals of Texas and sit on the board of the 
Texas Hospital Association.
    I am appearing here today on behalf of Parkland Health and 
Hospital System. My testimony reflects my views as Parkland's 
CEO.
    Located in Dallas County, Parkland is one of the largest 
safety-net systems in the country. Our mission is to care for 
all who reside in Dallas County regardless of ability to pay.
    Our system includes an 878-bed acute care hospital with an 
extensive network of primary care clinics across Dallas County. 
We also provide health care in the Dallas County Jail.
    We are the primary teaching hospital for the University of 
Texas Southwestern Medical Center and are nationally recognized 
for our Level I Trauma, Level III neonatal intensive care unit, 
one of the largest civilian burn units in the Nation.
    We are also proud to claim Chairman Burgess as one of our 
many excellent physicians who have trained atour facility.
    Last year, we provided over $879 million in uncompensated 
care and 76 percent of our patients were on Medicaid or 
uninsured. We had more than 1.2 million outpatient visits and 
filled 1.6 million outpatient take-home prescriptions and 
dispenses over 8.6 million inpatient medications.
    Our pharmacy department includes one inpatient, seven 
retail, one central fill, and 26 Class D clinic pharmacies. We 
do not have a contract pharmacy and our pharmacy payer mix is 
over 62 percent charity care.
    Parkland has participated in the 340B Drug Pricing Program 
since its inception. You've heard a lot of testimony in 
previous hearings around the unaffordability of drugs. The 340B 
program is a lifesaver for our patients. We directly use the 
savings to provide free and low-cost drugs to our patients.
    I want to share two patient examples today that will 
illustrate the importance of the program. The first patient is 
a 53-year-old male with diabetes and a kidney transplant. He's 
under 100 percent of fFederal poverty level and enrolled in our 
Parkland financial assistance program.
    He currently takes nine prescription drugs, and under our 
Parkland financial assistance program, he pays $5 per drug. So 
for comparison, for one month the 340B price would be $255, the 
GPO price was $451, and the total Parkland co-pay was $45.
    This is an example where Parkland passes on more savings to 
a patient than even what the 340B program provides.
    The next example is a 61-year-old female with rectal 
cancer, diabetes, a colostomy. She's enrolled in our Parkland 
financial assistance program and is on seven drugs. The 1-month 
cost for the 340B price was $20, the GPO price was $1,544, and 
the total Parkland co-pay was $35.
    So under this example, the patient's co-pay was more than 
the 340B price by $15. However, this patient receives her 
cancer treatment and manages her diabetes at Parkland. Our 340B 
savings go directly back into our system to help with the cost 
of care for individuals like this patient.
    Here are a few additional facts about our program. Last 
year, the 340B program saved Parkland over $152 million. You 
can see additional savings information in our written response 
to the Subcommittee on Oversight and Investigations inquiry 
last year.
    We take compliance very seriously. We have one manager 
directly dedicated to overseeing the program and a multi-
disciplinary team to assist him with ensuring the integrity of 
our program.
    We perform quarterly scheduled audits on both inpatient and 
outpatient areas. We also perform other targeted audits 
throughout the year. Health systems like Parkland welcome 
enhanced transparency requirements and stronger oversight from 
HRSA.
    Like Congress, we believe this program should benefit from 
the populations we serve. We think Congress should be proud of 
the 340B Drug Pricing Program and what it has done to improve 
the lives of so many Americans.
    I know that this program has saved our Dallas County 
taxpayers hundreds of millions of dollars since its inception 
and something we all can be proud of.
    Thank you.
    [The prepared statement of Dr. Cerise follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Burgess. Thank you, Dr. Cerise. We appreciate your 
testimony.
    Dr. Daniels, you're recognized for 5 minutes, please.

                  STATEMENT OF CHARLES DANIELS

    Mr. Daniels. Good morning, Chairman Burgess, Chairman 
Walden, Ranking Member Green, and Ranking Member Pallone. Thank 
you for this opportunity to share my experience with the 340B 
Drug Pricing Program.
    I also want to say hello to Congressman Peters, my own 
congressman, who serves on this committee, along with 
Congresswoman Matsui, who represents the people of our sister 
institution, UC Davis Health.
    I've been able personally share with Congressman Peters and 
Matsui and value of 340B discount to UC San Diego Health 
patients.
    My name is Charles Daniels. I serve as the pharmacist-in-
chief for the University of California San Diego's Academic 
Medical Center, referred to as UC San Diego Health.
    As pharmacist-in-chief, I oversee the UC San Diego Health 
administration and use of the 340B program. UC San Diego Health 
is a top-ranked public academic medical center serving the 
people of San Diego and surrounding communities.
    We offer tertiary and quaternary services as well as the 
resources of an NCI-designated comprehensive cancer center. We 
meet the criteria for being both a Medicare DSH as well as a 
Medicaid DSH hospital.
    Currently, nearly 40 percent of UC San Diego Health 
patients have Medicaid health care coverage, making Medicaid 
the most common payer for UC San Diego Health patients, 
followed by Medicare.
    UC San Diego Health has been a 340B provider since the 
program's inception. We have a very high DSH adjustment 
percentage of 34.77 percent. UC San Diego Health utilizes the 
340B drug discount to furnish discounted or free outpatient 
drugs as well as to provide necessarily medical services.
    For example, a benefit of the 340B program is being able to 
provide some patients direct discounts on their drugs. We also 
provide patients help reconciling their medications and better 
understanding how to take their prescriptions when they leave 
the hospital through our Meds to Bed program.
    UC San Diego Health invests savings we generate from 340B 
and teams of physicians that make regular trips 100 miles 
inland to Imperial County to deliver much-needed medical care 
to some of the country's most underserved populations.
    UC San Diego Health also runs one of the most successful 
HIV and AIDS clinics in the country. The Owen Clinic is a 
contracted provider for the Ryan White HIV/AIDS program and 
takes a whole person care approach to treating patients with 
AIDS or HIV.
    They offer primary care and comprehensive specialty care 
services including addiction counselling and mental health 
care.
    A great benefit of the program of the flexibility 
qualifying providers are afforded to decide how they can best 
use the discount to serve the unique needs of their underserved 
populations.
    Because the 340B drug discount provides critical access 
points for so many of UC San Diego Health's patients. We've put 
into effect numerous practices to promote compliance with 340B 
program rules. These practices are necessary investments to 
ensure we remain 340B compliant.
    At UC San Diego Health, we employ dedicated pharmacy staff 
to conduct internal audits each month, a random sample of 340B 
transactions from our hospital facilities, child sites, in-
house pharmacies, and contract pharmacies that's conducted to 
verify that those prescriptions meet all of the HRSA 
requirements to be eligible.
    UC San Diego Health also hires an outside auditor to 
conduct an annual review of our 340B program compliance. We 
provide regular continuing education on 340B rule 
clarifications to our compliance staff, our pharmacy personnel 
who work directly with patients at the prescription counter.
    Additionally, we tried to be very intentional about the 
pharmacies with whom we contract. The 340B outpatient drug 
discount is the lifeblood of so many services that UC San Diego 
Health provides to underserved patients.
    Any efforts in rule making or legislation to scale back the 
340B Drug Pricing Program would be consequential to our 
patients and the patients of safety net providers across the 
country.
    I welcome this opportunity to answer your questions. Thank 
you very much.
    [The prepared statement of Dr. Daniels follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Burgess. Thank you, Dr. Daniels. We'll move then to the 
member participation portion I am going to recognize Mr. Barton 
of Texas the first 5 minutes for questions.
    Mr. Barton. Well, thank you, Mr. Chairman, and I want to 
thank our panelists for being here, especially the two from 
Texas. It's good to have you both here.
    I am going to ask the first question to the gentlelady, 
Dr.--is it Patt? Is that right? Dr. Patt? If you wanted to 
subsidize operating cost of hospitals that serve low income 
patients, would you set up a system that uses a discount drug 
payment scheme to do that?
    If that was your goal, if you were trying to lower the 
operating cost, would you say the pharmaceutical suppliers of 
the drugs had to lower their payment so they could, in essence, 
subsidize the operating costs?
    Dr. Patt. In a perfect world where I looked at health care 
funding that would not be an optimal system. However, I do 
believe that the 340B program is a really important program to 
provide services to hospitals that serve a high proportion of 
underserved patients.
    In my opinion, given what we have, it would be optimal to 
make modifications to the current program to allow it to 
operate in alignment with its original intent, and to try to 
move away from some of the changes that render the potential 
for fraud and abuse, that would be beneficial for all parties.
    Mr. Barton. It seems to me, and I am one of the few that 
was here when these programs were set up, if you're trying to 
help hospitals with their operating costs, you set up a program 
to subsidize operating costs.
    This program is set up to--if you meet the minimum 
requirements for DSH--require the the manufacturers to provide 
discounts in terms of drugs. The assumption would be those 
discounts go to the patients. We are trying to lower the out-
of-pocket cost to the low-income patients.
    That doesn't mean we can't subsidize operating cost, 
whatever way the Congress wants. But we've had this discussion 
about what the intent was. There's no question in my mind the 
intent was to pass through these lower drug costs to the 
patients taking the drug.
    Dr. Cerise, from your testimony, most of the discounts that 
your hospital receives do go to the patients but not all. Is 
that correct?
    Dr. Cerise. In terms of the direct dollar for drug costs, I 
gave two examples where, one, the discount was not as high as 
the actual drug cost.
    But in that case, through our health system she's getting 
all of her other services at very low reduced costs in our 
health system. So I would say in virtually 100 percent of the 
cases, whether it's drug costs, most of the times it's fully 
through drug costs and more. But in those cases like that one 
example where it's not, they're getting the benefit through 
other services, seeing the doctor, and being in the hospital 
and those sorts of things.
    Mr. Barton. Well, I have a discussion draft that the 
committee staff has put out, and a discussion draft requires 
that to participate in the 340B program a hospital has to have 
at least I think 18 percent of its patient load DSH eligible.
    Your hospital is over 50 percent. Well, first of all, 
should we increase the DSH percentage requirement under current 
law?
    Dr. Cerise. So from Parkland's perspective, as you said, we 
are going to meet that threshold whether you increase it a 
little bit or a lot because our DSH percentage is almost 50 
percent.
    So and if you asked us--if you were looking at options for 
the program and some of the things that have been talked 
about--moratoriums, decreasing Medicare reimbursement--for us, 
rather than have something like that that goes across the board 
it would be preferential to increase that threshold.
    I am sure we are different than other hospitals that are 
closer to that threshold. They have other concerns and but for 
us it would not impact our ability to----
    Mr. Barton. But you do support increasing the DSH 
percentage? The answer should be yes.
    Dr. Cerise. Yes, sir. Again, the reason people are coming 
to the program is because of high drug costs. And so it would 
not be the first place I went, but because it is an attempt to 
allow hospitals to deal with that.
    However, as you said----
    Mr. Barton. My time has expired.
    Dr. Cerise. If the purpose is to restrict it, it's better 
than restricting across the board with reducing Medicare 
reimbursement.
    Mr. Barton. I will ask Dr. Patt one last question. Should 
100 percent of the 340B discount be passed on to the patient?
    Dr. Patt. I think that we should have 100 percent 
transparency about where the money is being spent because 
having sunshine on this situation I think would facilitate 
appropriate use of those funds.
    Mr. Barton. Thank you, Mr. Chairman.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Texas, Mr. Green, 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Eight years ago, Congress passed the Affordable Care Act to 
address the HHS Office of Inspector General reports of drug 
manufacturers overcharging 340B drugs.
    The ACA directed the HHS to impose civil monetary penalties 
on manufacturers and to implement a ceiling price website so 
providers could verify where they're being overcharged.
    And I understand the implementation of these regulations 
were delayed five times. For our members on the panel, from the 
hospitals and even Texas Oncology, do you have any way of 
knowing if manufacturers are following the rules and are 
charging your hospitals the right price?
    I will start with you, Dr. Patt.
    Dr. Patt. I am unaware, sir. I don't know.
    Mr. Green. Dr. Cerise? Coming from Houston we have similar 
hospitals like Parkland. So----
    Dr. Cerise. So explain to me again the specific question.
    Mr. Green. For hospitals, do you have any way of knowing 
that the manufacturers are following the rules in charging your 
hospitals the right price no matter what this program is?
    Dr. Cerise. I can't tell you. Maybe, Chuck, you have, as 
the pharmacist, would have a better----
    Mr. Daniels. Thank you for the question.
    At this point in time, we don't have clear access to what 
the 340B prices are across the board. We can't see what other 
places are paying and we don't have access to the information 
that we have always thought should be available.
    Mr. Green. OK. In 2018, Medicare outpatient prospective 
payment system final rule included a policy to cut Medicare 
reimbursements for certain 340B drugs by nearly 30 percent from 
the average sale price plus 6 percent to the average sale price 
minus 22.5 percent. CMS estimates this will reduce critical 
payments to safety net hospitals by $1.6 billion each year.
    Dr. Cerise or Dr. Daniels or even Dr. Patt, can you both 
describe the impact this cut would be on your institutions?
    Dr. Cerise. Yes. We project a $2.2 million reduction from 
that action.
    Mr. Green. Dr. Daniels.
    Mr. Daniels. Our estimate at the beginning of the year was 
$8 million negative impact on the organization. So that's the 
best number we have right now.
    Mr. Green. Dr. Patt.
    Dr. Patt. While I don't have direct impact on my 
organization, I can speak to three changes.
    One, that it does decrease the financial incentive for 
hospitals to acquire community oncology practices while they 
still can enjoy, roughly, 30 percent margins on drugs.
    Two it actually doesn't take away funds from the system 
because it's a rebalancing. It's not really a cut. Those funds 
weren't brought back to CMS. They were given to other hospitals 
that were providing care.
    And three, patients saved money because out-of-pocket 
patient co-pays diminished substantially.
    Mr. Green. OK. The recent GAO report confirms that the 
contract pharmacies play an essential role in helping uninsured 
and low income patients get needed care including but not 
limited to prescription drugs.
    Covered entities are already subjected to high-level of 
oversight both internal and through HRSA audits. Even HRSA, 
which oversees the program, does not agree on all these 
recommendations, noting that many of them are overly 
burdensome.
    However, the GAO notes that HRSA needs to provide 
additional oversight over contract pharmacies.
    Dr. Daniels, can you describe how UCSD used its contract 
pharmacy arrangement to increase access for patients?
    Mr. Daniels. Thank you.
    And so for the group we have approximately 63 contract 
pharmacies. They go all the way from the North County, 
Oceanside near Camp Pendleton all the way to the Mexican 
border--Chula Vista.
    Those sites were selected by us based on where our patients 
were and where their prescriptions were being filled, and we 
tracked that process from our electronic medical record. Each 
prescription that was sent out we tracked which pharmacy it was 
sent to and those became candidates for inclusion in the 
contract pharmacy program.
    What I can say is that there are two things that I believe 
are important that we've taken as very serious. This is an 
important program to UC San Diego Health.
    We have no interest in putting the program or ourselves at 
risk. So we follow audit procedures very carefully, very 
rigorously.
    We do audits on a monthly basis that includes a subset of 
each of the players in the program--hospital, child sites, 
contract pharmacies, and our own in-house pharmacies--and that 
information then is provided back. We analyze it at the 
department level and at the hospital level to make sure that 
we've done that.
    I guess I would also want to share with the subcommittee 
that over the last 3 years we've reduced from originally 119 
contract pharmacies to 109 contract pharmacies to 63. That is 
our current number.
    And that was based on our desire to make sure that we had 
full accountability. I am sure that you're all aware, but the 
covered entity is sole holder of the risk.
    If there's a violation in the program, we have the 
accountability. And so we have set up our programs both for 
selection and well as auditing around making sure that there 
are no violations.
    Mr. Green. Mr. Chairman, if I could just have 1 minute 
because our colleague from Texas took a little over time.
    On June 1st, HRSA----
    Mr. Burgess. Charge it to his account.
    Mr. Green. Oh, to his account? Well, I just wanted to make 
sure our side had that extra minute. Could I have that extra 
minute?
    Mr. Burgess. You have already used it.
    Mr. Green. I didn't. The doctor did.
    [Laughter.]
    HRSA issued a final rule delaying the implementation of the 
340B Drug Pricing Program, sealing the price penalties until 
July of 2019. These latest delays in the mandate that these 
regulations was 8 years ago.
    If the administration cares about accountability for 340B, 
perhaps they should start with implementing the delayed 
regulatory guidance program, and I thank you for your patience.
    Mr. Burgess. Does the gentleman yield back?
    Mr. Green. Yes. I didn't know I had anything to yield back.
    Mr. Burgess. The chair thanks the gentleman. The chair 
recognizes the gentleman from Indiana 5 minutes for your 
questions, please.
    Mr. Bucshon. Thanks for the 7 minutes, Mr. Chairman. I 
appreciate it.
    [Laughter.]
    Anyway, well, first of all, I want to commend all of you 
for what you do on behalf of patients. I was a health care 
provider before I was in Congress--a cardiovascular surgeon--
and I know what it takes every day to be out there helping 
people. So I commend all of you and the people that work for 
you for what you do every day.
    And CMS, as has been pointed out, has already cut 
reimbursement, and my fear is if we don't do something with 
transparency and other changes to the program, it's going to 
happen again because it's about the money.
    With the exponential growth, CMS is looking at the outlay 
of funds and they'll cut it again and this time it's going to 
hit critical access hospitals and others like in rural Indiana 
that I represent.
    Dr. Patt, in your testimony you gave examples of patients 
at 340B hospitals without insurance being treated differently 
than those with insurance, which I think is appalling, by the 
way, as a provider, and in some cases their cancer treatment is 
significantly delayed due to their insurance status. This is 
exactly why we need transparency and reporting to be required 
in this program.
    Do you think there should be additional requirements for 
hospitals to report their patient mix and charity care 
activities including at their child sites?
    Dr. Patt. Yes, sir, I do. So I think there are three 
changes that are important in the program. I think that you 
need transparency because I think when you shine a light on 
anything the sunshine provides better behavior, in general.
     Mr. Bucshon. Agreed.
    Dr. Patt. Two, accountability, and three, definition of a 
patient. Because of the laxity in definition of a patient, it 
provides a lot of opportunities in variability of 
interpretation between qualifying entities, especially with the 
expansion of the contract pharmacy relationships.
    So, for example, if you have an entity that's maybe seeing 
a hundred new cancer patients per year in a market where they 
have 50 percent market share and 19 contract pharmacy 
relationships, they might capture 50 percent market share in 
that community of oral scripts that are written just because of 
the lax definition of a patient, and that's not really 
appropriate because those patients aren't really being managed 
by a smaller oncology provider. So I think those three 
components are critical.
    Mr. Bucshon. Thank you.
    Dr. Cerise, obviously, I believe in more transparency and 
it sounds like both you and Dr. Daniels--you do it internally. 
We appreciate that. I've introduced a bill probably everyone in 
this room is aware of--the 340B PAUSE Act--and I also have a 
discussion draft, both of which address reporting.
    Does Parkland track--and I know you have already answered 
this but just to reiterate it--does Parkland track how 340B 
savings are spent and do you have any ideas or recommendations 
to Congress about what type of additional reporting 
requirements for the program that might be reported to HRSA or 
to the Congress so that we can get a handle on this?
    Dr. Cerise. We do track our savings and when we are 
delivering over $800 million in uncompensated care, that 
savings is gone in to support that. We are fortunate to have 
Dallas County taxpayer support that lets us do that.
    But with 8 percent commercial business, we have limited 
ability to generate revenue elsewhere and programs like 340B 
help us to do that. And so I think looking at a payer mix among 
health systems and seeing what that mix is, including the 
uninsured, looking at outpatient metrics, the DSH formulas and 
inpatient formula for an outpatient program.
    So getting an idea of what people are doing on the 
outpatient elective side of the equation would be important as 
well and then tracking programs what the benefit of those 
programs is to the population that they're taking care of, 
reporting on that.
    Mr. Bucshon. Dr. Daniels.
    Mr. Daniels. So we have some data. Right now, we currently 
provide about $155 million in under compensated care, an 
additional $17 million in charity care.
    For that our current estimated savings from the 340B 
program is approximately $87 million. UC San Diego--and I 
personally support greater transparency, the idea of sharing. 
We are not afraid to share and show what we've done.
    The question will largely be how that transparency is 
generated, what the numbers might look like, and making sure 
that they're doable administratively.
    Mr. Bucshon. Great, because some hospitals, including the 
largest health system in the State of Indiana have said that 
the reporting requirements in the PAUSE Act are too burdensome.
    It sounds like you all already have internal data that--
could we require things that are too burdensome? Sure. That's 
what the government sometimes does.
    That's why I would appreciate your ongoing input and anyone 
that has any ideas about what is practical, doable, but also 
gives us the information we need so that we prevent further CMS 
reimbursement cuts, which are going to happen if we don't get a 
handle on the program.
    Thank you. I yield back.
    Mr. Burgess. The gentleman yields back. The chair thanks 
the gentleman.
    The chair recognizes the gentleman from New Jersey, Mr. 
Pallone, 5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    Dr. Daniels, I mentioned in my opening statement that I 
have always deeply supported the 340B program and I've always 
tried to work in a bipartisan fashion to strengthen the 
program, ensure appropriate and thoughtful reporting and 
transparency, and give the agency the resources that it needs 
to oversee 340B.
    And the program plays a critically important role in our 
health care system. I don't want it to be lost here today that 
the majority investigation on 340B and the countless hearings 
we've had in our committee have reaffirmed the value of 340B on 
both sides of the aisle.
    And I think it's a good thing that we expanded the types of 
hospitals that can participate in 340B and the Affordable Care 
Act because that means that more dollars are going to stretch 
medical and social services for those in need.
    However, I agree that it's very important to make certain 
those dollars do in fact go toward expanding services as the 
statute dictates and that all covered entities are carrying out 
the 340B program with the people they're intended to serve at 
the center of any policy decision and in full and transparent 
compliance with the law.
    It would seem like an easy concept to track and document 
the savings to ensure the statute is met. But I know that's 
actually quite complicated and I would like to understand this 
better, given the interest in the issue. So would you explain 
the--well, I will ask Dr. Daniels.
    Can you explain the complexity of tracking savings in 340B 
discounted drugs and how does the University of California at 
San Diego ensure these dollars go towards expanding services 
for vulnerable patients?
    And then, similarly, for Dr. Cerise, if you could also 
answer the same questions to hear how Parkland handles this 
issue. So I guess we'll start with Dr. Daniels.
    Mr. Daniels. Thank you.
    Let me speak to the question of how they're applied. 
There's no doubt that the complexity of how the discounts are 
accrued makes it very difficult for us to identify exactly. I 
think I used the phrase estimated impact cost savings of about 
$87 million.
    The flow of the information on the drug costs comes back 
and it's not associated specifically with a given patient. We 
can track the amount of discount that comes back into us and I 
think that's an opportunity for standardization over time.
    But I think the biggest challenge that I see is being able 
to separate the payment that comes back to the organization 
from the payers. From the drug cost side we can track that but 
it's not at the patient-specific level.
    Mr. Pallone. All right.
    And then I will ask Dr. Cerise the same thing with 
Parkland.
    Dr. Cerise. The same response. We can track that in 
aggregate, looking at our drug spend. But on an individual 
patient level, we don't track it that way.
    Mr. Pallone. Do you have any suggestions to change that so 
we can have better tracking?
    Dr. Cerise. So all of our pharmacies are 340B pharmacies. 
We don't have mixed inventory, and so we--the patients that we 
serve are eligible for those discounts and so whether it's at, 
our central site or child sites, we will look at the cost of 
drug, our GPO cost, or 340B cost, and you can calculate the 
difference there to understand the savings.
    But what my pharmacists say, at an individual patient 
prescription level tracking, oftentimes you don't know what 
your reimbursement is at the time it dispenses anyway. It's 
very difficult to do it at that level of detail.
    Mr. Pallone. All right. Well, let me just say I want to 
point out that so many of the bills here today focus on huge 
amount of reporting and I think we all need to remember that we 
have an agency with less than 10 people on staff dedicated to 
managing 340B and we need to set up our agencies up for success 
and we should give the agency what it needs to effectively 
oversee the program. So we'll look into that better.
    But thank you both for your input. I appreciate it.
    Thank you, Mr. Chairman.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Kentucky, Mr. 
Guthrie, 5 minutes for questions.
    Mr. Guthrie. Thank you. Thank you, Mr. Chairman. Thank you 
for the opportunity and for the panelists to be here.
    And Dr. Patt, I will start with you. In your written 
testimony, you explained how consolation of private oncology 
practices might be an unintended and unwelcome byproduct of the 
340B program.
    What guardrails do you think Congress needs to put in place 
to hinder this and are there other specialties that we should 
be aware of where this same trend is happening?
    Dr. Patt. Yes, sir. Thank you for the question.
    So I think that if you make three changes to the program it 
will substantially enhance its integrity and change some of the 
misuses of the program and not promote consolidation.
    Again, it's transparency, accountability, and definition of 
a patient. I think that those three things will substantially 
diminish program use in ways that are not beneficial for 
patient care, because I think nobody is going to argue with 
organizations that are using this to enhance the care of 
patients.
    It's the lack of clarity in how organizations are using it, 
whether it's to benefit patients or for other strategic 
initiatives that remain challenging.
    So I think those three things are important. I do think 
this isn't just an oncology problem. We've consolidated 
oncology practices, but actually there are many practices that 
have similar outpatient drug utilization characteristics--
rheumatology, ophthalmology, gastroenterology, neurology--that 
are all subject to the same issues.
    I think actually the most consolidation in the last few 
years has been in ophthalmology practices as there is a 
tremendous benefit of doing that, and I would say, comparably--
there are physicians in the room--there are other medical 
subspecialties that have also consolidated based on similar 
issues.
    So if you look historically at cardiology where the rates--
there's a site of service difference in rates of reimbursement 
for echocardiography, you have seen cardiology practices all 
align with hospital systems.
    So I think that it is subject to more consolidation of 
other medical subspecialties and if we make the program more 
transparent, accountable, and define a patient in a more 
meaningful way, that those are things that we can do to make 
sure that the program is used to care for vulnerable patients.
    Mr. Guthrie. Thank you. Thank you for your answer.
    And then Dr. Daniels, I notice in your testimony that you 
mention that UC San Diego does pass on 340B discounts to low 
income but on a case by case basis.
    How do you determine which case by case and should there be 
a standard that----
    Mr. Daniels. Well, there is a standard. So the testimony--
--
    Mr. Guthrie. Apply the standard on a case by case basis?
    Mr. Daniels. The testimony may have misrepresented----
    Mr. Guthrie. It's not inconsistent. You're right.
    Mr. Daniels. We have an algorithm. Patients that come to 
the counter we have information on their payer. Those patients 
that come with either a low family income we use an algorithm 
where the pharmacist or the technician at the counter asks 
those patients what their annual income is.
    It's an honor system. We don't check it. And depending on 
their percentage of the federal poverty level, we have an 
algorithm that either gives the whole package to them free, a 
separate category of--I think it's 350 percent of the Federal 
poverty level to 400 percent--they get a different discount but 
the drug gets free and they do the co-pay.
    And then for those patients that have a high co-pay and 
have a low family income, then they also get the drugs for that 
discount. So it's not random, I guess I would say. And the 
procedure has been fully vetted by our compliance office to 
make sure that we are doing the right thing.
    Mr. Guthrie. Good. That makes sense.
    So also to you and then Dr. Cerise, you both mentioned in 
your written testimony performing self or internal audits to 
ensure compliance with the 340B program.
    Can you take about 20 seconds--in 20 seconds what kind of 
audits you guys do--how you go about it? Or do you just want to 
do it, Dr. Cerise, go--I guess one of you answer and one shake 
your head whether you agree or disagree?
    Dr. Cerise. Yes, because I won't get to the details. We 
have a 340B pharmacist who's dedicated to this program. So he 
will look at all of our child sites and look for things like 
patient definition, for duplicate discounts, and we comply with 
Texas and Medicaid law, acknowledging on the scripts that 
they're a Medicaid patient--that sort of thing.
    Mr. Guthrie. OK. Similar, Dr. Daniels?
    Mr. Daniels. And in the package--in fact, it was on the 
screen a little while ago during my opening, we do have an 
algorithm or, I should say a flow chart, that is used by each 
of the pharmacies to decide whether or not they meet the 
criteria.
    But as far as the audits are concerned, let me just briefly 
comment that the audits that we look at are comprehensive. They 
go to all the areas of the program. They look at the patient 
eligibility.
    They look at the location where the service was provided to 
make sure that it is part of our HRSA rules and as a result of 
that, we get reports. They come first to our pharmacy 
leadership team on a quarterly basis and then at least twice a 
year then we--our pharmacy--our 340B executive steering 
committee meets and their job--that's a multi-disciplinary 
group and their job is to review it and----
    Mr. Guthrie. I think I am getting ----
    Mr. Burgess. The gentleman's time has expired and I am just 
hurrying us along because we will have votes on the floor and I 
would like, for your benefit, to conclude this panel before we 
leave.
    The gentlelady from California, Ms. Matsui, is recognized 
for 5 minutes.
    Ms. Matsui. Thank you, Mr. Chair.
    Thank you very much for joining us today. As you know, that 
UC Davis Medical center is in my district and but I consider 
all the UC systems an important constituent and thank you for 
representing UC Health as a whole today.
    Your testimony specifically touches on original intent of 
the 340B program and I think that is really very important. The 
program was never designed to be a drug discount program for 
patients; rather, a discount for the providers to ensure 
they're able to best serve the vulnerable and low income 
patient population.
    And particularly in California, which has been successful 
in implementing the ACA and extending health care to most of 
the population, the need to support community providers remains 
despite the intentional reduction in charity care across the 
state.
    And that's why my legislation, H.R. 6071, codifies the 
intent of the program in order to eliminate confusion.
    Dr. Daniels, what does a hospital like yours have to do to 
be eligible for the program?
    Mr. Daniels. So we are one of the original DSH hospitals, 
going back to the 1990s legislation. In order to meet that 
target, we come it at a DSH discount percent or adjustment 
percent of 34.77, I think it is substantially above the minimum 
cutoff and tthat gives us, I guess, qualification as a DSH 
hospital and that's how we participate.
    Ms. Matsui. OK. Your testimony touches on the various 
practices UC San Diego Health has in place to promote 
compliance for the program.
    Can you describe some of those practices?
    Mr. Daniels. The compliance is very important to us. This 
is a really important program for UC San Diego Health, and so 
we've taken that seriously and, in fact, as we've gone through 
our compliance we've done two things specifically to help us 
assure compliance.
    We follow the HRSA rules all the way through from patient 
eligibility and how they're qualified. We follow the process of 
making sure that we can verify and account for all of the steps 
in the program.
    The audits include such things as looking at the patient 
prescription itself, making sure that all of the pieces are in 
place, that it's an eligible provider that is part of our 
contract or paid medical staff.
    And in the process of doing that we also look at where the 
encounter was for that patient. So those are all elements of 
our regular----
    Ms. Matsui. Exactly.
    Mr. Daniels [continuing]. Audits of all of our----
    Ms. Matsui. And it seems to be very complete and I think 
there's a lot of transparency there already.
    And Dr. Daniels, you indicated that you calculated 
approximate savings of about $87 million from this program. Is 
that correct?
    Mr. Daniels. That's the best estimate we have right now.
    Ms. Matsui. And the best estimate. And I understand that 
HRSA is supposed to implement a ceiling price website and which 
should have been done years ago with the ACA, and apparently 
it's stuck somewhere in OMB.
    So there's a lack of transparency on the fact of the drug 
manufacturers as far as the ceiling price. And I imagine that 
makes it difficult for you to calculate some of the savings 
yourself, right?
    Mr. Daniels. It totally is. We don't really know what the 
actual price is supposed to be. So we have to make estimates in 
order to identify the difference between the price that we are 
paying under 340B and what the next best price would be.
    So the next best price is--for the record, the 340B prices 
is not always available to us.
    Ms. Matsui. Yes. So I think we should have more 
transparency on the other side, too.
    Mr. Daniels. I would agree.
    Ms. Matsui. Your testimony provides a brief summary of how 
savings accounts are used. Can you talk further about what 
would happen if you lost 340B savings?
    Mr. Daniels. So that is an important question and I've 
actually had that conversation more than once with our CEO to 
talk about sort of how this might happen because we go through 
the process on a regular basis of figuring out sort of what 
that might mean.
    A fair amount of the funds of the Owen Clinic, which is our 
HIV/AIDS program that I described earlier, come not from payer 
reimbursement but come from decisions within the organization.
    It would probably impact our ability to extend our care 
into the Imperial County, out to El Centro and the areas out 
there. It would also impact negatively our ability to provide 
the free drugs to patients that are part of our program.
    Ms. Matsui. All right. Thank you very much and I yield 
back.
    Mr. Burgess. The chair thanks the gentlelady.
    The chair recognizes the gentleman from New York, Mr. 
Collins, for 5 minutes.
    Mr. Collins. Thank you, Mr. Chair, and thank your witnesses 
and also Mr. Hudson for letting me jump in. I've got a Boy 
Scout event I've got to go to in just a second.
    One of my two bills here is a small one but, as Mr. Green, 
pointed out about the resources of HRSA, it's a user fee of 
one-tenth of 1 percent for hospitals using the program. So for 
every $1 million of drugs you'd have to pay $1,000.
    So Dr. Patt, would you agree that HRSA needs more 
resources, and I hope you might agree that my one-tenth of 1 
percent is not onerous?
    Dr. Patt. So, obviously, I don't represent a hospital that 
would pay these fees. But, in my opinion, having 22 people 
employed by our HRSA to conduct audits of 1.6 percent of 19,000 
qualifying entities is inadequate and there needs to be some 
mechanism to staff HRSA appropriately, to resource HRSA 
appropriately, to empower HRSA appropriately to make sure that 
the program can be maintained with integrity.
    Mr. Collins. And, certainly, I would point out too, all our 
fees like PDUFA and so forth it's not unusual to have other 
folks pay money into something for, in some cases, a service in 
the case of PDUFA and some of the other drug programs.
    So would either of our other two witnesses, very quickly, 
want to comment on that?
    Dr. Cerise. Sure. Well, obviously, we think compliance is a 
big deal. We want to understand the expectations. We want to 
comply with the expectations.
    We support oversight and transparency in reporting. And so, 
if you're going to do a fee based on your amount we have a big 
amount because we are a large safety net system and we have a 
very high DSH percentage. So you might look at scaling 
according to DSH percentage.
    Mr. Collins. Something to be considered. Sure.
    Mr. Daniels. The idea of appropriately staffing HRSA to do 
its job, I think, is clearly important and I support that and I 
think UC San Diego would.
    My only concern when I hear the statement user fees is 
whether or not that is likely to take away from the important 
mission that the 340B program conducts or supports. And so from 
that point, the idea of losing those moneys for fees puts a 
little shiver.
    Mr. Collins. That's why we did one-tenth of 1 percent. So 
$1,000 per million.
    So, Dr. Patt, the other issue that I am covering is the 
patient definition--that's my bill--and I know it's very 
controversial right now. But if you look at some of the 
oncology practices and some of them, I think would have the 
appearance of being acquired because of 340B because nothing 
else changed. The doctors didn't change. The locations didn't 
change.
    A lot of times they are serving primarily an insured 
population base and the minute they get scooped up by a DSH 
hospital then the discounts they're called a qualified patient.
    So, my bill--I know it's controversial--would say that the 
fully insured patient would no longer qualify for the discount. 
Do you have any comment on that?
    Dr. Patt. I would say that I think that tying discounts to 
the patient is important and I think that definition of a 
patient is critical because of the laxity of definition of a 
patient today.
    I think that many qualifying entities are receiving 
discounts for patients that they don't actually manage 
because--I will just say most cancer patients they're admitted 
to the hospital. And so if I see Mrs. Jones, who has a lung 
cancer, I refer her for an outpatient biopsy. But I am treating 
her in my private practice.
    She has a hospital medical record. I have privileges at the 
hospital. It would be really easy for a post-hoc reconciliation 
vendor to say, hey, Mrs. Jones is a hospital patient.
    So I think defining a patient is really critical. I would 
say that I think it would be a big stretch to say that it 
should only apply for low income patients only because then how 
would hospitals that are seeing such a high percentage of 
disproportionate share make money to extend other services to 
low income patients.
    So I do think that would be a challenge. But I do think 
that when you look at patients and qualifying patients we 
really need to not just look at the inpatient DSH metric 
because it's antiquated.
    It's 1992, post-Cold War. We really need to think about 
outpatients and the outpatients that we are serving and that 
that would be a more meaningful way to make sure that this 
program, in my opinion, is in alignment with its original 
intent.
    Mr. Collins. Thank you for those comments and, Mr. Chair, I 
yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Oregon, Dr. 
Schrader, 5 minutes for questions, please.
    Mr. Schrader. Thank you, Mr. Chairman.
    Dr. Patt, just trying to get clarity here. You indicated in 
your opening remarks that the hospital group you worked with--
Seton--could charge $10,000 for a cancer drug and with the 
discount only be on the hook for $5,000 and they would pocket 
all that money. Is that a reflection of what happens at your 
hospital group?
    Dr. Patt. So no. I was establishing in my introduction that 
I round at Seton Hospital. I made rounds there every day. I 
work with them collaboratively in dealing with poor and 
underserved patients.
    Like----
    Mr. Schrader. So this didn't actually happen?
    Dr. Patt. Like most community providers, I work in 
collaboration with our hospital system.
    Mr. Schrader. I have limited time. I apologize. But did 
this actually happen at your hospital?
    Dr. Patt. So I would say I don't know a specific example. 
But, typically, hospitals, when they purchase $10,000 oncology 
drugs, get a 50 percent discount. And so as I think----
    Mr. Schrader. And they pocket that money for salaries and 
all that sort of thing?
    Dr. Patt. No. What I am saying it's a problem of lack of 
transparency. We don't know how they're using those funds.
    Mr. Schrader. Well, I would suggest that that's the reason 
we have the audits. We heard earlier testimony from Ms. Draper 
that they have these audits. They're not doing enough of them.
    We've heard good bipartisan testimony we could have more 
complete audits. But we don't want to give the impression to 
folks out there that the hospitals would just pocket this money 
for their own personal gain.
    The real world is under the statute and under the statute 
and under the audits they are required to provide services for 
patients, either wraparound services or direct drug discounts 
to those particular patients that are Medicaid eligible.
    So I just want to make sure there's clarity out there. The 
other thing that----
    Dr. Patt. Respectfully, the evidence----
    Mr. Schrader. If I may reclaim my own time.
    The other thing that I am concerned about in some of the 
legislation?
    Mr. Bucshon. Would the gentleman yield?
    Mr. Schrader. No.
    The other thing I am concerned about right now is the 
charity care nexus. Under the Affordable Care Act and actually, 
hopefully, through this particular program, the goals is to 
reduce the amount of charity care that's out there.
    So if we base the 340B program on just those clinics and 
those hospitals, those outpatient service providers that have a 
high charity care load, we are missing the point.
    We are actually penalizing coordinated care organizations 
in my state that have actually reduced the cost of health care 
overall, provide those wraparound services and have reduced 
charity care.
    With all due respect to my colleagues across the aisle, 
frankly, they've increased charity care costs recently by 
undermining the cost sharing program, by not allowing 
reinsurance programs, taking away the mandate.
    If there's an increase in charity care costs, that's not a 
fault of the system and all the good work that your hospital 
groups are doing. That's, frankly, on us here in the United 
States Congress.
    So I have problems with the charity care case. Dr. Daniels, 
when we figure out charity care, do those wraparound services 
that a lot of, you know, our great groups in this country have 
provided factor what constitutes charity care so we can compare 
apples with apples?
    Mr. Daniels. Well, in California, because of the Medicaid 
expansion, we have minimal charity care. We have a fair amount 
of under compensated care as a result of Medi-Cal and, to a 
different degree, Medicare payment systems.
    So but there is no doubt the answer to your question is 
that we include all of those sort of wraparound process as part 
of what we count in the under compensated care. So----
    Mr. Schrader. Yes, and I think that's an appropriate thing 
we have to focus on. The goal is to reduce charity care. Some 
folks did not choose the Medicaid expansion. OK, you're going 
to have high charity care caseloads.
    But those parts of the country that went that route, 
they're actually, hopefully, enjoying the benefits of the fact 
that they've been able to use the 340B program for these 
wraparound services to provide good patient care, and I think 
that sometime that we ought to focus on in a lot of the 
discussion here.
    Dr. Daniels, furthermore, there's a big audit regimen that 
already goes on on 340B. Apparently, it's not perfect. There 
are some improvements. GAO indicates HRSA agrees with some of 
those recommendations. Some of our colleagues here have some 
great ideas.
    What do you think of the current regimen and should there 
be some pieces that you might recommend that we should not be 
doing? Another, perhaps, audit processes that we should be 
going through?
    Mr. Daniels. What I would say to that is that, speaking on 
behalf of UC San Diego Health, we've taken the program very 
seriously. We want to make sure that we are in full compliance.
    Changes, I think, are potentially in order. We strongly 
support more transparency but it should be the right 
transparency, putting the light not only on the providers but 
also the manufacturers, making sure that the information that 
we collect as part of that transparency serves an important 
purpose for understanding the direction the program is going.
    Mr. Schrader. Thank you.
    And I yield back, Mr. Chairman.
    Mr. Burgess. The chair thanks the gentleman.
    The chair recognizes the gentleman from North Carolina, Mr. 
Hudson, 5 minutes for questions, please.
    Mr. Hudson. Thank you, Chairman, and thank you to the panel 
for your written testimony and the time you have given us here 
today. It's very important.
    I mentioned earlier when I was questioning Ms. Draper from 
GAO that I have four major hospital networks in my district. 
Each one uses the 340B program. They've demonstrated to me how 
the different ways that the program enables them to better 
serve their patients.
    I believe this program is vital for our communities and I 
believe in its mission. But the program can and should be 
improved. One idea that I've been exploring is elevating the 
340B program to an administrator level program within HRSA.
    By elevating 340B program to a Senate-confirmed 
administrator level program I believe we will make the program 
more accountable to Congress, provide more visibility into the 
program and improve administration of the program.
    I believe these are goals that we all could support. I 
would just ask the panel, each one of you, to answer, do you 
foresee any issues with this legislation?
    And, Dr. Patt, we'll start with you.
    Dr. Patt. I think there are many different ways you could 
improve upon administration of the program. I can't speak to 
which one would be best.
    Dr. Cerise. It's a critical program for us and for our 
patients and so anything that can support the program to make 
it viable and continue to work for us and for our patients we 
would be in favor of.
    Mr. Daniels. So I concur it's an important program and 
worth making sure that it is done correctly. I am not in a 
position to be able to answer the question of whether or not an 
administrator level is the right direction.
    But I, clearly, support organizing it so that it can be 
successful and help us be successful.
    Mr. Hudson. I appreciate your answers, and I sprung this on 
you. So I really would be interested in the feedback of your 
organizations. This is an idea that has some bipartisan support 
here and I think we'll continue to pursue. If you'd like to 
submit them in writing I would welcome that. Thank you.
    And with that, Mr. Chairman, I will yield.
    Mr. Bucshon. Would the gentleman yield for a few minutes?
    Mr. Hudson. I yield the balance of my time. Yes.
    Mr. Bucshon. And the point I was trying to make with my 
colleague was not allowing the witness to answer the question 
was in that the implication that we are assuming that everyone 
are bad actors out there is just factually not true.
    The issue is is we don't know. That's the issue. The issue 
is not accusing anyone of anything. The issue is we just don't 
know, and it's unfortunate that that impression was created and 
then not allow the witness to answer the question.
    I yield back to Mr. Hudson.
    Mr. Hudson. Unless there's anyone else, Mr. Chairman, I 
will be happy to----
    Mr. Burgess. Yield to me for just a moment, if you would.
    And then the other aspect of what was brought up and, 
unfortunately, the gentleman's already left, but I would just 
point out this committee provided 10-year authorization for 
Children's Health Insurance this year. This committee provided 
2 years of authorization for community health centers. This 
committee provided reauthorization for teaching health centers.
    True enough, cautionary reductions were not considered not 
because this committee would not consider them but because 
Senate Democrats killed that bill over in the Senate Health 
Committee.
    So fair is fair. We can point out some things. But this 
committee has, I think, an exemplary body of work to point to 
in the last 18 months in the work that we've done to provide 
affordable care for people who need it.
    With that, I am going to recognize the gentleman from--oh, 
do you yield back, Mr. Hudson? I apologize.
    I recognize the gentleman from California for 5 minutes.
    Mr. Cardenas. Thank you. Thank you very much, Mr. Chairman, 
Ranking Member. Appreciate the panellists coming forward and 
helping to educate us about what's going on in the real world 
when it comes to this very important program that we all--all 
of our communities depend on.
    One of the first things--top lines I would like to remind 
everybody is this 340B program, has it--is it having a positive 
effect on rural health care--health care in rural America?
    Just top line, is it?
    Dr. Cerise. Yes.
    Mr. Cardenas. Anybody disagree with that? Is everybody 
consistent with it? OK. Good.
    I just wanted to point that out because I represent Los 
Angeles, second largest city in the country. But I think it's 
important and incumbent upon all of us to always recognize that 
when something, on balance, is actually helping American 
citizens in our district or outside our district--people whose 
accents might be very different than the people that we 
represent in our district, what have you, I think it's 
important that we try to do our best to be good stewards in 
oversight and making laws to make sure that we try to figure 
out how do we keep something that, on balance, is doing good 
things--how do we keep it going and help to make it better?
    One of the things that I would like to ask--again, a top-
line question is are any state or Federal dollars involved in 
the 340B program? Obviously, out in the field HRSA is federally 
funded, et cetera, but out there in the field?
    Mr. Daniels. Our oversight is a mixture of local, state, 
and Federal funds. So in terms of compliance and oversight, in 
terms of acquiring--and how we acquire drugs but----
    Mr. Cardenas. Pretty minimal out there--the application.
    Mr. Daniels. Yes. This is a drug discount program. It's not 
Federal dollars, right.
    Dr. Cerise. Yes. I guess I would concur that the point of 
the 340B program has been for 25 years that it doesn't cost the 
citizens in the United States directly.
    Mr. Cardenas. That point being made, and it looks like the 
intent is following through. Because I've been a lawmaker for 
20-some years and I've actually passed some laws that I had to 
correct because, oops, the intent was, your point is 25 years 
ago the intent was, and when it comes to public dollars being 
utilized, by and large, it's following through with that 
intent, right, in your work?
    Dr. Patt. Yes. So I would say that if you look initially 
that's absolutely true and if you look at some of the secondary 
consequences of consolidation, which have caused site of 
service shifts to sites of care that cost double, that costs 
patients more.
    It costs taxpayers more. Health insurance premiums rise. We 
pay more in the Medicare system. And so there are secondary 
consequences that do cost all of us more.
    Mr. Cardenas. OK. But not having a 340B in and of itself 
would be disastrous compared to the environment that you just 
described?
    Dr. Patt. I do think not having a 340B program would be 
disastrous. I completely agree with that.
    Mr. Cardenas. Exactly. So basically, Dr. Patt, you 
basically pointed out that it's not perfect but--and there are 
some inadvertent consequences--but in my personal opinion, 
those inadvertent consequences we should always close them as 
well as we can. By and large, the 340B program is a success, 
with its intent and its actual utilization in the field.
    Dr. Patt. I think there definitely are successes in the 
340B program. But I think to understand that better----
    Mr. Cardenas. Overall?
    Dr. Patt [continuing]. We need better transparency.
    Mr. Cardenas. Yes, and transparency is something that I 
think we all need more of and one of the things that HRSA has 
not grown to the degree to have the proper oversight in the 
program since the program's inception.
    My understanding when it started it was--the participants 
were in the hundreds--the facilities. Now it's over 10,000, 
correct? It's some magnitude thereof, and HRSA has been a 
problem keeping up with that and I think it's incumbent upon 
Congress and policy makers to make sure that we try to figure 
out how do we make that happen--how do we make sure that HRSA 
actually can keep up so that that transparency is in fact real-
time transparency?
    Because all of the participants are required to report, and 
apparently they do. But at the same time, when reports are 
stacking up and those who are supposed to be looking at those 
reports and verifying them are behind, therein lies the 
problem.
    Again, to me, I think Congress has more to do with trying 
to close that issue more than anybody else in the system.
    Boy, does time go by fast. My question for Dr. Daniels--can 
you tell us very briefly and quickly about the reporting at 
your hospital?
    Is the reporting for 340B, is that quite involved with your 
organization? Is it sort of a full time effort or is it just 
tertiary?
    Mr. Daniels. We currently have two full time equivalent 
staff members that focus exclusively on that and then there are 
other administrative pharmacy support that are involved also.
    Mr. Cardenas. OK. Thank you very much. My time has expired.
    I yield back.
    Mr. Burgess. The gentleman yields back.
    The chair recognizes the gentleman from Virginia, Mr. 
Griffith, 5 minutes for questions.
    Mr. Griffith. Thank you very much, Mr. Chairman.
    I appreciate my colleague mentioning that we have to look 
out for folks who might have different accents. I thought maybe 
he was talking about me.
    Yes, he says yes, and others. But I do appreciate that 
because this is a good program and I think we all acknowledge 
that.
    But, Dr. Patt, I agree completely and that was the dialogue 
I was having with my colleague from Vermont earlier that we 
need more transparency.
    We need to see where these savings are going so that we can 
make sure that this money and the intent is going to where we 
intended it to go.
    It may not go directly to patient A but it ought to be 
going to patients in similar circumstances as patient A, who's 
entitled to a benefit.
    So I appreciate your comments on transparency and we'll see 
what we can do to make that happen.
    Dr. Daniels, I noticed in your answer on, what is it 
costing the taxpayers, you said it didn't cost the taxpayers 
directly, which I agree with, or close to agree with.
    But let me see if I can clarify it for my own edification 
and education. So if you're receiving Medicaid and Medicare, 
which is a taxpayer benefit, and the hospital receives a 
discount for the drug, don't they still bill Medicaid and 
Medicare?
    And I am not saying it's wrong. I am just asking to get 
educated. Don't they still bill Medicaid and Medicare for the 
full cost of that drug?
    Mr. Daniels. We, certainly, bill according to the contract 
that we have.
    Mr. Griffith. And that would be the way the 340B works, 
though, isn't it?
    Mr. Daniels. Yes. I think we follow the rules.
    Mr. Griffith. And I am not being critical of that. I am 
just trying to make sure that--so that would be a little bit of 
direct money and then the indirect in that costs may be shifted 
elsewhere. But I appreciate that.
    My understanding, and correct me if I am wrong, and I am 
looking mostly at our hospital folks, not Dr. Patt in this 
one--is that the child sites--those sites where a company has 
come in and purchased the practice--the child sites are 
actually growing faster for 340B in the last several years than 
have been the parent sites. Is that not correct?
    Dr. Cerise. That's correct. We have the 83 child sites, and 
the way our child sites work is anything we have off campus--so 
we may have one building with five different clinics on a 
floor. That's five cost centers and five child sites.
    So as we--like we are dealing with now--have a behavior 
health problem and we are trying to add some services in an 
extended observation unit that'll be a child site so we can get 
access to drugs to treat those patients.
    Mr. Griffith. And that's industry wide as well, isn't it?
    Dr. Cerise. I can't speak for the rest of the world. Sorry.
    Mr. Griffith. OK. How about you, Dr. Daniels?
    Mr. Daniels. Yes, just affirming that statement. If we 
have, in the same physical space, if on Monday we have 
cardiology and on Tuesday we have endocrinology and on 
Wednesday yet another clinic, each of those would be registered 
as separate child sites.
    So we follow the HRSA rules and that part of the number--
the large number of child sites is related to the fact that 
that's the requirement in order for us to be able to meet the 
HRSA rules.
    Mr. Griffith. And I think one of the concerns--I don't 
believe it was this subcommittee--I believe it was one of my 
other subcommittees--we had a hearing previously on this same 
subject area and one of the concerns raised in that was a lot 
of hospitals were buying oncology sites in order to bootstrap 
or beef up their 340B capabilities.
    Dr. Patt, can you speak to that?
    Dr. Patt. I can. You have seen almost 700 community 
oncology practices close or align with hospital systems in the 
last decade, shifting the costs of the site of service.
    And so let's say you have a hospital and two community 
oncology practices that are 30 to 35 miles away in a suburban 
area. If those qualify as child sites where the payer mix is 
predominantly private and Medicare, it allows them a tremendous 
economic advantage.
    And so because they have such an arbitrage opportunity with 
purchasing power, it's really easy to say hey, community 
oncologist A--practice A and B, you can either align with us in 
the hospital system and let us purchase you or we are going to 
open something right next door and I can see half the patients 
because I can bleed for years because I have 340B discounts--I 
buy drugs at half the price--and we are going to push you out 
of the market.
    And so that's happened to almost 700 community oncology 
practices. And so, it certainly alters market dynamics, and 
while I would say that's not great for community oncology and 
not great for some rural sites that have closed, but more so 
shifts the site of service to a more expensive cost of care.
    And so, we'd love to see some of that economic incentive be 
diminished over time and I think that that happens when you 
provide transparency, accountability, and appropriate patient 
identification because then you know that, you can show 
sunshine on that behavior that qualifying entities have and 
then make sure that its alignment and value add to underserved 
patients.
    And so I think that those are things that are in the best 
interest of health care in general.
    Mr. Griffith. I appreciate that and I see my time is up, 
and I yield back, Mr. Chairman.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentlelady from Illinois 5 minutes 
for questions, please.
    Ms. Schakowsky. Thank you, Mr. Chairman, and thank you all 
for your testimony.
    As Dr. Patt rightly pointed out in her written testimony, 
that patients without access to health care have almost a 50 
percent higher mortality rate--this is particularly true for 
those who can't afford the drug costs to treat their cancer.
    In fact, not only are cancer patients two and a half times 
as likely to declare bankruptcy as healthy people but those 
patients who go bankrupt are 80 percent more likely to die from 
the disease than other cancer patients, according to studies 
from the Fred Hutchinson Cancer Center in Seattle.
    The average cost of cancer treatment runs about $150,000 
range. New cancer treatments emerge routinely but with new hope 
comes even more cost. Eleven of the 12 cancer drugs approved by 
the FDA in 2012 were priced more than $100,000 a year.
    So this is good business for pharmaceutical manufacturers. 
They have a lot of money and influence and they use it to 
attack programs that are aimed at lowering drug prices like the 
340B program.
    So, Dr. Patt, your testimony notes that many nonprofit 
hospital executives have seven or eight figure annual salaries. 
You also imply that such executive compensation is enhanced 
under the 340B program.
    Texas Oncology is a member of the U.S. Oncology Network, 
which is a division of the McKesson Corporation. Is that 
correct?
    Dr. Patt. No, ma'am. Texas Oncology is a private practice. 
We have a business relationship with the U.S. Oncology Network. 
They provide us electronic health record management services--a 
singularity in group purchasing, and so it is an affiliation.
    But I work for a private practice in the State of Texas.
    Ms. Schakowsky. OK. Well, just to note that, while you 
criticise nonprofit executives for their salaries, Forbes 
magazine recently published an article titled, ``Ten Highest 
Paid CEOs'' and the CEO of McKesson came in as number one on 
the list with an annual salary of $131.2 million.
    Now, you mentioned that you have collaborative 
relationships with 340B hospitals. But I am trying to 
understand the nature of that collaboration.
    We know that many of the uninsured patients that they have 
been directed to Seton and other 340B hospitals in your service 
area. Is that right?
    Dr. Patt. So my collaborative relationship with Seton is 
extensive. For a decade I ran their breast cancer services for 
the network.
    I chaired the breast cancer subcommittee. I still chair 
under the division of women's health, which is a collaboration 
between UT Dell Medical School and Seton.
    Ms. Schakowsky. But isn't it also true that you have 
referred people to Seton and to the 340B program?
    Dr. Patt. So I have referred people to the Seton outpatient 
clinic. It's called the Shivers Infusion Center, yes, and I 
round at Seton. So I rounded at Seton every day last week 
except for July 4th I had off. About a third of my patients 
that I saw were uninsured.
    Ms. Schakowsky. So it isn't clear to me why your center is 
not treating those uninsured patients right there.
    Is your center itself a safety net provider?
    Dr. Patt. It's not a safety net provider. So we do provide 
care for Medicaid and uninsured patients. That's a little less 
than 10 percent overall of the percentage of payer mix that we 
have across the state.
    It varies because our sites in McAllen and El Paso have a 
higher percentage of Medicaid and uninsured. But we don't 
receive funds from an intergovernmental transfer. We don't have 
1115 waiver district funds.
    We don't have 340B discounts. Being a private practice we 
are a PA. So being a private practice we don't have incremental 
funds to see and treat those patients.
    Now, sometimes we do, of course, and we've been very 
fortunate to get some drugs donated for patients because, as 
you mentioned, some cancer drugs are very expensive. Actually, 
we've had a lot of success so we've----
    Ms. Schakowsky. In your experience have you seen the abuse 
of 340B in those hospitals with which you collaborate?
    Dr. Patt. I don't know because I don't know how they use 
the 340B program. I find it challenging because in my own 
practice--again, last week when I saw five uninsured patients 
each day it's a challenge to get those patients into the 340B 
institution and more so, being an oncologist I know that 
actually those expensive drugs are some of the least important 
ways to cure cancer.
    Screening for colorectal cancer and breast cancer and good 
primary care are some of the best things you can do to prevent 
cancer mortality and those programs for uninsured patients in 
my community are virtually absent.
    And so that's a challenge that we have and, we work 
together with the 340B hospital on many efforts to try to 
improve upon them and I've dedicated a lot of my volunteer time 
to those efforts.
    Ms. Schakowsky. Well, it seems that your institution also 
relies on those 340B hospitals. I am happy that you said 
originally that you think it's an important program because----
    Dr. Patt. I do.
    Ms. Schakowsky [continuing]. I do, too.
    And I yield back. Oh, wait. I do have more money--more 
time.
    Mr. Burgess. No. Your time is way----
    Ms. Schakowsky. Oh, it's way over. OK. I yield back.
    Mr. Burgess. You're in arrears.
    [Laughter.]
    We are going to the next hearing.
    So I recognize the gentleman from Georgia 5 minutes for 
questions, please.
    Mr. Carter. Thank you, Mr. Chairman, and thank all of you 
for being here.
    Dr. Cerise, I want to start with you. As you know, HRSA 
uses a hospital's DSH adjustment as--DSH adjustment percentage 
as one of the measures for eligibility for the 340B, and under 
current law the hospitals must report their low income 
utilization rate in the inpatient setting and not in the 
outpatient setting. And, of course, this can make a big 
difference.
    Simply put, some of the low income utilization rate is an 
inpatient metric that is being used for an outpatient program.
    Can you tell me, in your hospital what's been your DSH 
percentage for the last few years? Do you have any idea?
    Dr. Cerise. Forty-seven percent.
    Mr. Carter. Forty-seven percent in the inpatient. Do you 
have outpatient facilities as well?
    Dr. Cerise. We do.
    Mr. Carter. If you were to include those, do you have any 
idea what it might be at that point?
    Dr. Cerise. Yes. Well, I can tell you approximately. Our--
--
    Mr. Carter. I understand. I won't hold you to it.
    Dr. Cerise. Our Medicaid uninsured percentages would go up 
if you included the outpatient.
    Mr. Carter. The outpatient clinics?
    Dr. Cerise. Correct.
    Mr. Carter. OK. Dr. Daniels, what about you? Do you have 
any idea what your percentage is in the inpatient setting now?
    Mr. Daniels. The inpatient setting we are at 34.77 percent.
    Mr. Carter. If you were to include the outpatient, any 
idea?
    Mr. Daniels. I don't have that information. I know that we 
also do provide a high level of care in the ambulatory to Medi-
Cal patients.
    Mr. Carter. Right.
    Mr. Daniels. And so but I don't know what the number is.
    Mr. Carter. Do you have child sites as well at Children's 
Hospital?
    Mr. Daniels. Yes, we----
    Mr. Carter. What's the patient mix there?
    Mr. Daniels. I don't have that information. We don't 
collect it that way, sir.
    Mr. Carter. OK. Dr. Cerise, do you?
    Dr. Cerise. In general, actually, we do see a little bit of 
pediatrics in our primary care clinics.
    Mr. Carter. Right.
    Dr. Cerise. But most of our child sites are serving adults 
and the mix there is going to be, roughly, 75 percent Medicaid 
and uninsured.
    Mr. Carter. So it's higher than in the inpatient setting in 
a hospital?
    Dr. Cerise. Sicker patients in the hospital we tend to be 
able to get some coverage for sometimes better than the chronic 
patients who are seen in the outpatient clinics----
    Mr. Carter. Right.
    Dr. Cerise [continuing]. A higher percentage of uninsured.
    Mr. Carter. Well, then, and, I've gotten legislation that I 
am introducing that would require the outpatient be factored in 
as well, because I think that's very important because, 
obviously, one of the abuses--it's just one of what some of us 
consider to be the abuses is that a lot of the hospitals are 
using this in outpatient clinics and outpatient settings when 
it was intended to be used and based on the inpatient.
    So Dr. Patt, if I could go to you. You talked about some of 
your experiences--they were really frightening to hear--of some 
of the patients who were having to wait and are being denied 
care and I was just wondering what can you suggest that we can 
do so that this doesn't happen--some of these examples?
    What can we do legislatively in Congress?
    Dr. Patt. So, again, in my opinion, reform focuses around 
three issues: having transparency, accountability, and 
definition of a patient.
    So I think if you have transparency in how hospitals spend 
these funds it helps to solve some of these problems 
immediately, and accountability, I think, rests in not just 
having this being a percentage DSH metric for inpatients but 
have some accountability for outpatients, because this is 
really an outpatient program that's measured by DSH inpatient.
    And, again, as 340B programs have grown tremendously, 340B 
versus non-340B entities, on average, have only a 1 percent 
difference in uncompensated care.
    And so I think that we need to--again, transparency, 
accountability, and patient definition, I think, will bring up 
great actors in this program and give every hospital that's 
using this program an opportunity to provide excellent care to 
the patients they serve.
    Mr. Carter. Right. I couldn't agree with you more. All 
three of those are extremely important, especially patient 
definition. To me, that would clear up so much about who is 
eligible and who is not eligible.
    Mr. Chairman, at this time, I would like to ask that this 
document titled ``How Abuse of the 340B Program is Hurting 
Patients'' by the Community Oncology Alliance be submitted into 
the hearing record.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Carter. Thank you.
    Let me ask you, Dr. Daniels, in your hospital what 
qualifies a patient for a 340B?
    Mr. Daniels. First of all, they have to be under our care. 
That means that there is a relationship between the physician 
and the patient.
    Mr. Carter. OK.
    Mr. Daniels. Secondly, it means that they have to have been 
seen by one of our providers and it means somebody with that 
contractual employment relationship.
    And third, it relates to the encounter that generated the 
prescription being seen in one of our sites.
    Mr. Carter. Being seen in one of your sites, whether it's 
inpatient or outpatient?
    Mr. Daniels. It could be either.
    Mr. Carter. It could be either?
    Mr. Daniels. Yes.
    Mr. Carter. But, yet, we base it on the inpatient?
    Mr. Daniels. Yes.
    Mr. Carter. Yes. Mr. Chairman, I yield back.
    Mr. Burgess. The chair thanks the gentleman. The gentleman 
yields back.
    The chair recognizes the gentleman from Oklahoma 5 minutes 
for questions, please.
    Mr. Mullin. Thank you, Mr. Chairman. Thank you to the panel 
for having a very long day with us. We really appreciate it.
    This, obviously, is an important issue. I am just going to 
keep talking until the clock resets because I will just have as 
much time as I want then.
    Are we good? All right.
    [Laughter.]
    Anyways, I really appreciate you guys being here. I just 
got a couple questions and I am going to yield what time I have 
left to my colleague from Indiana. He's going to need extra 
time because, obviously, he's pretty invested in this thing, 
too.
    So my question is going to be to the whole panel. This 
committee has found that HRSA lacks significant regulatory 
authority to oversee the 340B program requirements. My draft 
bill allows HRSA to prescribe regulations as necessary or 
appropriate to carry out the 340B program.
    Are there any 340B program requirements that each of you 
can think that HRSA should further clarify?
    Dr. Cerise. I will start, and that is, again, we look for 
guidance. We want to follow HRSA guidance.
    Mr. Mullin. Right.
    Dr. Cerise. Some of the discussion around patient 
definition I would be concerned if we started parsing what that 
is. If that's a patient of our entity, those savings will 
accrue to let us do services in entities.
    So if you start to divide it by insured or uninsured status 
or the type of care, we do a lot of care. For instance, 
telemedicine will see--a dermatologist will see one of our 
patients that way.
    So some of these programs had actually saved money and 
improved access. We would not want to restrict ----
    Mr. Mullin. So what type of clarification would you need on 
that?
    Dr. Cerise. Well, I would be careful about how we limit 
something around patient definition. We'd be happy to 
participate in some of those conversations.
    Mr. Mullin. We would love some recommendations. The idea is 
that we want to give clear guidance. The whole purpose of this 
is the fact that there isn't clear guidance, and as my 
colleague from Georgia had alluded to, that there's unclarity 
that is happening right now when it's designed even--what Dr. 
Daniels had just said--for inpatient but yet it's also being 
used for outpatient services, too.
    So there needs to be clarification on that. Not saying that 
Dr. Daniels is bad--it just needs to be clarified. We want it 
to be used for the intended purpose.
    Dr. Patt. I was just going to also add that I do think 
definition of a patient is critical, in a way that allows 
qualifying institutes to use it appropriately.
    But I think, given the tremendous growth in the contract 
pharmacy-hospital relationship, the variability and 
identification of a patient and especially laxity in that 
definition causes many challenges in inappropriate overuse of 
the program that could be brought in by----
    Mr. Mullin. So what would that narrow scope look like?
    Dr. Patt. So registration, looking at the provider status, 
making sure they're either employed by or have a contractual 
relationship with the hospital entity, looking at the origin of 
the prescription, looking at payer status--not that you have to 
determine by payer status but that way you can at least note it 
so it can be reported.
    Mr. Mullin. Right.
    Dr. Patt. And demonstration of a relationship. And so 
that's historically done by things like medical records.
    Mr. Mullin. Dr. Daniels, do you have anything?
    Mr. Daniels. Only the comment, and I agree that it's 
important to define the patient. One of the concerns that I 
would have on behalf of UC San Diego is that in a redefined 
patient definition that it doesn't serve to eliminate the 
benefits that come to the covered entities through the process, 
so in that sense, to not reduce the number of patients that 
would be qualified necessarily as a way to reduce the benefit 
that goes to the covered entity.
    Mr. Mullin. I will yield the remainder of my time to Dr. 
Bucshon.
    Mr. Bucshon. Thank you for yielding.
    I want to talk about this criticism that it doesn't cost 
the government any money, and it didn't cost us anything. We 
just heard that from our colleagues.
    I would make this argument. If we had transparency and we 
knew all the money was being used for the intent of the program 
I think you could make that case.
    When you don't have transparency, I think it would be hard 
to explain to my constituents why a hospital put up a new $100 
million tower and part of the reason why they're able to do 
that is because they're using the revenue generated from the 
340B program to support that activity.
    Here's the problem. We don't know, and so, you know, I am 
hopeful that if we do some transparency that every 340B entity 
in the United States is in full compliance using the money for 
what they say.
    But we have multiple reports, including GAO and an 
oversight committee report from Energy and Commerce that says 
that that's not true.
    So anyone who wants to make the argument that what's the 
big deal--it doesn't cost the taxpayers anything--well, it's a 
matter of where the money is being spent.
    If it's being spent for the intent, I would agree, because 
the money is being redistributed. It's not being paid for the 
drug itself--that it's being paid to help support care of those 
patients.
    But if it's being used by a system to support other 
activities, I would argue it's costing the taxpayer billions of 
dollars.
    I yield back.
    Mr. Burgess. The gentleman's time has expired. Votes have 
been called on the floor. So I am going to go Mr. McKinley.
    All subcommittee members having had time for questions, I 
recognize Mr. McKinley for 5 minutes.
    Mr. McKinley. Thank you, Mr. Chairman. I am not a member of 
this subcommittee but am the sponsor of the House Bill 4392, I 
appreciate the chance to chat here a little bit with you.
    I think it's been enlightening to listen to some of the 
debate--some points--and it's where I wanted to make my remarks 
and that was about the intent of this 25, 26 years ago, and the 
intent was to provide discounts to drugs to providers to 
``reach more eligible patients and provide more comprehensive 
services.''
    I think that's pretty basic. Just for the record, we have 
199 co-sponsors on our piece of legislation. That's more than 
any of the other pieces that have been debated here.
    We want to put a moratorium on that rule because there are 
consequences for that rule as it goes forward with it, because 
unless this rule is modified quickly, it's going to cut $1.6 
billion from health care providers across America and there are 
going to be consequences.
    Hospitals and health systems are going to cut back on their 
services. We all see at one of the hospitals in West Virginia--
WVU Hospital--they use the facilities.
    I listened with interest all the way the program is being 
used and I know at WVU they used it to fund a bus. It goes 
around to be able to do mobile mammograms throughout West 
Virginia, and the cancer rate in West Virginia is the highest 
in the country and they're trying to reach that using the 340B 
program with it.
    But yet, WVU Hospital is going to lose $10 million if this 
program isn't modified.
    Now, I could go on with it--a Kentucky hospital in 
Louisville with nine hospitals is going to lose over $5 
million.
    A clinic or a hospital in Cleveland is going to lose almost 
$7 million annually and a large system in Greater Atlanta is 
going to lose over $5 million.
    I am sure I could go on example after example. There are 
consequences when we start reducing the funds from these 
hospitals.
    So I guess the question, Mr. Chairman, comes back is, has 
the mission of this program 25 years ago to ``reach more 
patients to provide comprehensive services,'' has it been 
accomplished?
    Can our health care system afford nearly 30 percent 
reduction in health care funding and still survive? I think the 
answer is of course it can't, and we have not achieved the 
mission.
    So our access to health care from both sides of the aisle, 
we have to have more increased health care access if we are 
going to take care of the folks in this country.
    So while we can continue to debate this rural or 340B 
program, but all the while people aren't getting health care 
because of the $1.6 billion in cuts.
    So we can continue to debate this. But what we are trying 
to say--and I agree completely with Congressman Bucshon as 
trying to reach the transparency--but I also say that the 
transparency is not only just for the providers, it's also for 
the drug manufacturers.
    So what I am hoping by issuing this legislation the way we 
did is to try to force everyone to come to the table. Not just 
to debate forever--come to a conclusion.
    So, Mr. Chairman, I am calling on you to keep the focus on 
this, please. Hospitals across this country, in West Virginia, 
$10 million at just one hospital.
    Mr. Burgess. Perhaps the gentleman would like to let the 
witnesses respond to his observations.
    Mr. McKinley. So I am hoping that we can keep this focus, 
and I know I've talked to the chairman about this. I feel we 
will. But the sooner we can come to a conclusion and something 
that can pass the House and pass the Senate, I hope we can do 
that.
    So I yield back the balance of my time.
    Mr. Burgess. You don't have to yield back. You have three 
witnesses here who are experts. They may have opinions about 
what you just said.
    You have got 42 seconds left. Dr. Cerise, do you have an 
answer or an observation?
    Dr. Cerise. So the change in Medicare reimbursement 
definitely has an impact on us and I would suggest if there 
were concerns about the growth of the program or the oversight 
of the program that we address it that way and not by reduction 
in the Medicare reimbursement for eligible providers who are 
using those savings.
    Obviously, we get $152 million in savings in the program. 
It's a significant impact for us to be able to take care. There 
are a million people in Dallas County who are either uninsured 
or on Medicaid and those funds allow us to take care of that 
population.
    Mr. McKinley. Dr. Daniels.
    Mr. Daniels. The process of trying to restore the OPP 
reductions is very important to us at UC San Diego.
    Mr. McKinley. Thank you. I yield back the balance.
    Mr. Burgess. The gentleman's time has expired.
    The chair observes that the chair has not taken time to ask 
questions but, as luck would have it, any questions that I 
could have possibly asked have already been asked at least 
three times and you have answered them at least three different 
ways. So that's been instructive.
    Forgive me for a minute, Dr. Daniels. Let me just talk to 
my two Texans. We have two very different practices types, both 
impacted by the 340B program in different ways, and I think it 
is becoming--it's just quite apparent today during today's 
discussion that, Dr. Patt, we need to take your 
considerations--that they're very serious and we need to take 
them under advisement.
    Dr. Cerise, we know you're the gold standard and anything 
that we do should not disrupt what you have built at the Dallas 
County Hospital district because it does provide an 
unbelievable service.
    You're unique. Most of the other places throughout north 
Texas do not have an in-house pharmacy, strict formularies. 
There are reasons why what you do cannot be extrapolated across 
the entire north Texas community.
    Still, you get your mission and you perform your mission 
and that's to be well commended.
    Dr. Patt, I am concerned about the consolidation. I am 
concerned about the fact that we are perhaps driving that 
consolidation with some of our activities.
    So I want us to work with both of your practices in mind. I 
certainly appreciate the accountability, the transparency, and 
patient definition message that you have brought.
    You can see that that message delivered as well, of course, 
as the GAO previously had their seven recommendations, all of 
which are worthy of our consideration.
    I am going to yield back my time to conclude the hearing at 
this point. Seeing that there are no other members wishing to 
ask questions, I again want to thank our witnesses for being 
here today.
    I would like to submit the documents from the following for 
the record: America's Essential Hospitals; Ascension, Texas; 
American Society of Clinical Oncology; Catholic Health 
Association; the Association of American Medical Colleges; Vox 
340B article; U.S. Oncology; and Children's Hospital 
Association.
    [The information appears at the conclusion of the hearing.]
    Mr. Burgess. One last commercial before we conclude--I ran 
through a litany of positive things that this committee has 
delivered for health care and in this country and, Dr. Cerise, 
you reminded me, or maybe it was Dr. Patt--you reminded me of 
the district funds in the 1115 waiver, also worked on through 
this committee--the extension or the prevention of the DSH cuts 
that were supposed to go into effect last October 1st.
    That extension was provided by this committee. So the body 
of work is considerable for the last 18 months, and all I would 
say to that is you're welcome.
    Pursuant to committee rules, I remind members they have 10 
business days to submit additional questions for the record. I 
ask the witnesses to submit their responses within 10 business 
days upon receipt of those questions.
    And without objection, the subcommittee is adjourned. You 
got 5 minutes to go over and vote.
    [Whereupon, at 1:52 p.m., the committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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