[Senate Hearing 115-810]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-810

                        PERSPECTIVES ON THE 340B
                          DRUG PRICING PROGRAM

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

        EXAMINING PERSPECTIVES ON THE 340B DRUG DISCOUNT PROGRAM

                               __________

                             MARCH 15, 2018

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions
                                
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
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         COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                  LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming		PATTY MURRAY, Washington
RICHARD BURR, North Carolina		BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia			ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky			MICHAEL F. BENNET, Colorado
SUSAN M. COLLINS, Maine			TAMMY BALDWIN, Wisconsin
BILL CASSIDY, M.D., Louisiana		CHRISTOPHER S. MURPHY, Connecticut
TODD YOUNG, Indiana			ELIZABETH WARREN, Massachusetts
ORRIN G. HATCH, Utah			TIM KAINE, Virginia
PAT ROBERTS, Kansas			MAGGIE HASSAN, New Hampshire
LISA MURKOWSKI, Alaska			TINA SMITH, Minnesota
TIM SCOTT, South Carolina		DOUG JONES, Alabama   

               David P. Cleary, Republican Staff Director
         Lindsey Ward Seidman, Republican Deputy Staff Director
                 Evan Schatz, Democratic Staff Director
             John Righter, Democratic Deputy Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                        THURSDAY, MARCH 15, 2018

                                                                   Page

                           Committee Members

Alexander, Hon. Lamar, Chairman, Committee on Health, Education, 
  Labor, and Pensions, Opening statement.........................     3
Murray, Hon. Patty, Ranking Member, a U.S. Senator from the State 
  of Washington, Opening statement...............................     1

                               Witnesses

Siegel, Bruce, MD, MPH, President and CEO America's Essential 
  Hospitals......................................................     5
    Prepared statement...........................................     7
    Summary statement............................................    11
Reilly, Lori M., Executive Vice President, Policy, Research, and 
  Membership, Pharmaceutical Research and Manufacturers of 
  America, Washington, DC........................................    11
    Prepared statement...........................................    13
    Summary statement............................................    34
Veer, Sue, MBA, President and Chief Executive Officer, Carolina 
  Health Centers, Inc., Greenwood, SC............................    35
    Prepared statement...........................................    37
    Summary statement............................................    42
Hill, Joseph, M. III, MA, Director, Government Relations 
  Division, American Society of Health-System Pharmacists, 
  Bethesda, MD...................................................    42
    Prepared statement...........................................    44
    Summary statement............................................    46

 
                        PERSPECTIVES ON THE 340B
                          DRUG PRICING PROGRAM

                              ----------                              


                        Thursday, March 15, 2018

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m. in 
room SD-430, Dirksen Senate Office Building, Hon. Lamar 
Alexander, presiding.
    Present: Senators Alexander [presiding], Isakson, Cassidy, 
Young, Roberts, Murray, Casey, Bennet, Baldwin, Murphy, Warren, 
Kaine, Hassan, Smith, and Jones.
    The Chairman. The hearing will come to order.
    Senator Murray has an important engagement that she needs 
to go to.
    We are going to explore today the 340B Program. We welcome 
our witnesses.
    I have asked Senator Murray if she will make her opening 
statement first, and then I will make mine. Then we will hear 
from the witnesses, and then as Senators come and go, we will 
have 5 minutes. We will have rounds of questions.
    Senator Murray.

                  OPENING STATEMENT OF SENATOR MURRAY

    Senator Murray. Mr. Chairman, thank you very much for that 
accommodation. I really appreciate it.
    Thank you to all of our witnesses who have come today to 
talk about the 340B Program, which has helped a lot of our 
hospitals and health centers stretch their resources and serve 
their communities.
    Today's hearing is very important and long overdue. For 
over a quarter of a century, the 340B Program has been a 
critical safety net for health providers that bear the burden 
of caring for some of our patients and communities with the 
greatest needs and fewest resources.
    The 340B Program was started in 1992 with a simple goal: to 
stretch scarce Federal resources to provide more comprehensive 
services to vulnerable populations.
    The way it works is equally simple: it requires 
pharmaceutical companies to make drugs more affordable for 
certain health providers serving vulnerable populations and low 
income patients. Those savings can help those providers stretch 
their resources even further.
    Like at St. Mary Medical Center in Walla Walla, Washington. 
In 2016, 2 out of every 5 patients they saw were on Medicare; 
another 1 in 5 was either on Medicaid or uninsured. 340B 
savings helped that hospital support basic school-based health 
clinics for at-risk elementary and high school students, run a 
drive-through flu clinic to provide free vaccines to hundreds 
of low income families, and provide low cost or free 
medications.
    At Sacred Heart Medical Center and Children's Hospital in 
Spokane, one-third of their 2016 patients were on Medicare, 
another third on Medicaid or uninsured.
    When one of their elderly patients did not know how he 
could afford a $400 medicine, 340B savings helped the hospital 
charge only $80, one-fifth of the cost; that is a price he 
could manage. He is not the only one. Sacred Heart gives away 
as much as $55 million a year in free and discounted care.
    You can also see 340B at work at the University of 
Washington, which has used 340B savings to stretch its reach 
with innovative initiatives, like the University's tele-pain 
program, which is combating the opioid epidemic through 
innovative audio and video conferencing support for providers 
treating rural patients who struggle to manage chronic pain. 
This program does not just work in Washington. Participants 
cover Wyoming, Montana, Oregon, Idaho, and beyond.
    The University also runs the Third Avenue Center, which 
provides physical and mental healthcare to women who experience 
homelessness. The center is co-located at the YWCA Angeline's 
Women's Shelter, so that vulnerable women can access 
coordinated care in a safe environment.
    These great programs are made possible by 340B savings, and 
they are just a few examples of how the 340B Program can be a 
great resource for doing good.
    Of course, for us to ensure this Program does good, we have 
to ask whether it is implemented well, and we have to ask 
whether we can make it better.
    Accountability and transparency are important to address 
concerns about whether entities are using the 340B savings 
appropriately, and whether pharmaceutical manufacturers are 
providing discounts fairly. We can, and should, provide 
accountability in a way that strengthens and preserves this 
Program.
    Unfortunately, despite President Trump's repeated promises 
to tackle drug prices, when it comes to the 340B Program--which 
actually helps reduce drug costs--his record shows only broken 
promises and backward steps. Like when he sabotaged an attempt 
to make sure drug companies play by the rules.
    When Congress passed the Affordable Care Act, we gave the 
Health Resources and Services Administration, HRSA, new tools 
to keep the 340B Program accountable.
    HRSA has taken steps to provide greater education and 
conduct more audits to prevent hospitals and providers from 
taking advantage of the system. After the HHS Inspector General 
found many drug companies were overcharging, HRSA finally 
drafted a rule to make sure drug companies were actually giving 
the full discounts required.
    However, President Trump continues to delay that rule 
designed to hold drug companies accountable for overcharging. 
And President Trump took another enormous step backward when 
his Administration implemented a significant cut to the 340B 
Program.
    The Centers for Medicare and Medicaid Services has 
traditionally reimbursed 340B eligible hospitals for drugs at 
the same rate as all other hospitals. However, this year, they 
are making unnecessary cuts and paying less than 80 percent of 
market price, reducing the ability of 340B providers to offer 
the outstanding services patients and families count on.
    Skyrocketing drug prices are a dire problem and they 
deserve our urgent attention and serious solutions. Needless to 
say, rolling back rules to prevent overcharging from drug 
companies, and cutting back programs that help make drugs more 
affordable, is not going to get the job done.
    The cost of 340B discounts to the pharmaceutical industry 
is about 1 percent of the total U.S. drug market. That is by no 
measure a big dent. It is a single penny out of every dollar. 
But that small penny, that small percent, can make a big 
difference.
    It can make a difference to the low-income patients and 
communities who could not otherwise afford the treatment they 
need.
    It can make a difference to the hospitals and health 
centers who could not otherwise stretch their resources far 
enough to care for these communities.
    I really appreciate all of our witnesses who are here today 
to talk about how we can make sure this 340B Program is 
accountable enough to fulfill its intent and strong enough to 
continue serving our communities for generations to come.
    Thank you very much, Mr. Chairman, for accommodating me. My 
staff is here. I will submit my questions for the record.
    We have other Senators here as well, again we appreciate 
all of your contributions.
    The Chairman. Thank you, Senator Murray.
    I know you have an important engagement I appreciate your 
extra effort in being here early.

                 OPENING STATEMENT OF SENATOR ALEXANDER

    The Chairman. The 340B Drug Pricing Program was created by 
Congress in 1992 to help qualifying hospitals and clinics that 
treat low-income patients.
    The program requires drug manufacturers that participate in 
Medicaid to provide discounts on prescription drugs or 
treatments, including treatments for cancer, diabetes, or HIV 
to qualifying hospitals and clinics.
    The hospitals and clinics may then provide the drugs at the 
reduced price to low-income patients. Or they can sell the 
drugs at a higher price to patients who have insurance and keep 
that money and use it to provide care to low-income patients or 
for other purposes.
    According to the Government Accountability Office, 
approximately 40 percent of all hospitals in the United States 
participate in the 340B Program. In just the last 5 years, the 
number of hospitals and treatment sites participating in the 
340B Program has nearly doubled to almost 38,000 in 2017.
    Today's hearing will focus on two things:
    First, what is the purpose of the 340B Program and is it 
fulfilling that purpose?
    Second, should there be changes in the law so that the 
Program can fulfill its purpose?
    First, we need a better understanding of that purpose, and 
why the 340B Program exists, and how it is being used.
    Today, there is confusion about that. Confusion about the 
program's goals and requirements because Congress did not make 
clear in the 1992 law creating it what the purpose of the 
Program actually is.
    The closest the law came to defining the purpose is a House 
of Representatives' report, to which Senator Murray referred, 
which accompanies the legislative text, and which says the 
program was created, ``To permit covered entities to stretch 
scarce Federal dollars as far as possible, reaching more 
eligible patients and providing more comprehensive services.''
    This has usually meant helping low-income patients afford 
their medications and healthcare, and to ensure that qualifying 
health centers can provide care to their most vulnerable 
patients.
    Here is an example of 340B in practice from Saint Thomas 
Hickman Hospital in Hickman County, Tennessee. The hospital 
participates in the 340B Program.
    A Hickman County resident with diabetes was unable to 
afford the $332 cost of insulin, and went into a diabetic coma. 
He was told about the 340B Program at Saint Thomas Hickman, and 
was able to buy the insulin for $8.90.
    According to Saint Thomas Hickman, the 340B Program has 
also helped the hospital expand mental healthcare services and 
reduce emergency room visits.
    The Health Resources and Services Administration, the 
Health and Human Services agency that oversees the Program, 
estimates that hospitals and clinics purchased $12 billion of 
discounted prescription drugs through the 340B Program in the 
year 2015.
    The House Energy and Commerce Committee has estimated that 
just a year later, in 2016, the 340B hospitals and clinics 
spent more than $16 billion on discounted drug purchases, up 
from $12 billion; a 30 percent increase.
    340B hospitals saved about $6 billion in 2015, according to 
those figures, by buying prescription drugs at a discount. That 
$6 billion represents about 1.3 percent of the total purchases 
of prescription drugs in the United States in 2015.
    In other words, about 1.3 percent of the total amount spent 
on prescription drugs in the United States is devoted to the 
hospitals and clinics that qualify for the 340B Program.
    Hospitals will point out that, according to the Department 
of Health and Human Services, hospitals spent more than $50 
billion in 2013 on uncompensated care; that is, services to 
patients that are not reimbursed.
    Hospitals and clinics use the $6 billion in savings that 
they generate through the 340B Program to help offset the money 
they spend in uncompensated care.
    On the other hand, we also know there are instances where 
340B hospitals and clinics may not be using the savings 
directly to help low-income patients afford their medications 
or provide care.
    There is no limit in the statute that says what hospitals 
may or may not spend the money on.
    Some have criticized this, such as Dr. Rena Conti from the 
University of Chicago and Dr. Peter Back from Memorial Sloan-
Kettering who have found that, ``The 340B Program is being 
converted from one that serves vulnerable patient populations 
to one that enriches hospitals and their affiliated clinics.''
    This is why there have been reports--including from the 
Health and Human Services Office of the Inspector General, the 
Government Accountability Office, the National Academies, and 
the House Energy and Commerce Committee--that suggest that 
while the 340B Program does provide real benefits, there needs 
to be more clarity around what the program allows and does not 
allow.
    For example, one 2011 report by the Government 
Accountability Office recommended increased oversight of the 
Program and that the Health Resources and Services 
Administration, or HRSA, issue and finalize guidance on the 
definition of a 340B patient.
    Last year, the National Academies recommended more 
oversight and regulation to ensure that the program directly 
benefits patients.
    I hope today we can learn more about the Program, and how 
it might be improved so hospitals and clinics can continue to 
provide low-income patients with help to afford their health 
care.
    Now, I would like to ask the four of you if you could 
summarize your comments in about 5 minutes. It will then allow 
more time for questions and conversation with Senators.
    First, we will hear from Bruce Siegel, the President and 
Chief Executive Officer of America's Essential Hospitals. Dr. 
Siegel leads AEH, a trade association that represents more than 
300 safety net hospitals and health systems.
    Second, we will hear from Lori Reilly, the Executive Vice 
President of Policy, Research, and Membership at PhRMA, the 
Pharmaceutical Research and Manufacturers of America. Ms. 
Reilly leads the Policy and Research Department at PhRMA, a 
trade association of brand drug manufacturers.
    Third, we will hear from Sue Veer, President and Chief 
Executive Officer of Carolina Health Centers, Inc. Ms. Veer 
leads Carolina Health Centers, which serves as the medical home 
for over 27,000 patients in the State of South Carolina.
    Finally, we will hear from Joseph Hill, the Director of the 
Government Relations Division for the American Society of 
Health-System Pharmacists. Mr. Hill leads the Government 
Relations Division for that trade association that represents 
45,000 member pharmacists, student pharmacists, and primary 
technicians.
    We welcome, again, all of our witnesses.
    Dr. Siegel, let us begin with you. Welcome.

   STATEMENT OF BRUCE SIEGEL, M.D., MPH, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, AMERICA'S ESSENTIAL HOSPITALS, WASHINGTON, 
                               DC

    Dr. Siegel. Thank you.
    Chairman Alexander, Ranking Member Murray, and honorable 
Members of the Committee.
    Thank you for the opportunity to speak today about how the 
340B Program supports our hospitals, and the many people and 
communities they serve.
    My name is Dr. Bruce Siegel, President and CEO of America's 
Essential Hospitals. We represent 325 hospitals and health 
systems that form the backbone of the Nation's healthcare 
safety net.
    Our members are public and nonprofit hospitals across the 
Nation from the Appalachian foothills of Tennessee, to Center 
City Philadelphia, to the Louisiana bayou, to Utah's Great Salt 
Lake. They are the trauma centers, and burn units, and 
neighborhood clinics for these and hundreds of other 
communities.
    Our hospitals are diverse, but they share one defining 
mission: to care for all people regardless of social, 
financial, or health status.
    Hospitals with this mission are precisely those Congress 
targeted when it created 340B more than 25 years ago. Congress' 
intent was explicit and clear: to protect hospitals from 
runaway drug prices.
    What was a problem then, remains a problem today. Remember 
that 340B grew from an urgent need for action when drug prices 
surged as manufacturers reacted to Medicaid's Rebate program.
    We are no less at-risk now than we were then. Skyrocketing 
drug costs threaten our hospitals and patients, and the 340B 
Program is still our best defense against high drug prices.
    Our hospitals care for the poorest and most complex 
patients. About half of their patients are uninsured or 
Medicaid beneficiaries. These are people who face daunting 
barriers to good health and to healthcare access in communities 
where 4.6 million families live below the poverty line. They 
struggle with food insecurity, homelessness, and other social 
challenges.
    Meeting this mission means our hospitals operate with thin 
margins. Many barely break even and in some States--Colorado, 
Indiana, Louisiana, Utah, Washington and others--they operate 
at a loss.
    Our average member hospital provides $61 million a year in 
uncompensated care, more than 8 times that of other hospitals. 
You can see why our hospitals depend on 340B savings.
    How they use those savings reflects another clearly stated 
congressional goal for 340B: to stretch scarce resources and 
provide more comprehensive services. Our hospitals stay true to 
this mission. Here are some examples.
    Medication adherence programs for cancer and HIV patients 
at Boston Medical Center; medical homes for the uninsured at 
VCU Health in Richmond, Virginia; oncology and stroke services 
for underserved at Erlanger Medical Center in Chattanooga; AIDS 
drug assistance at the University of Utah; treatment for cancer 
patients at East Alabama Medical Center; home infusion therapy 
at the University of Kentucky HealthCare; home health dialysis 
at the University of Virginia; and medication therapy 
management at Hennepin County Medical Center in Minneapolis.
    We would be happy to share other examples with the 
Committee.
    Our hospitals take stewardship of the 340B Program 
seriously because their patients and communities depend on it. 
They comply with rigorous Program audits, including significant 
data requests, and also address concerns.
    Since 2012, HRSA has conducted more than 800 audits of 340B 
providers mostly hospitals. Yet, the agency has conducted only 
11 audits of drug makers since manufacturer audits began in 
2015, and the agency has not shared its protocol for those 
audits.
    Because 340B supports hospitals with manufacturer 
discounts--not with Government spending--it saves taxpayer 
dollars. In fact, any limit on 340B access would leave local, 
state, and Federal Governments on the hook for a larger share 
of uncompensated care costs.
    We need 340B today as much as we needed it in 1992 and for 
the same reason: high and rising drug prices. Consider this: 
our hospitals cannot dictate to Medicaid how much the program 
will pay for their services. But one 340B stakeholder can, and 
does, dictate its prices and no amount of misdirection from the 
drug industry will change that simple fact.
    We stand ready to work with this Committee, and other 
policymakers, to preserve and strengthen the 340B Program 
without restricting its support for hospitals that serve our 
most vulnerable patients.
    Thank you.
    [The prepared statement of Dr. Siegel follows:]
                   prepared statement of bruce siegel
    Chairman Alexander, Ranking Member Murray, and honorable Members of 
the Committee, thank you for the opportunity to speak today about how 
the 340B Drug Pricing Program helps low-income patients and their 
hospitals--and how we can work together to strengthen this vital 
program.
    My name is Dr. Bruce Siegel, president and CEO of America's 
Essential Hospitals. We are an association of 325 hospitals and health 
systems that form the backbone of the Nation's health care safety net. 
Essential hospitals care for millions of people in every corner of our 
country--from the largest cities to broad regions of urban, suburban, 
and rural communities. In fact, one in 10 U.S. residents are born at an 
essential hospital. \1\ Essential hospitals are diverse: large academic 
medical centers with statewide or regional scope and unique specialty 
services, multi hospital systems with extensive outpatient networks, 
and city and county public hospitals that anchor communities.
---------------------------------------------------------------------------
    \1\ Roberson B, Ramiah K. Essential Data: Our Hospitals, Our 
Patients--Results of America's Essential Hospitals 2015 Annual Member 
Characteristics Survey. America's Essential Hospitals. June 2017. 
www.essentialdata.info. Accessed March 12, 2018.
---------------------------------------------------------------------------
    But underlying this diversity is a shared and defining mission: to 
provide care to all people, regardless of social, financial, or health 
status.
    It was precisely for hospitals with this mission that Congress 
created the 340B program more than 25 years ago. The historical record 
is clear: The legislative authors of this program were explicit in 
their language and unequivocal about their intention to protect 
hospitals of the safety net from the existential threat of 
unsustainable drug costs.
    To understand our ardent support for the 340B program, you first 
must understand the patients and communities our hospitals serve. About 
half of our hospitals' patients are uninsured or Medicaid 
beneficiaries. \2\ Nearly half of essential hospitals' discharges in 
2015 were for racial and ethnic minorities. \3\ On average, each of our 
member hospitals cares for more than 17,000 inpatients annually, more 
than 67,000 emergency department (ED) patients, and more than 350,000 
outpatients. \4\ In states represented by HELP Committee Members, our 
hospitals saw 1.3 million inpatient discharges, 4.9 million ED visits, 
and 28 million non-emergency outpatient visits in 2016. In the context 
of 340B, it is important to note hospital outpatient clinic patients 
are nearly four times as likely as those treated at physician offices 
to be Medicaid, self-pay, or charity care patients, and almost twice as 
likely to live in high-poverty communities. \5\
---------------------------------------------------------------------------
    \2\ Ibid., 11.
    \3\ Ibid., 10.
    \4\ Ibid., 18.
    \5\ Comparison of Cancer Patients Treated in Hospital Outpatient 
Departments and Physician Offices. KNG Health Consulting, LLC. November 
2014.
---------------------------------------------------------------------------
    The communities our hospitals serve are no less disadvantaged. They 
are home to an estimated 4.6 million families living below the Federal 
poverty line and more than 21.5 million individuals without health 
insurance. \6\ Social determinants of poor health also loom large: 
Federal data show essential hospitals serve communities where more than 
275,000 individuals struggle with homelessness and 8.5 million people 
have only limited access to healthful food. \7\
---------------------------------------------------------------------------
    \6\ Roberson B, Ramiah K. Essential Data: Our Hospitals, Our 
Patients--Results of America's Essential Hospitals 2015 Annual Member 
Characteristics Survey. America's Essential Hospitals. June 2017. 
www.essentialdata.info. Accessed March 12, 2018.
    \7\ Ibid., 12.
---------------------------------------------------------------------------
    Essential hospitals work diligently not only to care for patients 
who face financial hardships, but also to help everyone in the 
community overcome social and economic factors that contribute to poor 
health. For example, they provide medical respite programs for the 
homeless and, for those living in hunger, food pantries, community 
gardens, and meal delivery services. Typically, they do these things on 
their own dime.
    This dedication to mission and to reaching beyond their walls 
requires essential hospitals to commit resources always in short 
supply. Our hospitals operate with a margin of only 3.2 percent, less 
than half that of other U.S. hospitals. \8\ Many barely break even, and 
in many states--Colorado, Indiana, Louisiana, Utah, and Washington, for 
example--they operate at a loss. Our 325 hospitals represent only about 
6 percent of all U.S. hospitals but bear nearly 17 percent, or about $6 
billion, of the Nation's uncompensated care. \9\ Our average member 
sustains about $61 million annually in uncompensated care--more than 
eight times that of other U.S. hospitals. \10\
---------------------------------------------------------------------------
    \8\ Ibid., 15.
    \9\ Ibid., 14.
    \10\ Ibid.
---------------------------------------------------------------------------
    Wide gaps often exist between those average uncompensated care 
costs and 340B savings at these hospitals. In Tennessee, for example, 
Regional One Health, in Memphis, reports uncompensated care costs eight 
times greater than its 340B savings. Grady Health System, in Atlanta, 
reported more than $174 million in unreimbursed and uncompensated costs 
in 2015, more than four times its 340B savings. These gaps between 
uncompensated costs and 340B savings are not atypical, and collectively 
provide one example of how essential hospitals more than meet their 
responsibility to vulnerable patients as good stewards of the 340B 
program.
    With these numbers in mind, it is not surprising our hospitals and 
the patients and communities they serve depend on every available 
source of support. These hospitals rely on a patchwork of Federal, 
state, and local support, and losing any piece puts the whole at risk. 
The savings our members achieve through the 340B Drug Pricing Program 
is a key piece of that patchwork. The program is vitally important not 
only to providing vulnerable patients with affordable drugs, but to 
sustaining the many comprehensive services on which these people and 
their communities depend.
    Congress envisioned 340B as supporting this broader mission, and 
lawmakers explicitly stated this as their intention for the program. In 
the 1992 House report that accompanied legislation establishing the 
340B program, they wrote, ``In giving these `covered entities' access 
to price reductions the Committee intends to enable these entities to 
stretch scarce Federal resources as far as possible, reaching more 
eligible patients and providing more comprehensive services.''
    I added emphasis to those last words to underscore a critical 
point: Congress designed the 340B program to do more than reduce drug 
costs for entities serving low-income patients. Lawmakers also intended 
for it to support a variety of comprehensive services consistent with 
the mission of safety-net providers, such as essential hospitals, and 
that our members provide daily.
    We have few tools as effective as 340B for countering high drug 
prices. And we have no tools as cost-effective as 340B for the Federal 
Government and taxpayers: Support to hospitals comes from manufacturer 
discounts, not taxpayer dollars. In fact, restricting 340B likely would 
leave state and local governments picking up the tab for uncompensated 
care, or necessitate further Federal investments.
    How Essential Hospitals Use 340B Savings for Vulnerable Patients
    Our hospitals' work to care for low-income patients and provide 
entire communities with high-intensity, lifesaving services--trauma 
care, burn units, disaster response, and others--reflects Congress' 
vision for the 340B program. The list of comprehensive services made 
possible by 340B savings is long: free clinics and community programs 
for primary and chronic condition care; cancer and transplant care, 
including costly chemotherapy and anti-rejection drugs; medical respite 
care for the homeless and case management for underserved patients; 
training for rural hospital partners in high-risk labor and delivery 
and other specialized care.
    Not only do 340B savings support more services, they result in 
better care and better care outcomes. Boston Medical Center (BMC) fills 
more than 1 million prescriptions annually at its pharmacies, with 
three-quarters provided through the 340B program. The hospital's 340B 
savings support its successful Specialty Pharmacy Program for more than 
1,000 cancer, HIV, and other patients. Patients enrolled in this and 
other BMC programs reliably have medications in hand thanks to 340B--95 
percent receive their medication compared with only 40 percent 
community-wide.
    Particularly impressive are the improvements to access and outcomes 
for the hospital's cancer and HIV patients due to 340B. BMC has 
decreased the time it takes patients to get cancer drugs from an 
average of 11 days using outside pharmacies to the same day, using the 
hospital's 340B-supported pharmacy. Medication adherence has improved 
significantly, too, through use of the hospital's pharmacy: More than 
90 percent of oncology and HIV patients have and take their medications 
compared with previous rates of 50 percent to 70 percent. Better health 
outcomes have followed, such as those for patients with hepatitis C. 
Patients who complete hepatitis C therapy have nearly a 100 percent 
chance of full recovery, and 340B has driven therapy compliance from a 
community-wide average of 60 percent to 99 percent at BMC.
    Our hospitals across the country have similar patient stories of 
better access to care, better health, and cost savings through their 
participation in the 340B program, including these examples:
    East Alabama Medical Center (EAMC), Opelika, Alabama--At EAMC, a 
patient mix that includes a high number of uninsured and Medicaid 
patients contributed to $50 million in uncompensated care costs in 
2016. Although falling well short of covering this gap, the 340B 
savings the hospital achieved--$10 million that same year--helped EAMC 
make cancer treatment available to indigent, uninsured, and 
underinsured patients.
    Hennepin County Medical Center (HCMC), Minneapolis--HCMC admitted a 
homeless, uninsured man nine times over 4 months at a cost of $225,000, 
or more than $56,000 a month. Pharmacists in a hospital medication 
therapy management program made possible by 340B savings taught the man 
how and when to take his medications. After regular clinic visits and 
improved care management, his medical expenses dropped to $36,000--
$4,000 a month--in just 9 months.
    UK HealthCare, Lexington, Kentucky--UK HealthCare's 340B savings 
allow the health system to maintain dedicated pharmacy staff to help 
indigent, self-pay, and underinsured patients receive needed 
medications through copayment assistance and other financial support 
programs. The system, which lacks its own home infusion pharmacy, 
extends care through a contract home infusion pharmacy with the help of 
the 340B program.
    Erlanger Health System, Chattanooga, Tennessee--Without its 340B 
savings--$9 million in 2014, or about a tenth of its $92 million in 
uncompensated care costs--Erlanger could not have provided some trauma, 
oncology, and stroke services programs to underserved patients. The 
health system's 340B savings also fully fund a pharmacy at its Dodson 
Avenue Community Health Center, which offers face-to-face counseling on 
medication therapy, adherence, and chronic disease management.
    University of Utah Health Care, Salt Lake City, Utah--With its 340B 
savings, University of Utah Health Care provides an AIDS drug 
assistance program in which patients receive drugs at cost plus a minor 
fee. It also partners with rural hospitals to help them successfully 
care for patients with peripherally inserted central catheter lines or 
with high-risk pregnancies, increasing capacity for emergency and 
critical care and improving operating room procedures. This keeps 
patients in their communities and avoids costly transfers to other 
hospitals.
    University of Virginia (UVA) Health System, Charlottesville, 
Virginia--UVA Health System has one of the highest case mixes in the 
United States, evidence that it cares for many of the sickest patients. 
It also provides more than $250 million in uncompensated care annually. 
The health system's 340B savings are vital to maintaining specialty 
services, such as home health and dialysis, and access to specialized 
pharmacy services for patients at high-risk of readmission.
    VCU Health, Richmond, Virginia--Savings from the 340B program made 
possible the VCU Health Virginia Coordinated Care program, which 
contracts with primary care providers to offer a medical home for 
23,000 low-income, uninsured people. The program has lowered ED use and 
costs and made medications available to the 80 percent of outpatients 
who otherwise lack prescription drug coverage.
              Essential Hospitals as Good Stewards of 340B
    Since its inception, the 340B program has incorporated rigorous 
requirements for how hospitals and other covered entities qualify for 
and use the program. Rules implementing the program control how 
hospitals procure and dispense 340B drugs, maintain 340B drug 
inventories, ensure only eligible patients receive discounted drugs, 
and avoid duplicate discounts through the Medicaid Drug Rebate Program.
    The program also has adequate safeguards to prevent hospitals from 
diverting 340B drugs to ineligible patients and to ensure they make 
appropriate contractual arrangements with outside pharmacies to extend 
the reach of 340B discounts to more vulnerable patients and underserved 
communities.
    In short, the 340B program is subject to substantial oversight and 
monitoring. The Health Resources and Services Administration (HRSA), 
the Federal agency that oversees the program, conducts regular audits 
of hospitals and other covered entities to ensure compliance with 
program requirements. HRSA employs a comprehensive audit process, with 
pre-audit, onsite, and post-audit phases, an evolving notice and 
hearing process for findings, and a corrective action plan and 
repayment component. Since it began auditing covered entities in 2012, 
HRSA has conducted 825 audits, mostly of hospitals. Audit reports, 
including the agency's findings and corrective actions by covered 
entities, are publicly available on the HRSA website.
    By contrast, HRSA has conducted only 11 manufacturer audits since 
2012, the first year the agency began actively checking drug maker 
compliance. This stark disparity suggests a need for more work to bring 
parity to the audit process and protect hospital and their patients 
from overcharges and inappropriately denied discounts.
    Our member hospitals and health systems undergo HRSA audits 
regularly to ensure their compliance with 340B program rules, and they 
provide substantial data and respond to many questions as part of these 
audits. When auditors find problems, essential hospitals diligently 
correct shortcomings in their programs and, if warranted, return 
savings to manufacturers. Our members work daily to be good stewards of 
the 340B program because they know their patients and communities 
depend on it.
                340B: Necessary in 1992, Necessary Today
    The 340B program grew from an urgent need for action after 
manufacturers responded to the Medicaid Drug Rebate Program with 
changes in discounting practices that caused drug prices to surge 
nationally. We are no less at risk today of unsustainable drug costs, 
and the 340B program remains our best hedge against high prices.
    Again, stories from our hospitals illustrate the point. Without the 
340B program, a UVA Health System patient with diabetes, hypertension, 
high cholesterol, and heart disease could not afford the high cost of 
insulin and 11 other medications necessary to treat the patient's 
chronic illnesses--medications that otherwise would cost $24,000 a 
year, or well more than double the patient's annual income.
    It is unfortunate that stories like this are more the rule than the 
exception at our hospitals. The patients our hospitals serve are those 
least able to afford the crushing cost of prescription medications and 
physician-administered drugs, especially those with cancer and other 
devastating diagnoses. Restricting access to affordable drugs through 
the 340B program would irrevocably harm care, destabilize hospitals on 
which millions of Americans rely, and put patients at risk--maybe 
gravely so.
    America's Essential Hospitals and its members thank the Committee 
for its interest in ensuring program integrity and transparency for the 
340B Drug Pricing Program. We share those goals and stand ready to work 
with this Committee and all stakeholders to strengthen the 340B program 
without restricting access to it by hospitals that care for our most 
vulnerable patients.
    Thank you.
                                 ______
                                 
                  [Summary Statement of Bruce Siegel]
    America's Essential Hospitals represents 325 hospitals and health 
systems that form the backbone of our Nation's health care safety net. 
They serve communities of all sizes and include nonprofit health 
systems of every stripe--from city and county public hospitals to major 
teaching institutions. But they share a defining mission: to care for 
all people, regardless of social, financial, or health status. This 
mission is reflected in essential hospitals' patients, who are poorer, 
sicker, and more complex than those at other hospitals. The communities 
these hospitals serve, where social and economic hardships challenge 
health and access to care, also reflect this mission.
    It was for hospitals with this mission that Congress created the 
340B Drug Pricing Program more than 25 years ago. The historical record 
of 340B is clear: Lawmakers intended to protect the safety net and its 
hospitals from the existential threat of runaway drug prices. The 340B 
program was Congress' answer to surging drug prices caused by 
manufacturer discounting practices in reaction to Medicaid drug 
rebates. We are no less at risk today than we were then of 
unsustainable drug costs and rising prices threatening our hospitals 
and their patients. The 340B program is as necessary today as it was in 
1992.
    Essential hospitals' commitment to serving the Nation's most 
vulnerable patients comes with severe demands on resources. The average 
essential hospital operates with a margin less than half that of other 
U.S. hospitals and sustains about $61 million annually in uncompensated 
care, more than eight times that of other hospitals. So, it is no 
surprise these hospitals depend on 340B savings as part of a patchwork 
of support they need to meet their mission.
    Essential hospitals use their 340B savings consistent with 
Congress' intent that the program help hospitals ``stretch scarce 
Federal resources as far as possible, reaching more eligible patients 
and providing more comprehensive services.'' Our hospitals do this by 
providing affordable drugs and many comprehensive services made 
possible by 340B savings, including free clinics and community programs 
for primary and chronic condition care; cancer and transplant care; 
medical respite care for the homeless and case management for 
underserved patients; and many other valuable programs. Hand in hand 
with this service, our hospitals work to protect 340B program 
integrity, routinely complying with rigorous program audits and 
correcting shortcomings. Our members strive to be good stewards of the 
340B program because they know their patients and communities depend on 
it.
    We have few tools as effective as 340B for countering high drug 
prices, and no other tools as cost-efficient: 340B support comes from 
manufacturer discounts, not taxpayer dollars. In fact, restricting 340B 
likely would leave state and local governments picking up the tab for 
uncompensated care, or necessitate further Federal investments. We look 
forward to working with lawmakers and all stakeholders to strengthen 
and preserve the 340B program.
                                 ______
                                 
    The Chairman. Thank you very much.
    Ms. Reilly, welcome.

STATEMENT OF LORI M. REILLY, EXECUTIVE VICE PRESIDENT, POLICY, 
     RESEARCH, AND MEMBERSHIP, PHARMACEUTICAL RESEARCH AND 
            MANUFACTURERS OF AMERICA, WASHINGTON, DC

    Ms. Reilly. Thank you, Chairman Alexander, Ranking Member 
Murray, and Members of the Committee for inviting me to 
participate in today's hearing.
    I want to be clear from the outset that PhRMA, and its 
member companies, are supportive of the 340B Program and we are 
proud of the discounts that we provide to community health 
centers, Ryan White Clinics, and other grantees that are good 
stewards of this Program and are essential to America's safety 
net.
    At the same time, we believe this program in its current 
form and, in particular, its nearly unregulated use by DSH 
hospitals is deeply flawed and in need of reform.
    The 340B Program began over 25 years ago to address an 
unintended consequence of the Medicaid Rebate statute. As a 
condition of participating in Medicaid, pharmaceutical 
companies are obligated to provide discounts that average 
around 50 percent to entities that participate in 340B.
    In recent years, the Program has experienced explosive 
growth and now constitutes 8 percent of all branded 
prescriptions in this country. And when you consider certain 
classes of medicine, for example, breast cancer medicine, it is 
about 33 percent of all sales in this country.
    While growth of the Program alone may not be concerning, it 
becomes alarming when you couple it with a growing body of 
evidence that demonstrates this Program has become a market-
distorting Program that is raising costs for patients and the 
entire healthcare system, including the Government.
    Here is why you should care.
    First, under this Program, there is absolutely no 
obligation that hospitals use the revenue they derive from this 
Program and share those discounts back with patients no matter 
how indigent those patients may be.
    340B hospitals can, and often do, charge uninsured patients 
the full list price, or sticker price, for a medicine even 
after receiving 340B discounts.
    Not only is there no requirement to share and pass along 
those 340B discounts to patients, research shows that hospitals 
mark up medicines, on average, 500 percent and are reimbursed 
two-and-a-half times what they buy those medicines for.
    While some advocates argue that 340B hospitals provide a 
disproportionate share of uncompensated care, the data show 
that just 25 percent of 340B hospitals are providing 80 percent 
of all charity care that is being provided. And 64 percent of 
340B hospitals are providing below average charity care 
relative to the national average.
    Second, the current structure of the 340B Program is 
leading hospitals to use more medicines and more expensive 
medicines compared to non-340B hospitals.
    The GAO and research published in the ``New England Journal 
of Medicine'' found that hospitals in the 340B Program are 
using more expensive medicines and more medicines without 
differences in uncompensated care or quality.
    While the Administration took an important step to address 
these incentives in Part B in its recent Hospital Outpatient 
Prospective Payment Rule, those changes only apply to drugs 
paid for in Medicare Part B and not in the commercial market. 
In fact, it only represents about 13 percent of profit margins 
in the 340B Program.
    Yesterday, Milliman released a study that mimicked the GAO 
study, but instead of looking at Medicare claims, looked at 
commercial claims and found that in 340B hospitals, per capita 
spending on drugs is three times higher for patients in 340B 
versus non-340B hospitals. These incentives lead to higher 
costs for patients and higher costs for the Government and the 
broader healthcare system.
    Third, 340B is providing greater provider consolidation, 
which also increases costs for everyone. DSH hospitals have 
strong incentives to purchase off campus physician clinics 
because every time they do, those prescriptions automatically 
become eligible for discounts that average 50 percent. But once 
a clinic is acquired by a hospital, costs go up, not down for 
patients in the healthcare system.
    Drugs for patients with cancer and autoimmune diseases are 
twice as high in the hospital setting relative to the physician 
office, according to a study by Magellan Health. As a result, 
economists believe 340B's perverse incentives are accelerating 
consolidation and purchasing of community clinics by 340B 
hospitals.
    Change is clearly needed in this Program.
    Given the evidence that this Program is driving up 
healthcare costs, and is not required to directly benefit 
patients, updated standards focused on DSH hospitals are 
necessary to ensure that patients, and that those providers 
that are providing care for true safety net patients, are 
helped.
    We believe there are five key areas of reform that Congress 
should be focused on, and my testimony goes into great detail 
about the changes that we believe are necessary to things like 
the patient definition, eligibility criteria for DSH hospitals 
and the ``child sites'' they acquire, as well as contract 
pharmacies.
    Last, but not least, we need greater accountability and 
reporting requirements. I applaud Senator Cassidy's leadership, 
that of Congressmen Bouchard and Peters, as well as Senator 
Grassley for the work they are doing in this regard.
    Thank you, again, to the Committee for holding this 
hearing, and I look forward to your questions.
    [The prepared statement of Ms. Reilly follows:]
                  prepared statement of lori m. reilly
    Chairman Alexander, Ranking Member Murray and Members of the 
Committee, thank you for inviting me to participate in today's hearing 
and thank you for devoting a full Committee hearing to the 340B 
program, which is an important topic that deserves attention from 
everyone concerned about rising health care costs.
    The Pharmaceutical Research and Manufacturers of America (PhRMA) 
represents the country's leading innovative biopharmaceutical research 
companies devoted to discovering and developing medicines that enable 
patients to live longer, healthier and more productive lives. The 
biopharmaceutical sector is one of the most research-intensive 
industries in the United States: Since 2000, PhRMA member companies 
have invested more than half a trillion dollars in the search for new 
treatments and cures, including $65.5 billion in 2016 alone.
     The 340B Program Plays a Critical Role in America's Safety Net
    PhRMA and our member companies strongly support the 340B program 
and the important role it plays in our health care safety-net. The 340B 
program is particularly crucial to supporting the care provided by 
recipients of Health Resources and Services Administration (HRSA) 
grants (known as ``grantees''). Grantees--including Community Health 
Centers, Ryan White clinics and hemophilia treatment centers--serve our 
Nation's most vulnerable patients, many of whom are often without other 
sources of care. These grantees are on the front lines of public health 
threats and represent a lifeline for many vulnerable patients--treating 
serious conditions like HIV, hemophilia and hepatitis C or providing 
lifesaving cancer screenings and other health services. The 340B 
program needs to be modified so that it is on a sustainable path and 
can continue to support grantees and other true safety-net providers. 
Any changes must seek to eliminate the growing abuses of recent years 
that distort markets and increase health costs without contributing to 
its safety-net mission.
    I'm pleased to be testifying today with Carolina Health Centers, a 
community health center grantee. Community Health Centers (CHCs) serve 
as the primary medical home for more than 27 million people in 10,400 
rural and urban communities across America.  \1\ The 340B discounts our 
member companies and other biopharmaceutical manufacturers provide to 
these health centers help CHCs deliver free and reduced cost medicines 
and other services to their patients. Consistent with the purpose of 
the 340B program, CHCs and other grantees typically serve a population 
heavily skewed to low-income or vulnerable patients.
---------------------------------------------------------------------------
    \1\  National Association of Community Health Centers, ``About Our 
Health Centers,'' Available at: http://www.nachc.org/about-our-health-
centers/ (accessed March 11, 2018).
---------------------------------------------------------------------------
    We also want to recognize the important public health role of our 
Nation's public hospitals. Public hospitals play a crucial role as a 
source of care for those with nowhere else to turn. Often these are the 
hospitals providing high levels of charity care to low-income patients. 
Analysis of Medicare data shows that 24 percent of 340B 
disproportionate share hospitals (DSH) provide 80 percent of the 
charity care provided by all 340B DSH hospitals. That same small 
percentage of 340B DSH hospitals represent only 50 percent of total 
patient costs and 45 percent of total hospital beds in all 340B 
facilities, meaning that they are providing a disproportionately high 
level of charity care relative to their size.  \2\ Many of the 
hospitals that are shouldering this disproportionate burden are public 
hospitals. The 340B program was designed to help support this type of 
care.
---------------------------------------------------------------------------
    \2\  Alliance for Integrity and Reform of 340B, ``Benefiting 
Hospitals, Not Patients: An Analysis of Charity Care Provided by 
Hospitals Enrolled in the 340B Discount Program,'' Spring 2016.
---------------------------------------------------------------------------
    When Congress created the 340B program a quarter of a century ago,  
\3\ it was intended to assist Federal grantees, like CHCs, and true 
safety-net hospitals serving large numbers of uninsured or otherwise 
vulnerable patients. Under the terms of the program, hospitals and 
safety-net clinics that meet certain eligibility criteria are entitled 
to discounts that average about 50 percent of the cost of outpatient 
prescription medicines.  \4\ As a condition of participating in 
Medicaid, biopharmaceutical companies must also participate in the 340B 
program.  \5\
---------------------------------------------------------------------------
    \3\  Public Law 102-585, Veterans Health Care Act of 1992.
    \4\  Congressional Budget Office, ``Prices for Brand-Name Drugs 
Under Selected Federal Programs,'' June 2005.
    \5\  42 U.S.C. Sec.  1396r-8(a)(1), (a)(5).
---------------------------------------------------------------------------
    A key distinction between grantees and hospitals is in their 
reporting requirements. Safety-net clinics must generally meet Federal 
requirements of reinvesting their revenue into care for uninsured or 
vulnerable patients as part of their grant requirements. In contrast, 
current 340B program rules lack any standards for how 340B discounts 
should be used by 340B hospitals or even how much hospitals can reap in 
profits by marking up prices charged to patients and payers when 
administering them medicines acquired at the discounted 340B price 
mandated by law (see Figure 1).
    The lack of program standards for use of 340B discounts by DSH 
hospitals, combined with the significant growth of the program driven 
by these hospitals, has greatly transformed the 340B program. It is no 
longer accurate to characterize the program as primarily focused on 
care for vulnerable patients by safety-net providers. Instead, 80 
percent of the sales are to DSH hospitals and their child sites, more 
than two thirds of which provide below average levels of free and 
reduced cost treatments to uninsured or vulnerable patients.  \6\ As a 
2014 Health Affairs study on 340B put it, the program has evolved 
``from [a program] that serves vulnerable communities to one that 
enriches hospitals.''  \7\
---------------------------------------------------------------------------
    \6\  Alliance for Integrity and Reform of 340B, ``Benefiting 
Hospitals, Not Patients: An Analysis of Charity Care Provided by 
Hospitals Enrolled in the 340B Discount Program,'' Spring 2016.
    \7\  R. Conti, P. Bach. ``The 340B Drug Discount Program: Hospitals 
Generate Profits by Expanding to Reach More Affluent Communities,'' 
Health Affairs 33, no. 10 (2014): 1786-1792;.



    While grantees like CHCs rely on the 340B program to help them 
provide care to underserved or vulnerable populations, growing DSH 
hospital abuse of 340B drives up health care costs for others in the 
health care system. Economists publishing in The New England Journal of 
Medicine  \8\ and JAMA,  \9\ along with the Government Accountability 
Office (GAO),  \10\ have concluded that 340B creates hospital 
incentives that increase costs for patients, insurers and the 
government, while reducing the viability of community-based physicians. 
For example, recent evidence points to the role of 340B in hospitals 
buying up community-based physicians in wealthy areas  \11\ and 
shifting care to the hospital outpatient setting where it is often more 
expensive.  \12\ At the same time, hospitals are also able to sharply 
markup the price of medicines accessed through 340B when treating 
privately insured patients at acquired clinics, with no obligation to 
reinvest those resources in safety-net services. In fact, a recent New 
England Journal of Medicine study reports DSH hospital eligibility was 
associated with lower proportions of low-income patients treated for 
the conditions studied and ``no significant differences in hospital 
provision of safety-net or inpatient care for low-income groups. . .''  
\13\ In sharp contrast, evidence shows CHCs and other grantees are 
using the 340B program as intended due to the requirements of their 
HRSA grants.
---------------------------------------------------------------------------
    \8\  S. Desai and J.M. McWilliams, ``Consequences of the 340B Drug 
Pricing Program,'' N Engl J Med 2018.
    \9\  R. Conti, P. Bach, ``Cost Consequences of the 340B Drug 
Discount Program,'' JAMA: The Journal of the American Medical 
Association, 2013;309(19):1995-1996. doi:10.1001/jama.2013.4156.
    \10\  Government Accountability Office, Medicare Part B Drugs: 
Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at 
Participating Hospitals, GAO-15-442, June 2015.
    \11\  R. Conti and P. Bach, ``The 340B Drug Discount Program: 
Hospitals Generate Profits by Expanding to Reach More Affluent 
Communities,'' Health Affairs, Vol. 33, No. 10, October 2014; Avalere 
Health, ``Hospital Acquisitions of Physician Practices and the 340B 
Program,'' June 2015, available at: http://avalere.com/expertise/life-
sciences/insights/avalere-white-paper-hospital-acquisitions-of-
physician-practices-and-the-34 (accessed March 11, 2018).
    \12\  P. Bach and R.H. Jain, ``Physician's Office and Hospital 
Outpatient Setting in Oncology: It's About Prices, Not Use,'' Journal 
of Oncology Practice 2017 13:1, 4-5.''; IMS Institute for Healthcare 
Informatics. Global Oncology Trend Report: A Review of 2015 and Outlook 
to 2020, June 2016.
    \13\  S. Desai and J.M. McWilliams, ``Consequences of the 340B Drug 
Pricing Program,'' N Engl J Med 2018.
---------------------------------------------------------------------------
    There is a clear need for improvements to the 340B program to avoid 
abuses while sustaining its focus on strengthening the safety net. 
Improvements must reflect the critical role of grantees, who need 
continued access to the program without being burdened by new 
restrictions. At the same time, there is an urgent need to modernize 
the program to assure that patients benefit and to reduce the 
unintended distortion of markets and promotion of higher costs in the 
health care system that have emerged as the program has strayed from 
its intent.
Today's 340B Program is Nearly Unrecognizable From the Program Congress 
  Enacted in 1992; Changes Have Contributed to the Many Problems Now 
                      Associated With the Program
    Congress enacted the 340B drug pricing program in 1992, as part of 
the Veterans' Health Care Act,  \14\ in part to address the unintended 
consequences of the Medicaid rebate statute enacted in the Omnibus 
Budget Reconciliation Act (OBRA) of 1990.
---------------------------------------------------------------------------
    \14\  Public Law 102-585, Veterans Health Care Act of 1992.
---------------------------------------------------------------------------
    As enacted in 1990, the Medicaid rebate statute required 
biopharmaceutical manufacturers to provide Medicaid with steep rebates 
to give State Medicaid programs the ``best price'' among most 
purchasers. Consequently, sales to clinics and hospitals previously 
receiving generous voluntary manufacturer discounts were suddenly 
required under the Medicaid rebate law to be included in manufacturer 
rebate calculations and potentially setting a new Medicaid ``best 
price'' that had to be offered to the entire Medicaid program. As 
described in the House Energy and Commerce Committee's 1992 report, the 
``best price'' provision created a disincentive for manufacturers to 
offer lower prices to safety-net facilities, because that price could 
trigger higher Medicaid rebates nationwide. The report cites testimony 
and other information indicating loss of manufacturer discounts or 
special pricing practices at federally funded clinics and public 
hospitals after OBRA 1990.  \15\
---------------------------------------------------------------------------
    \15\  H.R. Rep. 102-384, Pt. 2 (1992), pp. 9-11.
---------------------------------------------------------------------------
    As a result, the 340B drug pricing program arose because of the 
Medicaid statute's unanticipated impact on safety-net facilities and 
helped ensure discounted medicines for specified covered entities.

    Original intent of the program

    Congress did not create the 340B program to benefit a random 
assortment of hospitals that might or might not serve as a safety net 
for low-income uninsured patients. Nor does it appear that Congress 
sees the program's purpose that way today. Some have suggested the 340B 
program was intended to benefit hospitals, with no regard for patients. 
In fact, the statute and its legislative history reflect an express 
congressional intent to create a program with a very important and 
targeted purpose. Meanwhile, the silence in the 340B legislative 
history about practices that have become common in the program today is 
noteworthy:

          There are no indications that 340B was expected to 
        become a program dominated by DSH hospitals rather than focused 
        on Federal grantees who operate in an entirely different 
        manner, generally using 340B to provide care to uninsured or 
        vulnerable patients as part of their grant requirements.

          There are no statements that the 340B program was 
        designed to be a new and unaccountable revenue stream funding 
        any spending a hospital selects.

          There is no indication that hospitals were expected 
        to charge patients and their insurers markups equal to 200 
        percent or more above a medicine's discounted 340B acquisition 
        price, or often fail to provide discounts to the people who 
        need them.

          There is no suggestion that the program would grow to 
        include hospital outpatient facilities in affluent communities 
        or cover more than 60 percent of total Part B hospital drug 
        purchases.  \16\

    \16\  Alliance for Integrity and Reform of 340B, ``340B Hospitals 
Vs. Non-340b Hospitals: Growth and Distribution of Physician-
Administered Drug Reimbursement Across Ten Therapeutic Areas,'' Feb 
2016, available at: http://340breform.org/userfiles/
02.02.16%20BRG%20340B%20Part%0B%20Fact%20Sheet.pdf (accessed March 13, 
2018).

          There is no suggestion that 340B was intended to 
        drive utilization patterns and health system consolidation that 
        increases the cost of health care for all patients and 
---------------------------------------------------------------------------
        insurers.

    PhRMA believes that the large discounts biopharmaceutical 
manufacturers provide under the 340B program should serve a targeted 
purpose--helping low-income uninsured and other vulnerable patients 
obtain the outpatient medicines they need--and true safety-net 
hospitals qualifying for the program should be accountable for using 
its benefits properly.

    Medicaid expansion and growth in coverage for medicines has changed 
the environment

    Dramatic changes in health coverage in the quarter of a century 
since 340B was created mean the program is operating in a very 
different environment today. Some of these changes have contributed to 
the rampant growth in the program and raise questions about how the 
program is being used today. For example, Medicaid enrollment has 
increased from 29 million individuals in 1992 to more than 72 million 
individuals in 2016,  \17\ and the share of the U.S. population on 
Medicaid has increased from 11 percent to 22 percent over that same 
period.  \18\ This has contributed to a sharp increase in the number of 
hospitals eligible to participate in the 340B program because of the 
use of the DSH metric to determine DSH hospital eligibility for the 
program. While 340B is an outpatient-only program, the DSH metric looks 
at inpatient care. Consequently, more and more hospitals now qualify 
for 340B discounts as the proportion of inpatient stays covered by 
Medicaid increases. There is no indication in the legislative history 
of 340B that this significant expansion in Medicaid eligibility and 
enrollment and the resulting impact on 340B's size and character were 
foreseen when the program was created. Nor is there any indication in 
the 340B law's legislative history that Congress focused on the fact 
that the DSH metric would expand hospital 340B eligibility if 
individuals shifted from being uninsured to being covered through 
Medicaid, an anomalous result of the current formula.
---------------------------------------------------------------------------
    \17\  MACStats: Medicaid and CHOP-Data Book, ``Section 2, Exhibit 
10: Medicaid Enrollment and Total Spending Levels and Annual Growth, 
FYs 1966-2016,'' December 2017. Available at: https://www.macpac.gov/
wp-content/uploads/2015/11/EXHIBIT-10.-Medicaid-Enrollment-and-Total-
Spending-Levels-and-Annual-Growth-FYs-1966%E2%80%932016.pdf.
    \18\  Analysis of MACStats: Medicaid and CHOP-Data Book, ``Section 
2, Exhibit 10: Medicaid Enrollment and Total Spending Levels and Annual 
Growth, FYs 1966-2016,'' December 2017 and Census Bureau Population 
estimates, July 1992 and 2016.
---------------------------------------------------------------------------
    Insurance coverage for prescription medicines has also changed 
dramatically in the last couple decades. In 1992, 57 percent of 
prescription medicine costs were paid out of pocket by patients, making 
it crucial that biopharmaceutical manufacturers could provide free and 
discounted medicines to safety-net facilities so that patients who 
could not afford the out-of-pocket costs could still obtain access to 
needed medicines.  \19\ By 2016, 14 percent of costs were paid out of 
pocket by patients,  \20\ in part due to Medicare patients benefiting 
from the Part D program and medicines being recognized as integral to 
good health care. Even as coverage of medicines expanded, the 340B 
program has grown dramatically--sharply outpacing overall prescription 
drug sales.  \21\ This growth has been fueled by DSH hospitals' use of 
the 340B program,  \22\ including their ability to take advantage of 
increased prescription medicine coverage through markups on 340B 
medicines used by insured patients.
---------------------------------------------------------------------------
    \19\  Analysis of National Health Expenditure Accounts data.
    \20\  Analysis of National Health Expenditure Accounts data.
    \21\  A. Vandervelde and E. Blalock, ``Measuring the Relative Size 
of the 340B Program: 2012-2017,'' Berkeley Research Group, July 2017.
    \22\  Aaron Vandervelde and Eleanor Blalock, ``340B Program Sales 
Forecast: 2016-2021,'' 2016, available at: http://340breform.org/
userfiles/December%202016%20BRG%20Growth%20Study.pdf (accessed March 
11, 2018).

    HRSA's choices in administering the program have fueled dramatic 
---------------------------------------------------------------------------
program growth

    The 340B program has expanded well beyond congressional intent in 
part because of administrative actions by HRSA and lack of appropriate 
oversight in four key areas, leading to unintended consequences:

        1. Patient definition;

        2. Hospital eligibility;

        3. Hospital-purchased outpatient sites (called ``child 
        sites''); and

        4. Contract pharmacies

    These administrative actions and the unwillingness to course-
correct, coupled with changes in the health system, have contributed to 
a transformation in the 340B program. As previously noted, today's 
program is unrecognizable in size and character as compared to the 
program that was created in 1992. And it's unrecognizable in many of 
its current effects--for instance, promoting consolidation of services 
under hospital ownership and the accompanying higher costs.

    The change in the 340B program's size and character are seen in the 
following points:

          It took 15 years after 340B's enactment (2007) for 
        annual 340B sales to reach $3.9 billion. Yet in the next 9 
        years, between 2007 and 2016, 340B sales grew more than 
        fourfold to $16.2 billion at the 340B price.  \23\ The Medicare 
        Payment Advisory Commission's (MedPAC) May 2015 Report to 
        Congress provides data showing that between 2005 and 2013, 340B 
        sales grew seven times faster than total U.S. medicine 
        spending. \24\
---------------------------------------------------------------------------
    \23\  A. Fein, ``EXCLUSIVE: The 340B Program Hits $16.2 Billion in 
2016; Now 5 percent of U.S. Drug Market,'' Drug Channels Blog, May 18, 
2017.
    \24\  Analysis of data from MedPAC, ``Report to the Congress: 
Overview of the 340B Drug Pricing Program,'' May 2015, pp. 11-12.

          In 2004, more than a decade after enactment, Federal 
        grantees accounted for 55 percent of 340B sales and hospitals 
        accounted for 45 percent. By 2016, grantees' share of sales had 
        dropped to just 13 percent while hospitals' share of 340B sales 
        increased to 87 percent. \25\ The clear majority of 340B sales 
        to hospitals are to DSH hospitals, accounting for about 80 
        percent of 340B hospital sales. \26\
---------------------------------------------------------------------------
    \25\  Mathematica, The PHS 340B Drug Pricing Progam: Results of a 
Survey of Eligible Entities, August 2004. Apexus, 340B Health Summer 
Conference, July 2016; Apexus, 340B Health Summer Conference, July 
2016.
    \26\  Chris Hatwig, Apexus Update, 340B Health Summer Conference, 
2016.

          340B purchases as a share of hospitals' total drug 
        purchases (both inpatient and outpatient) inched above 10 
        percent in 2005, over a decade after the program began.  \27\ 
        Over the next 11 years, 340B purchases as a share of hospitals' 
        total drug purchases has consistently and steadily increased.  
        \28\
---------------------------------------------------------------------------
    \27\  A. Fein ``340B Purchases Hit $12 Billion in 2015--and Almost 
Half of the Hospital Market,'' Drug Channels Blog, February 23, 2016.
    \28\  A. Fein, ``340B Purchases Were More than Half of the Hospital 
Market in 2016,'' Drug Channels Blog, May 19, 2017.

          Between 1994 and 2016, the number of child sites 
        increased from 34 to over 15,000.  \29\ While some of that 
        growth is due to changes in guidance from HRSA regarding how 
        340B child sites should register for 340B, there was dramatic 
        growth in the program even before that guidance changed. For 
        example, a Health Affairs study found that ``in 2011 there were 
        16,500 340B entity sites that were affiliated with 
        approximately 3,200 unique 340B entities. That is roughly 
        double the number of sites reported in 2001.''  \30\
---------------------------------------------------------------------------
    \29\  HRSA OPA Data base, January 2017.
    \30\  R. Conti and P. Bach, ``The 340B Drug Discount Program: 
Hospitals Generate Profits By Expanding To Reach More Affluent 
Communities,'' Health Affairs, vol. 33 no. 10.

          Between 2002 and 2017, the number of contract 
        pharmacy arrangements increased from 279 to 51,963.  \31\ 
        Nearly 90 percent of the growth came after HRSA's 2010 
        subregulatory guidance authorizing unlimited contract pharmacy 
        networks. In 2017, two-thirds of contract pharmacy locations 
        were owned by one of just a few large pharmacy chains.  \32\
---------------------------------------------------------------------------
    \31\  HRSA OPA Data base, January 2017.
    \32\  Chains included are Walgreens, Albertsons, Kroger, Rite Aid, 
Walmart and CVS. A. Fein, ``The Booming 340B Contract Pharmacy Profits 
of Walgreens, CVS, Rite Aid, and Walmart,'' Drug Channels, July 11, 
2017.
---------------------------------------------------------------------------
  The 340B Program Creates Market Distorting Incentives That Increase 
 Consumer Prices for Medicines, Shift Care to More Expensive Hospital 
             Settings and Accelerate Provider Consolidation
    The 340B program is distorting the health care market by leading to 
higher costs for patients and payers, according to economists and 
independent government auditors. The program has been growing at an 
alarming rate that is poised to continue, absent needed changes.  \33\ 
It is likely that 340B market distortions will have an expanding 
influence if the program is left unchecked. Several factors described 
below are contributing to these unintended consequences.
---------------------------------------------------------------------------
    \33\  Aaron Vandervelde and Eleanor Blalock, ``340B Program Sales 
Forecast: 2016-2021,'' 2016, available at: http://340breform.org/
userfiles/December%202016%20BRG%20Growth%20Study.pdf (accessed March 
11, 2018).

---------------------------------------------------------------------------
    Distorting market prices for prescription medicines

    In an analysis of prescription medicine pricing published in the 
New England Journal of Medicine, economists at Harvard and the 
University of Chicago identified the 340B program as one factor that 
was leading to higher prescription medicine prices. These economists 
concluded that ``lawmakers could lower the price of prescription drugs 
by reforming the Federal 340B Drug Pricing Program. [ . . . ] The scope 
of the 340B program is currently so vast for drugs that are commonly 
infused or injected into patients by physicians that their prices are 
probably driven up for all consumers'' (emphasis added).  \34\ Another 
study in JAMA noted that list prices for medicines are likely higher 
than they otherwise would be ``to offset revenue losses incurred as a 
larger number of drug sales become eligible for 340B discounts (and 
thus fewer drugs are sold at full price).''  \35\
---------------------------------------------------------------------------
    \34\  R. Conti and M. Rosenthal, ``Pharmaceutical Policy Reform--
Balancing Affordability with Incentives for Innovation,'' N Engl J Med 
2016; 374:703-706.
    \35\  R. Conti, P. Bach, ``Cost Consequences of the 340B Drug 
Discount Program,'' JAMA: The Journal of the American Medical 
Association, 2013;309(19):1995-1996. doi:10.1001/jama.2013.4156.
---------------------------------------------------------------------------
    These economists' concern that drug prices are being driven up for 
everyone because of the size of the 340B program is borne out by data 
analyzing the relative share of the 340B program. Overall, 340B sales 
accounted for about 8 percent of all branded outpatient drug sales in 
2017, but certain therapeutic categories were disproportionately 
impacted.  \36\ For example, for certain types of cancer medicines, 
sales to 340B hospitals account for 33 percent of all Medicare Part B 
reimbursement.  \37\ 340B Health, which represents hospitals that 
participate in 340B, has erroneously reported that 340B discounts 
constitute a much smaller share of drug sales, but their analysis uses 
several methodological sleights of hand to artificially lower that 
number.  \38\ For example, they only include a portion of legally 
mandated 340B discounts and artificially decrease the value of the 340B 
discounts they do include, and they compare 340B discounts to total net 
pharmaceutical sales--including generics--even though 340B discounts 
are largely concentrated in brand sales. They also ignore that 340B 
sales are heavily concentrated in certain therapeutic areas.
---------------------------------------------------------------------------
    \36\  A. Vandervelde and E. Blalock, ``Measuring the Relative Size 
of the 340B Program: 2012-2017,'' Berkeley Research Group, July 2017.
    \37\  Drugs sold to 340B hospitals account for 33 percent of all 
Part B reimbursement for breast cancer and multiple myeloma drugs. A. 
Vandervelde and E. Blalock, ``Measuring the Relative Size of the 340B 
Program: 2012-2017,'' Berkeley Research Group, July 2017.
    \38\  A. Dobson, K. Murray, J.E. DaVanzo, ``Assessing the Financial 
Impact of the 340B Drug Pricing Program on Drug Manufacturers'' Dobson/
DaVanzo for 340B Health, July 2017.

    340B creates incentives that drive up spending on prescription 
medicines and undermine efforts to promote more efficient, high-quality 
---------------------------------------------------------------------------
care

    A range of studies demonstrate that the 340B program is creating 
incentives for hospitals to drive up treatment costs. It has evolved 
into a vehicle for hospitals to keep markups earned from arbitrage: 
buying medicines at a legally mandated 340B ceiling price and reselling 
them at a higher price. This means that in many cases, the program has 
provided hospitals the opportunity and incentive to increase and 
maximize 340B revenue by either prescribing more medicines or more 
expensive medicines.
    A 2015 GAO study investigated whether this incentive was leading to 
higher drug spending at 340B hospitals and found that ``Medicare 
beneficiaries were prescribed more drugs, more expensive drugs, or 
both, at 340B DSH hospitals.''  \39\ The differences the GAO found 
``did not appear to be explained by the hospital or patient population 
characteristics.''  \40\ Instead, GAO suggested that the higher 
spending was likely due to the financial incentive to obtain more 340B 
revenue from patients having higher spending on medications.  \41\
---------------------------------------------------------------------------
    \39\  Government Accountability Office, Medicare Part B Drugs: 
Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at 
Participating Hospitals, GAO-15-442, June 2015.
    \40\  Ibid.
    \41\  Ibid.
---------------------------------------------------------------------------
    As noted earlier, a recent New England Journal of Medicine article 
found similar patterns in the areas of hematology-oncology and 
ophthalmology. Strikingly, the study also found that despite the 
increase in Medicare Part B spending on prescription drugs, DSH 
hospital eligibility for 340B was associated with ``lower proportions 
of low-income patients in hematology-oncology and ophthalmology and 
with no significant differences in hospital provision of safety-net or 
inpatient care for low-income groups or in mortality among low-income 
residents of the hospitals' local service areas.'' (emphasis added)  
\42\ Thus, costs were higher at 340B hospitals, but these hospitals 
were not treating more low-income patients and were not achieving lower 
mortality rates for this vulnerable group.
---------------------------------------------------------------------------
    \42\  S. Desai and J.M. McWilliams, ``Consequences of the 340B Drug 
Pricing Program,'' N Engl J Med 2018.
---------------------------------------------------------------------------
    While the Administration took a first step last year toward 
addressing these incentives in Part B with their changes in the 
hospital outpatient prospective payment system rule,  \43\ the same 
incentives that drive up costs continue to exist when hospitals serve 
patients insured in the commercial market. In fact, a study from the 
actuarial firm Milliman that used commercial market data found similar 
patterns to those GAO highlighted in Part B. That Milliman study found 
average per patient outpatient drug spending for commercially insured 
patients at 340B DSH hospitals is nearly three times the spending at 
non-340B DSH hospitals ($457 and $159, respectively) (emphasis added).  
\44\ These cost differences are not explained by differences in overall 
health of populations treated at 340B and non-340B hospitals. Higher 
health care spending is ultimately paid by insurers and beneficiaries, 
who pay cost sharing and premiums. Thus, these results can be used to 
infer that the 340B program may be contributing to higher healthcare 
costs for everyone with private insurance through higher premiums and, 
for a smaller subset of patients, through higher out-of-pocket costs.
---------------------------------------------------------------------------
    \43\  80 Fed. Reg. 59216, (Dec. 14, 2017).
    \44\  Milliman, ``Commercial Payers Spend More on Hospital 
Outpatient Drugs at 340B Hospitals,'' March 2018.
---------------------------------------------------------------------------
    Many policymakers, including several Members of this Committee, 
have publicly stated their interest in redesigning the health care 
system to create incentives for efficient and quality health care that 
rewards providers for outcomes of care, instead of volume of care 
provided. As these studies demonstrate, 340B is working at cross-
purposes with those health care system goals by providing hospitals 
with a large revenue stream that is derived from perverse incentives 
that raise treatment costs.

    Incentives that shift care from community-based physicians to more 
expensive settings

    Many hospitals have further expanded their ability to generate 
revenue from 340B purchases by buying community-based physician 
practices and then obtaining 340B discounts for prescriptions written 
by those physicians. These acquired practices are often geographically 
located in wealthier areas than the 340B hospitals themselves  \45\ and 
have no requirement to treat uninsured or vulnerable patients. 
Increasingly, hospital acquisitions of independent community-based 
physician practices are leading to the closure of community cancer 
clinics across the country.  \46\ Care in hospital outpatient settings 
is notoriously more expensive overall. One study found hospitals charge 
five times their acquisition costs for medicines administered in the 
outpatient setting, and commercial payers reimburse these drugs at 
rates that are 252 percent of average hospital acquisition costs 
(without factoring in 340B discounts).  \47\ Because 340B hospitals 
acquire drugs at prices far below average, their charges and 
reimbursements are even higher compared to their acquisition costs.
---------------------------------------------------------------------------
    \45\  R. Conti and P. Bach, ``The 340B Drug Discount Program: 
Hospitals Generate Profits By Expanding To Reach More Affluent 
Communities,'' Health Affairs, vol. 33 no. 10.
    \46\  National Cancer Policy Forum; Board on Health Care Services; 
Institute of Medicine. Ensuring Patient Access to Affordable Cancer 
Drugs: Workshop Summary. Washington (DC): National Academies Press 
(US); 2014 Dec 23. Workshop Summary. Available from: https://
www.ncbi.nlm.nih.gov/books/NBK268684/; T. Hagen, ``COA: Trend of 
Oncology Practice Closures, Consolidations Softens,'' Nov. 2016.
    \47\  The Moran Company, ``Hospital Charges and Reimbursement for 
Drugs: Analysis of Markups Relative to Acquisition Cost,'' October 
2017.
---------------------------------------------------------------------------
    In looking at cancer care specifically, an analysis by IMS Health 
found that average costs for administering cancer medicines are 
typically twice as high at hospital outpatient departments compared to 
community-based oncologists, which can lead to ``higher patient cost 
responsibility.''  \48\ A recent article published in JAMA Oncology had 
similar findings and the authors note that ``[w]hile patients may 
receive the same treatment in either setting, insurers typically 
reimburse payments to HOPDs [hospital outpatient departments] at a 
higher rate than to physician offices''  \49\ There is no evidence to 
suggest that differences in payment are attributable to patient 
characteristics or the type of care received.  \50\ Hospitals are able 
to receive higher payments than physician practices from commercial 
payers for the same services due to market power. This market power is 
often driven by vertical integration, specifically the purchase of 
oncology practices by hospitals and health systems, that gives 
hospitals leverage to charge higher prices when negotiating with 
commercial payers.  \51\ Lee Newcomer (UnitedHealthcare) notes this 
when talking about hospital systems by stating that the hospitals can 
say, ``If you want our beds, you have to take our prices for oncology 
treatment.''  \52\
---------------------------------------------------------------------------
    \48\  IMS Institute for Healthcare Informatics. Global Oncology 
Trend Report: A Review of 2015 and Outlook to 2020, June 2016.
    \49\  A.N. Winn, N.L. Keating, J.G. Trogdon, et al. ``Spending by 
Commercial Insurers on Chemotherapy Based on Site of Care,'' 2004-2014. 
JAMA Oncology. Published online February 22, 2018. doi:10.1001/
jamaoncol.2017.5544.
    \50\  Wynn, Barbara O., Peter Hussey, and Teague Ruder. Policy 
Options for Addressing Medicare Payment Differentials Across Ambulatory 
Settings. Santa Monica, CA: RAND Corporation, 2011. Available at: 
https://www.rand.org/pubs/technical_reports/TR979.html.
    \51\  R.M. Conti, M.B Landrum, and M. Jacobson. ``The impact of 
provider consolidation on outpatient prescription drug-based cancer 
care spending,'' Available at: http://www.healthcostinstitute.org/wp-
content/uploads/2016/08/HCCI-Issue-Brief-Impact-of-Provider-
Consolidation.pdf.
    \52\  L.N. Newcomer. Those who pay have a say: A view on oncology 
drug pricing and reimbursement. The Oncologist. 2016 Jul 1;21(7):779-
81.
---------------------------------------------------------------------------
    Economists have concluded that 340B's role in shifting care to more 
expensive settings will drive higher costs. For example, according to 
economists at the University of Minnesota, the current 340B program--if 
not changed--``will ultimately end up increasing health care costs for 
everyone, as patients are shifted from cheaper, community-based care to 
more expensive hospital settings. . . .'' (emphasis added).  \53\ 
Similarly, researchers at Memorial Sloan Kettering have noted that 340B 
is helping to drive consolidation of physician practices into hospitals 
and that in the absence of changes ``the trend toward consolidation 
will continue to drive up the cost of commercial insurance. . . .'' 
(emphasis added).  \54\ Similarly, the recent Energy and Commerce 
report on 340B concludes that the 340B program has contributed to the 
marked increase in the consolidation of private oncology practices, 
that this consolidation is often profit driven, and ``in some 
instances, negatively impacts the quality of patient care and can 
result in increased patient cost.''  \55\
---------------------------------------------------------------------------
    \53\  S.T. Parente and M. Ramlet, ``Unprecedented Growth, 
Questionable Policy,'' Carlson School of Management at University of 
Minnesota.
    \54\  P.B. Bach and R.H. Jain, ``Physician's Office and Hospital 
Outpatient Setting in Oncology: It's About Prices, Not Use,'' Journal 
of Oncology Practice 2017 13:1, 4-5.
    \55\  House Energy and Commerce Subcommittee on Oversight and 
Investigations, Review of the 340B Drug Pricing Program, January 10, 
2018. Available at: https://energycommerce.house.gov/wp-content/
uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.
---------------------------------------------------------------------------
    A 2015 change to the Medicare statute designed to promote site 
neutrality  \56\ has led to most new off-campus provider-based sites 
being paid under the Physician Fee Schedule  \57\ instead of the 
hospital outpatient prospective payment system (OPPS). However, this 
change does not affect those grandfathered off-campus sites that were 
billing under OPPS before November 2, 2015,  \58\ which includes 
thousands of off-campus departments of 340B hospitals. Nor does this 
Medicare site neutral payment policy apply to commercial payers.
---------------------------------------------------------------------------
    \56\  Social Security Act Sec.  1833(t)(1)(A)(v), (21).
    \57\  These sites are paid under a special variant of the Physician 
Fee Schedule that CMS developed for the off-campus hospital facilities 
that no longer can bill under OPPS.
    \58\  Social Security Act Sec.  1933(t)(21)(A)(99).
---------------------------------------------------------------------------
  Recent Administrative Action Is a Step Forward, But More Action Is 
                  Needed to Modernize the 340B Program
    Mounting evidence from the GAO and other independent economists 
indicates that DSH hospitals' use of the 340B program is driving up 
health care costs,  \59\ has led to a steady drumbeat of calls to 
modernize the program. Members of the House and Senate have taken steps 
to do so by introducing three bills to provide needed reporting and 
accountability into how DSH hospitals use the 340B program.  \60\ These 
bills vary in their scope, but all three bills exempt rural-designated 
hospitals and 340B-eligible grantees from the new requirements, an 
exception that PhRMA supports. We agree with the authors of the 
legislation that the issue with abuse of the 340B program are not the 
grantees or rural hospitals, but large DSH hospitals and their 
associated child sites, many of which are in well-off communities.
---------------------------------------------------------------------------
    \59\  R. Conti, P. Bach, ``Cost Consequences of the 340B Drug 
Discount Program,'' JAMA: The Journal of the American Medical 
Association, 2013;309(19):1995-1996. doi:10.1001/jama.2013.4156.; 
Government Accountability Office, Medicare Part B Drug; P. Bach and 
R.H. Jain, ``Physician's Office and Hospital Outpatient Setting in 
Oncology: It's About Prices, Not Use,'' Journal of Oncology Practice 
2017 13:1, 4-5.''
    \60\  340B PAUSE Act, H.R. 4710, 115th Cong. (2017); HELP ACT, S. 
2312, 115th Cong. (2018); Ensuring the Value of the 340B Program Act of 
2018, S. 2453, 115th Cong. (2018) H.R. 4570, S. 2312, and S. 2453 (see 
detailed description later in testimony).
---------------------------------------------------------------------------
    One such piece of legislation is S. 2312, the Helping Ensure Low-
income Patients have Access to Care and Treatment (HELP ACT) introduced 
by Sen. Cassidy. The HELP ACT includes many important and common-sense 
reporting and accountability measures that will help all stakeholders 
better understand how DSH hospitals are using the 340B program and 
which of their patients are accessing 340B discounts. This legislation 
also includes much-needed standards for how DSH hospitals and their 
child sites qualify for the 340B program, responding to findings from 
the GAO.  \61\
---------------------------------------------------------------------------
    \61\  Government Accountability Office, ``Drug Pricing: 
Manufacturer Discounts in the 340B Program Offer Benefits, but Federal 
Oversight Needs Improvement,'' Sept. 2011.
---------------------------------------------------------------------------
    In addition to congressional interest in increasing accountability 
in the 340B program, the Trump Administration has also sought to 
address concerns that 340B is increasing government and patient 
spending on physician administered medicines  \62\ through changes in 
the Hospital Outpatient Prospective Payment System at 340B hospitals.  
\63\ Their changes lower Medicare reimbursement for 340B medicines paid 
for under the Medicare Part B Hospital Outpatient Prospective Payment 
System.  \64\ This policy change is expected to reduce incentives 
created by the 340B program that may cause hospitals to administer more 
and higher cost medicines in Part B. While this change is an important 
first step, Medicare Part B represents less than one-quarter of total 
hospital revenue from 340B. \65\ Because half hospital's total 340B 
revenue is derived from 340B physician administered medicines purchased 
by commercial payers and others outside of fee-for-service Part B, 
340B's incentives to drive up cost without adding value for patients 
remain intact.  \66\
---------------------------------------------------------------------------
    \62\  Government Accountability Office, ``Medicare Part B Drugs: 
Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at 
Participating Hospitals,'' June 2015.
    \63\  82 FR 52356.
    \64\  82 FR 52356.
    \65\  A. Vandervelde and E. Blalock, ``Site of Care Shift for 
Physician-Administered Drug Therapies,'' Berkeley Research Group, Oct. 
2017.
    \66\  A. Vandervelde and E. Blalock, ``Site of Care Shift for 
Physician-Administered Drug Therapies,'' Berkeley Research Group, Oct. 
2017.
---------------------------------------------------------------------------
 Improvements to 340B are Urgently Needed in Five Key Issue Areas: (1) 
    Patient Definition; (2) DSH Hospital Eligibility Standards; (3) 
Standards for Off-Site Hospital Clinics (``Child Sites''); (4) Contract 
            Pharmacy Arrangements; and (5) Program Integrity
    Issue Area 1: The 1996 patient definition should be clarified to 
better define who is entitled to manufacturer discounts on 340B 
medicines.

    The 340B program was originally created to make prescription 
medicines more accessible to low-income, uninsured, and other 
vulnerable patients through safety-net facilities. Under the 340B law, 
a covered entity may only claim a 340B discount under the program if 
the medicine is used for the covered entity's own ``patient.''  \67\ 
The 340B law further prohibits covered entities from reselling or 
otherwise transferring medicines purchased under the 340B program to 
anyone but a ``patient'' of the covered entity (a practice commonly 
referred to as ``diversion'').  \68\
---------------------------------------------------------------------------
    \67\  42 U.S.C. Sec.  256b(a)(5)(b).
    \68\  42 U.S.C. Sec.  256b(a)(5)(B).
---------------------------------------------------------------------------
    Despite this centrality of ``patient'' to defining the program's 
scope and assuring that statutory program integrity requirements are 
met, throughout the history of the 340B program, there has been a lack 
of meaningful standards as to when an individual qualifies as a 
``patient'' of a covered entity. In fact, the current patient 
definition is more than two decades old despite how much the health 
care landscape in the United States has evolved during that time. This 
has contributed to well-documented program abuses and violations. For 
example, the Department of Health and Human Services (HHS) Office of 
the Inspector General (OIG) observed in a report focused on contract 
pharmacy arrangements:

        Covered entities . . . reported different methods of 
        identifying 340B-eligible prescriptions, and in some cases 
        their determinations of 340B eligibility differ from one 
        covered entity to another for similar types of prescriptions. 
        This suggests a lack of clarity on how HRSA's patient 
        definition should be applied in contract pharmacy arrangements. 
        Covered entities appear to have differing interpretations of 
        what HRSA guidance requires . . . there is inconsistency within 
        the 340B Program as to which prescriptions filled at contract 
        pharmacies are treated as 340B-eligible.  \69\
---------------------------------------------------------------------------
    \69\  OIG, Contract Pharmacy Arrangements in the 340B Program, OIE-
05-13-00431 at 16. Feb. 2014.

    Despite these concerns raised by government watchdog agencies, 
HRSA's patient definition has not been updated or modified since 1996, 
over 20 years ago.  \70\ As highlighted by HRSA itself along with GAO 
and OIG, the 1996 patient definition is vague and lacks the specificity 
needed to provide clear direction to covered entities and manufacturers 
about who is a patient for 340B discount purposes. This has allowed 
covered entities to take broad interpretations of the patient 
definition guidance and use 340B medicines for individuals who in many 
instances would not be considered true ``patients'' in any traditional 
sense of the word, i.e., someone who relies on a provider for ongoing 
and routine medical care.
---------------------------------------------------------------------------
    \70\  See 61 Fed. Reg. 55156 (Oct. 24, 1996). Under HRSA's current 
guidance, the patient definition requires that: (1) the covered entity 
have a relationship with the individual ``such that the covered entity 
maintains records of the individual's health care''; (2) the individual 
receives health care services from a health care professional who is an 
employee of the entity or provides care under contract or other 
arrangements with the 340B entity, ``such that responsibility for the 
care provided remains with the covered entity''; and (3) the individual 
receives care from the covered entity that is consistent with the 
service or range of services for which the entity receives Federal 
grant funding or FQHC look-alike status (this requirement does not 
apply to DSH hospitals). An individual is not considered a patient of a 
covered entity if the only health care service received by the 
individual from the covered entity is the dispensing of a drug for 
subsequent self-administration or for administration in the home 
setting. Different criteria for defining ``patients'' apply to AIDS 
Drug Assistance Programs.
---------------------------------------------------------------------------
    Included in the 1996 patient definition is overly broad language 
that ``the individual receives health care services from a health care 
professional who is either employed by the covered entity or provides 
health care under contractual or other arrangements (e.g. referral for 
consultation) such that responsibility for the care provided remains 
with the covered entity'' (emphasis added).  \71\ HRSA itself noted 
problems with the ``other arrangements'' language in its 2007 proposed 
patient definition clarification, which was never finalized:
---------------------------------------------------------------------------
    \71\  61 Fed. Reg. at 55157.

        ``Some [hospitals] have been contracting with health care 
        providers to create a loose affiliation model for outpatient 
        health care services. . . . This model improperly seeks to 
        expand the definition of a patient beyond that envisioned by 
        Congress in prohibiting the resale of 340B drugs outside the 
        eligible covered entity limits.''  \72\
---------------------------------------------------------------------------
    \72\  Fed. Reg. at 1546-47 (emphasis added).

    In 2011, GAO reported HRSA's own stated concern that the ``other 
---------------------------------------------------------------------------
arrangements'' language in the 1996 patient definition was too vague:

        ``HRSA officials told us that the definition currently includes 
        individuals receiving health care services from providers 
        affiliated with covered entities through ``other 
        arrangements,'' as long as the responsibility for care provided 
        remains with the entity. However, HRSA does not define ``other 
        arrangements,'' and officials told us that what is meant by 
        responsibility for care also needs to be clarified. Because of 
        the lack of specificity in the guidance, the agency has become 
        concerned that some covered entities may be broadly 
        interpreting the definition to include individuals such as 
        those seen by providers who are only loosely affiliated with a 
        covered entity and thus, for whom the entity . . . does not 
        actually have the responsibility for care.'' \73\
---------------------------------------------------------------------------
    \73\  GAO, ``Manufacturer Discounts in the 340B Program Offer 
Benefits, but Federal Oversight Needs Improvements,'' Sept. 2011, 
supra, at 23.

---------------------------------------------------------------------------
    Recommendations to improve the current patient definition

    A clear definition of ``patient'' is required under the law and 
critical to the integrity and long-term sustainability of the 340B 
program. HRSA should update its 340B patient definition so that it has 
clear and enforceable standards for hospitals. A revised definition of 
a patient for 340B purposes should require that there is an established 
relationship between the hospital and the patient such that the patient 
receives medical care at the hospital's onsite facilities registered 
with HRSA. HRSA has correctly recognized that an ``individual's health 
care relationship with the covered entity is the most important factor 
in determining'' whether an individual is a patient of a 340B covered 
entity.  \74\ The patient definition should be more explicit about 
identifying the factors for which a hospital is responsible for an 
individual's care and treatment, including documenting and maintaining 
medical records for an individual. These elements include:
---------------------------------------------------------------------------
    \74\  72 Fed. Reg. at 1544.

        (1) Clear relationship between hospital and health care 
---------------------------------------------------------------------------
        provider

        A revised patient definition must make clear the relationship 
        between the hospital and the health care professional seeing 
        the patient. A revised patient definition should also eliminate 
        the language in the 1996 patient definition referring to a 
        patient as one who receives health care services from a 
        provider under ``contractual or other arrangements.'' As 
        discussed above, this loose ``other arrangements'' language has 
        been a long-standing concern for GAO and HRSA due to the 
        potential for abuse it creates.

        HRSA should clarify in its patient definition that only an 
        employee or independent contractor of the hospital are 
        considered health care professionals who can treat a patient on 
        behalf of the hospital. A provider connected to a hospital 
        through a looser affiliation is not acting on behalf of the 
        hospital and that provider's patients are not the covered 
        entity's patients for 340B purposes.

        (2) Location of services provided

        The revised definition also should make clear that a patient 
        must receive outpatient care at a covered entity's facilities. 
        This service should go beyond dispensing or administration of a 
        medication and include the prescribing or administration of the 
        medicine for which the covered entity receives a 340B discount. 
        As HRSA has said in the past, this means discounts are not 
        available when only dispensing discounted medicines to an 
        individual for subsequent self-administration.  \75\
---------------------------------------------------------------------------
    \75\  72 Fed. Reg. at 1544 (``An individual will not be considered 
a `patient' of the entity for purposes of 340B if the only health care 
service received by the individual from the covered entity is the 
dispensing of a drug or drugs for subsequent self administration or 
administration in the home setting.'').

        (3) Requirements for hospitals eligible through a government 
---------------------------------------------------------------------------
        contract

        The revised patient definition should make clear that if the 
        individual is receiving care from a covered entity that has a 
        contract with a state or local government, such care must be 
        within the scope of the contract that bestows that covered 
        entity 340B eligibility under subsection (a)(4)(L)(ii) of the 
        340B statute (42 USC 256b). This would more closely align the 
        patient definition for grantees (already subject to this 
        element in the current patient definition) and DSH hospitals. 
        It would also ensure that the patient remains an individual who 
        receives services from a covered entity consistent with the 
        reason why the entity is 340B eligible. For example, HRSA 
        should specify that where a private nonprofit hospital is 340B 
        eligible because it has a contract with a state or local 
        government to care for low-income individuals ineligible for 
        Medicare and Medicaid, a 340B patient of the hospital must 
        receive services under that contract. Likewise, for a private 
        nonprofit hospital that is 340B eligible because it has been 
        formally granted governmental powers, a 340B patient of the 
        hospital should be an individual who receives health care 
        services furnished by the hospital in connection with its 
        governmental powers.

        Requiring that a patient of a 340B hospital receive the 
        services for which Congress made the hospital 340B eligible 
        would promote the purposes of the 340B law (to provide 
        discounted medicines to a private nonprofit hospital that 
        contracts to care for ``low-income individuals who are not 
        eligible for Medicaid or Medicare,'' but not for a private 
        nonprofit hospital with ``a minor contract to provide indigent 
        care which represents an insignificant portion of its operating 
        revenues'').  \76\ It would also make the patient definition 
        more symmetrical between grantees and hospitals.
---------------------------------------------------------------------------
    \76\  H.R. Rep. 102-384 (II) (1992), 12.

        HRSA has never sought to explain why it applied this principle 
        to grantees but not hospitals, and we see no rational basis to 
        treat covered entity grantees differently from hospitals on 
        this important element of the definition of who is a 340B 
        patient. Accordingly, HRSA should specify in a revised 
        definition that a patient of a private hospital that is 340B-
        eligible through a contract with a state or local government to 
        care for low-income individuals ineligible for Medicare and 
        Medicaid, must receive care under that contract. Similarly, the 
        revised definition should specify that a hospital eligible 
        because of ``formally granted powers'' can only receive 
        discounts for patients who receive care in connection to such 
---------------------------------------------------------------------------
        powers.

    HRSA has authority to issue a revised patient definition

    In 2015, in response to the criticism received around the program's 
lack of clear standards, HRSA issued a proposed omnibus guidance 
covering many aspects of the 340B program, including changes to the 
patient definition. At that time, HRSA believed it had legal authority 
to issue guidance on a new patient definition, and we continue to 
believe that HRSA can issue a new patient definition without statutory 
rulemaking authority. Congress should encourage HRSA to exercise this 
authority or seek clarity from HRSA on areas where they think they lack 
authority. In general, PhRMA supported these proposed changes to the 
patient definition and believes finalizing such a definition would make 
important strides in clarifying the patient definition and resolving 
many of the inconsistencies in the way stakeholders have interpreted 
this key term. We appreciate HRSA's efforts to spell out the elements 
of the patient definition, which are essential to ensuring compliance 
with the law regarding diversion and duplicate discounts and to 
maintaining overall program integrity. However, we believe there are 
some instances where entities--particularly small or rural covered 
entities and grantees--need additional flexibility from the proposed 
patient definition and should be allowed to continue to use the 
definition now in place given their focus on safety net populations.

    Key Takeaway: The GAO, OIG and HRSA have all noted that the current 
patient definition is overly vague and allows DSH hospitals to obtain 
340B discounts for patients who Congress never intended to qualify for 
the program. HRSA should finalize a new patient definition that, at a 
minimum, includes the important elements discussed above and makes 
exceptions for grantees. If HRSA does not release a new patient 
definition in short order, Congress should step in and create a new 
patient definition that reflects these important elements in statute.

    Issue Area 2: Hospital eligibility standards are outdated, and the 
requirements in statute are not well enforced.

    With 45 percent of all acute care hospitals participating in a 
program that was first intended for true safety-net facilities,  \77\ 
the eligibility criteria for DSH hospitals must be reexamined. While 
some of the eligibility standards are set in statute and Congress would 
have to intervene to update those criteria, HHS also has an important 
role to play in ensuring that only true safety-net hospitals are 
eligible for the 340B program.
---------------------------------------------------------------------------
    \77\  MedPAC, ``Report to the Congress: Overview of the 340B Drug 
Pricing Program,'' May 2015.

---------------------------------------------------------------------------
    Recommendations to improve DSH hospital eligibility standards

        (1) Revisiting the DSH Metric

        Under the 340B statute, hospitals can qualify for the 340B 
        program based in part on their DSH percentage,  \78\ an 
        inpatient measure relating to the number of Medicaid and low-
        income Medicare patients treated in a hospital's inpatient 
        unit. Paradoxically, this means that hospitals are more likely 
        to qualify for 340B as more of their patients gain Medicaid 
        coverage and are no longer uninsured. As discussed previously, 
        more hospitals have become eligible for 340B due to significant 
        expansions in Medicaid eligibility, which could not have been 
        anticipated in 1992. In addition, a 340B DSH hospital 
        designation has no direct relationship to the amount of care 
        that a hospital provides to low income, indigent, or uninsured 
        populations.
---------------------------------------------------------------------------
    \78\  See 42 U.S.C. Sec.  256b(a)(4)(L)-(O).

        Analysis of the amount of charity care DSH hospitals provide 
        points to the fact that some of these hospitals have a low 
        charity care obligation. Hospitals report the amount of charity 
        care they provide on their Medicare Cost Reports. Charity care 
        is the cost of providing free or discounted care to low-income 
        individuals who qualify for the hospital's charity care 
        program. These programs are focused on helping low-income 
        patients access health care that would otherwise be 
        unaffordable. PhRMA believes it is important to examine the 
        relative amount of charity care 340B hospitals provide as part 
        of an examination of whether 340B eligibility is truly 
        targeting true safety net hospitals. For example, according to 
        hospitals' own data, 64 percent of 340B DSH hospitals provide a 
        lower level of charity care than the national average for all 
        hospitals.  \79\ This raises questions as to whether the DSH 
        hospitals participating in the program are in fact the 
        hospitals treating large numbers of vulnerable or uninsured 
        patients. Additionally, in a 2015 report, the GAO found that 
        there were ``notable numbers'' of 340B DSH hospitals that 
        provided low amounts of charity care.''  \80\ MedPAC also 
        reported that it had found little correlation between 
        hospitals' DSH adjustment percentages and whether they had 
        either high-cost patients or a high percentage of uninsured 
        patients.  \81\ Finally, the 2018 Energy and Commerce report 
        reached the conclusion that ``it is unclear whether the DSH 
        metric ensures that the program is available for hospitals that 
        are truly serving a disproportionate share of uninsured and 
        vulnerable patients.''  \82\
---------------------------------------------------------------------------
    \79\  Alliance for Integrity and Reform of 340B, ``Benefiting 
Hospitals, Not Patients: An Analysis of Charity Care Provided by 
Hospitals Enrolled in the 340B Discount Program,'' Spring 2016.
    \80\  Government Accountability Office, Medicare Part B Drugs: 
Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at 
Participating Hospitals, GAO-15-442, June 2015.
    \81\  Medicare Payment Advisory Commission, Report to the Congress: 
Medicare Payment Policy (Washington, DC: MedPAC, March 2007).
    \82\  House Energy and Commerce Subcommittee on Oversight and 
Investigations, Review of the 340B Drug Pricing Program, January 10, 
2018. Available at: https://energycommerce.house.gov/wp-content/
uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.

        It is also important to note that because DSH is an inpatient 
        measure being used to determine eligibility for the outpatient 
        340B program, it is not impacted when 340B hospitals add child 
        sites that serve relatively wealthy patients. As noted above, 
        analysis has shown that often these child sites are 
        geographically located in wealthier areas than the DSH 
        hospitals themselves.  \83\ The 2018 Energy and Commerce report 
        issued a recommendation for reforms to the 340B program, 
        suggesting that ``Congress should reassess whether DSH is the 
        appropriate measure for program eligibility, or whether a 
        metric based on outpatient population would be more 
        appropriate.''  \84\
---------------------------------------------------------------------------
    \83\  R. Conti and P. Bach, ``The 340B Drug Discount Program: 
Hospitals Generate Profits By Expanding To Reach More Affluent 
Communities,'' Health Affairs, vol. 33 no. 10.
    \84\  House Energy and Commerce Subcommittee on Oversight and 
Investigations, Review of the 340B Drug Pricing Program, January 10, 
2018. Available at: https://energycommerce.house.gov/wp-content/
uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.

        These flaws in the DSH metric suggest that Congress should 
        reexamine the eligibility criteria for 340B to better link 
        eligibility for the program to an entity's actual provision of 
        a disproportionate share of outpatient charity care. Because 
        hospitals already report charity care in their Medicare Cost 
        Reports, such a metric could be relatively simple to 
---------------------------------------------------------------------------
        operationalize.

        (2) Revising Current Loose Eligibility Standards for Hospitals 
        Not Owned or Operated by a state or Local Government

        All 340B hospitals must be owned or operated by a unit of state 
        or local government or a private nonprofit hospital that (a) 
        has been formally granted governmental powers by a state or 
        local government; or (b) has a contract with a state or local 
        government to provide health care services to low-income 
        individuals who are not Medicare or Medicaid eligible. 
        Unfortunately, there is little guidance, transparency, or 
        oversight to enforce these requirements. In fact, HRSA does not 
        even review or collect the contracts that make some hospitals 
        eligible for 340B discounts. Instead, the responsibility falls 
        on hospitals to self-report if they believe they no longer meet 
        the requirements. GAO noted that ``hospitals with contracts 
        that provide a small amount of care to low-income individuals 
        not eligible for Medicare or Medicaid could claim 340B 
        discounts, which may not be what the agency intended.''  \85\ 
        This lack of oversight makes it difficult to ensure that 
        contracts are meeting congressional intent. The legislative 
        history states that a private nonprofit hospital that had ``a 
        minor contract to provide indigent care which represents an 
        insignificant portion of its operating revenues'' could not 
        qualify for 340B under the state and local government contract 
        test.  \86\ Yet HRSA is not enforcing this requirement which 
        could easily be done routinely when HRSA recertifies a 
        hospital's 340B eligibility.
---------------------------------------------------------------------------
    \85\  Manufacturer Discounts in the 340 Program Offer Benefits, but 
Federal Oversight Needs Improvement, GAO-11-836 (Sept.2011), p 23.
    \86\  U.S. House of Representatives Report accompanying H.R. Rep. 
102-384 (II) (1992).

        At a minimum, HRSA should collect these contracts and post them 
        online. Strong and transparent standards are needed for private 
        DSH hospitals' contracts that confer 340B eligibility. These 
        contracts should not be minor contracts and instead should 
        represent a sizable investment of hospital resources. 
        Similarly, HRSA should set clear standards for how hospitals 
        qualify for 340B if they have been formally granted 
        ``governmental powers.'' The governmental powers that confer 
        340B eligibility to a hospital should be made publicly 
        available by each hospital. Merely providing health care 
---------------------------------------------------------------------------
        services is not sufficient to meet this standard.

    Recently introduced legislation offers important improvements in 
hospital reporting requirements

    Several Members of Congress have recently introduced bipartisan 
legislation to address some of the deficiencies in hospital reporting 
and accountability. S. 2312, the HELP ACT would impose reporting 
requirements on DSH, cancer and children's hospitals that increase the 
understanding of how the program is used. For example, these hospitals 
would report the insurance status of patients who receive 340B 
medicines. This will show whether uninsured patients are receiving 340B 
medicines both at the DSH hospital itself and separately for each child 
site. The HELP ACT would also strengthen government oversight with GAO 
and OIG reports on key areas in need of being revisited, including an 
evaluation into the state and local government contracts that bestow 
340B eligibility on certain private DSH hospitals. The legislation 
would also implement clear eligibility standards for private DSH, 
children's and cancer hospitals and their offsite outpatient 
facilities. Representatives Larry Bucshon and Scott Peters have 
introduced legislation, H.R. 4570, the 340B PAUSE Act, that would take 
many similar steps to increase understanding of how 340B hospitals 
qualify for the program and which patients are receiving 340B 
prescriptions. Both bills also include a commonsense temporary 
moratorium on the enrollment of new DSH hospitals while data is being 
collected.
    The commonsense reporting requirements included in the HELP ACT and 
340B PAUSE Act are focused on basic information hospitals are likely 
already collecting for other purposes. For example, the data on the 
insurance status of patients already is needed for payment purposes. 
Further, the data requirements included in both pieces of legislation 
are in line with the level of reporting already required of many 
grantees as a condition of the Federal grants they receive. Federal 
grantees, like Ryan White clinics, are already subject to additional 
HRSA oversight as a Federal grantee. Importantly, in its January 2018 
report on the 340B program, the House Energy and Commerce Subcommittee 
on Oversight and Investigations interviewed numerous HRSA grantees who 
told the committee that ``they found the additional [340B] program 
requirements manageable.''  \87\
---------------------------------------------------------------------------
    \87\  House Energy and Commerce Subcommittee on Oversight and 
Investigations, Review of the 340B Drug Pricing Program, January 10, 
2018. Available at: https://energycommerce.house.gov/wp-content/
uploads/2018/01/20180110Review_of_the_340B_Drug_Pricing_Program.pdf.

    Key Takeaway: The current lax DSH hospital eligibility standards 
are contributing to the growth of 340B that has led to higher costs for 
patients and the health care system. Both Congress and HRSA should 
update the current eligibility criteria for DSH hospitals. 
Specifically, Congress should review the use of the DSH metric and HRSA 
should develop and enforce eligibility standards for hospitals not 
---------------------------------------------------------------------------
owned or operated by a state or local government.

    Issue Area 3: Current guidance on eligibility criteria for child 
sites is outdated and is driving up costs and should be updated.

    The 340B law defines the types of hospitals that can participate in 
the program with great specificity  \88\ but never mentions 
participation of off-campus outpatient facilities associated with these 
hospitals (also known as child sites). Although there is no basis in 
the statute for including these sites, in 1994, HRSA unilaterally 
issued guidance dramatically expanding the 340B program by permitting 
child sites to participate--even if as hospitals have interpreted, they 
are only loosely connected to the parent hospital and do not serve a 
needy population.  \89\ Child sites have become a major source of the 
program's growth and incentives. In 1994, there were a total of 34 
child sites. By 2016 this had increased to over 15,000.  \90\
---------------------------------------------------------------------------
    \88\  42 U.S.C. Sec.  256b(a)(4)(L)-(O).
    \89\  59 Fed. Reg. 47884, 47885 (September 19, 1994).
    \90\  HRSA OPA Data base, October 2016.
---------------------------------------------------------------------------
    These hospital child sites are a key factor accounting for the 340B 
program's explosive growth and its shift away from the program's 
original goal of helping get discounted medicines to uninsured and 
vulnerable patients.  \91\ For example, a 2014 Health Affairs study 
found that child sites are converting 340B ``from [a program] that 
serves vulnerable communities to one that enriches hospitals.''  \92\ 
The authors of a recent New England Journal of Medicine Perspective on 
340B state that ``hospitals have purchased community practices in part 
. . . to expand their footprint into wealthier neighborhoods to 
`profit' from the 340B program.''  \93\ As discussed earlier in this 
testimony, hospitals purchasing physician practices leads to higher 
costs for many payers and other patients because commercial 
reimbursement for hospital-owned practices are typically higher due to 
their market power.  \94\
---------------------------------------------------------------------------
    \91\  A. Vandervelde and E. Blalock, ``340B Program Sales Forecast: 
2016-2021,'' 2016, available at: http://340breform.org/userfiles/
December%202016%20BRG%20Growth%20Study.pdf (accessed March 11, 2018).
    \92\  Rena M. Conti and Peter B. Bach. The 340B Drug Discount 
Program: Hospitals Generate Profits by Expanding to Reach More Affluent 
Communities, Health Affairs 33, no. 10 (2014): 1786-1792.
    \93\  http://www.nejm.org/doi/full/10.1056/
NEJMp1716139'query=recirc_curatedRelated
_article.
    \94\  As discussed earlier, while the administration recently made 
changes to address 340B hospitals' incentives to increase spending in 
Medicare Part B, that change will likely have a minimal impact on 
incentives for future provider consolidation. The new Part B 
reimbursement changes are by definition limited to the less than one 
quarter of DSH hospitals' 340B profits derived from Part B fee-for-
service sales and the new policy will not impact newly acquired 
outpatient sites that are not paid under the Outpatient Prospective 
Payment System.

---------------------------------------------------------------------------
    Recommendation for addressing concerns with child sites

        (1) Implement new eligibility standards and requirements for 
        child sites

        At a minimum, HRSA should revisit its 1994 guidance given the 
        rampant growth in the number of child sites, the lack of any 
        requirements that these clinics serve a safety-net role and the 
        evidence that they are leading to higher costs for many 
        patients. Congress, too, should consider revising the current 
        child site eligibility rules.

        The new standards for child site eligibility should be 
        developed to help prevent 340B from being an incentive for the 
        broad consolidation of community-based providers, which drives 
        up health care costs. Child sites should also be required to 
        provide a broad range of services and have a sliding fee scale 
        that shares 340B discounts with low-income patients.

    Recently introduced legislation takes an important first step to 
improve hospital reporting requirements for child sites

    Both the HELP ACT and the 340B PAUSE Act would help improve 
visibility into how child sites are using the 340B program by requiring 
hospitals to report insurance status of the patients treated at each 
child site and the costs of charity care provided at each site. 
Currently, there is no data available about the patients treated at 
child sites, and as discussed above, these patients are not factored 
into the hospital's DSH metric. Such data will be valuable in 
determining whether child sites are serving communities in need of 
safety-net services.

    Both bills also include a commonsense temporary moratorium on the 
enrollment of new child sites while data is being collected. The HELP 
ACT would also require that a child site of any 340B DSH, children's or 
free-standing cancer hospital meet several requirements, including 
adhering to the charity care policy and any sliding fee scale of its 
parent hospital. These new standards would help ensure that patients 
directly benefit from 340B discounts at the child site.

    Key Takeaway: The current eligibility criteria for offsite 
outpatient facilities (``child sites'') associated with 340B DSH 
hospitals are leading to consolidation that raises health care costs 
and increasing the presence of 340B sites in wealthy areas, which is 
not consistent with the program's mission. Criteria must be revised and 
new reporting requirements must be implemented to ensure these sites 
are serving communities that need safety-net services.

    Issue Area 4: Rampant growth of hospital use of contract pharmacy 
arrangements must be reined in through updated guidance.

    Contract pharmacies are for-profit, retail pharmacies that 340B 
hospitals partner with to dispense 340B medicines to patients of the 
covered entity who fill prescriptions at the pharmacy. The contract 
pharmacy and the hospital then share the profit generated through the 
distribution of a 340B discounted medicine, with no guarantee that 
patients benefit from the 340B discount.

    The 1992 statute creating the 340B program did not authorize or 
even mention contract pharmacies. To address requests from covered 
entities without an in-house pharmacy, HRSA issued guidance in 1996 
allowing covered entities without an onsite pharmacy to contract with 
one offsite pharmacy.  \95\ In 2010, the use of contract pharmacies was 
dramatically expanded through Obama administration sub-regulatory 
guidance.  \96\ The 2010 guidance eliminated the one pharmacy 
limitation and permitted 340B entities that have an onsite pharmacy to 
also use an unlimited number of contract pharmacies. This change 
dramatically increased the number of contract pharmacies but did 
nothing to ensure that patients benefited from this expansion. A 2014 
report by the OIG stated that at the time, ``the number of unique 
pharmacies serving as 340B contract pharmacies has grown by 770 
percent, and the total number of contract pharmacy arrangements has 
grown by 1,245 percent'' since 2010.  \97\ In 2017, there were more 
than 50,000 contract pharmacy arrangements.  \98\
---------------------------------------------------------------------------
    \95\  Fed. Reg. Vol. 61, No. 165.
    \96\  Fed. Reg. Vol. 75, No 43.
    \97\  HHS Office of the Inspector General, ``Contract Pharmacy 
Arrangements in the 340B Program,'' Feb. 2014.
    \98\  HRSA OPA Data base, March 2017.

    There is no evidence patients consistently benefit from contract 
---------------------------------------------------------------------------
pharmacies

    Pharmacies can generate higher returns by dispensing 340B 
prescriptions than non-340B prescriptions, however uninsured patients 
are not always offered the 340B discounted price at contract 
pharmacies.  \99\ Despite the fact that the 340B program was designed 
to ensure increased access to prescription medicines for vulnerable or 
uninsured patients, the 2014 OIG report found that the majority of 
hospitals in their study did not ensure that they passed 340B discounts 
back to uninsured patients who filled their prescriptions at a contract 
pharmacy.  \100\ In contrast, the grantee covered entities in the OIG 
study were more likely to have developed systems for their contract 
pharmacies to pass 340B discounts on to uninsured patients.  \101\ 
Additionally, 340B Health, the trade association representing 340B 
hospitals, has stated that contract pharmacies are typically unable to 
determine who is eligible for 340B discounts at the time a prescription 
is filled. In a letter to New York State, 340B Health stated, ``the 
overwhelming majority of these [contract] pharmacies do not know at the 
time a claim is processed whether or not it relates to a 340B drug.''  
\102\
---------------------------------------------------------------------------
    \99\  HHS Office of the Inspector General, ``Contract Pharmacy 
Arrangements in the 340B Program,'' Feb. 2014.
    \100\  HHS Office of the Inspector General, ``Contract Pharmacy 
Arrangements in the 340B Program,'' Feb. 2014.
    \101\  Ibid.
    \102\  Safety Net Hospitals for Pharmaceutical Access Dec. 19, 2011 
letter to Jason A. Helgerson, Medicaid Director & Deputy Commissioner 
Office of Health Insurance Programs, New York State Department of 
Health.

---------------------------------------------------------------------------
    Recommendations for reining in contract pharmacy arrangements

        (1) Increase and improve HRSA oversight of the contract 
        pharmacy program

        HRSA's oversight of 340B, and particularly the contract 
        pharmacy program, is insufficient. In 2012, as part of its 
        efforts to improve 340B program integrity, HRSA began 
        conducting covered entity audits. Many of these audits focus on 
        covered entities' usage of contract pharmacies, however they 
        are limited in scope and the fact that they continue to result 
        in adverse findings demonstrates that audits are not enough to 
        ensure program integrity.

        While the 2010 HRSA contract pharmacy guidance recommends that 
        covered entities perform annual independent audits of their 
        contract pharmacies, in practice, this guidance has not 
        resulted in meaningful action on the part of covered entities. 
        The 2014 HHS OIG report on contract pharmacies found that 
        ``[f]ew covered entities reported retaining independent 
        auditors for their contract pharmacy arrangements as 
        recommended in HRSA guidance.'' HRSA's current approach to 
        overseeing contract pharmacy arrangements relies heavily on 
        this covered entity self-policing, yet there are no rules in 
        place that compel processes that would ensure compliance with 
        the 340B statute. The OIG report states that covered entities 
        must notify HRSA if they find that duplicate discounts or 
        diversion have occurred in their contract pharmacy 
        arrangements, however OIG found that only 7 of 30 covered 
        entities they reviewed even reported that they retained HRSA's 
        recommended independent auditors, let alone reported findings 
        of diversion or duplicate discounts. OIG's overall assessment 
        of the current state of the contract pharmacy program was that 
        ``without adequate oversight, the complication created by 
        contract pharmacy arrangements may introduce vulnerabilities to 
        the 340B program.'' This level of self-policing and the lack of 
        a framework for program compliance is not appropriate for such 
        a large (and growing) aspect of the 340B program. We urge HRSA 
        to focus its audits efforts on contract pharmacy arrangements 
        with DSH hospitals, given that these hospitals represent 80 
        percent of 340B sales and rely on arrangements that make them 
        more vulnerable to possible diversion of 340B discounts to non-
        patients.

        Additionally, HRSA currently has no oversight efforts of 
        covered entity arrangements with the 340B services providers 
        (e.g., third party administrators or TPAs) who manage most of 
        the back-end administration of the 340B program. Instead, as 
        discussed above, HRSA cites its recommendations that covered 
        entities conduct independent audits to ensure compliance in 
        these arrangements. But the lack of clear program rules and a 
        reliance on this covered entity self-policing approach has been 
        insufficient to ensure the integrity and the intended patient 
        impact of the 340B program.

        (2) Revise lax regulations that have enabled middlemen to 
        benefit from the contract pharmacy program

        Contract pharmacy expansion is a troubling example of middlemen 
        diverting resources from 340B's intended purpose of assisting 
        low-income or vulnerable patients. An industry of for-profit 
        pharmacies and their third-party administrators and consultants 
        has developed since 2010 with the goal of maximizing 340B 
        dispensing. Their only apparent motive is to financially 
        benefit from taking a share of the markup between the legally 
        mandated 340B price and the higher price paid by patients and 
        insurers.

        There are multiple examples of the third-party marketing 
        strategies that boast of the revenues they can help hospitals 
        generate through expanded use of contract pharmacies. In 2013, 
        the LinkedIn profile of a Walgreens employee came to Senator 
        Grassley's attention. In his profile, the employee boasts about 
        Walgreens' ability to help clients ``Generate revenue from your 
        340B patients.''  \103\ Senator Grassley's subsequent letter to 
        the Walgreens CEO seeking additional information about 
        Walgreens' participation in 340B sums up the problem with the 
        contract pharmacy program succinctly, as he states, the 340B 
        program ``is not intended to subsidize pharmacies that team up 
        with covered entities to turn a profit.''  \104\
---------------------------------------------------------------------------
    \103\  The link has been taken down but it was previously at http:/
/www.linkedin.com/pub/timothy-hong/28/651/511.
    \104\  Senator Charles Grassley, Letter to Walgreens CEO Gregory 
Watson, July 21, 2013. 
Available at http://www.pembrokeconsulting.com/pdfs/
Grassley_340B_Letter_to_Walgreens_31July2013.pdf.

        Additionally, other third-party vendors like Talyst, a for-
        profit vendor which provides a software platform for 
        pharmacies, make 340B profitability the cornerstone of their 
        sales pitch to prospective contract pharmacy clients. Talyst 
        tries to sell its services by telling clients that 340B drugs 
        generate higher pharmacy markups than non-340B drugs and that 
        Talyst is the one to help them leverage that profit potential, 
        while underscoring that savings don't need to be passed through 
        to patients.  \105\ In fact, Talyst highlights that ``the 
        covered entities are allowed to use the benefit of these 
        substantial savings in any way they choose.'' Talyst is one of 
        hundreds of for-profit middlemen taking a cut of a program 
        designed to help the safety-net population. Little to no 
        oversight exists to monitor contract pharmacies and these 
        third-party vendors. HRSA and Congress must take steps to 
        determine how and if patients are benefiting.
---------------------------------------------------------------------------
    \105\  http://www.talyst.com/wp-content/uploads/
Talyst_White_Paper_Benefit_Becoming_Contract_Pharmacy.pdf.

        (3) Address 340B program integrity concerns driven by the 
---------------------------------------------------------------------------
        contract pharmacy program

        The contract pharmacy program inherently raises program 
        integrity concerns. A 2014 OIG report found that contract 
        pharmacy arrangements make it more difficult for HRSA and 
        others to identify diversion and duplicate discounts.  \106\ 
        The 340B program prohibits covered entities from purchasing a 
        medicine at a 340B discount that generates a Medicaid rebate 
        claim.  \107\ Consequently, the law creates an absolute 
        prohibition on duplicate discounts. However, despite this clear 
        statutory imperative, current prevention methods do not stop or 
        prevent duplicate discounts. The increasing use of contract 
        pharmacies coupled with expansion of Medicaid rebates for 
        medicines used by Medicaid Managed Care Organization (MCO) 
        enrollees have exacerbated the problem of duplicate discounts--
        with HRSA and the Centers for Medicare & Medicaid Services 
        (CMS) thus far not taking effective steps to prevent this 
        statutory violation. In fact, HRSA released 2014 guidance that 
        expressly excluded Medicaid managed care utilization from the 
        only mechanism HRSA has developed to prevent duplicate 
        discounts (the Medicaid Exclusion File), stating that it 
        ``recognizes the need to address covered entities' role in 
        preventing duplicate discounts under Medicaid Managed Care, and 
        is working with CMS to develop policy in this regard.''  \108\ 
        As of 2018, this policy has yet to be developed. This leaves a 
        critical gap in enforcing the law's duplicate discount ban as 
        about 55 million Americans are covered by Medicaid managed care 
        plans. Half of all Medicaid spending on prescription medicines 
        was through MCOs in 2014  \109\ and that share has likely 
        increased in recent years.
---------------------------------------------------------------------------
    \106\  HHS Office of the Inspector General, ``Contract Pharmacy 
Arrangements in the 340B Program,'' Feb. 2014.
    \107\  42 U.S.C. Sec.  256b(a)(5)(A).
    \108\  HRSA, 340B Drug Pricing Program Release No. 2014-1 (Dec. 12, 
2014). The Medicaid Exclusion File mechanism requires that 340B covered 
entities either ``carve in'' (provide 340B drugs to Medicaid patients 
and report this practice to HRSA, so that these entities are listed on 
the Exclusion File and State Medicaid programs do not bill 
manufacturers for rebates on drugs furnished by these entities) or 
``carve out'' (do not provide 340B drugs to Medicaid beneficiaries, so 
that drugs supplied by a 340B entity to a Medicaid patient triggers a 
Medicaid rebate, but not a 340B discount). Under the 2014 guidance, 
this mechanism no longer applies to prevent double discounts on 340B 
drugs provided to MCO beneficiaries.
    \109\  KFF, ``Total Medicaid Managed Care Enrollment, 2014'' 
available at: https://www.kff.org/medicaid/state-indicator/total-
medicaid-mc-enrollment/
currentTimeframe=0&sortModel=%B%22colId%22:%2Location%22,%22sort%22:%22a
sc%22%7D (accessed March 11, 2018); MACPAC, ``Medicaid Spending for 
Prescription Drugs,'' January 2016. Available at: https://
www.macpac.gov/wp-content/uploads/2016/01/Medicaid-Spending-for-
Prescription-Drugs.pdf.

        Continued expansion of 340B contract pharmacy arrangements is 
        expected to keep driving growth in the 340B program. Due to 
        several factors, under current law, it is projected that by 
        2023, contract pharmacy utilization will exceed $10 billion of 
        the estimated $31.5 billion in sales at the 340B price.  \110\ 
        This growth comes against a backdrop of a contract pharmacy 
        program operating in a largely unregulated environment.  \111\
---------------------------------------------------------------------------
    \110\  Berkeley Research Group unpublished estimates for PhRMA, 
December 2017.
    \111\  A. Vandervelde and E. Blalock, ``340B Program Sales 
Forecast: 2016-2021,'' BRG, December 2016.

    Key Takeaway: The current unlimited use of contract pharmacies by 
hospitals is not sustainable and diverts savings from 340B to for-
profit pharmacies and other middlemen. There is also no evidence that 
contract pharmacies are directly benefiting patients. HRSA should 
revisit its current contract pharmacy policy for hospitals. Any new 
policy must consider what role, if any, hospitals' contract pharmacies 
should play in a program that has grown significantly over the past 8 
---------------------------------------------------------------------------
years.

    Issue Area 5: Better enforcement is needed of current 340B program 
rules and guidance.

    Given the important role that the 340B program plays in the health 
care safety net, it is imperative that participants have a clear 
understanding of the program's requirements and are adhering to the 
program's statutory requirements. Unfortunately, this is not common 
practice.
    Six years ago, in 2012, as part of agency-wide efforts to improve 
program integrity, HRSA began covered entity and manufacturer audits. 
The fiscal year 2017 HRSA data show that two-thirds of all DSH 
hospitals audited were noncompliant in at least one area and many were 
noncompliant in multiple areas.  \112\ Currently, there are no real 
repercussions for hospitals if they are found to be noncompliant with 
program guidelines. For example, hospitals that obtain 340B discounts 
for which they were not eligible may have to pay back those discounts, 
but there are no additional penalties that would create a true 
incentive to diligently prevent duplicate discounting or diversion. To 
date, we are not aware of any covered entity HRSA has terminated for 
violation of 340B program rules.
---------------------------------------------------------------------------
    \112\  HRSA OPA Data base Program Integrity fiscal year 2017 Audit 
Results (Accessed March 6, 2018).
---------------------------------------------------------------------------
    Additionally, the current lack of clear program standards makes it 
difficult to conduct meaningful audits of covered entities. As 
mentioned earlier in this testimony, the OIG and GAO continue to state 
that the current definition of a 340B patient lacks specificity, 
leading to program integrity issues. While HRSA audits for incidences 
of diversion, it is unclear what HRSA is auditing for since there are 
not sufficiently clear standards for who constitutes a 340B patient.
    A recent paper from the Berkeley Research Group shows that the 340B 
program more than doubled in size from 2010 to 2015. BRG predicts that 
exponential growth will continue for at least the next 5 years. At 
current staffing levels, each HRSA auditor will be responsible for 
providing oversight of an average of $1B in drug purchases at over 
4,000 distinct covered entity or contract pharmacy locations by 2021.  
\113\
---------------------------------------------------------------------------
    \113\  A. Vandervelde and E. Blalock, ``340B Program Sales 
Forecast: 2016-2021,'' 2016, available at: http://340breform.org/
userfiles/December%202016%20BRG%20Growth%20Study.pdf (accessed March 
11, 2018).
---------------------------------------------------------------------------
    Similar to our earlier comments specific to contract pharmacy, we 
urge HRSA to focus its audits on contract pharmacy arrangements with 
DSH hospitals, given that they represent 80 percent of 340B sales and 
rely on arrangements that make them more vulnerable to possible 
diversion of 340B discounts to non-patients.

    Key Takeaway: A lack of clear and enforceable standards combined 
with no adverse consequences for entities that violate 340B 
requirements mean that the hospital audits currently taking place do 
not assure program compliance. HRSA and Congress should consider ways 
to improve clarity and enforcement of program rules.

 Changes are Needed to Previous Administration Proposals for the 340B 
Drug Ceiling Price and Manufacturer Civil Monetary Penalties Regulation

    The 340B Drug Ceiling Price and Manufacturer Civil Monetary 
Penalties (CMP) Regulation, developed under the Obama administration, 
was set to go into effect on March 6, 2017, with enforcement scheduled 
for April 1, 2017. Due to the widespread concerns it raised, the final 
rule's effective date has been delayed four times since the Trump 
Administration took office in January 2017.  \114\
---------------------------------------------------------------------------
    \114\  Delays were issued on 3/21/2017, 5/22/2017, 10/1/2017, and 
7/1/2018.
---------------------------------------------------------------------------
    Last fall, HRSA delayed the effective date of the 340B Ceiling 
Price and CMP Rule until July 1, 2018. In the notice announcing the 
delay, HRSA stated that it intends to engage in further rulemaking on 
issues covered in the rule. PhRMA supports rulemaking on this issue, 
but we believe any HRSA rule must be consistent with the statute and 
not impose undue burdens on manufacturers. Our concerns with the 
previous ceiling price/CMP regulations are outlined below.

    Problems with the delayed ceiling price and CMP regulation

        (1) Penny pricing: One key concern PhRMA has with the delayed 
        rule is that it finalizes a 340B program ``penny pricing'' 
        policy, which would require biopharmaceutical manufacturers to 
        effectively give away their medicines to covered entities for 
        free by permitting a manufacturer to only charge a penny in 
        many cases. Penny pricing typically occurs in specific 
        instances when the 340B ceiling price formula results in a zero 
        340B ceiling price for a particular medicine. The statutory 
        formula for a medicine's 340B ceiling price is a medicine's 
        average manufacturer price (AMP) minus its Medicaid rebate. 
        When a medicine's Medicare rebate equals its AMP, the resulting 
        340B ceiling price is zero. The 340B statute cannot be read as 
        requiring manufacturers to ``sell'' their medicines for a penny 
        to 340B entities, because under the law, the discount only 
        applies to bona fide ``purchases.'' However, we note that 
        forced transfers of medicines at 1 cent to covered entities are 
        not true ``purchases.'' Further, penny pricing creates 
        incentives for 340B entities to stockpile medicines, which can 
        create artificial shortages that make it difficult for patients 
        to get the medications they need.

        In PhRMA's comment letters to HRSA, we suggested three 
        reasonable alternatives to penny pricing: the prior quarter 
        (non-penny) 340B ceiling price, the Federal Ceiling Price or 
        nominal price--which manufacturers could use as their 340B 
        ceiling prices instead of a penny price. These alternatives 
        would give effect to the statutory language limiting the 340B 
        statute to true ``purchases''--not forced transfers.

        (2) Refund Requirements: The delayed rule includes two separate 
        sets of administratively burdensome refund requirements. Under 
        the first refund requirement, manufacturers must estimate 340B 
        prices for new medicines and then make refunds to all 340B 
        covered entities that purchased the new medicine during its 
        initial quarters on the market if a recalculated ``actual'' 
        ceiling price turns out to be lower than the ``estimated'' 
        ceiling prices. Under the second refund requirement, 
        manufacturers must recalculate 340B ceiling prices from past 
        quarters based on restatements of Medicaid rebate metrics and 
        then initiate and make refunds to covered entities on past 
        sales based on the recalculated ceiling price. Both refund 
        requirements would call for manufacturers to make costly 
        changes to their pricing systems and business procedures to 
        come into compliance and waste manufacturer resources due to 
        their needless complexity.

        The delayed rule also requires manufacturers to pay refunds to 
        340B covered entities without subtracting any amounts that the 
        covered entity owes to the manufacturer (unless the entity 
        voluntarily agrees to the offset, which seems unlikely). This 
        policy in effect would require a manufacturer to pay a covered 
        entity more than it owes to the entity. Companies cannot be 
        required to pay more than they owe; this policy is wrong, was 
        not authorized by the 340B law and needs further review.

        (3) CMPs: Finally, this delayed rule would permit the OIG to 
        impose CMPs against manufacturers without specifying any clear 
        standards for imposing these penalties. This omission heightens 
        risk for manufacturers that already are operating in a complex 
        program lacking clear ground rules. The 340B statute, as 
        amended by the Patient Protection and Affordable Care Act 
        (ACA), authorizes CMPs against a manufacturer that ``knowingly 
        and intentionally charges a covered entity a price for purchase 
        of a medicine that exceeds the [340B ceiling] price'' (up to 
        $5,000 for each ``instance'' of overcharging), provided that 
        CMPs ``shall be assessed according to standards established in 
        regulations.''  \115\
---------------------------------------------------------------------------
    \115\  42 U.S.C. 256b(d)(1)(B)(vi) (emphasis added).

        The delayed rule failed to establish standards for assessing 
        CMPs. For one thing, it does not even define ``knowingly and 
        intentionally.'' HRSA instead gives unfettered discretion to 
        OIG to define ``knowing and intentionally.'' The resulting 
        uncertainty will cause manufacturers unnecessary costs, as the 
        Final Rule essentially concedes, and will not satisfy the 
        statute's requirements for ``standards established in 
        regulations.''  \116\
---------------------------------------------------------------------------
    \116\  42 U.S.C. Sec.  256b(d).

    Separately, PhRMA wishes to note our support for HRSA finalizing 
and launching a new password-protected website that would provide a 
secure way for 340B covered entities to access ceiling prices. Some of 
our members were involved in testing this system and we urge HRSA to 
launch this website as soon as possible, with appropriate safeguards 
given the sensitive nature of the pricing information that will be 
available on the website. The ACA requires that this site be developed, 
 \117\ and we look forward to covered entities having confidential 
access to this information.
---------------------------------------------------------------------------
    \117\  PPACCA Sec.  7102(d)(1)(B)(iii).
---------------------------------------------------------------------------
 In Summary, PhRMA Urges Action to Bring the 340B Program in Line with 
 the Current Health Care System and Ensure Its Sustainability for the 
                                 Future
    PhRMA strongly believes that the 340B program should continue, and 
we recognize how the program helps support true safety net entities and 
their patients that currently rely on the program. However, we urge 
both Congress and the Administration to make changes to the program so 
that its structure and rules are consistent with its roots as a safety-
net program and serve the mission of supporting access to care for 
uninsured or vulnerable patients.
    Currently DSH hospitals' use of the program is not serving that 
mission. Instead, economists are finding that the 340B program is 
raising costs for all patients and that low-income patients are not 
seeing better health outcomes at 340B hospitals. They suggest these 
higher costs are due to three reasons: (1) hospitals earn more 340B 
revenue when patients take more medicines and more expensive medicines; 
(2) 340B is contributing to the shift in care from community-based 
physicians to more expensive hospital outpatient facilities; and (3) 
the large share of 340B-discounted medicines purchased by hospitals for 
certain conditions is driving up prices. To make matters worse, 
hospitals do not have to pass along 340B savings to low-income patients 
or even make them aware of the discounts. This means that uninsured or 
vulnerable patients may be worse off due to the 340B program.
    These market distortions are due in part to the lack of clear 
program standards that would limit 340B eligibility to true safety-net 
hospitals and the patients who rely on these hospitals for their care. 
Instead, a combination of guidance that is either vague or overly broad 
coupled with a lack of HRSA oversight has fueled dramatic growth in the 
program. Unfortunately, none of this growth seems focused on ensuring 
that patients benefit. Instead, this growth is centered on increasing 
profits for hospitals, retail pharmacies and middlemen.
    PhRMA once again thanks this Committee for its interest in the 340B 
program. We urge you to continue taking a closer look at this program, 
encouraging HHS and HRSA to fully consider their oversight 
responsibilities and authorities, and to consider critical legislative 
changes to the 340B program, not only to increase transparency and 
reporting, but also to ensure the program is being executed in a way 
consistent with its original intent that benefits patients, the safety 
net, and the health care system as a whole.
                                 ______
                                 
                 [Summary Statement of Lori M. Reilly]
    This is a summary of the testimony of Lori M. Reilly on behalf of 
the Pharmaceutical Research and Manufacturers of America (PhRMA), which 
reiterates our support for the 340B program and recognizes the 
importance of the program to our safety net. In particular, PhRMA 
recognizes the crucial role 340B grantees play in providing care to the 
most vulnerable among us but also highlights how flaws in the program's 
current structure are distorting the health care marketplace and not 
helping patients. The testimony makes the following key points:

    (1) Today's 340B Program is Nearly Unrecognizable from the Program 
Congress Enacted in 1992; Changes Have Contributed to the Many Problems 
Now Associated with the Program (page 4). The 340B program was created 
to restore voluntary discounts to grantees and safety net hospitals 
that had unintentionally been impacted by the passage of the Medicaid 
rebate law. At first, grantees made most of the 340B purchases, but 
over time DSH hospitals have come to dominate the program. Nothing in 
the 340B statute suggests the program was designed to be a major 
revenue source for DSH hospitals that provide little charity care with 
no accountability for how the revenue is used. A combination of 
expansions in Medicaid coverage and flawed guidance under the Health 
Resources and Services Administration (HRSA) have caused explosive 
growth and led to this program straying from its origins.

    (2) The 340B Program Creates Market Distorting Incentives That 
Affect Consumer Prices for Medicines, Shift Care to More Expensive 
Hospital Settings and Accelerate Provider Consolidation (page 8). A 
growing body of evidence from nonpartisan, independent sources, 
including The New England Journal of Medicine, JAMA, the GAO and 
others, points to data showing the 340B program has now grown so large 
that it is distorting market prices, affecting patterns of utilization, 
leading to more provider consolidation, and driving up health care 
costs for everyone.

    (3) Recent Administrative Action Is a Step Forward, But More Action 
Is Needed to Modernize the 340B Program (page 13). PhRMA supports the 
recent Trump Administration change to Medicare Part B reimbursement at 
340B hospitals as a good first step toward addressing one of the 
perverse incentives in the 340B program that the Government 
Accountability Office (GAO) and others have found leads to higher costs 
for patients and the entire health care system. However, because 
Medicare Part B represents less than one-quarter of total DSH hospital 
revenue from 340B, the incentives remain intact. More needs to be done 
to address other aspects of the program that are driving up costs. 
Three bills recently introduced in Congress would help by addressing 
concerns with how disproportionate share (DSH) hospitals are misusing 
the 340B program.

    (4) Improvements to the 340B Program Are Urgently Needed in Five 
Key Areas: (1) 340B Patient Definition; (2) DSH Hospital Eligibility 
Standards; (3) Standards for Off-Site Hospital Clinics (``Child 
Sites''); (4) Contract Pharmacy Arrangements; and (5) Reporting 
Requirements (page 14). Guidance released by HRSA in these five areas 
have led to lax standards in fundamental parts of the program, such as 
setting standards for which patients and private DSH hospitals are 
eligible for 340B discounts. PhRMA believes strong requirements are 
needed to limit 340B eligibility to true safety-net hospitals and the 
patients who rely on these hospitals for their care. In other areas, 
such as offsite outpatient facilities (also known as child sites) and 
contract pharmacy arrangements, HRSA should revisit policies that 
vastly expanded the 340B program and contributed to the market 
distortions we see today. The program needs reporting requirements to 
ensure program reforms are based on accurate data and to give HRSA 
better insight into how the program is currently being misused.

    In our testimony, PhRMA urges Congress and the Administration to 
make changes to the 340B program so that its structure and rules are 
consistent with its roots as a safety-net program and serve the mission 
of supporting access to care for uninsured or vulnerable patients. We 
urge you to take a fresh look at how DSH hospitals are now using this 
program and to work with HRSA to ensure the enactment of common-sense 
changes that protect 340B grantees while curbing the excesses in many 
DSH hospitals' use of the 340B program.
                                 ______
                                 
    The Chairman. Thank you, Ms. Reilly.
    Ms. Veer, welcome.

   STATEMENT OF SUE VEER, MBA, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, CAROLINA HEALTH CENTERS, INC., GREENWOOD, SC

    Ms. Veer. Thank you.
    Good morning and thank you, Chairman Alexander, Ranking 
Member Murray, and Members of the Committee for the opportunity 
to share the perspective of Health Centers.
    My name is Sue Veer, and I am the President and CEO of 
Carolina Health Centers, which is a federally qualified health 
center serving as the primary care medical home for 27,000-plus 
patients in rural South Carolina.
    Today, however, I am here in my capacity as a consultant 
for the National Association of Community Health Centers, 
commonly referenced as NACHC, which represents over 1,400 
health centers that serve as the primary care medical home for 
27 million patients in 10,000 medical sites across the country.
    As a member of NACHC, I have worked to promote pharmacy 
services as an integral part of the community health center 
model of care, including the effective implementation and 
compliant use of the 340B pharmacy program.
    Largely due to my experience with my own health center 
pharmacy, for the past 2 years I have served as a NACHC 
consultant providing 340B training and technical assistance to 
health centers and primary care associations all across the 
country.
    I am here today to share my perspective, as well as that of 
my colleagues at NACHC, as it relates to the value of the 340B 
Program for health centers and the patients we serve.
    I would like to start with an underlying premise, and that 
is, there is a direct correlation between access to affordable 
primary care and the ability to manage both acute illness and 
chronic disease. I believe there is also an undeniable 
relationship between well-managed chronic disease and a 
reduction in the use of more costly care like specialty care 
and in-patient services.
    Thus, it can be concluded that access to affordable primary 
care services improves both individual and population health, 
which, in turn, promotes cost effectiveness.
    Community health centers, also known as a federally 
qualified health centers, serve as primary care medical homes 
and share a commitment to increasing access, improving health 
outcomes, and driving cost effectiveness.
    To that end, health centers provide access to affordable 
primary care regardless of the ability to pay with a focus on 
populations that would otherwise be underserved.
    The 340B Program is a core element of achieving that goal 
as it supports our health centers' efforts to ensure that all 
patients have access to and can afford essential primary care 
services, including prescription medication.
    Whether through the implementation of an in-house pharmacy, 
or by expanding access through contract pharmacy arrangements, 
without 340B, health centers like mine would not be able to 
provide effective pharmacy services for their patients. In 
addition, the savings achieved enable health centers to support 
essential primary care services that would otherwise be 
unavailable for our patients.
    This Program was originally created to enable providers 
like mine, a community health center, to fulfill our mission 
and serve as the Nation's primary care safety net. We have 
proven to be exceptional stewards of that Program. Our mission 
is consistent with the congressional intent of the 340B Drug 
Pricing Program, which the Chairman stated earlier this 
morning.
    We serve vulnerable patients. We ensure that they can 
afford their medications. We reinvest 340B savings toward 
purposes that advance the safety net mission, and we adhere to 
extensive reporting and oversight requirements to demonstrate 
increased access to care and improved health outcomes.
    It is important to note that health centers are accountable 
to HRSA for both our community health center program and 
participation in the 340B Program.
    On the health center side, HRSA approves what is called our 
``scope of project,'' and holds us accountable for Program 
expectations that are detailed in a 92-page compliance manual.
    It is also important to note that health center 
implementation of the 340B Program is guided by each health 
center's congressionally mandated community-based, majority 
patients' board ensuring a focus on the needs of our patients 
and the communities we serve.
    Related to 340B, our boards establish mechanisms to ensure 
access to affordable medication, like sliding fee scales and 
participation in prescription assistance programs. And they 
also require that we reinvest all of our savings into programs 
that expand access to underserved patient populations. Our 
boards play a majority role in identifying where those needs 
are.
    I want to close by assuring you that everyone in the health 
center community wants Congress to have confidence in the 
integrity of the 340B Drug Pricing Program, and I am happy to 
answer your questions today.
    However, as you hear various perspectives on the Program, I 
hope you will recognize that the Program is working 
exceptionally well for health centers, which serve as the 
fabric of the Nation's healthcare safety net.
    For that reason, we encourage policymakers to work with 
health centers to best understand the responsibilities and 
requirements that are unique to the community health centers 
and the patients we serve.
    Thank you.
    [The prepared statement of Ms. Veer follows:]
                     prepared statement of sue veer
    Good morning Chairman Alexander, Ranking Member Murray and Members 
of the Committee.
    My name is Sue Veer. I am the President and CEO of Carolina Health 
Centers, Inc. (CHC) a federally Qualified Health Center (FQHC) that 
serves as the primary care medical home for 27,705 patients in the west 
central area of South Carolina known as the Lakelands. However, today I 
am here representing the 1,400 community health center organizations 
that serve as the primary care medical home for more than 27 million 
patients at over across 10,000 sites across the country.
    Included in my testimony is an overview of the unique 
characteristics of health centers and how the creation of the 340B Drug 
Pricing Program (340B program) was critical in enabling many health 
centers to start providing their patients with access to affordable 
pharmaceuticals. My testimony continues with an overview of the 
training and technical assistance work I and others at NACHC have been 
doing specific to the 340B program, and concludes with four key 
perspectives on this important program, including how health centers 
use the program and the resulting savings to expand access to essential 
primary care and drive improved clinical outcomes.
    Thank you for the invitation to serve as a witness at this hearing 
and to highlight the vital importance of the 340B program to health 
centers nationwide.
   Background on Health Centers and the Creation of the 340B Program
    Community Health Centers ensure that underserved patients have 
access to quality comprehensive primary care

    Community Health Centers--also known as health centers, federally 
Qualified Health Centers or FQHCs--are the backbone of our Nation's 
primary care safety net. Our fundamental characteristic is a commitment 
to ensuring everyone has access to high-quality, comprehensive primary 
care regardless of demographic, geographic, and socioeconomic barriers. 
By law and by mission, health centers serve areas and populations that 
the Federal Government has determined to be medically underserved, and 
we are required to provide services without regard to a patient's 
ability to pay. Nationally, almost a quarter of health center patients 
are uninsured, and over 70 percent of them have incomes below the 
Federal Poverty Level (FPL); for those patients with incomes below the 
FPL, they pay no more than a nominal fee for the full range of services 
we provide. An additional 20 percent of patients have incomes between 
101 percent and 200 percent FPL, these patients are charged discounted 
rates based on a sliding fee scale.
    All health centers provide their patients with access to a 
comprehensive range of primary and preventive health care services, and 
many also provide dental, mental health, and substance use disorder 
services. In addition, health centers provide a wide array of care 
management, patient education, and assistive services that support 
access to care, promote enhanced clinical outcomes, and reduce total 
costs across the health care system. Over two-thirds of health centers 
serve as Primary Care Medical Homes, which demonstrates health centers' 
commitment to patient-focused quality and comprehensive care.
    Another core characteristic of health centers is how they are 
governed--namely, by their patients. Each health center organization is 
an independent, non-profit corporation governed by its own Board of 
Directors, and a majority of each Board's members must be actual 
patients of that health center. This structure ensures that each health 
center remains directly responsive to the unique needs of its patients 
and community. In an era of increasing consolidation among health care 
providers, health centers are local, community-based organizations.

    The creation of 340B reduced drug prices for health centers and 
expanded access for their patients

    The creation of the 340B program in 1992 played a critical role in 
health centers' ability to provide affordable care for underserved 
populations. Prior to that time, the majority of health centers were 
unable to offer pharmaceutical services for their patients, as the 
costs of the drugs were often beyond their reach. Thus, the health 
centers wrote prescriptions for medically necessary drugs that patients 
often could not afford to fill at commercial pharmacies. As small, 
community-based providers, health centers lacked the market power to 
negotiate significant discounts off the sticker price. And while 
Patient Assistance Programs (PAPs) were available, the amount of 
paperwork involved and the narrow scope of the programs significantly 
limited the degree to which health centers could help their patients 
access the drugs they needed.
    This situation was compounded in 1991 upon creation of the Medicaid 
Drug Rebate Program (MDRP). An unintended consequence of the MDRP 
resulted in drug manufacturers becoming concerned that selling drugs to 
non-Medicaid purchasers at discounted prices could increase their 
exposure to higher Medicaid rebates. That fear caused them to pull back 
on some of the discounts they had historically provided to safety net 
providers. In response, Congress created the 340B program as part of 
the Veterans Health Care Act of 1992, which also provided similar 
relief to the VA.
    The 340B program established maximum prices that manufacturers 
could charge safety net providers for drugs. For those health centers 
that had the resources to operate their own pharmacies, the creation of 
340B was a critical moment in their ability to offer affordable 
medications to their patients. As discussed below, the ability to 
realize savings on 340B drugs provided to insured patients also 
provided resources to expand access to other services for health 
centers' low-income, medically underserved population.
    NACHC Activities to Support Health Centers' 340B Operations and 
                               Compliance
    My interest in maintaining the scope and integrity of the 340B Drug 
Pricing Program relates to my dual role as both a health center CEO and 
a NACHC consultant. As President and CEO of Carolina Health Centers, 
Inc. (CHC) I provide leadership and oversight for a comprehensive 
health center program of which pharmacy services are an integral part. 
CHC opened its first in-house pharmacy, Carolina Community Pharmacy 
(CCP), in 2005. Our pharmacy program has grown to include two stand-
alone community pharmacy locations, daily delivery of prescriptions to 
our 12 medical practice sites for our patients living in very rural 
areas, and a new initiative to integrate clinical pharmacists into the 
patient care teams at our medical practices. My health center made the 
strategic decision to implement 340B using an in-house model, meaning 
that we own and operate the pharmacy and manage it under the governance 
of CHCs' community-based/patient majority Board of Directors. We 
operate as an ``open'' pharmacy meaning that prescriptions are filled 
for both health center patients and the general public, although only 
prescriptions for CHC patients may be filled using 340B purchased 
inventory. This ``open'' model serves as a gateway to engaging people 
in a primary care medical home, reducing the use of urgent and 
emergency care, and promoting chronic disease management. Of all 
prescriptions dispensed through CHCs' sites in 2016, only 33 percent 
were covered by a third-party payer and 17 percent were delivered to 
outlying rural practice sites where patients have limited access to 
retail pharmacies.
    My individual health center's experience is offered as context for 
my role as a NACHC consultant. Approximately 5 years ago, NACHC 
convened a 340B Work Group, in recognition of the importance of 
pharmacy to health centers' overall model of care, and the vital role 
of the 340B Drug Pricing Program in enabling health centers to 
implement pharmacy services. I was honored to be asked to chair the 
Work Group, which meets face to face twice a year at major NACHC 
conferences as well as by teleconference on an as needed basis. Since 
that time, we have also convened a 340B Key Contacts group comprised of 
at least one representative from each of the state and regional Primary 
Care Associations (PCA). Together, these two groups provide tremendous 
insight into how different health centers across the Nation 
operationalize their 340B program as they work to increase access to 
care and expand services in response to the needs of the communities 
they serve. These groups have also helped NACHC to identify best 
practice models and develop strategies for training and technical 
assistance (TA) focused on 340B implementation and compliance, as well 
as identifying challenges health centers encounter in their attempts to 
optimize the value of the program for their patients.

    In 2016, I became an official consultant for NACHC, and my 
activities since that time have included the following:

          Fourteen state-specific 340B Summits: These Summits, 
        which included health centers covering 16 states, last from 1-2 
        days at the discretion of the PCA, and are targeted to both the 
        C-Suite and pharmacy leadership. In advance, I research the 
        state-specific environment, including by surveying the health 
        center membership, to ensure that the material is reflective of 
        their specific situations. To date, we have provided this 
        training for health centers in 16 states, and three more are 
        scheduled for the near future.

          NACHC conferences and trainings: NACHC has 
        incorporated 340B program elements throughout its training 
        curriculum. For example, later this week I will be speaking 
        about the 340B program at two different sessions as part of 
        NACHC's spring conference, and next week I will be presenting 
        on-line as part of NACHC training for Chief Financial Officers. 
        Also, we recently launched a monthly teleconference called 
        ``340B Office Hours'' which allows the health center 340B 
        community to have a dialog around operational and compliance 
        questions.

          Health-center-specific sessions at 340B Coalition 
        Conferences: Because of the unique issues that health centers 
        encounter when operating a 340B program, we collaborate with 
        340B Health--the organization that coordinates the twice-yearly 
        340B Coalition Conference--to include sessions that are 
        specific to health centers during their semi-annual 
        conferences.

          340B technical assistance email: We have created an 
        email address for health centers seeking technical assistance 
        with 340B issues. To date, we have responded to hundreds of 
        individual questions and requests for assistance via this 
        email.

    Note that NACHC consults with Apexus--the 340B Prime Vendor--to 
ensure that all training and technical assistance activities are 
aligned. I serve as faculty for the Apexus' in-person trainings (called 
``340B University'') and serve on one of its Advisory Councils. Apexus 
also serves as a first line of response when addressing individual TA 
requests, and has recently created a special version of 340B University 
to specifically address health centers' unique circumstances.

    What follows are four observations related to health center 
participation in the 340B Drug Pricing Program--notably, the value it 
brings to patients and communities served.
          Four Health Center Perspectives on the 340B Program
    1. Health centers are good stewards of the 340B program.

    The health center mission and model of care are consistent with the 
congressional intent of the 340B Drug Pricing Program--``to stretch 
scarce Federal resources as far as possible, reaching more eligible 
patients and providing more comprehensive services.'' As such, since 
its establishment in 1992, health centers have worked hard to ensure 
that they are good stewards of the 340B program. To that end, health 
centers ensure that vulnerable patients can afford their medications; 
reinvest 340B savings toward purposes that advance health centers' 
safety net mission of expanding access for underserved populations; and 
adhere to extensive reporting and oversight requirements to demonstrate 
that health centers are increasing access to affordable primary health 
care.

          Health centers work to ensure that low-income 
        uninsured and underinsured patients can afford to access their 
        medications purchased through 340B. As discussed above, a 
        fundamental characteristic shared by all health centers is the 
        commitment to ensure that patients can access appropriate 
        medical care, regardless of their insurance status or ability 
        to pay. As a result of this commitment, health centers use 340B 
        savings to ensure that low-income patients can afford their 
        medications. Specifically, health centers use 340B savings both 
        to offset the cost of providing prescriptions to uninsured and 
        underinsured patients on an income-based sliding fee scale, and 
        to finance the considerable resources necessary to leverage 
        PAPs on behalf of their patients.

          Health centers must reinvest all 340B savings into 
        activities that advance their HHS-approved mission of expanding 
        access for underserved populations. As the Committee is aware, 
        the 340B statute does not specify how providers should use the 
        savings they accrue under 340B. However, the authorizing 
        statute for the health center program--Section 330 of the 
        Public Health Service Act requires in Subsection330(e)(5)(D)--
        that health centers must reinvest all 340B savings into 
        activities that further the goals of the health center project 
        and enable the health center to provide high quality, 
        affordable care to medically underserved populations. Later, I 
        will discuss some of the many ways in which health centers use 
        340B savings to expand access and improve outcomes for their 
        patients.

          Health centers are subject to extensive Federal 
        oversight and reporting requirements. Each of the more than 
        1,400 health center organizations are subject to extensive and 
        on-going oversight from the United States Department of Health 
        and Human Services (HHS) Health Resources and Services 
        Administration (HRSA).

          The HRSA requirements with which health centers must 
        comply are spelled out in a 92-page manual and are grouped into 
        18 major categories, including--but not limited to--clinical 
        quality, governance structure, financial management and 
        accountability, ensuring access, and collaboration with other 
        local providers \1\.
---------------------------------------------------------------------------
    \1\ For a complete listing of all requirements, see the 92-page 
Compliance Manual available at: https://bphc.hrsa.gov/
programrequirements/pdf/healthcentercompliancemanual.pdf.

          HRSA consistently oversees and enforces compliance 
        with all of these requirements through a variety of mechanisms, 
        including: onsite compliance reviews, frequent interactions 
        with project officers, and regularly scheduled reporting 
---------------------------------------------------------------------------
        obligations.

          HRSA also approves health centers' ``Scope of 
        Project'', meaning those primary care delivery sites, services, 
        and providers that are considered part of the health center's 
        program operations. Only those approved delivery sites and 
        services that have undergone HRSA scrutiny and are subject to 
        HRSA's ongoing oversight are eligible to participate in the 
        340B program--and 340B savings can only be used to support 
        activities which are consistent with and advance our health 
        center project.

          Each year, health centers must submit extensive data 
        to HRSA on a wide range of measures, including but not limited 
        to: patient characteristics, payer mix, services, costs, and 
        clinical outcomes. The manual with instructions for how to 
        compile this data is 200 pages long, and each health center's 
        data is posted publicly on the HRSA website.

    2. The 340B program is essential to each health centers' ability to 
achieve their congressionally mandated mission of providing affordable 
access to care for underserved populations.

    Access to affordable prescription medications is recognized by most 
medical providers as one of the primary drivers of improved health 
outcomes. This point was made emphatically by the Chief Medical Officer 
of my health center when he stated: ``To diagnose and not be able to 
treat the patient effectively is always an exercise in futility and 
sometimes a death sentence.'' Health centers serve as patient-centered 
medical homes and are responsible for the overall management of the 
health of their patients; however, if patients cannot afford their 
prescriptions, health centers will be limited in their ability to treat 
acute conditions, manage chronic disease, and optimize their patients' 
health outcomes.
    Beyond ensuring access to affordable pharmaceuticals, health 
centers use 340B savings to support other activities that increase 
access and improve outcomes. Here are some examples of ways in which 
health centers use 340B savings to increase access to high-quality, 
affordable care for their patients:

          Implementing delivery systems and mail order pharmacy 
        programs to ensure access to affordable prescription medication 
        for health center patients in outlying rural communities with 
        limited or no access to affordable pharmacy resources. One such 
        service makes over 25,000 affordable prescriptions accessible 
        to low-income and underserved persons.

          Establishing multidisciplinary Care Transition Teams 
        providing care management for patients at high risk for repeat 
        hospital admissions. The model for this program resulted in 
        savings to their local health care delivery system of over $1.4 
        million in the first year of the program.

          Subsidizing the cost of behavioral health counseling 
        provided by a local partnering agency onsite at the health 
        center to low income, uninsured, and underinsured patients who 
        would either not qualify for, or have long delays in receiving 
        care from the local mental health agency.

          Establishing a pharmacist led interdisciplinary 
        controlled substance review process with the goal of decreasing 
        inappropriate prescribing of opioids and the associated patient 
        morbidity and mortality. This initiative resulted in a 66.2 
        percent reduction of patients on chronic opioids and cut 
        premature deaths in half over a 3-year period.

          Covering the cost of uncompensated care provided to 
        patients in communities with high rates of poverty for which 
        the health center's Section 330 grant funds are inadequate.

          Maintaining health center operations in sites where 
        mitigating circumstances result in higher cost and subsequent 
        operational losses. Examples of mitigating circumstances are 
        disproportionate need for unfunded enabling services such as 
        social work, translation, transportation, and care coordination 
        or increased cost of provider staffing in difficult to recruit 
        to rural and frontier areas.

    3. The contract pharmacy model enables health centers to expand 
access to affordable prescription medications.

    While most health centers likely would prefer to implement the 340B 
program using an in-house pharmacy, operating an in-house pharmacy can 
be daunting and sometimes presents insurmountable barriers. Health 
centers might lack space, technology, ability to recruit professional 
staff and availability of operating capital to sustain the in-house 
pharmacy operation until it reaches a break-even point. Further, 
providing access to medications after clinic hours and on weekends may 
present an additional drain on limited health center resources.
    The ability to contract with more than one pharmacy further 
improves health centers' ability to provide for their patients and 
ensure access to affordable medications. Health centers with in-house 
pharmacies, often find contract pharmacies to be useful tools to expand 
patient access, as patients have more pharmacies to choose from, 
including those that are closer to their home or work, and have longer 
hours than an in-house pharmacy can provide.
    Based on my experience with health centers across the country, 
there are three primary drivers of a health center decision to 
implement 340B using a contract pharmacy arrangement:

          Lack of capital and operational resources, as well as 
        the organizational capacity to support the implementation and 
        ramp-up to a financial viable pharmacy operation;

          Geographic dispersion of the health center's patient 
        population in small rural areas unable to support a full-scale 
        pharmacy operation within the health center site; and

          Potential disruption to small, locally owned 
        independent pharmacies, as it would pull away too many 
        customers for them to remain economically viable, especially in 
        rural areas.

    It is worth noting that savings that health centers achieve though 
a 340B contract pharmacy arrangement may provide the resources 
necessary to implement an in-house pharmacy program moving forward, 
which, in my experience, appears to be an evolving trend.

    4. A ``one size fits all'' approach to program changes could have 
unintended consequences.

    At present, approximately 15 types of health care providers are 
eligible to participate in 340B. From an administrative perspective, it 
might seem simpler to implement a single set of rules that apply 
equally to all 15 types of eligible providers. However, a ``one-size-
fits-all'' approach when making changes to the 340B program could 
potentially have unintended consequences for one entity and even 
further unintended consequences for another type of entity.
    For example, health centers do not provide ``charity care'' in the 
generally understood manner of a designated, and perhaps limited, 
charity care fund. All FQHCs, by law and by mission, are required to 
see all patients, regardless of ability to pay. If health centers were 
required to report the amount of ``charity care'' provided, the broader 
concept of community benefit would be a more appropriate measure, 
though not likely comparable to other covered entity types.
    For this reason, when considering any potential 340B changes, we 
encourage policymakers to work with health centers to best understand 
the responsibilities and requirements that are unique to health centers 
and the patients we serve.
                               Conclusion
    As my testimony demonstrates, the 340B program is vital to the 
Nation's community health centers, our ability to provide our patients 
with access to affordable prescriptions, as well as to support needed 
services for our low income and underserved patients. Thank you for the 
opportunity to testify before you today and for recognizing the 
importance of the 340B program for health centers and the patients we 
serve.
                                 ______
                                 
                    [Summary Statement of Sue Veer]
    A fundamental characteristic of all health centers is the 
commitment to ensure access to affordable health care for all 
individuals, regardless of ability to pay, with a focus on caring for 
populations who would otherwise be underserved. By definition, all 
health centers must be located in a medically underserved area and/or 
in communities designated as having medically underserved populations. 
An effective 340B program is a core element of achieving the goal of 
ensuring affordable health care, as it supports the health center's 
efforts to ensure that all patients have access to, and can afford, the 
medications that they are prescribed. Without the 340B program, many 
health centers patients would have no other access to affordable 
medication, which plays an essential role in improving individual 
patient outcomes as well as overall population health measures.
    The relationship between 340B and financial viability is complex 
and multidimensional. As mentioned above, access to affordable 
medication is essential to the effective treatment and management of 
chronic disease, which in turn reduces the need for costly specialty 
and inpatient care; thereby reducing the financial burden on the health 
care delivery system. The 340B program also enables health centers to 
support key patient care services that would otherwise be unfunded, and 
therefore unavailable to patients. Finally, access to affordable 
prescription medication drives improved clinical outcomes which, in 
turn, enable the health center to deliver the results necessary to 
secure optimal reimbursement and remain financially viable in a value 
based health care delivery system.

    My testimony will support the following perspectives:

          Health centers are good stewards of the 340B program, 
        ensuring that low-income uninsured and underinsured patients 
        can afford to access their medications purchased through 340B.

          Health centers reinvest all remaining 340B savings 
        into activities that advance their HHS-approved mission of 
        expanding access for underserved populations.

          Health centers are subject to extensive Federal 
        oversight and reporting requirements.

          The 340B Drug Pricing Program is essential to health 
        center's ability to achieve their congressionally mandated 
        mission of providing affordable access to care for underserved 
        populations.

          The contract pharmacy model enables health centers to 
        expand access to affordable prescription medication into 
        communities with limited or no affordable pharmacy resources.

          To avoid unintended negative consequences, program 
        changes must be made with consideration of the responsibilities 
        and requirements unique to the health centers.
                                 ______
                                 
    The Chairman. Thank you, Ms. Veer.
    Mr. Hill, welcome.

  STATEMENT OF JOSEPH M. HILL, III, MA, DIRECTOR, GOVERNMENT 
     RELATIONS DIVISION, AMERICAN SOCIETY OF HEALTH-SYSTEM 
                   PHARMACISTS, BETHESDA, MD

    Mr. Hill. Thank you, Chairman Alexander, Ranking Member, 
and distinguished Members of the Committee for the opportunity 
to testify today.
    My name is Joseph Hill, and I am the Director of Government 
Relations at the American Society of Health-System Pharmacists. 
I am here today to provide ASHP's perspective on the 340B Drug 
Pricing Program.
    ASHP represents pharmacists who serve as patient care 
providers in acute and ambulatory settings. The organization's 
45,000 members include pharmacists, student pharmacists, and 
pharmacy technicians. For more than 75 years, ASHP has been at 
the forefront of efforts to improve medication use and enhance 
patient safety.
    ASHP has a longstanding history of support for the 340B 
Drug Pricing Program. Many of our members serve as patient care 
providers in hospitals and health systems that are 340B 
eligible and have seen, firsthand, the benefits of the Program 
to the patients they serve.
    Congress enacted the 340B Program 25 years ago with 
bipartisan support. Since that time Congress, under control and 
support of both parties, has expanded the Program beyond 
hospitals to other safety net providers. Together, these 
providers serve tens of millions of uninsured and underinsured 
people every year.
    The increasing shift throughout healthcare toward 
ambulatory care and more outpatient pharmacy services has also 
contributed to the growth of the 340B Program and has allowed 
for better access to medications by low income and uninsured 
patients.
    It is important to note that the drugs subject to the 340B 
Drug Pricing Program make up a fraction of the Nation's total 
drug expenditures.
    Further, the Program also reduces Government expenditures 
and reduces taxpayer burden that would otherwise be responsible 
for the indigent care financed through the 340B Program.
    Today, the 340B Program continues to meet Congress' 
original intent of enabling these entities to stretch scarce 
Federal resources as far as possible, reaching more eligible 
patients, and providing more comprehensive services.
    Access to primary care, behavioral health services, 
pharmacist-led substance abuse treatment, provision of naloxone 
to law enforcement, discounted or free prescription 
medications, and other services for many uninsured and 
underinsured patients are made possible only by the savings 
realized through the 340B Program. In some communities, there 
would be limited or no access to healthcare services without 
the 340B Program.
    ASHP also recognizes the great importance of Program 
compliance and we endorse programs that support both covered 
entities and manufacturers. ASHP has partnered with Apexus, 
HRSA's contracted 340B Prime Vendor, to improve compliance 
through the use of educational training sessions such as the 
340B University. This training is available at our midyear 
clinical meeting, the largest meeting of pharmacists in the 
world, our summer meetings, and our annual conference for 
pharmacy leaders.
    To date, around 30,000 individuals have participated in the 
340B University. The goal of these sessions is to educate our 
members and other stakeholders about the Program's 
requirements, as well as to provide a forum to discuss 
compliance challenges and solutions.
    These educational sessions are typically done in panel 
format, which allows the unique opportunity for covered 
entities to interface with peers, faculty, and pharmaceutical 
wholesaler and manufacturer representatives in live sessions.
    ASHP believes these programs have had a positive influence 
on improving compliance within the 340B Program.
    ASHP remains supportive of the 340B Program. We believe it 
is a critical component in providing care to uninsured and 
underinsured patients, often our Nation's most vulnerable 
population.
    We also think the Program is especially critical in our 
Nation's rural areas where access and ability to pay for care 
are often compromised.
    We remain committed to working with Congress, HRSA, and 
other stakeholders to ensure that the requirements of the 
Program are being met and that the Program functions as 
intended.
    As we have worked with the Committee in the past, on a 
number of important public health issues, including drug 
shortages and compounding, ASHP welcomes the opportunity to be 
a resource for the Committee on this issue, as well as other 
issues pertaining to the practice of pharmacy, or healthcare in 
general.
    Again, we thank the Committee for the opportunity to 
provide input, and I look forward to answering any question you 
may have.
    [The prepared statement of Mr. Hill follows:]
                prepared statement of joseph m. hill iii
    Good morning, and thank you, Chairman Alexander, Ranking Member 
Murray, and distinguished Members of the Committee, for the opportunity 
to testify today. My name is Joseph Hill, and I am the Director of the 
Government Relations Division for ASHP, the American Society of Health-
System Pharmacists. I am here today to provide ASHP's perspective on 
the 340B Drug Pricing Program.
    ASHP represents pharmacists who serve as patient care providers in 
acute and ambulatory settings. The organization's 45,000 members 
include pharmacists, student pharmacists, and pharmacy technicians. For 
more than 75 years, ASHP has been at the forefront of efforts to 
improve medication use and enhance patient safety.
    ASHP appreciates the opportunity to provide our views to the 
Committee on the 340B Drug Pricing Program. ASHP has a longstanding 
history of support for the 340B drug-pricing program, as many of our 
members serve as patient care providers in hospitals and health systems 
that are 340B-eligible and have seen, firsthand, the benefits of the 
program to the patients they serve. \1\ At a time when Federal budgets 
are stretched thin, the Federal 340B program helps maximize Federal 
resources while providing access to lifesaving medications.
---------------------------------------------------------------------------
    \1\ ASHP's full policy on the 340B Drug Pricing Program 
Sustainability is as follows: (1) To affirm the intent of the Federal 
drug pricing program (the ``340B program'') to stretch scarce Federal 
resources as far as possible, reaching more eligible patients and 
providing more comprehensive services; (2) further, to advocate 
legislation or regulation that would optimize access to the 340B 
program in accordance with the intent of the program; (3) further, to 
advocate for clarification and simplification of the 340B program and 
any future Federal discount drug pricing programs with respect to 
program definitions, eligibility, and compliance measures to ensure the 
integrity of the program; (4) further, to encourage pharmacy leaders to 
provide appropriate stewardship of the 340B program by documenting the 
expanded services and access created by the program; (5) further, to 
educate pharmacy leaders and health-system administrators about the 
internal partnerships and accountabilities and the patient-care 
benefits of program participation; (6) further, to educate health-
system administrators, risk managers, and pharmacists about the 
resources (e.g., information technology) required to support 340B 
program compliance and documentation; (7) further, to encourage 
communication and education concerning expanded services and access 
provided by 340B participants to patients in fulfillment of its 
mission.
---------------------------------------------------------------------------
    Congress enacted the 340B drug-pricing program 25 years ago with 
bipartisan support. \2\ The program requires pharmaceutical 
manufacturers participating in the Medicaid or Medicare Part B programs 
to enter into a pharmaceutical pricing agreement (PPA) with the Federal 
Government. \3\ The terms of the PPA require manufacturers to provide 
discounts on covered outpatient drugs purchased by specified safety net 
providers, known as ``covered entities,'' that serve the Nation's most 
vulnerable patient populations. On several occasions since that time, 
Congress, under the control and support of both parties, has expanded 
the program to other hospitals that are part of the Nation's safety 
net. Covered entities include not only hospitals serving many low-
income patients (disproportionate share hospitals [DSHs], rural 
referral centers, critical access hospitals [CAHs], children's 
hospitals, and cancer hospitals), but also several other types of 
safety net providers including federally qualified health centers 
(FQHCs), state and local health departments, HIV clinics, and 
hemophilia treatment centers. \4\
---------------------------------------------------------------------------
    \2\ Veterans Health Care Act of 1992, Public Law No. 102-09585, 
Sec.  602, 106 Stat. 4943, codified as Section 340B of the Public 
Health Service Act at 42 U.S.C. Sec.  256b
    \3\ HRSA, Pharmaceutical Pricing Agreement, available at http://
www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf.
    \4\ 42 U.S.C. Sec.  256b(a)(4).
---------------------------------------------------------------------------
    Together, these providers serve tens of millions of uninsured and 
underinsured people every year.
    The increasing shift throughout healthcare toward ambulatory care 
including more outpatient pharmacy services has contributed to the 
growth of the 340B program and has allowed for better access to 
medications by low-income and uninsured patients. It is important to 
note that drugs subject to the 340B drug-pricing program make up a 
fraction of the Nation's total drug expenditures. Further, the Federal 
340B program also reduces government expenditures and lessens the 
burden on taxpayers who would otherwise be responsible for financing 
the indigent care that Federal 340B-participating hospitals provide.
    Today, the Federal 340B program continues to meet Congress' 
original intent ``of enabling these entities to stretch scarce Federal 
resources as far as possible, reaching more eligible patients and 
providing more comprehensive services.'' Access to primary care; 
behavioral health services; pharmacist-led substance abuse treatment; 
expanded pharmacy services; provision of naloxone to law enforcement; 
discounted or free prescription medications; pediatrics; and other 
services for many uninsured and underinsured are made possible only by 
the savings realized through the 340B program. In some communities, 
there would be limited or no access to healthcare services without the 
financial savings garnered through the 340B program.
    In September 2011, the Government Accountability Office (GAO), 
issued a study of the Federal 340B program and found that, in large 
part, the program is operating as originally intended. \5\ 
Specifically, the GAO found that ``all covered entities reported using 
the program in ways consistent with its purpose'' and that ``all 
covered entities reported that program participation allowed them to 
maintain services and lower medication costs for patients.'' GAO did 
make several recommendations for improving program oversight and 
specifically called on the Health Resources and Services Administration 
(HRSA) to be more proactive in administering the program. As a result, 
HRSA has significantly increased the number of audits of covered 
entities to help ensure compliance with program requirements.
---------------------------------------------------------------------------
    \5\ GAO-11-836: Published: Sep 23, 2011. Publicly Released: Sep 23, 
2011.
---------------------------------------------------------------------------
    ASHP also recognizes the great importance of program compliance, 
and we endorse programs that support the covered entities as well as 
manufacturers. ASHP has partnered with Apexus, HRSA's contracted 340B 
prime vendor, to improve compliance through the use of educational 
training sessions. ASHP continues to collaborate with Apexus to provide 
training programs, known as the 340B University, at our prominent and 
widely attended Midyear Clinical Meeting, the largest gathering of 
pharmacists in the world; our Summer Meetings; and our annual 
Conference for Pharmacy Leaders. To date, about 30,000 individuals have 
participated in the 340B University. The goal of these sessions is to 
educate our members and other stakeholders about the program's 
requirements as well as to provide a forum to discuss compliance 
challenges and solutions. These are typically done in panel format, 
which allows the unique opportunity for covered entities to interface 
with peers, the faculty, and pharmaceutical wholesaler and manufacturer 
representatives in live sessions. ASHP believes these programs have had 
a positive influence on improving compliance within the 340B program.
    ASHP remains supportive of the 340B program; we believe it is a 
critical component for safety-net providers to provide care to 
uninsured and underinsured patients. Safety net providers are 
especially critical in our Nation's rural areas, where access and 
ability to pay for care are often compromised. We remain committed to 
working with HRSA and other 340B program stakeholders to ensure that 
the requirements of the program are being met and that the program 
functions as intended.
    As we have worked with the Committee in the past on a number of 
important public health issues including drug shortages and 
compounding, ASHP welcomes the opportunity to be a resource for the 
Committee on this issue, as well as other issues pertaining to the 
practice of pharmacy or healthcare in general. Again, we thank the 
Committee for the opportunity to provide input.
                                 ______
                                 
                 [Summary Statement of Joseph Hill III]
    Good morning, and thank you, Chairman Alexander, Ranking Member 
Murray, and distinguished Members of the Committee for the opportunity 
to testify today. My name is Joseph Hill, and I am the Director of 
Government Relations at the American Society of Health-System 
Pharmacists. I am here today to provide ASHP's perspective on the 340B 
Drug Pricing Program.
    ASHP represents pharmacists who serve as patient care providers in 
acute and ambulatory settings. The organization's 45,000 members 
include pharmacists, student pharmacists, and pharmacy technicians. For 
more than 75 years, ASHP has been at the forefront of efforts to 
improve medication use and enhance patient safety.
    ASHP has a longstanding history of support for the 340B drug-
pricing program. Many of our members serve as patient care providers in 
hospitals and health systems that are 340B-eligible and have seen, 
firsthand, the benefits of the program to the patients they serve. 
Congress enacted the 340B program 25 years ago with bipartisan support. 
Since that time, Congress, under the control and support of both 
parties, has expanded the program beyond hospitals to other safety-net 
providers. Together, these providers serve tens of millions of 
uninsured and underinsured people every year.
    The increasing shift throughout healthcare toward ambulatory care 
including more outpatient pharmacy services has contributed to the 
growth of the 340B program and has allowed for better access to 
medications by low-income and uninsured patients. It is important to 
note that drugs subject to the 340B drug-pricing program make up a 
fraction of the Nation's total drug expenditures. Further, the program 
also reduces government expenditures, and it reduces taxpayer burden 
that would otherwise be responsible for the indigent care financed by 
the 340B program.
    Today, the 340B program continues to meet Congress's original 
intent ``of enabling these entities to stretch scarce Federal resources 
as far as possible, reaching more eligible patients and providing more 
comprehensive services.'' Access to primary care; behavioral health 
services; pharmacist-led substance abuse treatment; provision of 
naloxone to law enforcement; discounted or free prescription 
medications; pediatrics; and other services for many uninsured and 
underinsured are made possible only by the savings realized through the 
340B program. In some communities, there would be limited or no access 
to healthcare services without the 340B program.
    ASHP also recognizes the great importance of program compliance, 
and we endorse programs that support both covered entities and 
manufacturers. ASHP has partnered with Apexus, HRSA's contracted 340B 
prime vendor, to improve compliance through the use of educational 
training sessions, such as the 340B University. This training is 
available at our Midyear Clinical Meeting, the largest gathering of 
pharmacists in the world; our Summer Meetings; and our annual 
conference for Pharmacy Leaders. To date, about 30,000 individuals have 
participated in the 340B University. The goal of these sessions is to 
educate our members and other stakeholders about the program's 
requirements as well as to provide a forum to discuss compliance 
challenges and solutions. These educational sessions are typically done 
in panel format, which allows the unique opportunity for covered 
entities to interface with peers, faculty, and pharmaceutical 
wholesaler and manufacturer representatives in live sessions. ASHP 
believes these programs have had a positive influence on improving 
compliance within the 340B program.
    ASHP remains supportive of the Federal 340B program. We believe it 
is a critical component in providing care to uninsured and underinsured 
patients--our nation's most vulnerable population. The program is 
especially critical in our Nation's rural areas, where access and 
ability to pay for care are often compromised. We remain committed to 
working with Congress, HRSA, and other stakeholders to ensure that the 
requirements of the program are being met and that the program 
functions as intended.
    As we have worked with the Committee in the past on a number of 
important public health issues including drug shortages and 
compounding, ASHP welcomes the opportunity to be a resource for the 
Committee on this issue, as well as other issues pertaining to the 
practice of pharmacy or healthcare in general. Again, we thank the 
Committee for the opportunity to provide input, and I look forward to 
answering any questions you may have.
                                 ______
                                 
    The Chairman. Thank you, Mr. Hill, and thanks to all four 
of you for being here and for excellent testimony. We will read 
the statements that you submitted.
    We will now begin a 5 minute round of questions beginning 
with Senator Cassidy.
    Senator Cassidy. Thank you all for being here.
    First, let me establish my street credentials. I worked in 
a public hospital in Louisiana taking care of the uninsured for 
25 years and still am nominally, at least, still go to clinic 
every now and then. And so, I know the importance of what Ms. 
Veer and Dr. Siegel speak of. And I actually think that is 
common ground.
    Everybody recognizes that there are patients, and community 
health clinics, and safety net hospitals that appropriately 
benefit from the 340B. I do not think that is the issue.
    But it is important to move beyond, if you will, rhetoric 
and anecdote and look at objective facts.
    If I may, Mr. Chairman, I ask unanimous consent to issue a 
few of the following studies, which are rigorous analyses, 
nonpartisan, third party researchers regarding the problems 
with 340B.
    First, an NYU-Harvard research published in the ``New 
England Journal of Medicine,'' of February this year found no 
evidence that 340B revenue went to help lower income patients 
in ways that reduce mortality, and that 340B eligibility 
prompted hospitals to treat fewer Medicaid patients without 
increasing quality; ``New England Journal of Medicine,'' 
Harvard, and NYU.
    Secondly, a 2017 ``Journal of Oncology'' article showing 
that physician practices being consolidated due to 340B 
hospitals using the revenue to buy up their practices drives up 
the cost of commercial insurance.
    Next, the ``New England Journal of Medicine'' article from 
the University of Chicago and Harvard from 2016 suggesting, 
quote, ``Lawmakers could lower the price of prescription drugs 
by reforming the Federal 340B Drug Pricing Program.''
    Next, 2014, from a Memorial Sloan-Kettering ``Health 
Affairs'' article, researchers from the University of Chicago 
also, quote, ``Support the criticism that the 340B program is 
being converted from one that serves vulnerable patient 
populations to one that enriches hospitals and their affiliated 
clinics.''
    2014, the Office of Inspector General found that some 
covered entities that dispense 340B-purchased drugs to Medicaid 
beneficiaries through contract pharmacies did not report 
methods to avoid duplicate discounts.
    Next, GAO, ``Our work suggests 340B hospitals may be 
responding to financial incentive associated with the Program 
to maximize Medicare revenue.''
    2011, the GAO concluded, quote, ``Program integrity issues 
may take on greater significance unless effective mechanisms to 
monitor and address Program violations are put into place.''
    Finally, 2017, OIG testimony noting that a continued lack 
of transparency that prevents accurate payments by 340B 
providers, State Medicaid programs, and manufacturers; and two, 
a lack of clarity regarding Program rules.
    The Chairman. They will be included in the record.
    Senator Cassidy. I will note that some of these 340B 
hospitals are actually extending the Program benefit to 
cosmetic clinics, and into clinics and hospitals that serve 
wealthy clientele using the primary site; which may be 340B 
buying hospitals in wealthy suburbs and then taking a program, 
ostensibly for the poor, and making it a cash cow for the 
system.
    Now, Dr. Siegel, I admire the work your hospitals do. 
Obviously, we have hospitals in Louisiana as part of your 
coalition.
    But when you say there should be no restrictions or changes 
to the 340B Program, can you really defend a cosmetic clinic 
benefiting from 340B?
    Dr. Siegel. Thank you, Senator, and thank you for your 
leadership, and also for the work you did at our member systems 
and hospitals in Louisiana. Greatly appreciate that.
    I cannot speak to the cosmetic clinic, although if a 
cosmetic clinic were dealing with burn patients, many of whom--
--
    Senator Cassidy. Usually, those would be in a burn unit. It 
would not be a place doing blepharoplasty.
    Dr. Siegel. But it might also be, sir, a place which has 
post-discharge patients.
    Senator Cassidy. Let us just take the theoretical. It is a 
cosmetic clinic that does blepharoplasty. It is all cash. It is 
340B.
    Should they benefit from the 340B Program?
    Dr. Siegel. They should benefit from the 340B Program if 
they fall under the rules of the Program.
    Senator Cassidy. You want no change in the rule, even 
though I have this stack tumbling out of my hands showing that 
there are abuses that are driving up the cost of drugs for 
others, and the cost of commercial insurance for all.
    There should be no change in the 340B?
    Dr. Siegel. Those studies are deeply flawed studies. Let me 
speak to a couple of them.
    Senator Cassidy. Now hang on. Just so I may say.
    Dr. Siegel. Yes.
    Senator Cassidy. I think I did ten studies: NYU, Harvard, 
Memorial Sloan-Kettering, the University of Chicago, OIG, GAO, 
and each of these are deeply flawed?
    Dr. Siegel. Yes.
    The GAO study, for instance, talks about the increased Part 
B spending for 340B hospitals. Does it account for the 
difference in health status of the patients who go to 340B 
hospitals rather than others? It does not.
    Senator Cassidy. It did a regression analysis looking at 
the difference in patient populations.
    Dr. Siegel. Actually, HHS actually critiqued that study on 
those same grounds, the ones I just noted.
    Senator Cassidy. The one recently in the ``New England 
Journal of Medicine''?
    Dr. Siegel. Excluded many 340B hospitals from consideration 
and also----
    Senator Cassidy. No, I know. So I accept that there are----
    I am sorry. I am out of time and I will yield back after 
this point.
    That is the trick. I do not want to offend you, but there 
is a certain lack of forthrightness.
    Your good work is presented as typical of all 340B's. 
Clinics, safety net hospitals, this is the face of 340B, when 
there is a whole stack of evidence that non-340B hospitals may 
provide more charity care than many 340B hospitals.
    Although you are the face, and you are a very good face; 
nice face, Dr. Siegel.
    [Laughter.]
    Dr. Siegel. Thank you. I appreciate that.
    Senator Cassidy. But we have to concede, or maybe you do 
not have to concede, but the evidence concedes that there are 
hospitals, which are not taking care of charity patients, and 
which come upon your coattails, if you will, to justify that 
which is an income stream, but not serving the original 
purpose.
    I may stay around for a second round, and I apologize to my 
colleagues for going over.
    The Chairman. Thank you, Senator Cassidy.
    Senator Hassan.
    Senator Hassan. Well, thank you very much, Mr. Chairman.
    Thank you and the Ranking Member for holding this hearing.
    Dr. Siegel, because I do not want to use up too much of my 
time, I may try to give you some opportunity to respond a 
little bit more to Senator Cassidy's comments in just a minute.
    First of all, I just want to note that in New Hampshire, we 
have 13 340B hospitals that rely on the Program in order to 
help them stretch Federal dollars, so that they can help 
provide benefits to other communities.
    Dartmouth-Hitchcock, for example, is one of the few rural 
academic medical centers in the country, and 340B is vitally 
important to them and the communities that they serve.
    Because of 340B, Dartmouth-Hitchcock saves about $43 
million each year. And in 2016, they provided more than $172 
million in community benefits to help improve the health of the 
Granite State. In New Hampshire, this includes helping to fight 
the opioid epidemic.
    In fact, just at the beginning of this month, Dartmouth-
Hitchcock made a contribution to a community organization in 
Claremont, New Hampshire to assist with the opioid epidemic 
after programs were forced to scale back because of a lack of 
state funding.
    Dr. Siegel, can you comment on the role of the 340B Program 
specifically for rural hospitals like Dartmouth-Hitchcock and 
how it impacts their ability to provide community benefits?
    Dr. Siegel. Thank you, Senator. I appreciate the question.
    A place like Dartmouth-Hitchcock, or other 340B hospitals, 
has a really unique role to play in their community.
    Unfortunately, opponents of the Program have continued to 
characterize the Program as simply existing only to provide 
charity care to people. If you look at a Dartmouth-Hitchcock, 
it goes far beyond that.
    Senator Hassan. Yes.
    Dr. Siegel. These hospitals are providing not just charity 
care. They are providing care, under-reimbursed care, to 
Medicaid patients. They are suffering through bad debt, bills 
that are not paid, for they provide that care readily and 
happily.
    They provide the burn unit, the trauma center. They are out 
in the community dealing with food insecurity, dealing with 
housing; just a whole range of things that make communities 
better and more vibrant.
    Senator Hassan. Yes.
    Dr. Siegel. We need to keep that in mind when we talk about 
the benefits of the 340B Program.
    Charity care is one measure; just one.
    Senator Hassan. Yes, and it is really important for people 
to understand that charity care is often care for people who do 
not have insurance, but there is a whole lot of under 
reimbursed care like Medicaid. New Hampshire is one of the 
lower Medicaid reimbursers in the country, for instance.
    I also want to touch a little bit on some of the criticism 
around transparency because I think it is really important that 
we make sure that the 340B Program is operating as Congress 
intended and helping support these safety net providers, so 
that they can provide care, as you have just described.
    We have heard about transparency as it relates to 340B, but 
I have to say, I think the place we most need transparency is 
in drug pricing. I wish stakeholders, with all due respect to 
Ms. Reilly, like PhRMA, advocated as strongly for transparency 
in the pricing of their own members' products as they have 
advocated for transparency in 340B.
    For example, the big drug makers claim to set their prices 
to recoup research and development costs, but many think much 
of the money goes to things like marketing campaigns and 
profits.
    But there is no transparency in their pricing. So they get 
away with hiking up prices to reap profits without being held 
accountable, all while everyday Americans struggle with drug 
prices.
    Dr. Siegel, I am interested in your thoughts about that.
    Dr. Siegel. Thank you, Senator.
    First, I want to just note that as we talk about prices, 
and you mentioned marketing and those sorts of things, the top 
ten drug makers in America spend about $100 billion a year on 
marketing every year and advertising.
    The discount of this Program is $6 billion. Let us just 
make sure we compare those two.
    We talk about transparency. Hospitals are leaders in 
transparency. I mean, we really began the movement toward 
transparency in the National Voluntary Hospital Reporting 
Initiative 20 years ago. We are proud of that and we still 
stick to that. When we look at the drug manufacturers, we do 
not see that.
    Just today, if you look at something like the average 
manufacturer price, which is how we set this ceilings price for 
the 340B programs, we do not know where that number comes from. 
There are legal things that allow in law drug companies not to 
disclose that data and the information is not even reviewed in 
the few audits that HRSA has done of manufacturers. It is a 
black box.
    Senator Hassan. Well, thank you. I want to just get your 
thoughts.
    If the 340B Program were restricted or rolled back in any 
way, do you think manufacturers would reduce drug costs?
    Dr. Siegel. No.
    Senator Hassan. Thank you.
    The Chairman. Thank you, Senator Hassan.
    Senator Smith.
    Senator Smith. Thank you, Chairman Alexander.
    Thank you all for being here today.
    I appreciate hearing about the 340B Program today, which is 
such an important strategy for lowering the cost of drugs, 
especially for rural hospitals and community health plans. Ms. 
Veer, I appreciate your comments about community health plans.
    Just today, I had an opportunity to meet with a large group 
of them from Minnesota and their message was loud and clear on 
how important it is and also they are really providing a 
foundation access to healthcare all over the state.
    I wanted to just say, yesterday I heard from a woman from 
Minnesota, her name was Rachel, who visited my office. She is a 
military vet and a new mom. She was diagnosed with Stage IV 
lung cancer at the age of 31.
    Now last year, the price for just one of her drugs was 
$16,000 every month. And this year, the cost of her drug 
increased to $20,000 every month. So even with insurance, she 
is paying over $15,000 out of pocket for her medicine, which is 
just completely unconscionable, it seems to me.
    Given that the huge burden of drug prices that have been 
placed on families like Rachel's, it seems like we ought to be 
doing everything we can to lower drug prices and bring those 
prices down.
    Yet, in the United States, spending adjusted after net 
prices--that is the actual amount that the manufacturers get 
back from selling their products--on prescription drugs reached 
$323 billion in 2016 and it grew by almost 5 percent from the 
previous year.
    It seems like prices are just out of control and as I said, 
it is the No. 1 thing I hear about in Minnesota, the No. 1 
economic issue.
    Last month it was reported by Axios, that the number of 
leading pharmaceutical organizations, companies, are using a 
large portion of the windfall from the tax bill, not to lower 
drug prices, but to improve stock prices and to benefit their 
investors.
    My question to you, Ms. Reilly, is can you help me 
understand why the American people like Rachel, like my 
constituent, should not be outraged that they are paying so 
much for prescription drugs when revenues for the big drug 
companies are going up nearly 25 percent?
    Over $55 million is being spent on lobbying, this is 
according to a ``Politico'' article, and that the salaries of 
your CEO's range from $2 million to $17 million a year. Help me 
understand how that can make sense for Americans.
    Ms. Reilly. First of all, thank you for your question and 
also, thank you for raising an important issue.
    In my mind, we do have an issue in terms of patients often 
being able to afford and access their therapies. There is no 
doubt about that.
    We have been strongly on record to say that we believe that 
the discounts and rebates that our companies provide--whether 
it is to hospitals that participate in the 340B Program where 
discounts range at 50 percent, or to commercial payers where 
often the average rebate is 40 percent--actually make it back 
to those patients who are in need of being helped.
    Today, unfortunately, there is no requirement that those 
rebates, whether they are in 340B or whether they are provided 
to commercial payers, actually are passed back to patients who 
need them. In fact, quite the opposite is happening.
    In hospitals today, the average hospital mark-up on a 
prescription medicine is 500 percent. They are then reimbursed 
two-and-a-half times what the manufacturer receives. Patients' 
co-insurance and co-pays are based off of that amount. 
Patients' premiums are taken into account.
    Yes, more does need to be done to ensure that patients can 
access and afford their medicine. But today, unfortunately, 
many policies that are in place by insurance companies, 
hospitals, and others are not mandating that the discounts we 
are providing make it to the patients that need them.
    Senator Smith. But my question to you is when people are 
just trying to figure out how to pay their bills, and they are 
looking at the amount of money that your organization is 
spending on lobbying and the amount of money.
    The head of your organization, according to ``Politico,'' 
made somewhere in the neighborhood of $2.8 million last year.
    How can we explain that to people?
    Ms. Reilly. Again, I think for patients who cannot afford 
their medicines, that is the purpose of insurance.
    But today what we have going on is a perversity of 
insurance where instead of healthy people subsidizing the sick, 
we have turned our system into one where sick people are 
subsidizing healthy with the incidence of high deductible 
health plans, high co-insurance.
    Many patients today with cancer, when they go to pick up 
their medicine, they are asked to pay 40 percent of a list 
price of a medicine that is not reflective of the rich 
discounts and rebates that our companies provide. That needs to 
change, because patients are struggling to afford their 
medicines.
    We are committed to helping them, whether it is through the 
discounts we provide in 340B, to commercial payers, or the free 
programs that our companies provide to patients that lack 
insurance.
    Senator Smith. Mr. Chairman, I know I am out of time, but I 
want to just close by noting that the average Minnesotan makes 
about $65,000 a year; half of them make less than that.
    That means that the head of your organization is making as 
much in a week as they are making in a year, and I think that 
is what people are looking at as they are trying to understand 
what is going on with prescription drug prices.
    Thank you very much.
    The Chairman. Thank you, Senator Smith.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman.
    Thank you, to the witnesses.
    Mr. Chairman, if I might. This panel is a very important 
one because this Program is important and I appreciate the 
Committee calling this hearing. It does strike me that the 
first five questions I have had pop into my mind, as I have 
heard the witnesses testify, are questions that I want to 
direct to HRSA.
    I hope we might consider having, at least, another hearing 
where we could engage HRSA on the same discussion.
    The Chairman. Well, thanks, Senator Kaine. We will have at 
least one more hearing on 340B, and that is a very good 
suggestion about inviting HRSA, and we will try to do that.
    Senator Kaine. Excellent. Thank you, Mr. Chairman.
    This is a critical Program. Others have talked about its 
importance in their own state. In Virginia, there are 22 
hospitals that are participants in the 340B Program and a whole 
range of other safety net providers, community health centers, 
free clinics, and others.
    One example, just to give you one, Riverside Hospital 
Health System in Virginia receives about $36 million of 
discounts a year under the 340B Program. They are very, very 
active including in some really hard to reach parts of the 
state. There is only one hospital on the Eastern Shore of 
Virginia, for example. That is a Riverside hospital and the 
340B Program is absolutely critical to them. We have had rural 
hospitals in Virginia close. A lot of them are just on-the-
edge.
    We have a community health center in Tangier, which is an 
island in the middle of the Chesapeake Bay that is extremely 
hard to get to. Riverside helps staff it. It is a community 
health center; 340B is very, very important to that program.
    I wanted to ask, this is a question probably for Dr. Siegel 
and Ms. Veer and Mr. Hill, but Ms. Reilly, you may want to 
address it as well.
    HRSA announced, I guess, January 1 as the subject of 
litigation that there is going to be a 28.5 percent reduction 
in the reimbursement rate under the 340B. I know that is in 
their litigation and going back and forth.
    But if that were to go into effect today, talk about the 
effect that would have upon the institutions and companies that 
you are here to represent.
    Dr. Siegel. Thank you, Senator.
    First of all, I can say that cut, as unfortunate as it is, 
is going to lead to individual hospitals, some of them losing 
millions of dollars a year in payment for services they are 
already providing. That cut boggles the mind.
    It basically says, ``If you have more than your share of 
Medicaid patients and poor people,'' and that is why you are in 
the Program. The rules are pretty clear. ``We have decided as a 
matter of policy, we are going to pay you less under Medicare. 
We are going to punish you.''
    They have made a rationale that the reason we are doing 
this is because we are going to save beneficiaries money. Over 
80 percent of beneficiaries will see no change because of 
supplemental insurance that they have.
    Senator Kaine. This is a cut in this program, which just 
affects the safety net hospitals. That there is not an 
equivalent cut, for example, that has been announced on 
reimbursement rates to non-340B hospitals.
    Dr. Siegel. That is correct. It is a targeted cut that 
affects 340B hospitals.
    By the way, drug companies will probably recoup because it 
is about $70 million potentially. And that was a MedPAC 
projection.
    Let us be clear about what this is and how really 
unconscionable it is.
    Senator Kaine. I only have a minute left. Ms. Reilly, I 
will have you next. Maybe I will just go in order.
    Ms. Reilly, go ahead.
    Ms. Reilly. I would say our discounts do not change under 
this policy, so nothing about that policy impacts the discounts 
that we have to provide.
    I would also just say that while it is a cut to hospitals 
in one sense, it only affects 13 percent of the profit margin 
hospitals receive from 340B, and that money is redistributed to 
hospitals.
    I think 75 percent of all hospitals come out at the same, 
if not slightly better, than what they do under the current 
rule.
    Senator Kaine. But the 25 percent that come out worse are 
the ones that are the safety net hospitals.
    Ms. Reilly. I do not know that is accurate. Twenty-five 
percent of hospitals will receive less money than they did 
under the current plan. But again, they still have 87 percent 
of their profit coming from outside of that cut.
    Senator Kaine. Ms. Veer.
    Ms. Veer. Yes. This rule does not directly affect the 
health centers, but I think what we are concerned about is the 
signal that it sends regarding the concept of discriminatory 
pricing from the payers.
    Senator Kaine. Mr. Hill, how about from your perspective?
    Mr. Hill. I think our view would be mainly around how the 
program allows pharmacists to provide more advanced patient 
care services. We could be talking about pharmacist-led opioid 
stewardship program. In some cases, pharmacists actually make 
house calls, involves other health professional too, but we 
work for a pharmacy group, so I am going to focus on 
pharmacists.
    I think our concern is the ability of hospitals to utilize 
clinical pharmacists and not have the proper funding to account 
for this.
    Senator Kaine. The cut may restrict their ability to use 
pharmacy services.
    Mr. Hill. Right.
    Senator Kaine. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Kaine, and we will follow-
up on your suggestion.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    The 340B Program helps hospitals and clinics providing care 
to the most vulnerable patients--the uninsured, the 
underinsured, people with HIV or AIDS, children with cancer--by 
requiring drug companies to provide medications at a discounted 
price. So, of course, the drug companies are fighting to limit 
the program.
    I get it. No one likes to be forced to handout a discount. 
And I understand why drug companies want to make sure that 
these discounts are only going to hospitals that treat people 
in need.
    But the drug companies have now started attacking the 340B 
Program, a drug discount program. I started following the press 
reports on this. The argument is that it is contributing to the 
problem of high drug prices. That is, that the 340B Discount 
Program contributes to the problem of high drug prices.
    I just want to look at this for just a second.
    Ms. Reilly, your organization called PhRMA, I think is how 
it is pronounced, represents drug companies. According to HRSA, 
the Government agency that administers the 340B Program--and I 
think these were the same data that Senator Alexander just 
quoted--drug companies were required to give roughly $6 billion 
in 340B discounts in 2015.
    Is that about right?
    Ms. Reilly. There were $16 billion of sales in 2016 of 
340B.
    Senator Warren. No, I am not asking a question about sales. 
I am asking the question about you were required to give about 
$6 billion in discounts.
    Ms. Reilly. That is 2015 data. It would be $8 billion in 
2016.
    Senator Warren. Okay.
    Ms. Reilly. You are looking at just the discount, but not 
the sales.
    Senator Warren. Yes, but that is what I want to know. I 
want to know how much you had to give up for this because that 
is what creates, to me, the big problem with PhRMA's argument 
that the 340B Program raises drug prices.
    If 340B did not exist, drug companies would have an extra 
$6 billion in their pocket. That is less than 1 percent of 
global pharmaceutical sales revenue, which also in 2015 was 
$775 billion. Or, if you do not like that comparison, we could 
use the size of the U.S. drug market, about $457 billion in 
2015. Here the discounts worked out, as Senator Alexander 
pointed out, to a whopping 1.3 percent.
    But no matter what denominator you use, it is clear that 
the total loss to these drug companies, the loss that they are 
kicking and screaming about right now, is a tiny fraction of 
the many billions of dollars that they pull down every year in 
profits.
    Dr. Siegel, according to an analysis by the Government 
Accountability Office, the average profit margin for drug 
companies in 2015 was 17.1 percent.
    You represent hospitals that serve a large share of 
uninsured patients and patients receiving coverage through 
Medicaid.
    How do the profit margins of the drug companies compare to 
the profit margins at your hospitals?
    Dr. Siegel. Thank you, Senator Warren.
    The drug companies' margins are about 6 times ours, on 
average. Our average member is 3 percent. And let me be clear, 
many of our members are, frankly, losing money sometimes 
millions of dollars per year.
    Senator Warren. Ms. Veer, if health centers lost access to 
these discounted drugs, do you believe that patients would be 
better off or worse off?
    Ms. Veer. They would be far worse off. I can think back to 
a time when my health center, we are very geographically 
disbursed, our patients are, and we implemented a delivery 
service to get affordable medication out in those areas.
    I think back to before that happened and we had a very 
difficult time managing the chronic disease of those patients.
    I would also say as it goes to the margin issue, I operate 
on anywhere from a 1 to 3 percent margin in my health center at 
best. And without 340B, we would see that drop, probably, into 
the negative double digits, which would, of course, mean the 
resultant cut in services that we could provide.
    Senator Warren. A 1 to 3 percent margin compared with a 
17.1 percent margin----
    Ms. Veer. Yes.
    Senator Warren.----profit margin for the drug companies.
    I think it is always fair to look for ways to improve a 
program like 340B, to make sure it is supporting those who need 
it the most. But that is not what the drug companies are doing 
right now.
    The drug companies are pulling out a trusted Washington 
lobbying playbook. They shift the blame for the skyrocketing 
cost of prescription drugs onto someone else, blame the 
Pharmacy Benefit Managers, blame the insurers, blame the 
hospitals, blame anyone else.
    But whatever happens, make sure that no one focuses on the 
out of control drug prices that the drug companies are 
charging; charging, simply because they can.
    I believe we should spend some time focusing on the high 
cost of prescription drugs instead of chasing around wherever 
the drug companies want us to go.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman.
    Thank you to our panelists.
    I have to be honest about this. I feel to some extent what 
I am hearing today is just a small microcosm of some of the 
biggest dysfunctions that we have in Washington, where we have 
one side saying one thing, and another side saying almost 
completely the opposite.
    It is almost like you are not talking to each other. I 
would encourage everybody to try to talk together a little bit 
to each other.
    But let me just ask a couple of specifics.
    Dr. Siegel, we have seen the studies, and I am not sure I 
agree with you that the studies that Senator Cassidy--which I 
appreciate being put in the record--are all as deeply flawed as 
you say.
    Do you recognize that there needs to be some changes and 
there needs to be some oversight of this Program to make it 
more efficient? And if so, briefly, give me some ideas of what 
you can do.
    Dr. Siegel. I absolutely do recognize that there needs to 
be oversight and we are truly stewards, good stewards of the 
Program. We go through audits every year or frequently. We go 
through annual recertification to be in the Program.
    I mean, you do not just wander in to the 340B Program 
randomly because somebody said you should be. You have to meet 
some rules and meet those every year. And then when you are 
audited, you are under potential penalty if you find a problem.
    As a matter of fact, if you have three strikes against you 
in an audit, you can be thrown out of the Program. So we have 
to be stewards of this Program.
    Senator Jones. Ms. Reilly, I noticed on several occasions 
you shake your head. You did then and I am going to give you a 
chance, but I would like for you to go back to Senator Smith's 
question which, quite frankly, she gave you two times to answer 
and you did not.
    Both times, she asked you specifically about the amount of 
money being spent on either advertising or other things that 
are going to CEO executives, stock buybacks, stock prices, 
those kinds of things. And each time, you kind of flipped it 
back on the hospitals and the providers.
    I would like for you to address what Dr. Siegel just said, 
as well as the issue where I first noticed it, where you were 
talking about the amount of advertising money that is being 
spent, $100-something billion versus $6 billion.
    Kind of reconcile that for me a little bit.
    Ms. Reilly. Sure.
    Senator Jones. Because I think Senator Warren adequately 
pointed out, and rightly so, you make a ton of money. I mean, 
it is a ton of money.
    Complaining about the $6 or $8 billion dollars and the 
global things just is not computing for the people of Alabama, 
where 80 percent of the hospitals that are in the 340B Program 
are underwater, and we are losing our hospitals every day. They 
are trying to stretch those Medicaid dollars every day.
    I want to give you a chance to respond to that.
    Ms. Reilly. Sure. In terms of what our companies spend on 
advertising, it is less than $5 billion a year. I would note 
that many hospitals also advertise, so I am sure they are proud 
of the advertising that they do as well.
    I want to be clear, and I said it at the outset of my 
testimony, that we do not want the 340B Program to go away. I 
think often our position is characterized as one that we think 
it is a terrible program and it should go away; far from the 
truth.
    This Program was started because our companies had 
voluntarily provided large discounts to public hospitals, 
community health centers, and others. Passage of the Medicaid 
Rebate statute created unintended consequences. Congress 
stepped in and created this Program. There is nothing wrong 
with this Program.
    I think what we are saying is there needs to be rules about 
how this Program operates. Our goal in providing deep discounts 
is also to ensure that the patients who need them can actually 
afford them.
    Us providing a 50 percent discount, and an uninsured 
patient walking into a hospital and paying full list price for 
the medicine rings wrong to me and, I think, to many patients.
    Senator Jones. Would you expect if the reforms that you 
want to see implemented are, in fact, implemented, would you 
expect to see the dollars, not the percentages, but would you 
expect to see the total dollars of discounts provided go from 
$8 billion less, or stay the same, or more?
    Ms. Reilly. They could go down, but quite honestly, if you 
froze the Program today and said that this is the dollar 
amounts that we have to live with, our companies could live 
with this.
    I think the problem is what we have seen is the paradoxical 
nature of the fact that over the past few years, we have 
dramatically increased insurance coverage for patients. 
Hospitals are spending less as a percentage of total expenses 
on compensated care than they were years ago. They are spending 
less on charity care.
    If these resources are needed, and for many institutions 
they absolutely are needed, but one would assume that 
uncompensated care costs, charity costs, would be increasing.
    If they are not increasing, then I think we have to ask the 
questions: where are those dollars going and are they actually 
going to patients to reduce their out of pocket costs? Which we 
believe is a strong goal of the Program: let us help patients.
    I would be very remiss in not saying that the grantees, 
like community health centers that live under this program, are 
operating under very different rules. A patient walks into a 
community health center. They are charged on a sliding fee 
scale. They have an obligation under Federal law to reinvest 
the resources that they get from this Program back to helping 
uninsured and vulnerable patients.
    Those same requirements do not apply in the hospital 
setting and we think that is a change that makes sense. If we 
are going to hold grantees accountable for using these 
resources in a certain way, certainly we should be holding 
hospitals accountable for use of this Program in a similar way.
    Senator Jones. Dr. Siegel, I notice your hand, but my time 
is up.
    Mr. Chairman, I appreciate your indulgence.
    The Chairman. Thank you, Senator Jones.
    Senator Young.
    Senator Young. Thank you, Mr. Chairman.
    Dr. Siegel, I would like to discuss the 340B Program. It 
allows many hospitals, in my State of Indiana, to help some of 
our most vulnerable and complex patients.
    In your testimony, you describe how hospitals use their 
340B savings, including free clinics, comprehensive services, 
and other things.
    How do you obtain this information from your hospitals?
    Dr. Siegel. We ask them and they are glad to provide it.
    Senator Young. Do you survey the hospitals? Is that how?
    Dr. Siegel. No. We literally go to them, ``Tell us how you 
are using your savings. Tell us what you are doing in your 
community,'' and they are proud to talk about it.
    Senator Young. Is there a form you fill out? How rigorous 
is this?
    Dr. Siegel. Some organizations have had forms, but we just 
ask them to, ``Tell us what you are doing.''
    I will also note that recently when the Energy and Commerce 
Committee had hearings on this, hospitals were happy to provide 
this information, including detailed financial information.
    Senator Young. Well, I am not going to linger on that 
question for a period of time. It strikes me as a bit loosey-
goosey.
    Why can hospitals not report directly to us about how they 
use their 340B dollars? If they are reporting to you, however 
formal or informal that process might be, why can they not just 
report it to us?
    Dr. Siegel. I hear your concern about loosey-goosey and 
there was some loosey-goosey just now when somebody used an 
advertising number that does not really talk about all the 
marketing that drug companies do.
    Senator Young. I have no idea----
    Dr. Siegel. I will leave that be.
    Senator Young. Please address my question, please.
    Dr. Siegel. We totally support transparency. We are leaders 
in transparency. But I will say one thing.
    Senator Young. You would support direct reporting?
    Dr. Siegel. If we are going to have transparency in the 
hospital industry on these issues, we need to have transparency 
on the drug industry as well.
    Senator Young. That is fair to go down that line of 
questioning. That is not my line of questioning.
    It sounds like we are just taking your word for it with 
respect to the 340B's. Maybe you can disabuse me of this 
notion, but if there is not direct reporting, and you are going 
around, I cannot even use the word ``surveying''.
    You are having conversations with hospitals about 340B 
usage, and the data, and so forth. We are taking your word for 
it. Right?
    Dr. Siegel. Take your hospitals' words for it. Take the 
word of people who spend every day in their community and 
caring for people who really need these services.
    Senator Young. We could take our hospitals' word for it 
through direct reporting. Right?
    Dr. Siegel. Any kind of direct reporting, any kind of 
increased transparency has to have two things. One, it has to 
be on all players. This needs to be a two-way street. We have a 
black box on one side of this equation right now, which we are 
not addressing.
    Second, we need to make sure that any reporting we do is 
not a backdoor----
    Senator Young. ``We,'' meaning who?
    Dr. Siegel. Government, policymakers, whoever requires 
anything is not a backdoor way to restrict the Program, which 
exactly what opponents of the Program want.
    Because when we restrict a program through some backdoor 
form, we are going to stick it to local taxpayers. We are going 
to stick it to state government. We are going to stick it to 
the Federal Government.
    Senator Young. You regard yourself as a guardian, as the 
gatekeeper and guardian at once of the 340B Program.
    Dr. Siegel. Our hospitals are excellent stewards of this 
Program and are proud of it.
    Senator Young. I am going to essentially mention the rest 
of the panel a number of times. I am going to open this up to 
the entire panel.
    What do you feel are responsible reporting requirements, so 
we can properly oversee this Program and ensure vulnerable 
patients are benefiting from it, No. 1? And what can be done to 
have more transparency in the Program?
    Ms. Reilly. I am happy to.
    Senator Young. Yes, Ms. Reilly.
    Ms. Reilly. Sure. I think, for one, having access to the 
insurance status of the patients that are being seen. Not just 
at the hospital, but also for the numerous offsite clinics that 
participate in this Program who often have a patient mix that 
looks very different from the hospital that ultimately 
qualifies for the Program.
    Reporting on charity care; again, not just for the 
hospitals as a whole, but also for the individual sites that 
participate.
    We think that there should be transparency into the 
contracts that hospitals enter into. So nonpublic hospitals, 
those private hospitals that are not-for-profit, have a 
requirement under law that in order to participate, they need 
to have a contract with a state or local government, or they 
need to be performing governmental powers.
    Today, there is a black box in terms of those contracts.
    Senator Young. Okay, so that is a black box. Thank you, Ms. 
Reilly.
    Ms. Veer.
    Ms. Veer. Yes. As you know, health centers are held 
accountable to reporting to HRSA on a variety of metrics. 
Currently, 340B is not one of those, but I do think we are held 
accountable.
    Senator Young. Should it be?
    Ms. Veer. I think there are ways to do that, but keep in 
mind that there are a number of things that are not taken into 
account.
    For example, the reference to payer mix does not take into 
account the large percentage of our patients that are insured, 
but have high deductibles, high co-pays and they actually have 
a low enough income to quality for our sliding fee scale.
    Senator Young. Perhaps direct reporting, but provide that 
context.
    Ms. Veer. Provide context.
    Senator Young. All right. Yes, sir.
    Mr. Hill.
    Mr. Hill. I think it would be an opportunity, frankly, for 
covered entities to be able to tell their story and how they 
care for patients. I think thus far, we have not done as good 
of a job of telling that story.
    One of the misconceptions on this Program is, I think, 
people focus solely on the drug, and what they fail to account 
for are all the services that go into serving a patient.
    You may have a patient that cannot get to the hospital or 
has to take a drug with three meals a day, only they do not eat 
three meals a day, so they have to seek out a social worker.
    These things probably, I think, could help the Program in 
the long run if we were able to tell that story of, ``How do 
you touch these patients?'' And, ``What are the things you do 
to improve their care?''
    Senator Young. All right. I think I am out of time here.
    The Chairman. Yes.
    Senator Young. We could dialog later.
    Thank you so much.
    The Chairman. Thank you, Senator Young.
    Senator Casey.
    Senator Casey. Mr. Chairman, thank you very much.
    I want to thank the panel for your testimony and for your 
presence here today.
    In my home State of Pennsylvania, we have a long, long list 
of hospitals that depend upon the 340B Drug Pricing Program. It 
is not just a long list; it is a diverse list. We have, of 
course, big cities like Philadelphia that have institutions 
that are dependent upon this Program, but also small population 
communities.
    I just was going through a list this morning and looking at 
everywhere from, it must be by way of population as small a 
population as Potter County about 17,000 people, all the way to 
Philly which is, of course, well over 1 million-and-a-half 
people. So it is a critically important program.
    Dr. Siegel, I am going to start with you and I am not sure 
if we will get through more than this, but I wanted to focus on 
those safety net hospitals and charity care, and just a very 
specific and precise question. Let's give you the predicate 
first.
    There is a lot of discussion, and of course, proposed 
legislation, that focuses on comparing the 340B savings that 
are accrued by these safety net hospitals to the charity care 
that they provide.
    As you know, and others have spoken to this, I guess, 
charity care has both a specific and very narrow meaning. It is 
care that is provided to a patient or qualifies under the 
hospital's charity care policy for free or reduced care. There 
is much that is not captured by that measure.
    For example, bad debt expenses or other uncompensated care 
that was not reduced to bad debt.
    Third, are unreimbursed costs for Medicaid and children's 
health insurance.
    Fourth, are subsidies that many safety net hospitals 
provide to physicians to compensate them for losses incurred on 
Medicaid beneficiaries and care provided to the uninsured. So 
it is a much broader list of challenges.
    In developing greater transparency in the 340B Program, and 
a meaningful assessment of the degree of economic challenge 
faced by these safety net hospitals, should we look to all 
forms of economic contribution and burden facing those 
participants, those hospitals rather than one specific measure 
that does not accurately reflect the circumstances?
    Dr. Siegel. Yes, Senator, we need to look at the full array 
of benefits that hospitals can provide, thankfully, with the 
340B Program supporting that; two quick examples from your 
state.
    If you look at Einstein Medical Center in Philadelphia, 
because of the 340B Program, they can fill prescriptions for 
discharged patients regardless of their ability to pay, help 
them with post-discharge counseling, and eliminate access to 
care issues. Keep them out of the hospitals. That saves us all 
money. Keep them out of the emergency rooms.
    That would not be necessarily captured in a charity care 
metric. If I go to Temple, right down the street, a big trauma 
center, they have to spend money out of the hospital's pockets 
to pay doctors to take care of their patients because nobody 
else is going to pay them.
    Nobody is fighting for our patients. They just left us with 
the burden and these are great examples of that.
    These are both benefits, that I just mentioned, which would 
not be captured in this narrow definition of charity care that 
the opponents of the Program want to put forth as the only 
measure of whether or not you are doing good stuff.
    Senator Casey. Thank you very much, Mr. Chairman.
    The Chairman. Thank you, Senator Casey.
    Senator Cassidy.
    Senator Cassidy. I am glad for a second shot at this, Mr. 
Chairman.
    Again, as a physician, let me just start over.
    The emphasis should not be upon a hospital. The emphasis 
should be upon a patient. We need to think as Senator Smith 
did, what does it mean to a patient paying $16,000 a year? So, 
Dr. Siegel, would you----
    By the way, and just to emphasize, if we are speaking about 
patients, this is some of the data I quoted, ``340B eligibility 
prompted hospitals to treat fewer Medicaid patients. The 
consolidation of practices associated with this has increased 
prices without ostensibly improving quality consolidation 
driven by 340B.'' That is data. It is not anecdote. It is not 
rhetoric.
    The ``New England Journal of Medicine'' article from the 
University of Chicago and Harvard, ``Lawmakers could lower the 
price of prescription drugs by reforming the Federal 340B Drug 
Pricing Program.''
    Lastly, from the University of Chicago, Memorial Sloan-
Kettering, ``It supports the criticism that the 340B Program is 
converted from one that serves vulnerable patient populations 
to one that enriches hospitals and their affiliated clinics.''
    As regards hospitals, are they unable to survive without 
this Program?
    There is an Axios analysis of the 84 largest not-for-profit 
hospitals, which I suspect maybe 100 percent of those are 340B 
hospitals, and they found that cumulatively, they had $535.5 
billion in annual revenue. Taking all things into account, 
there was a 6.7 percent total profit margin.
    It is not like these hospitals cannot make it work. They 
are making it work very nicely. If you focus upon the patient, 
this is driving up the cost.
    Mr. Hill, would you support a law that said that the 
discount associated with 340B pricing had to be passed on to 
the patient? So that Senator Smith's patient paying $16,000 a 
year--whatever per month--would get the 340B price, which may 
be $2,000 instead of the $16,000? Would you support such a law?
    Mr. Hill. Senator, I think our potential concern with that 
approach is that although we completely understand passing 
along the discount to the patient, I think our concern is that 
what has to be sacrificed on the care side in order to do that.
    Senator Cassidy. Going back to it, ostensibly, 340B is 
about lowering costs and making medicines more available, and 
we have heard data that indeed 340B hospitals may be less 
likely to treat Medicaid patients.
    By the way, here is an article from the Office of the 
Inspector General, that some 340B entities do not even offer 
the discounted 340B price to uninsured patients and any of 
their contract pharmacies. They make them pay the full list 
price.
    Now, if you are the patient, and as we heard, you are the 
sick person supporting the system, you would not support them 
being forced to pass that discount onto the patient, the 
uninsured patient?
    Mr. Hill. I think we would have to look at it closely to 
make sure that the----
    Senator Cassidy. Dr. Siegel, would you support just 
allowing the uninsured patient to get the discount that the 
hospital is currently reaping?
    Dr. Siegel. Our hospitals often go beyond that discount.
    Senator Cassidy. No, but would you support a law that would 
require those hospitals to pass that discount on to the 
uninsured patient who is paying thousands of dollars for a drug 
the hospital is acquiring for a fraction of that cost?
    Dr. Siegel. I am much more worried about drug prices. I am 
much more worried----
    Senator Cassidy. Yes or no. Somehow I am talking about----
    Just a yes or no, would you support a law that would 
require the hospitals to pass their 340B discount to the 
uninsured patient?
    Dr. Siegel. Cannot support or oppose it without knowing 
more.
    Senator Cassidy. That settles that.
    Dr. Siegel. Cannot support or oppose it either way without 
knowing more.
    Senator Cassidy. Well, I had some other questions.
    I think this is more about the hospitals than it is about 
the patients. That is the crazy thing here. And everybody 
speaks about----
    Believe me, since the Affordable Care Act passed--and for 
all of you who love the Affordable Care Act, I am not taking 
shots--the market cap value of pharma, hospitals, and insurance 
companies has skyrocketed. Just look it up.
    Now that said, again, even not-for-profits are doing so 
well that ``The Wall Street Journal'' says, ``They are behaving 
like Fortune 500 companies.'' This is ``The Wall Street 
Journal'' based on an Axios report, ``Not like nonprofit 
hospitals.''
    Last, Mr. Hill, Chuck Grassley asked, I think, the Carolina 
Medical Center in Charlotte to report how they used their 340B, 
transparency, and how they used their 340B revenue.
    Do you think your members would report how they used 340B? 
What percentage of their profit is related to 340B? How much 
goes back to direct patient care and how much goes to just 
profit margin of a contract pharmacy?
    Mr. Hill. We are open to having this discussion. Again, it 
goes back to being able to tell the story and to demonstrate 
what you do with the discounts.
    We do not have a formal position yet, but we are having, at 
least, some internal discussions on how something like that 
might work. So we are open to discussing it.
    Senator Cassidy. I yield back.
    The Chairman. Thank you, Senator Cassidy.
    Senator Baldwin.
    Senator Baldwin. Thank you, Mr. Chairman.
    I have long supported the 340B Program. It is critical for 
about 71 hospitals in my home State of Wisconsin. They rely on 
it to help provide affordable medications, as well as essential 
services for their vulnerable, and often rural, communities.
    One of our rural hospitals in Wisconsin told me that thanks 
to their 340B savings, they have been able to expand a remote 
dispensing site in Mountain, Wisconsin, which otherwise does 
not have a pharmacy at all anywhere in the community.
    It is important to strengthen and improve this Program to 
ensure it continues to fulfill its purpose, which is why I am 
concerned with recent actions by the Administration and 
proposals that unfairly single out and target hospitals for 
cuts under the 340B Program.
    A hospital pharmacist in Madison, Wisconsin recently told 
me that 340B is vital to the hospital's bottom line and lets 
him focus on what is best for his patients.
    Not long ago, his hospital treated a woman for anaphylactic 
shock after she was exposed to an unknown chemical at work. She 
said she had to get back to work or she would be fired. So he 
wrote her a prescription for an EpiPen, in case she had another 
exposure. But she could not afford the $400 price because she 
was uninsured.
    The 340B Program allowed her to receive this lifesaving 
medication for free.
    Dr. Siegel, can you discuss why the 340B Program is 
financially critical in helping hospitals focus on delivering 
quality care, while bearing the burden of high drug prices and 
all the costs of treating low income and uninsured patients?
    Dr. Siegel. Thank you, Senator.
    The 340B Program, which includes only public and nonprofit 
hospitals--I want to be clear about that--is a vital piece of 
the fabric to allow our hospitals to perform exactly the 
mission you talked about. And do that in an era when, in the 
last 10 years, they have seen the price of the EpiPen 
quadruple.
    It was created initially, this Program, to deal with 
exactly the issue of rising, surging drug prices and their 
impact on hospitals.
    This discount, which is a little over 1 percent of the 
total national drug spend--that is what we are talking about 
here today--is absolutely critical in these very targeted 
approaches, and we have got to defend it.
    Senator Baldwin. Thank you.
    Ms. Reilly, I share your concern with high drug prices, and 
agree with you that we need to do more to advance commonsense 
reporting and accountability measures to better understand drug 
spending.
    You noted your support for legislation introduced by my 
colleague, Senator Cassidy, requiring more hospital 
transparency under the 340B Program. But my constituent, Diane, 
who suffers from M.S., wants to know more about why drug 
companies are raising the prices of prescription drugs.
    As you know, I have championed bipartisan legislation with 
Senator John McCain, the Fair Drug Pricing Act, that holds drug 
companies accountable to basic transparency when they raise 
their prices.
    I ask you, do you support advancing my bipartisan bill to 
help Diane better understand the rising prices and to enhance 
accountability for drug companies as part of this larger 
discussion about accountability and transparency?
    Ms. Reilly. Well, I think the point about transparency is 
an important one, and I think what we have been consistency 
saying is we support transparency that is holistic across our 
healthcare system.
    Drugs are sold in many different forms. In the case of 
hospitals, we know from recent data that hospitals are marking 
up a drug--that they purchased for one price--500 percent, and 
then getting reimbursed two-and-a-half times more than the 
manufacturer.
    We need transparency there as well.
    Senator Baldwin. You are the representative for PhRMA, and 
so I am really asking about transparency with the drug 
corporations.
    Would you support additional transparency, like the Fair 
Drug Pricing Act?
    Ms. Reilly. We are open to talking about different 
transparency measures. Again, I think part of our ground rule 
is if we are going to have transparency, we need to have it 
holistically across the system. It does not make sense to focus 
on one piece of a larger supply chain when it comes to 
prescription drugs.
    I would also say that, with regard to prescription drug 
prices, last year they increased by 2.5 percent, well below 
what they have been in recent years. I think oftentimes when 
people look at price increases, they are looking at list or 
sticker price increases, which are not net of the significant 
rebates and discounts that we provide.
    Senator Baldwin. But I look at the stories of my 
constituents who come and tell me about their out of pocket 
costs. And Diane, who I just mentioned, saw her M.S. drug go up 
to $90,000 a year.
    Ms. Reilly. Well, I would very much agree with you that out 
of pocket costs for patients today need to be examined.
    We have a perversity of insurance going on in this country 
where patients who need drugs, like M.S., rheumatoid arthritis 
drugs, are being asked to pay oftentimes 40 percent of a list 
price of a medicine, which is not reflective of the rich 
discounts that are provided on those medicines. And they also 
face very high deductibles before they can get access, and that 
is not our goal for a healthcare system.
    We want patients to be able to afford and access our 
medicine.
    The Chairman. Thank you, Senator Baldwin.
    Ms. Reilly, is it correct that the savings, the discounted 
savings that is available to the hospitals and the clinics 
amounted to about $6 billion in 2015 and you said about $8 
billion in 2017?
    Ms. Reilly. Yes, in 2016, correct, $8 billion in discounts.
    The Chairman. Just so I can keep all of this in 
perspective, so that would be about 1 or 1.3 percent of the 
$457 billion figure from 2015 of what Americans spent on 
prescription drugs in this country.
    Ms. Reilly. Well, I would say the problem with that number 
is a couple of things.
    The Chairman. Is that right? Well, what is wrong with it?
    Ms. Reilly. Yes, let me explain.
    The $457 billion that is often used was a projected number. 
It was not actual spend.
    The Chairman. All right. What was the number?
    Ms. Reilly. It was in the $390 billion range, I believe. It 
was projected.
    The Chairman. The total amount spent on prescription drugs 
in the United States in 2015 was three?
    Ms. Reilly. Three. I will get you the exact number.
    The Chairman. Well, I would like to know.
    Ms. Reilly. But it is a high three.
    The Chairman. Well, what was it last year?
    Ms. Reilly. In 2016, it was $323 billion.
    The Chairman. Three hundred.
    Ms. Reilly. It was $323 billion in 2016.
    The Chairman. Okay. Who is the source for that?
    Ms. Reilly. That is a report from IQVIA, which is an IMS 
subsidiary that tracks data.
    The Chairman. What are all those numbers?
    Ms. Reilly. $323 billion in actual sales in 2016. That 
includes all sales, brand and generic.
    The Chairman. All sales within the United States?
    Ms. Reilly. Correct. All sales within the United States.
    The 1 percent number, again, not only is the number that 
was used an estimated number, it also does not include all of 
the sales that are sold, the discounted number that you 
mentioned, the $6 billion. It does not exclude direct sales 
that pharmaceutical companies make to hospitals, about 10 
percent of all fills is 340B.
    The Chairman. But that is not 340B, is it?
    Ms. Reilly. Yes.
    The Chairman. What is the number that you would like us to 
use?
    Ms. Reilly. Well, we believe 8 percent is the right number 
for 2016 and let me explain why we believe that is the case.
    The Chairman. Well, just give me the numbers, not the 
percent.
    Ms. Reilly. Okay. If you look at apples to apples 
comparison, we use a $28 billion figure for 2016 and that is at 
the WAC price or the list price.
    The Chairman. That is the total sales----
    Ms. Reilly. Sales.
    The Chairman.----of drugs subject to a discount, subject to 
a 340B discount.
    Ms. Reilly. Subject to a 340B discount, and that is an 
important point. As you know, inpatient drugs are not subject 
to 340B.
    The Chairman. Of that $28 billion, how much was the actual 
savings?
    Ms. Reilly. It would be about half of that because the 
discounts are, on average, 50 percent. Sometimes they are 99 
percent and sometimes they are 30 percent.
    The Chairman. Half of $28 billion; so $14 billion.
    Ms. Reilly. Correct, at the WAC price or list price, but 
yes.
    The Chairman. Those are public sources from the 
pharmaceutical companies?
    Ms. Reilly. They are estimates based on HRSA data.
    The Chairman. Those are based on HRSA data.
    Ms. Reilly. Correct.
    The Chairman. Dr. Siegel, do you disagree with the $14 
billion discounted number?
    Dr. Siegel. I do, sir.
    The Chairman. What is your evidence for disagreement?
    Dr. Siegel. Yes, so this sort of sounds like the new math 
that my kids were learning.
    The Chairman. No, no. Do not give me a joke. Tell me what 
your evidence is for disagreement.
    Dr. Siegel. We use numbers that come from HRSA. We use 
numbers that were reported to GAO.
    The Chairman. Well, give me the numbers.
    Dr. Siegel. 1.3 percent. The $6 billion discount on a $457 
billion spent nationally, 1.3 percent. That is the number that 
has been used again, and again, and again.
    The Chairman. She said that is an estimate, not a fact.
    Ms. Reilly. It is projected sales.
    Dr. Siegel. This is, much of this is news to me, sir. I 
have not reviewed her numbers.
    The Chairman. You do not know. So you do not know what the 
number is and you are representing the hospitals.
    Dr. Siegel. Oh, I do know. I go----
    The Chairman. Well, but you do not know whether it is an 
estimate or whether it is a fact.
    Dr. Siegel. I cannot question numbers which I have just 
seen here for the first time.
    The Chairman. Yes, but do you know whether the number you 
just used is an estimate or a fact?
    Dr. Siegel. I believe it is a fact.
    The Chairman. Yes. She says it is an estimate.
    Dr. Siegel. I disagree with her.
    The Chairman. But you said you did not know.
    Ms. Reilly. It is from ASPE. It is an estimate based on 
spending.
    The Chairman. May I ask you each to provide me with? I 
would like to know what percent of the amount Americans spend 
on prescription drugs is available to safety net hospitals and 
to clinics for the purposes of 340B, whether it is $6 billion, 
whether it is $8 billion, whether it is $14 billion, and what 
percent it is of the total amount we spend.
    If it is 1 or 2 percent, you could think of that either 
way. You could say, ``Well, that is just a tax on the 
pharmaceutical companies that we are spending for a good 
purpose.'' If it is 6 or 8 percent, you would have to say, 
``That is a pretty big tax on a pharmaceutical or on any 
business,'' particularly on revenues for that purpose.
    I would like to get those figures right.
    Do either of you have any more concrete evidence on those? 
Or are those the two people I should ask about that?
    Ms. Veer. I would say I actually have questions about the 
numbers, but I will follow-up with my fellow panelists on that.
    The Chairman. Yes.
    Ms. Veer. Just because I am not sure I understand clearly, 
for example, the $28 billion. Is that accounting for wholesaler 
volume points and that type of thing?
    The Chairman. Well, we will get into that.
    Ms. Veer. Yes.
    The Chairman. But if you would provide us the evidence. I 
mean, one of the things that this hearing would like to do is 
to establish some facts upon which we can make some decisions.
    Now, the second question would be, Ms. Veer, I gather 
because of the various rules that apply to community health 
centers--in fact, I met with a whole bunch of them in my office 
this morning before I came here--I asked them the question 
about, ``How much of the discount money available to you goes 
directly to the patient who is buying a prescription drug?''
    The guess was about 80 percent. They said, ``We guess about 
80 percent of the savings available goes directly to the 
patient and the rest we use for other expenses at the community 
health center.''
    Does that sound right or do you know of some evidence that 
would show what that number would be?
    Ms. Veer. I do not know that we could point to an exact 
number. I guess my philosophical response would be: all of it 
goes to the patients because, quite frankly, when you----
    The Chairman. No. I am talking about going to the patient 
when the prescription drug is filled, does it reduce the cost 
of the drug to X amount?
    If 100 percent of it goes to that, what percent of the 
money goes to that and what percent goes to, say, paying 
salaries at the community health center or for other functions?
    Ms. Veer. That is a great question and I think it differs 
from health center to health center. I can give you the example 
at my health center.
    The Chairman. Sure.
    Ms. Veer. We operate on a net margin idea with regard to 
how we use our savings. So last year, 2016, the end of year our 
savings were $561,620. Previous to that, we have discounted the 
drug to the patient on a cost-plus basis.
    For example, we pass on the savings of the ingredient cost 
of the drug and charge a highly discounted dispensing fee.
    Out of that $561,000 the majority of that goes to things 
like affordable prescription programs, some of the things Mr. 
Hill mentioned about the clinical services that are available 
to help promote----
    The Chairman. Well, I understand, but what I am getting at 
is when Congress passed the law in 1992, it did not say that 
the money has to be used solely to reduce the price of a 
prescription drug when a patient comes in and buys one.
    Correct?
    Ms. Veer. Correct.
    The Chairman. Most of what this hearing is about is what 
the hospitals, and to a lesser extent, I think, the clinics do 
with the other money. I mean, that is what people are asking 
questions about.
    My sense is that because of the variety of regulations on 
clinics, probably most of the money you get goes back directly 
to the patient for the cost of prescription drugs. Not to say 
that the other services you provide are not beneficial to that 
patient.
    But I think one thing that I would like to have more 
information on is: how much of the discounted savings goes 
directly to the patient who walks in the door with a 
prescription?
    Now, what would you estimate, Dr. Siegel, that would be at 
hospitals, at safety net hospitals?
    Dr. Siegel. I do not have an estimate for that.
    The Chairman. Would anybody have an estimate for that?
    Dr. Siegel. I do not know.
    The Chairman. We do not have any idea? So we do not know 
how much of the money goes directly to patients or how much is 
spent for other services that, presumably, benefit patients?
    Would that not be something we should know?
    Dr. Siegel. I think that is something we should know along 
with many other things we should know about this program, Mr. 
Chairman.
    The Chairman. Well, what are the other things?
    Dr. Siegel. As I noted before, if we want to have more 
transparency, let us make sure that all of us who are partners 
in this Program, I hope, live to that same level.
    The Chairman. Yes, but that is called passing the buck. I 
think what we need to understand is how much? What I want to 
know is----
    I am very sympathetic to the 340B Program and the role of 
safety net hospitals. I think our community health clinics do a 
magnificent job of primary healthcare in our state and, I 
suspect, all over the country.
    I suspect that the so-called tax we put on prescription 
drugs--in order to provide some extra funds for safety net 
hospitals and clinics--is something that I would approve of, 
but I think it is a reasonable question to ask.
    If the money is not going directly to lower the cost of the 
specific prescription that is filled, where is it going or what 
categories of things is it paying for?
    That could lead to the question of whether we should 
restrict that to some extent or another, which most hospitals 
and clinics would not like for us to do. But I would think one 
way to avoid the restrictions would be to help us know better 
what the money is going for.
    If it is $6 or $8 billion in discounted savings, surely at 
the clinics more than half of it is going directly to the 
prescriptions to the patients. I am just guessing that.
    That only leaves $2, or $3, or $4 billion throughout this 
whole huge system that would go to things other than lowering 
the cost of the prescription that is being purchased at the 
moment.
    Do you think it is reasonable, Dr. Siegel, to explore 
legislation, if necessary, that would ask hospitals and 
clinics, who receive 340B discounts, to tell us what they are 
using the money for?
    Dr. Siegel. I would be concerned about legislation that 
only singles out hospitals and clinics----
    The Chairman. Well, who would you single out?
    Dr. Siegel.----rather than the full range of the Program 
including our partners in the drug manufacturing industry.
    I am concerned about legislation that would serve to 
intentionally, or unintentionally, begin to restrict the 
Program.
    The Chairman. Yes. I think you are passing the buck. That 
is not a very good answer to me, and you are talking to 
somebody who is very sympathetic to you.
    Why should I not want to know why a discounted program, 
that benefits hospitals and clinics, what the money is going 
for? I can ask the pharmaceutical companies all the questions I 
want to ask them, and I ask the pharmacists questions, and I 
can ask other people questions too, but I can ask you questions 
as well.
    Why should I not know that and other Senators, especially 
those of us who are sympathetic to what you are doing?
    Dr. Siegel. As I support transparency, we think we embrace 
it. We want to make sure that any transparency is some way 
respecting the Program, which we care deeply about.
    The Chairman. Well, first, we would like to know what you 
are spending the money for, then we can decide if there is any 
need or any rationale for restricting the spending for.
    The hospital heads I have talked to very vehemently say, 
``We are using the money to help people.''
    Dr. Siegel. Yes.
    The Chairman. ``And we lose a lot more in uncompensated 
care.'' Well, if that is true, that is a good story to tell.
    But if you come up here and say, ``Well, we cannot tell you 
because we do not know, and we do not really want to tell you 
until you ask everybody else a whole bunch of questions.'' That 
is not a very good answer for me.
    What I would appreciate asking you in follow-up questions 
is if you could consider, please, both for the hospitals and 
for the clinics, giving whatever information you think already 
is available about how much money, how much of the savings, how 
much of the discount goes for something other than reducing the 
price of the specific prescription when the patient shows up at 
the hospital or clinic. How much is that?
    Then, the second question would be, what are the uses of 
the money that does not go for the specific prescription, to 
the extent you know what that is?
    Ms. Reilly, I would like to have a good, clear 
understanding of what the size of the discount is.
    Dr. Siegel, if you would like to give your version of that 
too, I would welcome it so that I would be able to operate on 
if that it is 1 percent, or 2 percent, or 8 percent, or 4 
percent of the total revenues of prescription drugs.
    This has been very helpful to me, and I thank you for 
reasonable questions, and lots of support for safety net 
hospitals, and community mental health clinics, and the work 
that you do. We want to make sure that we are good stewards of 
this money and having that information would help us do it.
    The hearing record will remain open for 10 days. Members 
may submit additional information for the record within the 
time, if they would like.
    The Chairman. Thank you for being here.
    The Committee will stand adjourned.
    [Whereupon, at 11:47 a.m., the hearing was adjourned.]

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