[Senate Hearing 115-240]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-240

                     EXAMINING OVERSIGHT REPORTS 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 OVERSIGHT REPORTS ON THE 340B DRUG PRICING PROGRAM

                               __________

                              MAY 15, 2018

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions
                                
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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

                         TUESDAY, MAY 15, 2018

                                                                   Page

                           Committee Members

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

                               Witnesses

Maxwell, Ann, Assistant Inspector General for Evaluation and 
  Inspections, Office of the Inspector General, U.S. Department 
  of Health and Human Services, Washington, DC...................     5
    Prepared statement...........................................     7
    Summary statement............................................    12
Draper, Debra A., Ph.D., Director, Health Care Team, U.S. 
  Government Accountability Office, Washington, DC...............    13
    Prepared statement...........................................    16

 
                     EXAMINING OVERSIGHT REPORTS ON
                      THE 340B DRUG PRICING PROGRAM

                              ----------                              


                         Tuesday, May 15, 2018

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m. in 
room SD-430, Dirksen Senate Office Building, Hon. Lamar 
Alexander, Chairman of the Committee, presiding.
    Present: Senators Alexander [presiding], Isakson, Collins, 
Cassidy, Scott, Murray, Casey, Baldwin, Murphy, Warren, Kaine, 
Hassan, Smith, and Jones.

                 OPENING STATEMENT OF SENATOR ALEXANDER

    The Chairman. Good morning.
    The Senate Committee on Health, Education, Labor, and 
Pensions will please come to order.
    Last Friday, President Trump and Secretary Azar announced a 
blueprint on drug pricing. It seemed to me that it was 
sweeping, comprehensive, sophisticated, and appears to me to 
put patients and taxpayers first.
    The Administration is beginning to tell us more about what 
they have in mind, and in some cases, they are asking for input 
from the public about some of their objectives. So it may take 
some time before we know what the specifics of all the 
proposals are.
    Many of their proposals appear to be in the jurisdiction of 
other committees, but some of the more important pieces will be 
in the jurisdiction of this Committee including:
    More competition for generic drug biosimilars;
    Over-the-counter drugs, which this Committee already has 
taken some steps on, such as the legislation we approved last 
month to make it easier to get over-the-counter drugs to market 
by modernizing the outdated monograph system;
    Examining the relationship of the list price to what the 
consumer pays. That should be in our jurisdiction; and,
    Policies to prevent drug manufacturers from gaming our 
current system.
    Some of these can be done by administrative action. Others 
will require legislation. We will be working with the 
Administration on scheduling a hearing and other ways--such as 
roundtables or additional briefings with staff and with Members 
of the Committee--to learn more about their proposals.
    The Administration has already started that process. The 
President announced the proposal on Friday. The Secretary had a 
bipartisan call for Senators on the same day. The Department 
has begun briefing staff. We will continue to make sure that 
Members and staff know as much as we can know about the 
proposals.
    But today's hearing is the second in a series of hearings 
about the 340B Program. For several months now, this Committee 
has turned our attention to the high cost of health care. We 
have held three hearings on the cost of prescription drugs as a 
part of that, most recently with the National Academies.
    Like those hearings, today's hearing is bipartisan, which 
means Senator Murray and I agreed to it. And the witnesses are 
bipartisan and we thank you both for coming.
    I know Senators have a right to talk about everything from 
health insurance to football in their 5 minutes, and often do. 
But I hope we can focus on this unusual opportunity to get some 
independent evaluation of the 340B Program from the experts we 
have here today.
    Today, I hope we can determine what is the purpose of the 
Program? Is it fulfilling the purpose? Should there be changes 
in the law so that the Program can fulfill that purpose?
    Senator Murray and I will each have an opening statement, 
then I will introduce the witnesses, and then we will hear from 
them. Senators will each have 5 minutes to question the 
witnesses.
    At our first hearing, we heard from hospitals, drug 
companies, community health centers, and pharmacies. And we 
learned there is a lack of agreement on the following 
questions. What is the total amount that Americans spend on 
prescription drugs? What percent of that spending is subject to 
the 340B discount? How much do hospitals and clinics save 
through the 340B discount and on what do they spend those 
savings?
    This lack of agreement on the amount of money, and how the 
money is spent, makes it hard to properly oversee the Program 
or to know how much of the savings hospitals and clinics 
receive from discounted drug prices that are used to reduce the 
price of drugs and treatments for patients, and how much is 
spent on other activities.
    It very well may be that most are using the savings to 
benefit low income patients as intended, or it may be that the 
other activities meet an important public objective, but it is 
hard to know that until we have more information.
    At today's hearing, we will hear from the Government 
Accountability Office, the GAO, and the Department of Health 
and Human Services Office of the Inspector General, who have 
examined and published a number of oversight reports on the 
340B Program.
    We will have a third hearing, which was suggested by 
Senator Kaine. We will have that later this year to hear from 
HRSA, the Health Resources and Services Administration.
    On today's hearing, the GAO and the Department of Health 
and Human Services Office of the Inspector General are 
nonpartisan Federal watchdogs that issue recommendations on how 
Federal programs could run better.
    In 2011, GAO found that HRSA oversight of the Program was, 
quote, ``inadequate.'' Saying, ``HRSA's oversight is inadequate 
because it primarily relies on covered entities' and 
manufacturers' self-policing; that is, participants ensuring 
their own compliance with Program requirements.''
    In 2014, HRSA drafted regulations to define what a patient 
is.
    However, HRSA was sued in 2014 and the courts found HRSA, 
``Lacked the statutory authority to engage in such 
rulemaking,'' limiting what it could do to oversee the Program.
    The Inspector General of the Department of Health and Human 
Services has come to similar conclusions as the GAO, including 
that oversight of the Program has been inconsistent, and HRSA 
lacks authority to adequately oversee it.
    To improve oversight, the Inspector General recommended 
that HRSA clarify which patients are eligible to receive 340B 
drugs, how hospitals and clinics can use contract pharmacies to 
dispense 340B drugs, and clarify other requirements on 
eligibility.
    Another concern raised by the Inspector General is that 
states need to have more information about the price and 
discount of drugs in the Program to properly reimburse through 
Medicaid. The Inspector General recommended that there be more 
transparency on the price of 340B drugs to ensure states are 
making accurate payments.
    I hear often that hospitals and clinics are using the 340B 
Program to benefit low income patients or serve another worthy, 
public objective. But I would like to hear more about, if 
HRSA's lack of oversight authority has made it difficult for us 
to have agreement on a common set of data about the 340B 
Program on which to make such determinations.
    Senator Murray.

                      STATEMENT OF SENATOR MURRAY

    Senator Murray. Well, thank you very much, Chairman 
Alexander.
    I am glad that we are able to continue this discussion 
about the 340B Program with witnesses from the Government 
Accountability Office and the Department of Health and Human 
Services Office of the Inspector General.
    I am interested to hear more about how this Program helps 
so many hospitals and health centers stretch their resources 
and serve their communities, and how we can strengthen and 
preserve it. 340B is critical for safety net providers that 
care for patients and families with the greatest needs and 
fewest resources.
    The Program works by requiring pharmaceutical companies to 
sell drugs at a lower price to health providers who take on a 
larger burden by serving vulnerable populations and low income 
patients.
    The congressional intent of this Program is to help 
providers stretch scarce Federal resources and provide more 
comprehensive services. In Washington State, they are using 
their 340B savings to do just that.
    Olympic Medical Center uses 340B savings in Sequim, 
Washington to fund the only full service cancer center on the 
Olympic Peninsula allowing patients to access treatment close 
to home and provide treatment regardless of whether patients 
are able to pay. Without 340B, the Center would operate at a 
loss and would have to cutback that program.
    At Evergreen Health in Monroe, Washington they use 340B 
savings to fund a program for pregnant women struggling with 
substance abuse, a primary care center in rural Sultan, and 
discounted care for those who need it. Without 340B, Evergreen 
would operate at a loss and have to cut programs.
    On the east side of our state, Kootenai Health Center uses 
340B to serve rural communities in Washington, Idaho, and 
Montana. Kootenai's 340B savings support a Level III NICU that 
helps babies born prematurely and facing health challenges, an 
E.R. that sees over 50,000 visitors a year, no-cost behavioral 
health services, and financial support for cancer patients.
    It is clear, 340B has helped care providers, who are so 
essential to their communities, stretch their resources farther 
than they could otherwise. But that does not mean we cannot 
also have more clarity in the 340B Program.
    We should strengthen the Program and have more 
accountability and transparency for everyone in our drug 
system. We should be confident that entities are using their 
340B savings appropriately and pharmaceutical manufacturers are 
providing 340B discounts fairly.
    If there is misuse or abuse in the system, we should hold 
those actors accountable. There have been opportunities, 
actually, to provide that accountability, but unfortunately, 
President Trump seems entirely uninterested in actual oversight 
or Program integrity. He has continued to sabotage efforts to 
make sure drug companies play by these rules.
    The Affordable Care Act gave the Health Resources and 
Services Administration, HRSA, new authorities to keep the 340B 
Program accountable. After the Inspector General for the 
Department of Health and Human Services found many drug 
companies were overcharging, HRSA drafted a rule to make sure 
companies were giving the discounts required by the 340B 
Program.
    The Obama administration finalized that rule, but the Trump 
administration has delayed its implementation over and over. 
The most recent delay came last week, the same week he gave a 
speech claiming he was getting tough on drug companies.
    When HRSA attempted to provide more clarity for the Program 
through its so-called ``Mega-Guidance,'' instead of improving 
that draft and working with stakeholders to develop a path 
forward, the Trump administration took a giant step back and 
withdrew that guidance, abandoning the effort completely. They 
have not just backed away from accountability and clarity for 
the 340B Program, they have tried to cut it as well.
    The 340B eligible providers have traditionally been 
reimbursed by Medicare at the same rate as everyone else. This 
year, the Trump administration announced they would 
unnecessarily and dramatically cut the Program and reimburse 
340B hospitals for drugs at a rate nearly 30 percent lower than 
all other hospitals.
    President Trump can talk and tweet about lowering drug 
prices all he wants, but when his only concrete steps are to 
holdback rules that would provide accountability and prevent 
drug companies from overcharging; rollback guidance to clarify 
how the 340B Discount Program works; and cut resources for 
providers who are caring for the patients and families least 
able to afford health care, he is not going to have a lot of 
credibility and his promises will not come true.
    Even if President Trump does not appreciate the value of 
the 340B Program, many hospitals across the country, and many 
of the patients that they help, do. Like the retired social 
worker in Centralia, Washington who has been fighting melanoma 
for 7 years. Thanks to the 340B Program, her medication costs 
$45 a month. Without the Program, it would cost several hundred 
dollars.
    Like a man in Olympia, Washington who lost his health 
insurance while fighting a very aggressive cancer. Thanks to 
340B, he could afford to continue his chemotherapy. Like many 
patients in struggling communities across the country who fear 
care might be out of reach or out of their budget, but who have 
learned a health provider was able to use this 340B savings to 
stretch its resources far enough to cover them.
    There are many stories from my state, and across the 
country, about how this Program is so important. So I am very 
glad we have this opportunity to discuss how we make sure 340B 
remains accountable enough to fulfill its intent and strong 
enough to continue serving our communities for generations to 
come.
    I look forward to hearing what our witnesses have to say 
this day. And thank you, Mr. Chairman, for having this hearing.
    The Chairman. Thank you, Senator Murray.
    Thanks for your cooperation in scheduling these hearings 
and the witnesses.
    Our two witnesses today are independent witnesses who have 
focused their time studying the 340B Program. First, we will 
hear from Ann Maxwell, the Assistant Inspector General for 
Evaluation and Inspections with the Office of the Inspector 
General at the Department of Health and Human Services.
    She has served that Office for 18 years. In her current 
role, she conducts national evaluations of healthcare programs 
to improve program integrity and prevent fraud, waste, and 
abuse.
    Second, Debra Draper is the Health Care Team Director with 
the Government Accountability Office. Dr. Draper has extensive 
background in health care finance administration research. In 
her current role, she focuses on health policy research in 
Medicare, Medicaid, mental health, and the financing and 
delivery of health care services.
    Welcome, our witnesses. If you each would summarize your 
remarks in about 5 minutes, then we will go to questions.
    Ms. Maxwell, let us begin with you.

   STATEMENT OF ANN MAXWELL, ASSISTANT INSPECTOR GENERAL FOR 
 EVALUATION AND INSPECTIONS, OFFICE OF THE INSPECTOR GENERAL, 
  U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

    Ms. Maxwell. Good morning, Chairman Alexander, Ranking 
Member Murray, and other distinguished Members of the 
Committee.
    I am pleased to join you in exploring how to strengthen the 
340B Drug Discount Program.
    I want to start by thanking you for bringing needed 
attention to the important role of robust oversight. OIG shares 
that commitment to oversight and has, over the years, worked to 
ensure that the 340B Program has the internal controls that 
would allow us all to feel confident that the Program is 
operating to best serve the healthcare needs of low income 
patients.
    In the past decade, HRSA has made great strides in 
improving Program integrity. Long gone are the days when it was 
difficult to even tell who was in the Program. What remains to 
be done is to build on that progress and to resolve some 
longstanding challenges in two key areas.
    One, lack of transparency. Two, lack of clarity in Program 
rules. These challenges compromise the Program's ability to 
fully deliver the mandated discounts. To overcome these 
challenges, the OIG has made several recommendations, and I 
will start with our recommendations to improve transparency.
    OIG recommends that HRSA make 340B prices transparent by 
sharing them with providers and states. This will allow 
providers and states to verify that they are not being 
overcharged. Currently, providers have to trust that the drug 
companies are, in fact, providing the mandated discount.
    Similarly, states have to trust that providers are passing 
along that discount for Medicaid patients. We think there 
should be an ability to trust, but also verify especially as we 
have noted instances of overcharging in our work.
    Congress did give HRSA the authority to share these prices 
with providers in 2010. However, 8 years later, HRSA is still 
working to implement a secure data system to share them. To 
share the discounted prices with states, HRSA would need more 
authority.
    In addition to pricing information, states need 
transparency as to which Medicaid claims represent 340B drugs. 
Even if states gained visibility into 340B prices, as the OIG 
recommends, Medicaid may still end up overpaying for drugs 
unless they can identify which claims should be reimbursed at 
the lower 340B prices.
    Transparency into 340B drug claims would also assist states 
in correctly claiming Medicaid rebates from drug companies. 
Without it, states may lose out on rebate savings if they 
misidentify drugs as having already received the 340B discount.
    On the other hand, misidentification of 340B drug claims 
puts drug companies at risk of paying duplicate discounts on 
the same drug. OIG recommends that HRSA work with CMS to ensure 
that 340B claims are accurately identified.
    The second area needing improvement is to clarify 340B 
Program rules which, in some cases, have failed to keep up with 
the evolving complexity of the Program. In particular, OIG work 
has identified two areas in which program rules, like clarity, 
are not consistently implemented.
    First, HRSA's guidance addresses patient eligibility, but 
leaves room for interpretation as to which of the patient's 
prescriptions might be eligible in retail pharmacy settings. In 
these retail settings, we found that providers, in fact, are 
making different determinations of what prescriptions are 
eligible for the 340B discount.
    Second, Program guidance does not address how to handle 
uninsured patients. In our review of retail pharmacies, we 
found that, in some instances, uninsured patients were paying 
out of pocket full price for drugs that had been purchased at 
steep discounts. HRSA should clarify whether 340B providers 
must offer discounts to uninsured patients.
    To support HRSA's efforts to create clear, enforceable 
Program rules, we encourage Congress to consider providing HRSA 
with general regulatory authority over the Program, as their 
current authority is limited.
    I appreciate the opportunity to present OIG's 
recommendations to improve the 340B Program, greater 
transparency in 340B prices and claims, along with clear 
Program rules will ensure that the full benefits of the Program 
support low income patients who depend on our Nation's health 
care safety net.
    At this time, I am happy to be of assistance, if you have 
any questions.
    Thank you.
    [The prepared statement of Ms. Maxwell follows:]
                   Prepared Statement of Ann Maxwell
    Good morning, Chairman Alexander, Ranking Member Murray, and 
Members of the Committee. I am Ann Maxwell, Assistant Inspector General 
for Evaluation and Inspections for the Office of Inspector General 
(OIG), U.S. Department of Health and Human Services. I appreciate the 
opportunity to appear before you to discuss ways to protect the 
integrity of the 340B Drug Pricing Program (340B program).
    OIG reviews have explored various aspects of the 340B program, 
identified potential vulnerabilities, and offered several 
recommendations to promote program integrity. Some of the weaknesses we 
have identified have been addressed through legislation or by the 
Health Resources and Services Administration (HRSA) directly. However, 
two long-standing, fundamental vulnerabilities persist, impeding 
effective program operations and oversight. Specifically, OIG work has 
identified: (1) a lack of transparency that prevents ensuring that 340B 
providers are not overpaying pharmaceutical manufacturers and that 
State Medicaid programs are not overpaying 340B providers; and (2) a 
lack of clarity regarding program rules that creates uncertainty, 
resulting in inconsistent program implementation and limited 
accountability. HRSA has taken some steps toward addressing these 
concerns, but it has not fully addressed either. My testimony today 
focuses on the two key improvements OIG recommends to support effective 
oversight and strengthen the integrity of the 340B program.

    OIG Recommends Key Improvements to 340B Program Integrity and 
Oversight:

          increase transparency to allow payment accuracy, and

          clarify rules to ensure that the program operates as 
        intended.

   the 340b program requires drug manufacturers to sell products at 
     discounted prices to certain safety-net health care providers
    In 1992, Congress established the 340B program to generate savings 
for certain safety-net health care providers by allowing them to 
purchase outpatient drugs at discounted prices. \1\ A House report, 
accompanying the original legislation, stated that these savings would 
``enable [participating] entities to stretch scarce Federal resources 
as far as possible, reaching more eligible patients and providing more 
comprehensive services.'' \2\ HRSA, which manages the 340B program, 
reported that total 340B sales in 2016 amounted to approximately $16 
billion, or about 3.6 percent of the U.S. drug market. \3\
---------------------------------------------------------------------------
    \1\  Section 340B of the Public Health Service Act, 42 U.S.C. Sec.  
256b.
    \2\  H.R. Rept. No. 102-384 (Part 2), at 12 (1992) (Conf. Rept.).
    \3\  HRSA, Fiscal Year 2019 Justification of Estimates for 
Appropriations Committees, p. 255. Other stakeholders have produced 
varying alternative estimates of the size of the 340B program relative 
to the broader pharmaceutical market.
---------------------------------------------------------------------------
    Pursuant to the Public Health Service Act, drug manufacturers sign 
a Pharmaceutical Pricing Agreement stipulating that they will charge 
340B providers at or below specified maximum prices, known as ceiling 
prices. The manufacturers calculate 340B ceiling prices each quarter by 
applying a statutorily defined formula to drug pricing data. Due to the 
proprietary nature of the pricing data used in these calculations, 340B 
ceiling prices are not made public.
    The 340B providers benefiting from these discounted prices include 
such safety-net providers as community health centers and hospitals 
that serve a disproportionate number of low-income patients. In 2010, 
the Affordable Care Act expanded the types of providers eligible to 
participate in the 340B program to include children's hospitals, 
critical access hospitals, free-standing cancer hospitals, rural 
referral centers, and sole community hospitals. As of January 1, 2018, 
the 340B program included 12,823 providers and 29,663 associated sites, 
for a total 42,486 registered sites. \4\
---------------------------------------------------------------------------
    \4\  HRSA, Fiscal Year 2019 Justification of Estimates for 
Appropriations Committees, p. 259.
---------------------------------------------------------------------------
    The 340B program intersects with State Medicaid programs in 
important ways. One way relates to how State Medicaid programs 
reimburse 340B providers for drugs provided to Medicaid beneficiaries. 
In February 2016, the Centers for Medicare & Medicaid Services (CMS) 
clarified that State Medicaid agencies should reimburse providers for 
drugs purchased under the 340B program at actual acquisition costs and 
recognized the 340B ceiling price plus a dispensing fee to be an 
acceptable measure of actual acquisition costs. \5\ However, states 
currently do not have access to the 340B ceiling price as it is 
protected by confidentiality rules. Another way relates to how states 
claim Medicaid rebates from drug manufacturers. In general, states are 
entitled to statutorily defined rebates from manufacturers for covered 
outpatient drugs. However, ``duplicate discounts''--which occur when 
drug manufacturers pay rebates to State Medicaid agencies on drugs that 
they sold at the already discounted 340B price--are prohibited by law. 
\6\
---------------------------------------------------------------------------
    \5\  81 Fed. Reg. 5170, 5317 (February 1, 2016); 42 C.F.R. Sec.  
447.518(a)(2).
    \6\  42 U.S.C. Sec.  256b(a)(5)(A)(i); 42 U.S.C. Sec.  1396r-
8(j)(1).
---------------------------------------------------------------------------
oversight of the 340b program has improved over the years, but some key 
                           challenges persist
    Across numerous OIG reviews of the 340B program, our work has 
identified program integrity vulnerabilities, many of which have been 
addressed, but others continue to be concerns. \7\ Our initial work, 
released in the early 2000's, found deficiencies in HRSA's oversight of 
the program. These deficiencies included inaccurate information 
regarding which providers were eligible for discounted prices and a 
lack of systematic monitoring to ensure that drug manufacturers were 
charging 340B providers the correct prices. Systematic monitoring by 
HRSA was critical, at the time, because confidentiality protections 
prevented HRSA from sharing the ceiling prices with 340B providers. 
This lack of transparency left 340B providers unable to determine 
whether they were paying accurate amounts to drug manufacturers. 
Further, HRSA lacked the necessary enforcement tools for holding 
manufacturers accountable.
---------------------------------------------------------------------------
    \7\  OIG has issued seven evaluations of the 340B program: (1) 
Deficiencies in the 340B Drug Pricing Program's Data base, OEI-05-02-
00071, June 2004; (2) Deficiencies in Oversight of the 340B Drug 
Pricing Program, OEI-05-02-00072, October 2005; (3) Review of 340B 
Prices, OEI-05-02-00073, July 2006; (4) State Medicaid Policies and 
Oversight Activities Related to 340B-Purchased Drugs, OEI-05-09-00321, 
June 2011; (5) Contract Pharmacy Arrangements in the 340B Program, OEI-
05-13-00431, February 2014; (6) Medicaid Drug Rebate Dispute Resolution 
Could Be Improved, OEI-05-11-00580, August 2014; and (7) State Efforts 
to Exclude 340B Drugs From Medicaid Managed Care Rebates, OEI-05-14-
00430, June 2016.
---------------------------------------------------------------------------
    In the years following OIG's initial work, HRSA took steps to 
improve oversight of the 340B program and was granted additional 
oversight authorities. HRSA issued several technical assistance 
resources to facilitate compliance among manufacturers and 340B 
providers. For example, HRSA created a training webinar for 340B 
providers to help them ensure compliance with program requirements to 
prevent duplicate discounts when working with Medicaid patients. In 
2010, legislation directed HRSA to further define standards for 
calculating 340B ceiling prices and to share those ceiling prices with 
340B providers. HRSA was also granted new enforcement tools, including 
authority to conduct audits of both manufacturers and 340B providers 
and to impose civil monetary penalties for manufacturers that knowingly 
and intentionally overcharge 340B providers. \8\
---------------------------------------------------------------------------
    \8\  Affordable Care Act, Public Law 111-148 Sec.  7102(a).
---------------------------------------------------------------------------
    Some of HRSA's efforts to implement its new oversight authorities 
and clarify program rules through regulations were either unsuccessful 
or remain unfinished. For example, HRSA developed a proposed omnibus 
340B regulation in 2014, but withdrew it prior to publication after a 
Federal court ruling established limits on HRSA's rulemaking authority 
for the 340B program. In 2015, HRSA instead issued proposed omnibus 
340B guidance that would have addressed a number of OIG and Government 
Accountability Office recommendations, such as clarifying the 
definition of a patient. \9\ However, HRSA never finalized this 
guidance, and formally withdrew it in January 2017. HRSA also issued a 
final regulation on standards for calculating 340B ceiling prices and 
civil monetary penalties for manufacturers in January 2017. \10\ 
However, HRSA has delayed the effective date of that regulation 
multiple times, including its most recent proposal to delay the 
effective date until July 2019, and has indicated that it intends to 
revisit the substance of the issues involved. \11\
---------------------------------------------------------------------------
    \9\  80 Fed. Reg. 52300 (August 28, 2015).
    \10\  20 Fed. Reg. 1210 (January 5, 2017).
    \11\  83 Fed. Reg. 20008 (May 7, 2018).
---------------------------------------------------------------------------
    Despite progress in addressing some program vulnerabilities, the 
steps HRSA has taken do not fully address the long-standing challenges 
identified by OIG. As such, OIG continues to recommend improving the 
340B program by increasing transparency and clarifying program rules. 
HRSA, CMS, and Congress each have roles in advancing these 
improvements. These broad areas, and the specific recommendations OIG 
has made to address each, are explored in detail below.
   oig recommends: increasing transparency to allow payment accuracy
    Transparency is needed to support payment accuracy in two ways. 
First, 340B providers and State Medicaid programs need to know the 340B 
ceiling prices to determine whether they are paying the correct amount. 
Second, State Medicaid programs need to know which Medicaid claims are 
associated with 340B drugs to pay 340B providers accurately and ensure 
that they collect all appropriate drug rebates without subjecting 
manufacturers to duplicate discounts. The current lack of transparency 
regarding both 340B prices and Medicaid claims hampers payment accuracy 
in both of these areas.

    The lack of transparency in ceiling prices impedes 340B providers 
and Medicaid programs from ensuring that they have paid the correct 
amount for 340B drugs.

    Although Congress authorized HRSA to share confidential ceiling 
prices with 340B providers in 2010, HRSA has not yet done so. \12\ HRSA 
received funding to support this effort in fiscal year 2014. Since 
then, HRSA has been developing a secure pricing system, which it plans 
to use as a single point of reference for calculating, verifying, and 
displaying 340B ceiling prices. According to HRSA's plans, 340B 
providers will be able to access the system to view 340B ceiling prices 
and verify that they are paying at or below the posted 340B ceiling 
price. Manufacturers will also be able to upload their quarterly 
pricing data and validate their prices with the HRSA-verified 340B 
ceiling price. HRSA identified this initiative as a priority for fiscal 
year 2018, and has done so again for fiscal year 2019.\13\,\14\ Until 
the system is operational, 340B providers cannot ensure that they are 
paying the right amount.
---------------------------------------------------------------------------
    \12\  Affordable Care Act, Public Law 111-148 Sec.  7102(a).
    \13\  HRSA, Fiscal Year 2018 Justification of Estimates for 
Appropriations Committees, p. 245.
    \14\  HRSA, Fiscal Year 2019 Justification of Estimates for 
Appropriations Committees, p. 258.
---------------------------------------------------------------------------
    The 2010 legislation addressed access to ceiling prices for 340B 
providers, but it did not address access for State Medicaid agencies. 
Lack of access to 340B ceiling prices can prevent State Medicaid 
agencies from effectively enforcing Medicaid payment policies for 340B 
drugs. OIG found that without access to 340B ceiling prices, states are 
unable to implement automated, prepayment edits to enforce these 
policies. Instead, some states conduct labor-intensive and costly 
audits and post-payment reviews in an attempt to ensure that they have 
paid 340B providers correctly for 340B drugs. HRSA agreed that ceiling 
prices should be shared with states, but needs additional statutory 
authority to do so. \15\
---------------------------------------------------------------------------
    \15\  OIG, State Medicaid Policies and Oversight Activities Related 
to 340B-Purchased Drugs, OEI-05-09-00321, June 2011.

    The lack of transparency around which Medicaid claims are 
associated with 340B drugs hinders states' efforts to correctly apply 
their 340B payment policies and to claim correct Medicaid rebates from 
---------------------------------------------------------------------------
manufacturers.

    States also need transparency into which Medicaid claims are 
associated with 340B drugs to ensure that they make payments in 
accordance with their payment policies. Even if states can determine 
how much they should be paying 340B providers for 340B drugs, they 
still may not know which claims to reimburse at that rate.
    Likewise, knowing which Medicaid claims are associated with 340B 
drugs is essential for states to correctly and separately claim rebates 
from manufacturers. If states cannot correctly identify 340B claims, 
two types of problems may result. One, states may inappropriately 
include 340B claims in rebate invoices sent to manufacturers, 
potentially causing duplicate discount situations. Two, states may 
inappropriately exclude 340B claims and forgo rebates to which they are 
entitled. In addition, without reliable methods for identifying 340B 
claims, states may be more likely to have rebate disputes with drug 
manufacturers, which require additional resources to resolve and may 
impede or delay rebate payments.
    HRSA maintains a tool, the Medicaid Exclusion File, to assist 
states in identifying providers who have chosen to dispense 340B drugs 
to Medicaid patients in the fee-for-service program. OIG found that in 
2015, states typically used HRSA's Medicaid Exclusion File to identify 
and exclude 340B claims for the purpose of collecting rebates. \16\ 
However, we found that this provider-level approach may not accurately 
identify all individual 340B claims, creating a risk of duplicate 
discounts and forgone rebates. We found that methods that operate at 
the claim level can improve accuracy in identifying 340B claims and 
thereby help prevent duplicate discounts and improve collection of 
rebates. Identifying and excluding 340B claims paid by Medicaid managed 
care organizations involves additional complications, and claim-level 
transparency would help address these challenges, too.
---------------------------------------------------------------------------
    \16\  OIG, State Efforts to Exclude 340B Drugs from Medicaid 
Managed Care Rebates, OEI-05-14-00430, June 2016.
---------------------------------------------------------------------------
    To increase transparency, OIG recommends that CMS require states to 
use claim-level methods to identify 340B claims. CMS did not concur 
with OIG's recommendation to require the use of claim-level methods to 
identify 340B claims, stating that it agreed with the importance of 
claim-level methods but that the statute ``does not contemplate'' 
placing such a requirement on State Medicaid agencies. CMS noted that 
states may develop their own billing instructions in accordance with 
requirements in the Public Health Services Act. In State Program 
Release No. 161, CMS informed states about tools they can use to 
identify 340B claims, including National Council for Prescription Drug 
Plans Telecommunication Standards that some states have instructed 340B 
providers to use.
    Notably, CMS took steps in late 2017 to increase transparency for 
340B claims submitted to Medicare. In its Outpatient Prospective 
Payment System payment rule for calendar year 2018, CMS began requiring 
hospitals to use claim-level modifiers when billing for 340B drugs, 
which was needed to implement its new 340B-specific reimbursement 
policy. \17\
---------------------------------------------------------------------------
    \17\  82 Fed. Reg. 59216 (December 14, 2017).
---------------------------------------------------------------------------
   oig recommends: clarifying rules to ensure that the 340b program 
                          operates as intended
    OIG has identified a number of challenges and inconsistencies 
arising from the widespread use of contract pharmacy arrangements. 
Contract pharmacies are external pharmacies (often retail pharmacies) 
that partner with 340B providers to dispense 340B drugs to the 
providers' patients, and their prevalence is on the rise. These 
pharmacies typically dispense both 340B drugs on behalf of 340B 
providers, as well as non-340B drugs. The operations of contract 
pharmacies are often quite complex, and this complexity has important 
consequences. In particular, it leads to variation in eligibility 
determinations across different 340B providers. It also leads to 
inconsistencies in whether uninsured patients benefit directly from the 
340B program. As such, OIG recommends that HRSA clarify rules to 
address these ambiguities and inconsistencies.
    HRSA initiated steps to address OIG's concerns by proposing updates 
and clarifications that address the patient definition, contract 
pharmacy arrangements, and other program integrity provisions in its 
2015 proposed omnibus 340B guidance. However, HRSA never finalized that 
proposed guidance. As such, these issues remain unaddressed. To address 
these issues through rulemaking, HRSA needs additional statutory 
authority.

    HRSA's current patient definition guidance does not account for the 
complexity of contract pharmacy arrangements.

    340B providers are prohibited by law from dispensing 340B drugs to 
anyone who is not their patient. \18\ However, the law does not define 
what constitutes a ``patient.'' HRSA's official definition of patient 
eligibility comes from guidance issued before 340B providers were 
permitted to contract with networks of retail pharmacies. That guidance 
specifies that an individual is an eligible patient only if he or she 
has an established relationship with the 340B provider, he or she 
receives health care services from the 340B provider, and those 
services are consistent with the service or range of services for which 
Federal funding is being granted.\19\,\20\
---------------------------------------------------------------------------
    \18\  42 U.S.C. Sec. 256b(a)(5)(B).
    \19\  Disproportionate share hospitals (DSHs) are exempt from the 
requirement that services be consistent with the service or range of 
services for which Federal funding is being granted. DSHs serve a 
significantly disproportionate number of low-income patients and 
receive payments from CMS to cover the costs of providing care to 
uninsured patients. DSHs are defined in Section 1886(d)(1)(B) of the 
Social Security Act.
    \20\  61 Fed. Reg. 55156, 55157-8 (October 24, 1996).
---------------------------------------------------------------------------
    Dispensing a 340B drug to an ineligible patient, which is 
prohibited by law, is referred to as ``diversion.'' Thus, appropriately 
determining patient eligibility for 340B drugs is critical to 
preventing diversion.
    Although the law and HRSA guidance focus on 340B eligibility at the 
patient level, operationally, contract pharmacies determine eligibility 
at the prescription level. Retail contract pharmacies often have no way 
to distinguish a 340B patient from any other customer filling a 
prescription at their stores. To address this reality, many contract 
pharmacies dispense drugs to all of their customers--340B-eligible or 
otherwise--from their regular inventory. Only later, after dispensing a 
drug, do these contract pharmacies determine which prescriptions were 
given to 340B-eligible patients. They then order the appropriate 
quantity of drugs at 340B prices to replenish their inventory.
    To identify which prescriptions were given to 340B-eligible 
patients, contract pharmacies often match information from the 340B 
providers, such as patient and prescriber lists, to their dispensing 
data. In its 2014 report, OIG found wide variation in these eligibility 
determinations. Different determinations of 340B eligibility appear to 
stem from the application of the patient definition by 340B providers 
and their contract pharmacies to a wide variety of prescription-level 
scenarios. \21\ Depending on the interpretation of HRSA's patient 
definition, some 340B provider eligibility determinations would be 
considered diversion and others would not.
---------------------------------------------------------------------------
    \21\  OIG, Contract Pharmacy Arrangements in the 340B Program, OEI-
05-13-00431, February 2014.
---------------------------------------------------------------------------
    HRSA's current guidance on patient definition does not account for 
many of the 340B eligibility decisions that arise in contract pharmacy 
arrangements. The following example illustrates how contract pharmacy 
operations have led to different determinations of 340B eligibility in 
the absence of a clearer patient definition.

        Scenario: Nonexclusive physician

        A physician practices part time at a 340B provider, but also 
        has a private practice. The physician first sees an individual 
        at the 340B provider.
        Separately, the physician sees the same individual at his 
        private practice and writes a prescription for that person. The 
        individual fills the prescription at the 340B provider contract 
        pharmacy--even though the prescription was provided at a 
        private practice. Should the patient be considered 340B-
        eligible?

    Whether contract pharmacies determine the prescription in this 
scenario to be 340B-eligible depends on how they match their dispensing 
data to information from the 340B provider. One 340B provider in OIG's 
report noted that it would automatically categorize the prescription in 
this scenario as 340B-eligible because it uses a list of all 
prescribers working at the 340B provider to identify 340B-eligible 
prescriptions. Because the physician in this scenario would be on the 
prescriber list, the prescription would be categorized as 340B-
eligible, even though it was written at the physician's private 
practice (i.e., it originated outside the 340B provider).
    Another 340B provider in OIG's report noted that it would not 
categorize the prescription in that scenario as 340B-eligible because, 
although the 340B provider's contract pharmacy also uses a prescriber 
list to identify 340B-eligible prescriptions, it limits the prescriber 
list only to those prescribers who work exclusively for the 340B 
provider. Because the physician in this scenario would not be on the 
prescriber list (as he does not work exclusively for the 340B 
provider), the prescription would not be categorized as 340B-eligible.
    In its 2015 proposed omnibus guidance, HRSA proposed an update to 
the patient definition that could have addressed this scenario and many 
others. The guidance proposed a six-part patient definition, to be 
applied on a prescription-by-prescription basis, that would have deemed 
prescriptions to be 340B-eligible only if they resulted from a service 
(e.g., a physician consultation) provided by a 340B provider. However, 
HRSA never finalized this guidance, and formally withdrew it in January 
2017. HRSA made no public comment as to why the guidance was withdrawn.

    Neither the 340B statute nor HRSA guidance addresses whether 340B 
providers must offer the discounted price to uninsured patients.

    Despite the 340B program's goal of increasing access and providing 
more comprehensive care, neither the 340B statute nor HRSA guidance 
speaks to how 340B providers must use savings from the program--nor do 
they stipulate that the discounted 340B price must be passed on to 
uninsured patients.
    Given this discretion, some 340B providers have chosen to institute 
extra measures to ensure that uninsured patients benefit through lower 
drug costs when filling prescriptions at contract pharmacies. If they 
do not, uninsured patients can pay full price for drugs filled at 
contract pharmacies and thus not directly benefit from the 340B 
discount on their prescriptions. Guidance on how the program should 
apply to uninsured patients in these scenarios should be clarified to 
ensure that patients are treated consistently across 340B providers and 
that operations align with the program's intent.
    In OIG's 2014 report on 340B contract pharmacy arrangements, we 
found that a few 340B providers did not offer the discounted price to 
their uninsured patients at contract pharmacies. \22\ These 340B 
providers' contract pharmacy arrangements would have required 
additional processes to identify uninsured patients as 340B-eligible 
because, as previously noted, many contract pharmacies do not know 
which patients are from the 340B providers when they come to the 
pharmacy. Not knowing whether the patient is 340B-eligible may not have 
a financial impact on insured patients, because their costs are often 
determined by standard copayments stipulated in their insurance plans. 
For uninsured patients, not knowing whether they are 340B-eligible 
means that they may be charged the full price for their drugs. Contract 
pharmacies may later identify uninsured patients' prescriptions as 
340B-eligible, but those patients will have paid full price.
---------------------------------------------------------------------------
    \22\  OIG, Contract Pharmacy Arrangements in the 340B Program, OEI-
05-13-00431, February 2014.
---------------------------------------------------------------------------
              conclusion and specific oig recommendations
    We appreciate the Committee's interest in these important issues. 
We also appreciate the progress that HRSA has made to improve its 
oversight of the 340B program. We continue to urge HRSA, in 
coordination with CMS, to increase transparency and clarify program 
rules. Within these themes, we have made the following recommendations.

    Increase transparency to allow payment accuracy

          HRSA should fully implement its authority to share 
        ceiling prices with 340B providers.

          HRSA should work with CMS to share ceiling prices 
        with State Medicaid agencies.

          CMS should require State Medicaid agencies to use 
        claim-level methods to identify 340B claims and HRSA should 
        update its related guidance.

    Clarify rules to ensure that the program operates as intended

          HRSA should clarify the definition of eligible 
        patient.

          HRSA should address whether 340B providers must offer 
        discounted 340B prices to uninsured patients.

    HRSA and CMS have both stated that they do not have sufficient 
statutory authority to carry out most of these recommendations. 
Therefore, we encourage Congress to consider making statutory changes 
that would provide HRSA broader regulatory power, as outlined in the 
fiscal year 2019 President's budget. \23\ This would improve program 
operations and increase clarity in program goals, enabling more 
effective oversight of this valuable program.
---------------------------------------------------------------------------
    \23\  Office of Management and Budget, Budget of the U.S. 
Government for Fiscal Year 2019: An American Budget. Accessed at 
https://www.whitehouse.gov/wp-content/uploads/2018/02/budget-fy2019.pdf 
on May 9, 2018.
---------------------------------------------------------------------------
    Thank you for the opportunity to testify and participate in the 
discussion on ways to improve oversight of the 340B program. OIG will 
continue to work with HRSA, CMS, and Congress to protect the integrity 
of this program and help ensure that it is efficiently and effectively 
meeting its intended goals.
                                 ______
                                 
                         Summary of Ann Maxwell
    The Office of Inspector General (OIG) appreciates the Committee's 
interest in the important issues raised by our work the 340B program. 
We also appreciate the progress that the Health Resources and Services 
Administration (HRSA) has made to improve its oversight of the 340B 
program. We continue to urge HRSA, in coordination with the Centers for 
Medicare & Medicaid Services (CMS), to increase transparency and 
clarify program rules. Within these themes, we have made the following 
recommendations.

    Increase transparency to allow payment accuracy

          HRSA should fully implement its authority to share 
        ceiling prices with 340B providers.

          HRSA should work with CMS to share ceiling prices 
        with State Medicaid agencies.

          CMS should require State Medicaid agencies to use 
        claim-level methods to identify 340B claims and HRSA should 
        update its related guidance.

    Clarify rules to ensure that the program operates as intended

          HRSA should clarify the definition of eligible 
        patient.

          HRSA should address whether 340B providers must offer 
        discounted 340B prices to uninsured patients.

    HRSA and CMS have both stated that they do not have sufficient 
statutory authority to carry out most of these recommendations. 
Therefore, we encourage Congress to consider making statutory changes 
that would provide HRSA broader regulatory power, as outlined in the 
fiscal year 2019 President's budget. \1\ This would improve program 
operations and increase clarity in program goals, enabling more 
effective oversight of this valuable program.
---------------------------------------------------------------------------
    \1\  Office of Management and Budget, Budget of the U.S. Government 
for Fiscal Year 2019: An American Budget. Accessed at https://
www.whitehouse.gov/wp-content/uploads/2018/02/budget-fy2019.pdf on May 
9, 2018.
---------------------------------------------------------------------------
    Thank you for the opportunity to testify and participate in the 
discussion on ways to improve oversight of the 340B program. OIG will 
continue to work with HRSA, CMS, and Congress to protect the integrity 
of this program and help ensure that it is efficiently and effectively 
meeting its intended goals.
                                 ______
                                 
    The Chairman. Thank you, Ms. Maxwell.
    Dr. Draper, welcome.

  STATEMENT OF DEBRA A. DRAPER, PH.D., DIRECTOR, HEALTH CARE 
  TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

    Dr. Draper. Thank you, Chairman Alexander, Ranking Member 
Murray, and Members of the Committee.
    Thank you for the opportunity to be here today to discuss 
the 340B Drug Pricing Program.
    The 340B Program was created by statute in 1992 and is 
administered by HRSA. According to HRSA, the intent of the 
Program is to enable participating entities, also known as 
covered entities, to stretch scarce Federal resources to reach 
more eligible patients and provide more comprehensive services. 
Participation is voluntary, but there are strong incentives to 
do so.
    Covered entities, such as certain hospitals and federally 
qualified health centers, can realize substantial savings 
through 340B drug discounts; reportedly, an estimated 20 to 50 
percent of the cost of outpatient drugs and generate revenue to 
the extent that any reimbursement exceeds the 340B drug price.
    For drug manufacturers, 340B Program participation is 
required to receive Medicaid reimbursement for their outpatient 
drugs.
    Since the 340B Program first became operational in 1993, it 
has experienced exponential growth in the number of covered 
entities and contract pharmacies. In 1993, the Program had 
approximately 400 covered entities and by 2017, there were more 
than 12,000 representing approximately 38,000 covered sites.
    Prior to March 2010, only one contract pharmacy was allowed 
for covered entities without an in-house pharmacy. In March 
2010, HRSA lifted that restriction and as a result, the number 
of contract pharmacies increased from about 1,300 in 2010 to 
nearly 19,000 at the beginning of 2017 encompassing more than 
46,000 arrangements.
    In 2011, we reported HRSA's oversight of the 340B Program 
was inadequate to provide a reasonable assurance that 
participants were in compliance with Program requirements. As a 
result of the identified weaknesses, we made four 
recommendations.
    One recommendation was for HRSA to conduct audits of 
covered entities to ensure compliance with Program 
requirements. This recommendation was a result of our finding 
that HRSA primarily relied on participants to self-police and 
ensure their own compliance.
    In 2012, HRSA initiated audits of covered entities and 
since 2015 has conducted 200 audits annually. This currently 
represents less than 2 percent of the total number of covered 
entities participating in the Program. The audits conducted to 
date have identified instances of noncompliance including the 
dispensing of 340B drugs to ineligible patients.
    A second recommendation was for HRSA to clarify its 
guidance for cases in which the distribution of drugs is 
restricted. This recommendation was a result of our finding 
that in some cases, such as when the supply of a drug is 
inherently limited, manufacturers may have restricted 
distribution, but the manner in which they did so was not 
always clear. HRSA issued updated guidance in 2012 which 
addressed our recommendation.
    The remaining two recommendations were for HRSA to issue 
more specific guidance on the definition of a patient eligible 
to receive a drug purchased through the 340B Program and the 
criteria that households must meet to be eligible to 
participate.
    These recommendations are the result of our findings, but 
the lack of specificity in the guidance could be interpreted in 
ways that were not consistent with the Program's intent.
    HRSA has attempted, but not succeeded, in addressing these 
two open recommendations. In 2012, HRSA developed a 
comprehensive 340B Program regulation, but a court ruling found 
that its rulemaking authority was limited to specified areas.
    In 2015, HRSA issued proposed guidance, but subsequently 
withdrew plans to finalize it, following the Administration's 
directive to agencies to withdraw pending regulations and 
guidance.
    More recently, HRSA has indicated that it needs broader 
regulatory authority for areas such as hospital eligibility.
    In summary, while HRSA has taken some steps to improve the 
integrity in its oversight of the 340B Program, a number of 
important issues remain including whether the intent of the 
Program, which was established 25 years ago, is still relevant 
today given the vastly changed healthcare landscape and 340B 
Program environment, and continued lack of specificity in 
Program guidance, most notably, the definition of a patient and 
hospital eligibility criteria.
    Until these issues are resolved, there will continue to be 
questions about the integrity of the 340B Program and HRSA's 
ability to provide effective oversight.
    Mr. Chairman, this concludes my opening remarks.
    I would be happy to answer any questions.
    [The prepared statement of Dr. Draper follows:]
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    The Chairman. Thank you, Dr. Draper.
    We will now begin a 5 minute round of questions.
    Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    Thanks to both of you for being here.
    I was sitting here contemplating what I might ask, 
realizing, I am so confused. I do not think I am at a point 
where I can ask a question.
    This reminds me of some of the explanations of Government 
programs that are sometimes so complicated. But you were just 
talking, Dr. Draper, about determining if we are still carrying 
out the intent of the original Program. The intent of the 
original Program was to lower the cost of drugs to in-need 
patients.
    Is that not correct?
    Dr. Draper. Well, that is not explicitly stated.
    Senator Isakson. Explicitly state to me what the purpose of 
the Program was, then.
    Dr. Draper. Yes. The intent of the Program--and this is 
also in a House report that accompanied the legislation--was to 
enable participating entities, also known as covered entities, 
to stretch scarce, Federal resources to reach more eligible 
patients and provide more comprehensive services.
    Senator Isakson. That would be hospitals and providers.
    Is that correct?
    Dr. Draper. Federal grantees like federally qualified 
health centers.
    Senator Isakson. I think you said there are 19,000 of them 
as of this year.
    Is that correct?
    Dr. Draper. Yes, with 46,000 sites.
    Senator Isakson. The pricing of the pharmaceuticals is done 
by the pharmaceutical company that sells them to the hospital 
providers.
    Is there a middleman they go through? Do they go through a 
benefit manager or insurance company, or does it go directly to 
the hospital?
    Dr. Draper. Yes, the covered entities, there are certain 
restrictions on how they go about purchasing the drugs. For 
example, they cannot use an approved purchasing organization 
because of some of the issues around the discounts. They can 
use HRSA's Prime Vendor Program to purchase the drugs.
    Senator Isakson. There are various ways for them?
    Dr. Draper. There are various ways that they can acquire 
the drugs.
    Senator Isakson. But under the rules, the pricing is the 
same no matter what in terms from the pharmaceutical company.
    Dr. Draper. Whatever the list price is from the 
pharmaceutical company.
    Senator Isakson. You, or possibly Ms. Maxwell, made a 
comment about there was not enough transparency to really be 
sure whether the Program is functioning at optimum intent. I 
take that meant from the pharmaceutical companies justifying 
the cost that they are charging.
    Is that correct?
    Ms. Maxwell. Yes, our focus on transparency is making sure 
the full benefits of the Program are realized by the 340B 
providers as well as states. Right now, they do not have 
visibility into the prices.
    Senator Isakson. Tell me real quickly, right now, how do 
you currently do that?
    Ms. Maxwell. Right now, states and providers do not have 
visibility into what those prices are. So they simply pay what 
they are charged.
    Senator Isakson. That is why you used the term ``trust, but 
verify.''
    Is that right?
    Ms. Maxwell. Correct.
    Senator Isakson. It seems like we have a problem in the 
search of a system to evaluate it, listening to the testimony 
of both of you. That we really need to be able to trust, but 
verify the cost that is put in by the company and make sure the 
providers that have become eligible to make the purchase are 
qualified and are delivering it to the intended people. That is 
what it sounds like to me.
    We probably need to work on that, Mr. Chairman, as a 
Committee to help the Program.
    I yield back the rest of my time.
    The Chairman. Thank you, Senator Isakson.
    Senator Murray.
    Senator Murray. Both testimonies speak strongly to the 
greater need for 340B Program integrity. I support the efforts 
by HRSA to ensure 340B resources are being used to help safety 
net providers stretch their scarce resources to serve those in 
the greatest need, as you stated was the goal.
    Ms. Maxwell, did the Affordable Care Act require 
regulations to make sure drug companies were charging the 
appropriate amount or ceiling price for these drugs and to hold 
them accountable for overcharging?
    Ms. Maxwell. Yes, it did, and HRSA's authority to regulate 
that was upheld in court.
    Senator Murray. Right. And when was that regulation 
finalized?
    Ms. Maxwell. January 2017.
    Senator Murray. Why has it not been implemented?
    Ms. Maxwell. Since finalizing that rule in January 2017, 
HRSA has repeatedly delayed the effective date, as you 
mentioned, multiple times and most recently has proposed to 
delay that effective date to July 2019.
    Senator Murray. Their delay, the Trump delay in continuing 
to implement that is having an impact.
    I noticed that they delayed again last week, the same week, 
as I said, that the President said he was cracking down on the 
pharmaceutical industry. So they are not moving forward on 
this, I would assume.
    You would say that, yes?
    Ms. Maxwell. Yes, and in addition to that, the rule 
delegated enforcement authority to the OIG. And as a result, 
the OIG has not received any referrals for enforcement 
authority, and we do not anticipate receiving any until the 
rule is finalized.
    Senator Murray. Dr. Draper, your testimony recommends the 
definition of 340B eligible patient and the criteria for 
hospitals to be clarified. I believe that needs to be done in a 
way that strengthens this Program that helps so many patients.
    Has HRSA attempted to address the issues of hospital 
eligibility and patient definition to assure that 340B is being 
implemented consistently across the country?
    Dr. Draper. They have not attempted to do it with the 2014 
regulation and the guidance that was pulled-back in 2017. So it 
is still an issue.
    I think part of the issue, for example, with the definition 
of a patient, there are a lot of covered entities that consider 
that and look at that very narrowly and others look at it very 
broadly. So you have a wide range of how that is being 
interpreted.
    For the entities that look at it very narrowly, there could 
be patients who could benefit from the Program that are not 
getting that service because of the narrow definition of how 
that hospital, or an entity, is interpreting it.
    Senator Murray. What happened to the draft guidance?
    Dr. Draper. It was pulled-back in 2017, based on the 
Administration's directive to agencies to pullback any pending 
regulations and guidance.
    Senator Murray. Instead of working with stakeholders to 
provide more clarity to that guidance, it was pulled back and 
the Administration punted it again.
    As I said in my opening remarks, I think that is sabotage 
and it is hindering the efforts to improve transparency and 
accountability. They cutback the Program, and then argued in 
last week's drug pricing plan, the Program does not work.
    I think that is just not the right approach and I just 
wanted everybody to understand that is what is happening.
    I wanted to ask one more question. Hospitals provide for 
the community in more ways than simply caring for uninsured 
patients.
    In my state, the University of Washington uses the Program 
to help support medical care at what they call the 1811 
Eastlake Housing Project. That is for individuals who struggle 
with homelessness and alcohol abuse. That care model helped 
King County save $4 million by allowing those individuals to 
avoid the more expensive services like the emergency room.
    We heard from some stakeholders that better reporting of 
hospitals' 340B savings, and the services they provide would 
reduce the complexity, would increase transparency, and better 
assure compliance.
    From your work on 340B, do you think additional reporting 
from hospitals in their use of 340B savings is helpful for 
Program integrity? Anyone?
    Ms. Maxwell. We are very supportive of Program integrity. 
We think reporting requirements would provide greater 
transparency, of course.
    But in thinking about responsible reporting, we always need 
to weigh that against the potential provider burden. We also 
think responsible reporting is most valuable when it is tied to 
clear program goals.
    Senator Murray. What would be the best metrics to determine 
which hospitals are good program stewards?
    Ms. Maxwell. I would not be the person to opine on that. 
Just from a Program integrity perspective, we find the most 
value in reporting when it is tied to clear Program goals and 
rules. And as we have noted here already, this Program lacks 
some clarity in the intent of the Program.
    Senator Murray. Dr. Draper, what is a good metric that we 
should be looking at?
    Dr. Draper. I think that currently the program does not 
require any reporting of how revenues are spent. I think 
anything that enhances the transparency of the Program, I think 
would enhance the integrity of the Program.
    But I also think that is also tied to the issue about what 
is the real intent of the Program? Because I think there is 
some ambiguity around what is the actual intent of the Program.
    A lot of people think it is a Program for low income people 
and indirectly, they may benefit, but that is not really 
explicitly stated in the intent.
    Senator Murray. Thank you.
    The Chairman. Thanks, Senator Murray.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    According to the Maine Hospital Association, 25 Maine 
hospitals qualify for the 340B Drug Discount Program, and they 
receive a collective benefit estimated to be $105 million a 
year.
    Fourteen of those 25 hospitals already have negative 
operating margins. For some of the other 340B hospitals with 
positive operating margins, the value of the Program represents 
the difference between a positive operating margin and a 
negative one.
    At the same time, part of what is driving the narrow 
hospital margins and losses in Maine is the growth in 
pharmaceutical spending. Maine hospitals have experienced a 30 
percent increase in drug spending over the past 4 years.
    I wanted to give you that background because the Hospital 
Association in Maine has told me that if we were to limit or 
eliminate the 340B benefit, it would wipeout the positive 
operating margins for those hospitals that actually are in the 
black.
    Ms. Maxwell, you testified about the lack of transparency 
to ensure that the 340B providers are not overpaying 
pharmaceutical manufactures.
    What can we do to increase transparency and ensure that 
overpayments are not occurring?
    Ms. Maxwell. Thanks for that question. It is a really 
important one and one that speaks to a number of our 
recommendations around transparency.
    We think the best way to provide better transparency is for 
HRSA to share the 340B ceiling prices directly with providers 
as well as states.
    Senator Collins. Is there any reason that HRSA is not doing 
that now?
    Ms. Maxwell. In terms of providers, HRSA does now currently 
have the authority that was granted in 2010 with the ACA, but 
they have not completed their secure data system. My 
understanding is that that is in progress, but it is not 
completed, and may not be completed until the completion and 
effective date of the ongoing rules about ceiling price.
    In terms of sharing the information with states, that would 
require more authority from Congress for HRSA to be able to 
share that.
    Senator Collins. Thank you.
    Ms. Maxwell. Thank you.
    Senator Collins. I held a hearing in the Aging Committee 
last week on the increase in the price of insulin during the 
past 10 years when it has tripled, despite the fact that 
insulin has been around since 1921, and granted, there are 
different modifications. But once again, we ran into this lack 
of transparency.
    The American Diabetes Association did a chart that showed 
the number of middlemen--including Pharmacy Benefit Managers, 
wholesalers, distributors, insurers--that are between the 
manufacturers and the patients, and the fact that rebates and 
discounts often do not get passed on.
    When Senator Isakson was talking about that lack of 
transparency in the system, and listening to your testimony, I 
think that that is a major problem in the pharmaceutical 
network, if you will. And it sounds like it is partly an issue 
here as well.
    Ms. Maxwell. Indeed.
    Senator Collins. Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Collins.
    Senator Kaine.
    Senator Kaine. Mr. Chairman, I am glad we are having this 
hearing and look forward to the hearing with HRSA as well.
    Thanks to the witnesses for being here.
    Ms. Maxwell, first, for you, I want to talk about one of my 
critical health care providers, the Virginia Commonwealth 
University. It is the largest safety net hospital in Virginia. 
It is an urban, Disproportionate Shared teaching Hospital, and 
it is representative of the hospitals that could be hurt most 
by recent HHS cuts to reimbursements for 340B drugs.
    The 340B savings have allowed them to innovate. They have 
created a managed care program for the uninsured called 
Virginia Coordinated Care for the uninsured, or VCC. The 
program is not insurance coverage, but it is a partnership 
between VCU and health care providers to treat qualified, 
uninsured individuals.
    When Congress passed the 340B Program, it explained it 
wanted the Program to stretch Federal resources further and 
provide more comprehensive services, as Dr. Draper said.
    Statements by the OIG and reports were a factor in the 
nearly 30 percent cut to payments to the 340B hospitals that 
went into effect in January.
    I am looking at one of the reports that the OIG has done, 
which is a report dated November 2015, entitled, ``Part B 
Payments for 340B Purchased Drugs.'' I just want to read the 
conclusion, quote Page 13, ``It is important to note that our 
analysis was entirely financial. We did not examine the effect 
these changes would have on covered entities' ability to serve 
their communities.''
    Just to be clear, the OIG report, this one in particular, 
did not examine how the cuts would affect urban and teaching 
hospitals' ability to offer more comprehensive services to 
their needy patients.
    Ms. Maxwell. That is correct. The focus of the report was 
to provide an independent analysis of how the savings might be 
shared across different payers.
    We understood that there was a policy conversation 
happening about the needs to bring down costs in taxpayer-
funded Medicare, as well as the need to reinvest in community 
health centers. And we simply wanted to provide the data to 
help enable that conversation.
    Senator Kaine. I think that is just an important point to 
make.
    For purposes of making the policy decisions that we have to 
make, we obviously have to grapple with the cost and 
efficiencies that were the subject of your report. However, we 
also have to grapple with the consequences to patients of 
hospitals like VCU of cuts and try to balance those out.
    That is a fair statement, is it not?
    Ms. Maxwell. That is actually true.
    It is also good to note that big policy changes like this, 
change the financial equation, and it is possible the hospitals 
could opt out of 340B altogether.
    If they do that, the discounts are lost to all parties.
    Senator Kaine. Right.
    Ms. Maxwell. To the hospitals, to Medicare, and to Medicare 
patients.
    Senator Kaine. That would have significant consequences as 
well.
    Dr. Draper, for you, I agree. I think both the Chairman and 
Ranking Member in their testimony have talked about the need 
for transparency and oversight to any Government program, 
including this one.
    In your testimony, you report that HRSA has audited 200 
covered entities in 2017 to ensure compliance with the Program, 
which is a fourfold increase over the number of audits that 
were done in 2014. Given the number of covered entities, that 
sounds like a good thing to do. Let me ask this question.
    How many manufacturers did HRSA audit to ensure they were 
in compliance with the Program and not overcharging?
    Dr. Draper. Yes, so according to the HRSA Website, in 2015, 
they audited one and in each of 2016 and 2017, they audited 
five. And again, on their Website, they report that they had no 
findings for the manufacturers. So it is not a systematic 
process as it is for the covered entities.
    Senator Kaine. I would suggest, and I think the Ranking 
Member got into this a bit in her questions as well, that if we 
are going to be doing these audits, if we are going to be 
systematically auditing the providers, we should also be 
systematically auditing the manufacturers.
    Dr. Draper, according to your testimony, the GAO is 
preparing additional reports on the 340B Program. I just wanted 
to ask you.
    What are the areas that you are examining and when do you 
think these reports will be ready?
    Dr. Draper. Sure. We have two reports coming out. They will 
be coming out this summer. One report is looking at the issue 
around contract pharmacies. So we are looking at the extent to 
which covered entities are contracting with contract 
pharmacies, and some of the characteristics of those 
pharmacies.
    We are also looking at the extent to which discounts are 
passed on to low income patients or individuals from the 340B 
Program. We are also looking at HRSA oversight of the Program. 
We are also going to be delving a little bit more into the 
audits of the covered entities.
    Then the fourth thing that we are looking at is looking at 
financial arrangements between covered entities and contract 
pharmacies, as well as with TPA's. TPA's is a whole cottage 
industry that has evolved around the 340B Program. So that is 
something that we will be looking at, as well as with the TPA 
arrangements.
    Senator Kaine. Excellent, excellent. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Kaine.
    What arrangement? TPA, what does that mean?
    Dr. Draper. Yes, Third Party Administrator. So a lot of 
those, they work with 340B covered entities to help set up and 
manage their 340B Programs.
    The Chairman. Thank you.
    Senator Cassidy.
    Senator Cassidy. Just to follow-up on what Senator Kaine 
said because if, obviously, the Program is being used, as it is 
to be used, to help those lower income folks, that is a good 
thing.
    But I do want to quote a ``New England Journal of 
Medicine'' article in which NYU researchers found that if you 
look at the provision of cancer care at a 340B Program versus a 
non-340B Program, there is actually fewer lower income patients 
in that cancer care.
    The 340B Program, which ostensibly is getting this discount 
to provide more services, statistically is associated with 
providing fewer services.
    There is no significant difference in hospital provision of 
safety net or inpatient care for low income groups or in 
mortality among the low income residents of the hospital's 
local service area. If you will, it is an indictment because, 
theoretically, this is supposed to----
    I have worked in a 340B hospital. Some of them are 
fantastic and there are patients at the poor folks' hospital, 
if you will, where I worked that only got medicine because of 
this Program. But it does seem as if there are some issues with 
how it is currently being done.
    In fact, I noticed that consumer groups are advocating for 
it. Let me just point out something else.
    Last week, Memorial Sloan-Kettering's Drug Pricing Lab 
reported research, or made the suggestion, that should 340B 
hospitals be required to provide charity care totaling just 1 
percent of their patient revenue, 9 percent of 340B hospitals 
would no longer be eligible for 340B. That is, if they provided 
just 1 percent of their revenue for charity care.
    Second, I will point out that if you say that the way the 
business model works is that the more expensive the drug, the 
greater the discount. If the hospital is not returning that 
discount to the payer, to the patient or to the Federal 
Government, they get a bigger spread with a more expensive 
drug.
    Now, Ms. Maxwell, I think I have seen evidence that the 
incentive is for the 340B Program to use the more expensive 
medicine because, again, that increases their spread.
    Is that reasonable and do you agree with that?
    Ms. Maxwell. The work of the IG has not touched on that 
particular issue.
    Senator Cassidy. Let me ask Dr. Draper that.
    Ms. Maxwell. Absolutely.
    Dr. Draper. We had done a report in 2015 that looked at 
Medicare Part B drugs and the 340B Program. In that work, we 
found that the 340B DSH hospitals were generally larger, often 
teaching hospitals. They tended to have lower overall margins, 
but higher Medicare margins and we also found that Medicare 
Part B spending at those hospitals was substantially higher 
than non-DSH hospitals.
    Senator Cassidy. Medicare Part B, so the interaction 
between that and 340B is that 340B would cover the infusion 
drugs given on a Medicare Part B billing. Correct?
    Dr. Draper. Yes, if it is an outpatient drug.
    Senator Cassidy. When you say that the differential is 
higher, it implies at least, that they are using more expensive 
services, or a greater intensity of services for whatever 
reason, and that would include potentially using more expensive 
medications.
    Dr. Draper. Well, it suggests that there may be some 
financial incentives, unintended incentives for prescribing 
patterns.
    Senator Cassidy. Now, thank you. You also mentioned that 
340B entities tend to be larger hospitals. Last week, 
researchers from Yale, Penn, Carnegie Mellon, and MIT published 
a paper that found, among other things, prices at monopoly 
hospitals are 12 percent higher than in markets with four or 
more rivals.
    Does the current structure of the 340B Program incentivize 
consolidation?
    Dr. Draper. We really have not done work on that, so I 
cannot really address that.
    I can tell you that another one of our reports that is 
coming this summer compares characteristics of 340B hospitals 
and non-340B hospitals, and also looking at how those 
characteristics have changed pre-and post-healthcare reform.
    Senator Cassidy. That report is pending.
    Dr. Draper. Yes, so that will be coming out this summer.
    Senator Cassidy. Okay. And then in 2014, OIG published a 
report that provided useful insight into where the benefits of 
the 340B discounts were flowing. The agency found that few of 
the hospitals you surveyed--this is for you, Ms. Maxwell--few 
hospitals said they passed the 340B discount back to the 
uninsured patient.
    These are the ones that, it is not Blue Cross, it is the 
uninsured patient who can hardly afford their medicine to 
personal insulin, for example, filling prescriptions at the 
hospital's contract pharmacy.
    Given that, in the intervening 3 years, no new guidance or 
regulation with the goal that the patients are the true 
beneficiaries of the Program has been issued, do you have any 
reason to believe that hospitals have begun to pass these 
savings back to the uninsured?
    Ms. Maxwell. We worked closely with HRSA and let them know 
about these situations. So they were able to address them as 
they thought appropriate. I do not know whether HRSA did, 
indeed, reach out and talk to these hospitals about their 
current policies.
    Senator Cassidy. You have no indication either way that 
hospitals have begun to pass it back to the uninsured or that 
they have not?
    Ms. Maxwell. That is correct.
    Senator Cassidy. I yield back. Thank you.
    The Chairman. Thank you, Senator Cassidy.
    Senator Smith.
    Senator Smith. Thank you, Chairman Alexander and Ranking 
Member Murray, and to our testifiers today.
    I want to just start by saying, Senator Isakson, I 
appreciate your candor in saying it is hard to figure out what 
is going on with drug prices and who pays what when, and how 
much, and why. Sometimes I wonder whether that is not by design 
rather than by accident, to tell you the truth as I struggle to 
understand this.
    This is such an important issue in Minnesota. Senator 
Collins was talking about drug prices increasing. I think she 
was talking about overall for hospitals increasing 30 percent, 
and we wonder why hospitals are struggling to try to make ends 
meet.
    I want to just make sure that what we are talking about in 
reforms to the 340B Programs do not hurt safety net hospitals, 
especially in rural areas, and I want to just talk about that 
for a minute.
    I have an example. RiverView Health, a rural Minnesota 
health system, a 25-bed critical access hospital, recently told 
me that the 340B Program has enabled them to stay operational. 
Literally, they would not be there without this as it maintains 
a Level II trauma center for the region, and also treats an 
increasing number of people who need mental health services.
    They say cutting back on this Program--and I realize that 
is not specifically what we are talking about here--every penny 
we spend comes to patient needs. So to Senator Murray's point, 
this is how we stretch scarce resources.
    Ms. Maxwell, could you just tell us a little bit about how 
you think the proposed changes would affect rural safety net 
hospitals?
    Ms. Maxwell. Let me make sure I understand your question 
correctly. Are you talking about the cuts in Part B payments in 
particular?
    Senator Smith. Yes, exactly. And also, this emphasis on 
what additional regulatory burden might be placed on small 
safety net hospitals.
    Ms. Maxwell. Yes, the cuts to Part B are new this year and 
so, I think it is important to address your issue about how 
they will actually affect hospitals. We will need to monitor 
that as the implementation rolls out and see whether or not the 
redistribution of the savings blunts those cuts in any way.
    I think in terms of the regulatory burden, which I think 
you are also addressing, that also needs to be taken into 
consideration. Obviously, the Inspector General is all for 
greater Program integrity and greater transparency.
    But we are always cognizant when recommending new reporting 
requirements of the potential burden on providers to provide 
that information and how the information will be used to 
benefit stronger Program integrity.
    Senator Smith. Right. I think this gets me to the question 
of transparency for whom, and how does it work? Senator Collins 
got to this a little bit and I also think Senator Murray did.
    I am stunned to understand how much drugs are costing, and 
people do not know.
    To the people who are paying for them, it is like saying, 
``I am going to go and buy a car, but I do not know exactly how 
much it is costing. I also do not know whether the person 
standing right next to me is buying the same car and is paying 
more or less.''
    Is that not the fundamental problem here?
    Ms. Maxwell. It has been a fundamental issue in the 340B 
Program almost since its inception, this lack of transparency. 
It is a significant issue.
    Senator Smith. What is the impact, do you think, of not 
moving forward on the proposed improvements that the Trump 
administration has been holding back? What is the impact of 
that on the prices that people are actually paying, do you 
think?
    Ms. Maxwell. What I can refer to is a report that we did 
back in 2005. At that time, we looked and saw that 14 percent 
of all purchases by 340B entities were, in fact, over the 
mandated ceiling price.
    Senator Smith. What was that again?
    Ms. Maxwell. In 2005, of the total purchases, 14 percent of 
them were over the mandated 340B ceiling price, which resulted 
in $3.9 million in overcharges for that month, which was June 
2005. So we do, in fact, have evidence that overcharging has 
taken place.
    Senator Smith. That was 1 month in 2005.
    Ms. Maxwell. That was 1 month.
    Senator Smith. Well, today's hearing is on the 340B 
Program, which is, of course, important and plays an important 
role in making sure that people can get access to prescription 
drugs and quality healthcare at the same time.
    I hope that in this conversation, we do not lose sight of 
the central problem we have, which is that prescription drug 
prices are too high and people in my state, and all over the 
country, are choosing between buying the medicine that they 
need and other essential parts of their life. I hear these 
stories all the time in Minnesota.
    While I am glad that the President says he wants to tackle 
these challenges, I hope that we can find some common ground.
    I also agree that I do not think the proposals that were 
laid out last week get at the core problem. I think great 
evidence of that was the pharmaceutical companies' stock prices 
went up after the President made this announcement.
    At the same time, we have issues with big drug companies, 
like Novartis, paying Michael Cohen for access to the 
Administration. These are the issues that, I think, are deeply 
concerning to people in my state that we have to get to the 
bottom of.
    Thank you.
    The Chairman. Thank you, Senator Smith.
    During our first hearing on 340B, it became obvious that 
among the witnesses, there was some disagreement about 
statistics, about data.
    Let me ask you three or four questions. If you do not have 
the answer right at hand, maybe you could provide them to me 
after the hearing.
    The Office of the Assistant Secretary for Planning and 
Evaluation estimated that Americans spent $457 billion on 
prescription drugs in 2015.
    Is that $457 billion accurate for 2015?
    Ms. Maxwell. My understanding, that is accurate for sales.
    The Chairman. For sales.
    Well, would you measure it some other way?
    Ms. Maxwell. As opposed to net revenues that would 
incorporate discounts after the fact.
    The Chairman. Right, Okay, so overall sales.
    According to HRSA, of that $457 billion, approximately $12 
billion was spent on 340B drugs.
    Does that sound correct?
    Dr. Draper. Yes, I think that is what MedPAC reported as 
well. That was pre-discount, I believe.
    Ms. Maxwell. Correct. I believe it was $16 billion in 2016 
and up to $19 billion in 2017.
    The Chairman. Yes. Well, back on 2015, if it was $12 
billion spent on 340B drugs, that was an estimated $6 billion 
in savings for hospitals and clinics, covered entities, that 
participate in the Program.
    Does the $6 billion figure sound right?
    Ms. Maxwell. It does.
    The Chairman. Yes. So using those numbers, $12 billion out 
of $457 billion is about 2.6 percent. That would mean that in 
2015, the purchase of 340B drugs were about 2.6 percent of the 
total drug purchases in the country.
    Correct?
    Ms. Maxwell. Correct.
    The Chairman. According to HRSA, now, this is looking at 
the next year, 340B sales were about $16 billion or about 3.6 
percent of drug sales in the country; $440 billion in 2016.
    Does that sound correct?
    Ms. Maxwell. Yes.
    The Chairman. That would suggest that in 1 year, sales in 
the 340B Program increased by about 33 percent.
    According to the Government Accountability Office, 
hospitals, clinics, and affiliates--and you testified some to 
this--participating in the Program nearly doubled from about 
20,000 in 2014 to nearly 40,000 in 2017.
    Is that correct?
    Dr. Draper. Yes, over the past 5 years, hospital covered 
sites increased 175 percent and Federal grantee sites increased 
about 40 percent. So the growth is really primarily 
disproportionate in hospital sites.
    The Chairman. Would you both agree that it would be hard 
for us to do anything else until we clarify the intent of the 
Program?
    Dr. Draper. I think clarifying the intent of the Program 
would go a long way to establishing what the guidance needs to 
be and it will help create----
    Then the guidance needs to happen to create the 
transparency and enhance it. Right now, there is a lot of 
ambiguity as to what the Program rules are.
    The Chairman. Ms. Maxwell.
    Ms. Maxwell. I would agree. Clarity in the Program goal, as 
well as clear Program rules, is the foundation of a strong 
Program integrity strategy.
    The Chairman. In our previous hearing, it was pretty clear 
that we could not tell, in all instances, on what the covered 
entities were spending their money. In other conversations 
since then, I have had hospitals say to me, ``Well, we are glad 
to tell you.''
    Is it true that because of the way clinics are supervised 
that we know more about how they spend their money than we do 
hospitals? Or is there any reason why we should not ask 
hospitals and clinics, covered entities, to tell us how they 
spend this $6 billion?
    If it goes to help individual patients reduce the price of 
a specific drug, that is one thing. If it goes for some other 
purpose, which it could and does, which may be a worthy 
purpose, but that is another thing.
    Is there any reason not to ask for that information?
    Dr. Draper. Well, the underlying issue is that it is not a 
requirement of the Program that entities have to report how 
they spend their money or what they use the revenue for.
    The Chairman. Yes.
    Dr. Draper. Now, for some of the Federal grantees, their 
grant requirements may require them to spend the money in a 
certain way.
    The Chairman. It does not require that.
    Dr. Draper. No.
    The Chairman. But it would seem to me we could do a better 
job of oversight if we knew that.
    Dr. Draper. I think it is somewhat dependent on the 
sophistication, probably, of the entity and what type of data 
systems or other systems they have to put in place to really 
monitor that.
    But I think that it is something that certainly should be 
explored because I think this is another issue that there will 
always be questions about the integrity of the Program if that 
information is not available.
    The Chairman. Yes. Well, we are not clear about the intent 
of the Program, and if that information is not available, it 
makes it difficult to oversight.
    Dr. Draper. I am sorry.
    The Chairman. My time is up.
    Dr. Draper. I was going to say that people have a lot of 
interpretations on what the intent of the Program is.
    The Chairman. Yes.
    Dr. Draper. But that is not consistent with what the stated 
intent is. I mean, someone gets on a program for low income 
folks and as I said, it may well be, but that is not explicit 
in the intent.
    I think deciding what the intent of the Program is would go 
a long way to really helping with creating the necessary 
guidance and regulations that are needed for the front room.
    The Chairman. Thank you very much.
    Well, I have run over my time. Senator Warren is always 
good about sticking to her time.
    Senator Warren.
    Senator Warren. Thank you.
    The Chairman. I have set a bad example.
    Senator Warren. Thank you, Mr. Chairman.
    The 340B Program has one basic requirement, that drug 
companies must provide discounted medications to hospitals and 
clinics caring for the most vulnerable patients: children with 
cancer, the uninsured, the underinsured, people with HIV and 
AIDS.
    Federal law specifies the formula used to calculate this 
discounted price, which is called the ceiling price. In order 
for the 340B Program to work, the ceiling price calculations 
need to be done correctly, and there need to be consequences 
when drug companies break the law and deliberately overcharge 
for these drugs. So let me start there.
    Dr. Draper, in 2011, the GAO raised concerns that the 340B 
Program, quote, ``Primarily relies on self-policing; that is, 
participants ensuring their own compliance with program 
requirements.''
    Tell me, why might it be a problem if a drug company is the 
only one doing these ceiling price calculations, and no one is 
able to check its work?
    Dr. Draper. On the covered entity part, the prices are not 
available to them, so they do not know really.
    The self-policing only works if you have transparency and 
you have the information that you need to really self-police. 
The information is not available to the covered entities.
    On the other end, too, with drug manufacturers that they 
may suspect that a covered entity is dispensing drugs to 
ineligible patients, they have the authority to audit a covered 
entity, but there are a lot of burdens associated with that, so 
they rarely do that.
    It is both ends and there is just an overall lack of 
transparency.
    Senator Warren. I get your point, but I just want to start 
with the premise of just how the Program is set up to begin 
with because when it comes to these drug companies, if no one 
can check their work, they could cheat, charge more for drugs, 
and no one could catch them when they break the law. There is 
just no way to catch them on this.
    Senator Smith started on this issue, so let me ask another 
part of this.
    Ms. Maxwell, the OIG has conducted numerous analyses of 
340B prices.
    Is there evidence that drug companies have overcharged 
health care providers in the 340B Programs?
    Ms. Maxwell. Yes, there is evidence.
    Senator Warren. These findings led Congress to include a 
provision in the Affordable Care Act to crackdown on this 
behavior.
    The ACA required the Government to create a verification 
system for ceiling prices to make sure hospitals and clinics 
got refunds if the drug companies overcharged them.
    Now, Congress also established fines called Civil Monetary 
Penalties that drug companies could be charged if they 
knowingly, and intentionally, overcharged a healthcare 
provider.
    Ms. Maxwell, the OIG is in charge of enforcing the Civil 
Monetary Penalties.
    How many penalties have you assessed to date?
    Ms. Maxwell. To date, we have received no referrals from 
HRSA, and we do not anticipate receiving them until the rule is 
made effective, which now is looking like July 2019.
    Senator Warren. There was evidence in earlier studies that 
drug companies have overcharged health care providers.
    Right now, you have not received any referrals, and the 
reason you have not received any referrals is because the Trump 
administration has already delayed the implementation of these 
penalties not once, not twice, not three times, but four 
separate times since 2017. And just last week, they proposed 
yet a fifth delay.
    When President Trump delivered his big drug pricing speech 
last week, he said that the 340B Program, a drug discount 
program, contributes to the problem of higher drug prices. And 
that is one of the parts of the speech where the drug industry 
lobbyists must have stood up and cheered because here is the 
thing.
    If the President is truly worried about the connection 
between high drug prices and the 340B Program, he could start 
by implementing the law that Congress wrote to actually stop 
drug companies from cheating on their discounts.
    No one should be above the law, and that includes giant 
drug companies that are raking in profits while complaining 
about a Program that helps out our most vulnerable patients.
    Thank you. I yield with time.
    The Chairman. Thank you for your usual succinctness, 
Senator Warren.
    Senator Baldwin.
    Senator Baldwin. Thank you, Mr. Chairman.
    I have long worked with a group of bipartisan colleagues in 
the Senate to protect and strengthen the 340B Program.
    In 2013, we called on HHS to consider recommendations from 
a 2011 GAO report. However, the Administration continues to 
delay any real action to enhance Program operations for all 
participants and, instead, has continued to unfairly single out 
and target hospitals.
    Aurora, in downtown Milwaukee, Wisconsin, is one of our 71 
hospitals that rely on the 340B Program to care for its 
uniquely vulnerable population. Aurora estimates that over 
8,000 of its patients have undiagnosed hepatitis C with over 
37,000 undiagnosed cases in the state.
    They have used their 340B savings to develop a screening 
program and to partner with the city health department, a local 
Ryan White clinic, and a nearby community health center to 
improve community health and better address hepatitis C.
    Aurora recently shared their frustrations with regular 
instances where drug companies refused to provide them with the 
340B price of a drug. Often, the manufacturer will provide no 
excuse at all or they will claim that the drug is in short 
supply. This forces the hospital to buy the needed medication 
at full cost. At which point, the drug is curiously no longer 
in short supply.
    The GAO recommended that HRSA clarify guidance to prevent 
drug companies from restricting distribution of drugs at 340B 
prices. While the agency released clarification, hospitals in 
Wisconsin continue to experience these problems.
    Dr. Draper, what additional work do you plan to do to 
examine instances where drug manufacturers refuse to provide 
the 340B price, and what other oversight measures could help 
address this?
    Dr. Draper. Yes, we do not currently have work underway or 
have any planned work related to that. However, that is a HRSA 
oversight issue and if hospitals are experiencing that, they 
need to work with HRSA to resolve the issue.
    That was something we found in our work that led up to the 
2011 report that manufacturers of drugs that were inherently in 
short supply that they often restricted distribution in a way 
that was not always clear between 340B and non-340B hospitals.
    That is a HRSA oversight and it is a HRSA enforcement 
issue. I think that the hospitals need to work with HRSA to 
resolve that issue because that should not be happening in 
accordance with their updated guidance.
    Senator Baldwin. Many Wisconsin 340B hospitals have also 
told me about numerous audits that they experienced, not only 
from their own internal rigorous self-auditing, but also from 
HRSA audits, as well as audits by the drug companies.
    Your agencies have recommended increasing oversight of drug 
manufacturers including increasing audits, transparency, as 
well as a dispute resolution process for covered entities to 
better obtain information from manufacturers.
    I am concerned that this uneven playing field between 
hospitals and drug companies continues to persist, burdening 
hospitals in the Program.
    Dr. Draper and Ms. Maxwell, can you explain why your 
agencies recommended enhanced drug manufacturer oversight, such 
as audits? And what gaps remain that the Administration has 
failed to address?
    Ms. Maxwell. With respect to our work, the gaps that remain 
are the visibility into the prices. So right now, providers and 
states do not know what the 340B ceiling prices are. So at this 
point, they just pay what they are charged and we have evidence 
from previous work that there are overcharges that occur.
    We strongly encourage HRSA to complete the data system, to 
share the prices with the providers, and also to seek the 
authority needed to share prices with states.
    Dr. Draper. Yes, and currently we encourage oversight of 
all entities participating in the Program, for covered 
entities, as a result of our recommendations in 2011. HRSA now 
conducts about 200 audits of covered entities each year.
    Earlier, I had talked about that it is not a systematic 
process for manufacturers. In 2015, they did one manufacturer 
audit. In each year in 2016 and 2017, they did five.
    We would encourage that there is a process to ensure that 
all participants in the Program are adhering to Program 
regulations and rules, and that there is greater transparency.
    Senator Baldwin. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Baldwin.
    I want to thank our two witnesses today for your very 
helpful comments. You had some questions, which you may want to 
follow-up on.
    The hearing record will remain open for 10 days. Members 
may submit additional information for the record within that 
time, if they would like.
    Our Committee will meet again on Tuesday, May 22 at 10 
a.m., for a hearing on, ``The Health Care Workforce: Addressing 
Shortages and Improving Care.''
    Thank you for being here.
    The Committee will stand adjourned.
    [Whereupon, at 11:14 a.m., the hearing was adjourned.]

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