[Senate Hearing 115-827]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 115-827
 
                      EFFECTIVE ADMINISTRATION OF
                     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 EFFECTIVE ADMINISTRATION OF THE 340B DRUG PRICING PROGRAM

                               __________

                             JUNE 19, 2018

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and Pensions
 
 
 
 
 
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
 
 
 


        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
        
                            ______                      


              U.S. GOVERNMENT PUBLISHING OFFICE 
 30-644 PDF              WASHINGTON : 2020        
        
        
        
        
        
          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, JUNE 19, 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

                                Witness

Pedley, Captain, Krista M., PHARM.D., M.S., Director, Office of 
  Pharmacy Affairs, Healthcare Systems Bureau, Health Resources 
  and Services Administration, U.S. Department of Health and 
  Human Services, Rockville, MD..................................     6
    Prepared statement...........................................     8


                      EFFECTIVE ADMINISTRATION OF

                     THE 340B DRUG PRICING PROGRAM

                              ----------                              


                         Tuesday, June 19, 2018

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

                 OPENING STATEMENT OF SENATOR ALEXANDER

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will please come to order.
    Senator Murray and I will each have an opening statement. 
Then, I will introduce the witness and then we will hear from 
the witness. Senators will each have 5 minutes to ask 
questions.
    We have three Appropriations bills on the floor; unusual 
development. I am managing the Energy and Water Appropriations 
bill. We even have the prospect of several amendments that may 
be offered and voted on today including, hopefully, one or two 
at 11:45 a.m.
    I will be leaving the hearing after a while and going to 
the floor to manage that bill, but Senator Cassidy has agreed 
to chair the hearing from that point forward.
    I want to acknowledge at the outset that this is a hearing 
suggested by Senator Kaine, as a result of our earlier hearings 
on 340B. We appreciate the suggestion and look forward to it.
    At Methodist Hospital, in downtown Memphis, five employees 
working as community navigators go to events in Memphis to give 
local residents preventative cancer tests and refer them to the 
Methodist cancer treatment center if necessary.
    Saint Thomas Hospital, in Nashville, operates four 
Dispensary of Hope pharmacy sites across the State of 
Tennessee, providing low income, uninsured patients with free 
or low-cost prescription drugs.
    The Erlanger Health System, in Chattanooga, delivers 
prescription drugs at no cost to low income patients at their 
homes to ensure they are receiving and taking their 
medications.
    Methodist, Saint Thomas, and Erlanger are all able to 
provide these services because of the money they save by 
participating in the 340B Drug Pricing Program, which requires 
drug manufacturers that participate in Medicaid to provide 
discounts on prescription drugs to qualifying hospitals and 
clinics.
    Some of the time, the 340B discount is passed directly to 
the patient as a lower priced drug. Other times, the hospital 
or clinic uses the savings to provide other services to 
patients, like the programs Methodist, Saint Thomas, and 
Erlanger run. In other words, the savings are used in many 
different ways.
    Arguably, all these uses, and others, fit into the broad 
language Congress wrote when it created the 340B Program in 
1992, which says the program was created to, ``Permit covered 
entities to stretch scarce Federal dollars as far as possible, 
reaching more eligible patients and providing more 
comprehensive services.''
    But, as we learned at our two previous hearings on the 
Program, there is no consistent data that show how hospitals 
and clinics are spending the money they save through the 340B 
Program.
    Data is necessary to demonstrate the value of the 340B 
Program, and Congress cannot evaluate the Program, conduct 
oversight, or consider changes to improve the Program without 
more information.
    There has been a lot of bipartisan interest. I mentioned 
Senator Kaine's role in suggesting that we hear from the Health 
Resources and Services Administration--we will call that HRSA 
today--which oversees the 340B Program. Today's hearing is an 
opportunity to hear from HRSA on whether they need more 
authority to collect data and properly oversee the Program.
    At our previous hearings, we have heard that the reason we 
do not have much data is because HRSA may not have the 
authority to collect data and conduct oversight of the Program.
    We heard explicitly from two Government watchdogs--the 
Government Accountability Office and the Office of the 
Inspector General at the Department of Health and Human 
Services--at our last hearing that HRSA needs more authority to 
properly oversee the 340B Program.
    Right now, HRSA has clear authority to determine if 
hospitals, clinics, and drug companies are eligible to 
participate in the Program. However, we have heard it is 
unclear if HRSA has the statutory authority to oversee other 
aspects of the 340B Program, for example, defining what 
patients may benefit from in the 340B Program.
    Today, I would like to hear directly from the agency in 
charge of the 340B Program. What data is being collected? What 
data is missing?
    For example, according to HRSA itself, the agency only has 
data on about 90 percent of drugs sold through the 340B 
Program.
    What oversight is being conducted on the 340B Program and 
are these oversight activities effective?
    For example, HRSA currently conducts audits to determine 
hospital and clinic eligibility, but we have heard these audits 
are inconsistent.
    One Tennessee hospital shared with me that it was asked to 
provide information during an audit that was based on draft 
guidance that was never made final. To satisfy the unexpected 
request, the hospital was forced to do additional work at 
additional expense.
    Does HRSA need more authority to collect data or provide 
more oversight? And is HRSA using its existing authority 
properly?
    As I mentioned, we heard at our last hearing HRSA does not 
have, quote, ``broad rulemaking authority'' over the 340B 
Program. On the other hand, HRSA may not be using its clear, 
existing authority.
    For example, earlier this month, HRSA delayed for the fifth 
time a rule to ensure drug companies are properly participating 
in the 340B Program. Why is HRSA not using this existing 
authority to ensure drug companies are participating properly 
in the 340B Program?
    Congress cannot make the 340B Program work better for 
patients and hospitals if we do not have accurate and complete 
information about how the program works.
    I look forward to hearing from our witness with the Health 
Resources and Services Administration today, and our other 
Committee Members about what Congress can do to evaluate the 
340B Program, measure the Program's performance, and ensure 
that the agency responsible for the Program is conducting 
proper oversight.
    Senator Murray.

                  OPENING STATEMENT OF SENATOR MURRAY

    Senator Murray. Well, thank you, Mr. Chairman.
    Thank you to our witness for joining us today.
    Before we get into the topic of today's hearing, I want to 
make one brief comment on another issue that is on the minds of 
many this morning. I know this is not your jurisdiction, but I 
hope you will pass this along to Secretary Azar.
    What President Trump is doing at the southern border right 
now with the support of so many others in this Administration, 
including at HHS, is appalling: separating children from their 
parents, tearing babies away from breastfeeding moms, ripping 
these families apart. This is what people across the country 
are seeing happening in their country's name.
    It is a deliberate choice being made by President Trump and 
this Administration, and it needs to stop. President Trump can 
end this right now, on his own, and he should not point fingers 
and he should not wait any longer.
    Captain Pedley, I do not know if you support this policy or 
not, and you should feel free to weigh-in, if you would like, 
but I could not let this hearing begin without passing my 
thoughts on this along. I am hoping you will take them back 
with you and help your bosses understand that this is not 
acceptable, especially because I asked Secretary Azar last week 
to tell me what is being done to, at least at the minimum, 
ensure that parents know where their children are, whether they 
are safe, and whether they will see them again. And he has not 
yet gotten me back that information.
    People across this country are going to keep paying 
attention to this. They are going to continue demanding action. 
And they are going to hold President Trump, and his 
Administration, accountable.
    Now today, I want to say I am glad we are going to continue 
our conversation about the 340B Program. It helps so many 
safety net providers stretch their resources to serve 
vulnerable families and how we can help to strengthen it.
    340B provides critical drug savings to providers to take on 
the burden of serving our communities with the greatest needs 
and fewest resources. It works by requiring pharmaceutical 
companies to discount their prices for these care providers who 
can then use those savings to, as the original congressional 
report puts it, and I quote, ``Stretch scarce Federal resources 
and provide more comprehensive services.''
    At our previous hearings on 340B, I have shared stories 
from care providers across my home State of Washington who are 
putting their 340B savings to good use. I have shared stories 
from Seattle, and Spokane, and Sequim, and Olympia, and Walla 
Walla, and Monroe, and many more.
    I have shared stories about:
    Programs that serve cancer patients;
    Programs that serve homeless and low income communities;
    Programs in our rural communities, and stories about 
countless patients who got the medications they needed, but 
would not have been able to afford them if their provider had 
not been able to discount them.
    While I have already shared so many great stories from 
across my state about the good work providers have been able to 
do with their 340B savings, I have a lot more.
    Stories from the very tip of the Olympic Peninsula, where 
Olympic Medical Center uses those 340B savings to provide 
discounted care in a community with many seniors and low income 
patients.
    Stories from Providence St. Peter Hospital in Olympia and 
Providence Centralia Hospital, where they have used these 
savings to provide thousands of free and discounted 
prescriptions every year; and lower-cost chemotherapy services, 
including support and counseling, for patients receiving 
treatment.
    It is clear many providers, in Washington State and across 
the country, are using these savings to make sure that even 
with few resources they can do a lot of good.
    We should take steps to strengthen 340B by providing more 
accountability and transparency for everyone in the system. We 
should be confident entities are using their 340B savings 
appropriately and pharmaceutical manufacturers are providing 
340B discounts fairly.
    Unfortunately, instead of working in good faith to make 
this system stronger, President Trump has worked to sabotage it 
by repeatedly stalling measures to provide accountability and 
clarity, severely cutting funds to 340B recipients, and even 
suggesting 340B discounts somehow contribute to high drug 
prices.
    When the Health Resources and Services Administration, 
HRSA, drafted a rule to make sure drug companies played by the 
rules and gave the discounts required by the law, the Trump 
administration sabotaged it by delaying the rule. Not once, not 
twice, but five times.
    When HRSA drafted its so-called ``mega-guidance,'' which 
would have provided more clarity for the Program, the Trump 
administration walked away from the table with stakeholders who 
wanted to find resolution on these issues, and sabotaged the 
process by withdrawing the guidance completely.
    I am particularly interested to hear what our witness today 
thinks of these efforts.
    While President Trump seems entirely uninterested in 
allowing oversight and guidance of this Program, unfortunately, 
he has shown an interest in cutting it.
    The Centers for Medicare and Medicaid Services have 
traditionally reimbursed 340B-eligible care providers at market 
price, just like everyone else, but the Trump administration is 
working to sabotage the Program by slashing those 
reimbursements by nearly 30 percent for drugs. That dramatic 
cut is already hurting many of these care providers and the 
families that rely on them.
    President Trump has talked a lot about lowering drug 
prices--in crowds, and in his tweets, and in his deeply 
underwhelming blueprint--but instead of putting forward 
proposals to actually strengthen or expand 340B, the blueprint 
characterizes 340B as, quote, ``a business challenge,'' that 
contributes to, quote, ``downward pressure on revenues'' of 
drug companies.
    No mention of the real pressures low income patients and 
families face. No mention of the great work being done by 
safety net providers keeping people healthy and delivering care 
close to home.
    The Administration's suggestion that this Program, which 
makes companies lower their prices, is actually a barrier 
keeping companies from lowering their prices contradicts 
itself. It also contradicts what we saw after Republicans 
jammed through their partisan tax bill; companies spent that 
major giveaway on massive stock buybacks, not on lowering 
prices.
    This blueprint speaks loudly about the President's 
promises. His Administration's actions to sabotage 340B, which 
actually helps make drugs more affordable, are moving us in 
exactly the wrong direction. Instead of walking away from this 
Program, we should strengthen it, so providers in Washington 
State and nationwide can continue to use it to stretch their 
resources, support struggling families, and reach vulnerable 
communities.
    We do need to look at every part of the 340B system for 
ways to make sure it is accountable enough to fulfill its 
intent and solid enough to continue serving our communities for 
generations to come. These hearings are a great opportunity to 
do that.
    I look forward to seeing what today's witness has to offer 
to this conversation.
    Thank you.
    The Chairman. Thank you, Senator Murray.
    I am pleased to welcome Captain Krista Pedley to today's 
hearing, and I thank her for taking the time to be here.
    Captain Pedley is the Director of the Office of Pharmacy 
Affairs at the Health Resources and Services Administration--
which we are calling HRSA today--the Office which administers 
and oversees the 340B Drug Pricing Program.
    Before joining HRSA's Office of Pharmacy Affairs, Captain 
Pedley served in the Food and Drug Administration's Office of 
Generic Drugs and in the Department of Health and Human 
Services Office of the Secretary.
    She began her career as a pharmacist with the United States 
Public Health Service. In conversation with her before the 
hearing, I believe she said she has been at her current job 8 
years and with HRSA for 11 years.
    We look forward to her expertise.
    Welcome, again, Captain Pedley. If you could summarize your 
comments in about 5 minutes, then we will take questions from 
Senators.

    STATEMENT OF CAPTAIN KRISTA M. PEDLEY, PHARM.D., M.S., 
   DIRECTOR, OFFICE OF PHARMACY AFFAIRS, HEALTHCARE SYSTEMS 
  BUREAU, HEALTH RESOURCES AND SERVICES ADMINISTRATION, U.S. 
  DEPARTMENT OF HEALTH AND HUMAN SERVICES, ROCKVILLE, MARYLAND

    Captain Pedley. Good morning, Chairman Alexander, Ranking 
Member Murray, and Members of the Committee.
    I appreciate the opportunity to appear before you today to 
discuss the 340B Program.
    HRSA shares the commitment to the effective oversight and 
integrity of the Program, and today, I will provide an overview 
of the steps we have taken to strengthen those efforts.
    The Program was authorized in 1992 to stretch scarce 
Federal resources by reducing the cost of covered outpatient 
drugs to 340B eligible entities. Approximately 12,850 entities 
and over 30,000 associated sites currently participate, in 
addition to 600 manufacturers.
    We appreciate the work done by the HHS Office of Inspector 
General and the Government Accountability Office to provide 
recommendations on strengthening safeguards, which inform our 
activities across all HRSA programs.
    HRSA has worked to address the majority of these 
recommendations through systematic efforts to improve the 
Program. However, the 340B statute does not provide sufficient 
authority to effectively implement some of the recommendations 
that remain open.
    We continue to welcome feedback from our stakeholder 
community, Members of Congress, the GAO, and OIG to help 
strengthen our operations and oversight.
    The President's Fiscal Year 2019 budget includes a proposal 
to increase transparency and accountability in the Program in 
two specific ways.
    First, by ensuring that the benefits of the programs are 
used to help low income, uninsured patients.
    Second, to amend the statute to provide explicit, general 
rulemaking authority in order for the Program to set clear, 
enforceable standards of Program participation.
    The President's budget also proposes to implement a user 
fee that would be paid by covered entities based on their 
overall sales.
    The user fee revenue would be used to administer the 
Program, and enhance Program integrity and oversight activities 
by conducting additional audits of both covered entities and 
manufactures, and by improving our I.T. system capabilities.
    HRSA works to verify that both covered entities, and 
manufacturers, comply with Program requirements.
    For covered entities, HRSA conducts efforts, such as 
initial certification, annual recertification, and Program 
audits. To ensure the transparency of that audit process, we 
post the summary of our final audit findings, including the 
names of the covered entities, on our public Website.
    As of April 1, 2018, HRSA has completed 981 covered entity 
audits since it began auditing in 2012, which encompasses 
nearly 13,000 offsite facilities and nearly 21,000 contract 
pharmacy locations. In Fiscal Year 2018, HRSA is on track to 
conduct an additional 200 covered entity audits.
    The findings of the audits have varied. Some findings were 
minor in nature, requiring basic corrections to their 340B 
record, while other audits found diversion, either through 
ineligible providers or ineligible sites.
    Through findings in the audits, HRSA developed educational 
tools and resources for all stakeholders to improve overall 
Program integrity.
    HRSA is also actively engaged in manufacturer oversight. 
Manufacturers have one core, statutory obligation in the 340B 
Program, which is to offer a price that does not exceed the 
statutory 340B ceiling price to covered entities. HRSA's 
oversight efforts of manufacturers center on this key 
obligation.
    To that end, the audit process for manufacturers is the 
same as the process for covered entities. As of April 1, 2018, 
HRSA has conducted 12 audits of manufacturers. HRSA also 
develops guidance and policy releases specific to manufacturer 
compliance.
    HRSA verifies that manufacturers that participate in 
Medicaid have signed a Pharmaceutical Pricing Agreement, 
reviews all allegations of manufacturer noncompliance brought 
to its attention, and requires refunds and credits when a 
covered entity is overcharged.
    The 340B statute specifies the types of entities eligible 
to participate in the Program, but does not specify how a 
covered entity may dispense such drugs to its patients.
    The diverse nature of eligible entities has resulted in a 
variety of drug distribution systems. HRSA has issued guidance 
recognizing covered entity use of contract pharmacies to 
dispense 340B drugs. The majority, or 73 percent, of covered 
entities do not contract with these pharmacies.
    Contract pharmacies provide access points for eligible 
patients to obtain 340B drugs. They do not increase the number 
of eligible patients. HRSA guidance outlines compliance 
requirements for entities that utilize contract pharmacies, 
which HRSA reviews as part of its audits.
    If a contract pharmacy is found to be out of compliance 
with Program requirements, HRSA may terminate the contract 
pharmacy from the Program.
    HRSA is committed to strengthening 340B Program integrity 
efforts and ensuring that its oversight supports the Program's 
success.
    I appreciate the opportunity to testify today and answer 
any questions you may have.
    [The prepared statement of Captain Pedley follows:]
        prepared statement of capt. krista m. pedley, pharmd, ms
    Chairman Alexander, Ranking Member Murray, and Members of the 
Committee, thank you for the opportunity to discuss the Health 
Resources and Services Administration's (HRSA) efforts to improve the 
integrity of the 340B Drug Pricing Program (340B Program). HRSA shares 
the Committee's commitment to the effective oversight and integrity of 
this program. In my testimony today, I will provide an overview of the 
steps we have taken to strengthen oversight of the Program.

    HRSA's mission is to improve health and achieve health equity 
through access to quality services, a skilled workforce, and innovative 
programs. We do this by working to improve health care for people who 
are geographically isolated or economically or medically vulnerable. 
HRSA strives to maximize every dollar and seeks to achieve the best 
outcomes for the populations we serve. Consistent with HRSA's Strategic 
Plan, we are continuously working to enhance oversight and integrity in 
all HRSA programs, including the 340B Program.
                     The 340B Drug Pricing Program
    The 340B Program was authorized by the Veterans Health Care Act of 
1992. Based on congressional report language, \1\ the 340B Program is 
intended to substantially reduce the cost of covered outpatient drugs 
to 340B-participating eligible entities, known as ``covered entities,'' 
in order to stretch scarce federal resources. Some examples of covered 
entities include Federally Qualified Health Centers, Ryan White HIV/
AIDS Program grantees, hemophilia treatment centers, and 
disproportionate share hospitals (DSH). Covered entities must apply to 
participate in the 340B Program and, once eligibility is verified by 
HRSA, the entities may begin purchasing drugs at the statutorily 
defined ceiling price. As of April 1, 2018, approximately 12,850 
covered entities and over 30,000 associated sites currently participate 
in the Program.
---------------------------------------------------------------------------
    \1\  The House Report accompanying the original 340B Program 
legislation states the following intent: ``[i]n giving these `covered 
entities' access to price reductions the Committee intends to enable 
these entities to stretch scarce Federal resources as far as possible, 
reaching more eligible patients and providing more comprehensive 
services.'' H.R. Rep. No. 102-384(II), at 12 (1992).

    Manufacturers participating in Medicaid enter into an agreement 
with HHS and agree to charge 340B covered entities a price that does 
not exceed the statutory ceiling price. Over 600 manufacturers 
---------------------------------------------------------------------------
participate in the Program.

    We appreciate the work done by the Department of Health and Human 
Services Office of Inspector General (OIG) and the Government 
Accountability Office (GAO) to highlight potential program integrity 
vulnerabilities and provide recommendations on strengthening 
safeguards. HRSA uses these recommendations to inform our program 
improvement activities across all HRSA programs, including the 340B 
Program. The GAO made four recommendations from its 2011 study, and 
HRSA has implemented two recommendations from the study. The remaining 
two recommendations are open, which direct HRSA to clarify hospital 
eligibility requirements and the definition of a 340B patient. 
Additionally, earlier OIG 2005 and 2006 reports include 11 
recommendations, nine of which HRSA has implemented. The remaining two 
recommendations specify that HRSA should develop a pricing system to 
improve the oversight of the 340B Program and to allow entities access 
to secure pricing data to ensure that they are charged at or below the 
340B ceiling price. In addition, the OIG's 2016 report recommended that 
HRSA clarify guidance to prevent duplicate discounts for Medicaid 
managed care organization drugs, and this recommendation remains open.

    Within our statutory authority, HRSA has worked to address the 
majority of these recommendations through systematic efforts to improve 
the 340B Program. The 340B statute does not provide sufficient 
statutory authority to effectively implement some of the 
recommendations. We continue to welcome feedback from our stakeholder 
community, Members of Congress, GAO, and OIG to help strengthen our 
program operations and oversight.
                            Budget Proposals
    The President's fiscal year 2019 Budget includes a proposal to 
increase transparency and accountability in the Program, by ensuring 
that the benefits of the Program are used to help low-income and 
uninsured patients. The Budget also proposes to amend the statute to 
provide explicit general regulatory authority in order for the 340B 
Program to set clear, enforceable standards of program participation, 
and to require all covered entities to report on the use of program 
savings. If Congress were to enact the fiscal year 2019 Budget 
proposal, HRSA would have explicit general rulemaking authority for all 
aspects of the 340B program, significantly strengthening HRSA's 
oversight of the 340B Program. Binding and enforceable regulations 
would dictate specific 340B Program requirements and provide the 
clarity necessary for participants to be fully compliant, for example 
on hospital eligibility requirements and the definition of a 340B 
patient.

    The President's Budget also proposes to implement a user fee that 
would be paid by covered entities. The user fees revenue would be used 
to administer the Program and enhance program integrity and oversight 
activities by conducting additional 340B Program audits of covered 
entities and manufacturers and by improving IT system capabilities.
                         340B Program Integrity
    HRSA places the highest priority on the integrity of the 340B 
Program and has strengthened oversight of this program. We work to 
verify that both 340B covered entities and manufacturers comply with 
340B Program requirements. We have always worked to achieve program 
integrity within our authority to provide clarity in important program 
areas.

    We conduct efforts such as initial certification (entity enrollment 
and validation), annual recertification, and program audits (onsite 
audit of 340B compliance). When an entity applies for participation in 
the program, HRSA staff review and validate the applicant's eligibility 
based on statutory requirements. In addition, through the annual 
recertification process, covered entities verify that all eligibility 
information is up to date and attest to compliance. We have been 
conducting annual recertification for all covered entities over the 
last several years. Since 2012, there have been steady improvements in 
recertification efforts by all covered entities in the 340B Program. 
Based on program requirements and information submitted and verified 
during the registration and recertification process, HRSA has 
instituted additional program integrity checks such as quarterly DSH 
hospital checks, site visits to grantees, and randomized collection of 
contracts related to contract pharmacy arrangements.

    Fiscal year 2018 is our seventh year of covered entity audits. 
Randomly selected covered entity audits continue to be utilized 
according to a risk stratification methodology, so that entities with 
higher risk factors are more likely to be selected for audit. Targeted 
audits are also performed and may be triggered by reported violations 
or allegations. HRSA has also re-audited covered entities with earlier 
violations.

    The 340B covered entity audit process begins with a selected 
covered entity receiving an engagement letter explaining what to expect 
and how to prepare for the audit. Auditors follow a strict protocol 
when conducting an audit. After the completion of the audit, the entity 
receives a final report, and is granted one opportunity for ``notice 
and hearing,'' by which it can submit a written disagreement addressing 
any or all of the audit findings. If the entity submits a disagreement, 
HRSA considers additional points raised, which may result in adjusted 
findings. The entity is then issued a revised final report, if 
warranted. If findings were included in the final report, the entity 
would be required to submit to HRSA a Corrective Action Plan (CAP), 
which would include repayment to manufacturers for findings of 
diversion, duplicate discount, and/or violation of the Group Purchasing 
Organization prohibition.

    HRSA is regularly reviewing and updating its processes to improve 
program integrity. Based on our reviews, we have updated our audit 
expectations regarding the implementation of a covered entity's CAP. 
Specifically, as of April 1, 2018, HRSA expects full CAP 
implementation, including any settlement with manufacturers, to be 
completed within 6 months of a CAP approval. If covered entities are 
unable to meet this expectation, they may be subject to termination 
from the Program. In addition, HRSA may collect additional 
documentation to demonstrate that the CAP has been implemented, 
including any applicable repayment to manufacturers. Covered entities 
may be subject to a re-audit to assess compliance with program 
requirements, including when audits have identified the same exact 
finding of non-compliance. A finding of non-compliance in two or more 
audits, depending on the type of violation, may be considered 
systematic and egregious, as well as knowing and intentional, which may 
result in the covered entity being removed from the 340B Program and 
may also disqualify the covered entity from re-entry into the 340B 
Program for a reasonable period of time.

    To ensure the transparency of the audit process, HRSA posts a 
summary of final audit findings, including the name of the covered 
entity, on our public website. As of April 1, 2018, we had completed 
981 covered entity audits since we began auditing in 2012, which 
encompass nearly 13,000 offsite outpatient/offsite facilities and 
nearly 21,000 contract pharmacy locations. In fiscal year 2018, HRSA is 
on track to conduct an additional 200 covered entity audits. The 
findings of the audits have varied. Some findings were minor, requiring 
basic corrections in the 340B data base (e.g., contact or address 
information was incorrect). Other audits found diversion, either 
through ineligible providers or ineligible sites. For audits with 
findings of a possible duplicate discount violation, the covered entity 
is required to work with the state to clarify and resolve the issue.

    In addition, for instances of noncompliance, covered entities must 
work in good faith with manufacturers to remedy any repayment owed 
after the entity determines the scope of noncompliance. Covered 
entities and manufacturers have access to the necessary data to resolve 
any repayment, which is a matter between the two parties due to their 
established business relationship.

    Through findings in the audits, HRSA develops educational tools and 
resources for all 340B stakeholders in order to improve overall program 
integrity.

    In addition to covered entity oversight, we are actively engaged in 
manufacturer oversight. Manufacturers have one core statutory 
obligation in the 340B Program, which is to offer a price not to exceed 
the 340B ceiling price to covered entities. Our oversight efforts of 
manufacturers center on this key obligation. To that end, the audit 
process for manufacturers is the same as the process for covered entity 
audits as outlined above. As of April 1, 2018, HRSA had conducted 12 
audits of manufacturers. HRSA also works to ensure manufacturer 
compliance through development of guidance and policy releases specific 
to manufacturer compliance. HRSA verifies that manufacturers that 
participate in Medicaid have signed a pharmaceutical pricing agreement, 
reviews all allegations of manufacturer noncompliance brought to its 
attention, and requires refunds and credits when a covered entity is 
overcharged.
               Contract Pharmacy Use in the 340B Program
    The 340B statute specifies the types of entities eligible to 
participate in the 340B Program, but does not specify how a covered 
entity may provide or dispense such drugs to its patients. The diverse 
nature of eligible entity types has resulted in a variety of drug 
distribution systems. The majority (73 percent) of covered entities do 
not contract with pharmacies. Of the 27 percent of covered entity 
organizations utilizing contract pharmacy arrangements, Section 330 
health centers represent the largest users of contract pharmacy 
arrangements, with 73 percent of health centers utilizing one or more 
contract pharmacies. HRSA notes that contract pharmacies provide access 
points for eligible patients to obtain 340B drugs; they do not increase 
the number of eligible patients.

    HRSA issued revised guidance in 2010 to further outline compliance 
requirements for covered entities that utilize contract pharmacies to 
dispense 340B drugs to their patients and to permit covered entities to 
utilize more than one contract pharmacy. The guidance states that 
covered entities are responsible for compliance of the contract 
pharmacies, and they must ensure against diversion and duplicate 
discounts, maintain auditable records, and meet all other program 
requirements. HRSA expects entities to conduct annual audits of their 
contract pharmacies in order to conduct sufficient oversight. If HRSA 
determines that a covered entity has not provided adequate oversight, 
the contract pharmacy arrangement is terminated from the 340B Program.

    HRSA conducts audits of covered entities and their contract 
pharmacy arrangements and has included in the criteria for risk-based 
audits the number of contract pharmacy arrangements a covered entity 
utilizes. HRSA verifies that the covered entity and contract pharmacy 
have entered into a valid, written contract during its audits of 340B 
covered entities. Entities must demonstrate that they have mechanisms 
in place to prevent diversion and duplicate discounts. During audits, 
HRSA also reviews a sample of the records of 340B drugs dispensed at 
the contract pharmacy and reviews contract pharmacy compliance. During 
the annual recertification process, covered entities that have 
arrangements with contract pharmacies must attest that the arrangement 
complies with all requirements set forth by the 340B Program. If an 
arrangement is found to be out of compliance with 340B Program 
requirements, HRSA may terminate the contract pharmacy arrangement from 
the 340B data base so that manufacturers no longer ship 340B drugs to 
the pharmacy.
                               Conclusion
    HRSA is committed to strengthening 340B program integrity efforts 
and ensuring that our oversight supports the program's success. As I 
have outlined today, with our multi-faceted strategy, HRSA is employing 
many effective tools within our authority to maximize our oversight 
reach and manage compliance in the 340B Program.

    I appreciate the opportunity to testify today.
                                 ______
                                 
    The Chairman. Thank you, Captain Pedley.
    We will now begin a round of questions. As I mentioned 
earlier, I will be going to the floor shortly to manage the 
Appropriations bill and Senator Cassidy has agreed to chair the 
hearing after that.
    Senator Murray mentioned what was happening at our border. 
New enforcement policies have resulted in hundreds of children 
being separated from their parents. In my view, the 
Administration should end that new policy immediately and work 
with Congress, in a bipartisan way, to secure the border, to 
provide a status for those who are illegally here, and then 
prevent a humanitarian crisis at the border.
    Captain Pedley, you have a lot of experience with the 340B 
Program, and we have listened to hospitals and clinics talk 
about how much good it does, but we do not really know how the 
money is being spent. I spend a lot of my time here pushing 
back on new Federal regulations and particularly on requiring 
people across the country to send in information to Washington 
that nobody is going to read.
    But it seems to me that it would be helpful for us to know 
how hospitals and clinics spend the money they save from 
discounted drug prices.
    Why should we not require that hospitals and clinics tell 
us how they are using their 340B savings so that we can know 
how the money is spent?
    Captain Pedley. HRSA's authority is currently limited as it 
relates to requiring what the entities do with their savings 
and requiring they then report that information to HRSA at this 
time.
    We have proposed in the Fiscal Year 2019 budget to require 
how the entities spend that savings, as you mentioned, to 
report that information to HRSA, and then to make that 
information auditable.
    We would want to work on a legislative proposal to move in 
that direction.
    The Chairman. It would take legislations to do that.
    Based on your experience, can you think of any reason not 
to do it? Why should we not ask a hospital, ``Tell us how you 
are spending the money?'' Ask a community health center, ``Tell 
us how you are spending the money.''
    I gave some examples in my opening statement of activities 
that are not passing along the direct discounted price to an 
individual, but obviously help people who need help.
    Any reason we should not do that?
    Captain Pedley. The intent of the Program in the last 25 
years was for the entities to stretch their resources as far as 
possible.
    As we continue to examine the Program, and as we proposed 
in the budget, we think it is an important next step move 
toward defining how the entities use that savings and then 
require that they report it to HRSA.
    It is a very complex issue and would be a shift in how the 
Program is operated. Currently, the grantees who participate in 
the Program do have to report their savings under their grant 
requirements as Program income. So they are currently doing 
that under the grant authority, but there is not similar----
    The Chairman. Are you talking about the community health 
centers in that case?
    Captain Pedley. The community health centers, the Ryan 
White grantees, the hemophilia treatment centers, for example. 
Yes.
    The Chairman. You mentioned ``define''. There is a 
difference between our defining how they spend the savings and 
our asking them to tell us how they spend the savings.
    My inclination would be to say as long as we know what they 
are doing, and it looks to us like it is within the broad goal 
of the law, that it would be unnecessary for us to write a 
narrow definition about how hospitals and clinics should spend 
the money.
    Do you see the difference between defining and reporting?
    Captain Pedley. Based on our experience, and anecdotally 
what we hear entities report now on what they do with their 
savings, it is being defined inconsistently across entities 
whether the savings is just based on the upfront discount on 
the product.
    Are they also including what they receive via reimbursement 
from insurance companies? Are they considering the compliance 
costs to participate in the Program?
    I do think in order to receive consistent information that 
we can then evaluate, it would be important to define the term.
    The Chairman. What do you mean by ``define''? Tell them 
there are only a limited number of things they can do?
    Captain Pedley. I think we need to define how they----
    Again, are they considering just the upfront discount and 
their cost that they receive from insurance companies when they 
end up with a number on what they are saving?
    Then to define, ``What are you allowed to do with that 
savings to benefit patients?'' which could also be very diverse 
in nature and we would need to think through.
    We would want to work with you on also considering the 
diverse nature of entities that participate in the Program. 
There are very small clinics to the very large hospitals, so 
they may be doing very different things at their clinics 
related to how they are benefiting their patients.
    The Chairman. I think the fear of the hospitals in any 
event, maybe the community health centers too, is that if we 
ask them to tell us how they are doing that we will tell them 
what to do.
    I do not see any reason why, at least to start with, we 
need to say to a hospital, ``You may only do A, B, and C,'' 
beyond what we have already said.
    What I would like to see is to say to the hospital, ``Tell 
us how you are spending the money and how you think it fits 
this broad goal that Congress established in 1992?''
    Can you give us specifically, either in writing after this 
or in other conversations with Senators, what authorities you 
need to ensure you can properly oversee the 340B Program?
    My time is about up. I only have 25 seconds, but if you 
want to give me 20 seconds' worth, that would be good.
    Captain Pedley. HRSA has outlined in the budget, in 
addition to the requirement around how entities use the 
savings, that HRSA needs general rulemaking authority in the 
Program to appropriately and clearly define how entities should 
comply with requirements. So that is definitely an area that 
HRSA needs authority in.
    The Chairman. Thank you. If you would like to expand on 
that following the hearing, that would be helpful.
    Senator Murray.
    Senator Murray. Thank you, Mr. Chairman.
    The 340B Drug Pricing Program actually allows our safety 
net providers to stretch limited resources to help vulnerable 
patients and communities. Over the last three hearings we have 
had here, we have heard a lot about the need for changes and 
limitations to the Program.
    But I am, frankly, skeptical this is not just a tactic by 
the Program's opponents from the playbook they have been using 
against 340B, actually, for years.
    For example, the ACA expanded the 340B to more hospitals, 
like rural and cancer hospitals, but did not allow them to 
receive a 340B discount on drugs for rare diseases called the 
orphan drugs.
    But Congress intended, actually, to apply that exemption to 
the treatment of a rare disease, not when a drug that is 
sometimes used to treat a rare disease is being prescribed for 
more common conditions like arthritis.
    The Obama administration issued a rule actually 
implementing that provision.
    What happened to that rule?
    Captain Pedley. HRSA did issue a rule to further define 
that new requirement in the statute around orphan drugs. It was 
published in a manner whereby the hospitals could not purchase 
orphan drugs when they were specifically used for their rare 
disease indication, but that they could purchase those orphan 
drugs if they were used for their common use.
    HRSA and HHS were sued based on that regulation. The courts 
overruled the interpretation by HRSA that was beyond the plain 
meaning of the statute. Therefore, we had to withdraw that rule 
and currently, those hospitals cannot purchase orphan drugs in 
the Program regardless of the indication, whether it is for the 
disease or the common use.
    Senator Murray. That is exactly right.
    PhRMA, which represents big drug companies, sued the 
Government and demanded these drugs be carved out of the 340B 
Program even if they were not being used to actually treat a 
rare disease.
    Now, our rural and cancer hospitals cannot get discounted 
prices on many of these big, blockbuster drugs because one of 
their many uses happens to be treatment of a rare disease. That 
lawsuit has real costs.
    Olympic Medical Center reported that of the over $12.2 
million it spent on prescription drugs in 2017, about half of 
it was on orphan drugs.
    Samaritan Hospital spent over one-third of its operating 
margin on orphan drugs.
    Grays Harbor Community Hospital told us it lost about one 
quarter of a million dollars on purchasing just one blockbuster 
drug, Remicade, which has numerous non-orphan indications.
    That is what happened to that rule.
    Now, the Affordable Care Act also requires regulations to 
make sure drug companies were charging the appropriate amount 
or ceiling price for 340B drugs and to hold them accountable 
for overcharging.
    Captain Pedley, when was that regulation finalized?
    Captain Pedley. That rule was finalized in January 2017 and 
it currently has an effective date of July 1, 2019.
    Senator Murray. How many times has the Trump administration 
delayed the rule?
    Captain Pedley. The rule has been delayed five times.
    Senator Murray. Correct. And did the Affordable Care Act 
also require HRSA to establish a system that listed the ceiling 
prices for drugs so that providers would know if they were 
overcharged?
    Captain Pedley. The statute did require HRSA to develop a 
secure Web portal to display those ceiling prices to covered 
entities.
    Senator Murray. Why has that not been launched?
    Captain Pedley. HRSA received money in Fiscal Year 2014 to 
begin the development of that pricing system. We have been in 
the development and in that process we recognized other of our 
systems needed to be updated because of security reasons 
because they feed that system. We have gone through that 
process and that system was released to the public last fall.
    The pricing system is currently available for internal use 
by HRSA based on data we receive from CMS. However, that system 
will not be released to the public until the rule that is 
finalized and in effect as it relates to how prices are 
calculated.
    Senator Murray. Right. So because of the delay from the 
Administration, we do not have now clear rules of the road for 
what companies are supposed to charge. There are no penalties 
for overcharging and there is no transparency to know if you 
are being overcharged.
    It sounds a lot to me like the drug companies right now do 
not have a lot of accountability and I think we need to address 
that.
    I will save my final question for the next round.
    The Chairman. Thank you, Senator Murray.
    Senator Cassidy will now chair the hearing, since I am 
going over to manage the Appropriations bill.
    Captain Pedley, thank you for coming.
    We will go to Senator Isakson for the next questions.
    Senator Isakson. Thank you, Mr. Chairman.
    Captain, thank you for being here and thank you for your 
service to HRSA and the country.
    Is it correct that the 340B benefit goes to the facility in 
which the patient is treated, not to the patient?
    Captain Pedley. The intent was for the covered entity, or 
the hospital and clinic, to save on these covered outpatient 
drugs. Yes.
    Senator Isakson. If I am an eligible patient, due to my 
poverty or due to my qualifications, and I go to a facility 
that does not get the 340B Program, then I do not get the 
benefit of the 340B discount.
    Is that correct?
    Captain Pedley. You may. It depends on the entity's 
policies around how they would then use those savings and 
provide the discounts to certain patients.
    But it is not required under the statute currently that 
they do so.
    Senator Isakson. Now, this might be a dumb question, 
because I have not followed this issue that closely, but there 
have been a number of comments. I know Senator Murray made the 
comment, and it was a very good one, about telling us where the 
discounts have gone, what they are doing with the savings in 
the hospitals and the institutions that are getting the money.
    Is that correct, Senator Murray?
    Senator Murray: [Nods affirmatively.]
    Senator Isakson. Why can we not get that information now? 
Or, have we tried to get that information now? Is there any 
suspicion on your part that if a facility is getting 340B 
discounts are, in fact, giving us the information we need to 
know where that discount is going or if we have the chance to 
get that information?
    Captain Pedley. The 340B statute is specific to allow HRSA 
to oversee the Program as it relates to whether they are 
following Program requirements, such as only providing drugs to 
the patients and other matters.
    It does not address the issue related to what they do with 
their savings.
    Senator Isakson. You said, I think in answer to a question 
previously or in your testimony, that you needed statutory 
authority to do that.
    Is that right?
    Captain Pedley. That is correct.
    Senator Isakson. Okay. If you could write that statute, 
what would you tell the covered hospitals to do or facilities 
to do when they reported?
    Captain Pedley. The President's budget outlines that HRSA 
wants to work very closely with the stakeholders and with the 
Congress to be able to define how they use the savings, how it 
would be reported to HRSA.
    It is a very complex matter that we would need to think 
through a lot of different things as it relates to the types of 
entities that participate; the possible burden it would create 
for these entities to both track and report that information.
    We would want to work with you all on that proposal.
    Senator Isakson. It is a sticky wicket, as we used to say 
about some things in business. The devil is in the details in 
terms of how do you determine exactly where it is going, and 
whether it is going where you would have liked for it to have 
gone or it should have gone, and a very complex system to put 
together.
    Most of the time when we try to provide a benefit to 
anybody to determine where that benefit went, in terms of a 
savings after they realized that savings, is very difficult to 
determine because it depends on the entity and how they use the 
money.
    Did we ever anticipate in the legislation or have we ever 
directed in the legislation in any way for the hospitals or 
facilities to use it solely to benefit lowering the costs to 
indigent patients or patients who otherwise qualify for 340B?
    Captain Pedley. That is not a part of the current statute.
    Senator Isakson. Would that be the type of thing you would 
like to see if HRSA was called upon to do it?
    Captain Pedley. I think as we would work on the legislative 
proposal, those are the types of things we would need to think 
about before we look at any type of legislation.
    Senator Isakson. If you were me--and you are certainly not, 
you are lot prettier than I am, so you are not me in many 
ways--but if you were me, and you could ask that one question 
of the beneficiaries of the 340B Program or the hospitals and 
facilities that get the benefit to disclose to us, what would 
it be that you would ask for?
    Captain Pedley. I think it is important that the entities 
are using the savings in alignment with the intent of the 
statute. That they are stretching their scarce resources as far 
as possible to provide more care to more patients, and what 
that looks like for them at their entity.
    Senator Isakson. One last question. In your experience with 
HRSA, is there any situation you know of, any audit or 
otherwise in the governing responsibility HRSA has that you 
have punished, penalized, or otherwise fined a company that got 
340B benefits and then were using it in a way you did not like?
    Captain Pedley. We currently conduct the audits of the 
covered entities and we audit them for a couple of different 
things, but the major items are around diversion of drugs to 
patients who do not meet what is called our patient definition, 
which is in the guidance. So they do not meet the certain 
criteria in that guidance, and we have found that in our 
audits.
    Another matter that we find, that is also statutory, is 
that the entity is prohibited from providing a 340B drug to a 
Medicaid patient and the state also getting a rebate on that 
same drug. It is known as a duplicate discount.
    We also find that in our audits as well, and when we do, we 
post that information on our Website. The covered entities are 
required to submit a corrective action plan and repay the 
manufacturers accordingly.
    Senator Isakson. Yes, that is known as ``working the 
system,'' and I think that is what some of them have done, to 
work the system, to try and take advantage of the discount.
    Thank you very much for your service.
    Thank you, Mr. Chairman.
    Senator Cassidy [presiding]. Senator Casey. Not here.
    Senator Kaine.
    Senator Kaine. Thank you.
    I want to just begin and thank the Chairman and Ranking 
Member for your strong statements at the beginning of this 
hearing about the problem on the border with the family 
separation.
    I have a particular feeling about this because I worked as 
a missionary in Honduras in 1980 and 1981, and a lot of the 
children and families who are coming to the southern border of 
the United States are coming from Honduras. Because I am still 
very connected there, I know why they are coming.
    They live in neighborhoods in a very, very poor country 
whose institutions have been completely corrupted by something 
in the compass of this Committee; the sad reality of Americans' 
desire to buy illegal drugs.
    If we buy illegal drugs that are manufactured in Mexico or 
Columbia, as those drugs transit south to north, the dollars 
that Americans pay to buy illegal drugs transit north to south 
and they go into these countries that are so poor. They corrupt 
police departments, judiciaries. They create gang wars.
    Children in these neighborhoods in towns like El Progresso 
where I worked, they do not want to leave their country. They 
do not want to leave their home and their parents do not 
either, but if you have to choose between your child getting 
killed in the crossfire of a gun war or some chance that they 
might have a better life somewhere else, you make that very, 
very wrenching decision.
    These Hondurans, or Salvadorans, or Guatemalans are coming 
to the border. They generally come in one of two ways. They 
come many not to break the law, but to seek refuge under the 
laws of this country. They are not lawbreakers. They are trying 
to apply. They may or may not be granted asylum or refugee 
status, but they are trying to comply with American laws.
    There should not be a penalty separating families for 
trying to avail yourself of asylum laws of this country. And 
yes, some come and their parents bring them over the border 
illegally and that is a misdemeanor. But nowhere else in our 
system in this country do we take children away from parents 
who are charged with a misdemeanor. And so, this policy, that 
is a completely invented policy of this Administration, is just 
absolutely heartless.
    A couple days before Father's Day, this article appeared in 
``The New York Times.'' ``Honduran Man Kills Himself After 
Being Separated From Family at U.S. Border.'' He crossed into 
the United States with a wife and a 3-year-old, and as they 
were separated, was so distraught that he killed himself, hung 
himself in his jail cell.
    We talk about the effect upon children of the separation. 
What about the effect upon parents losing their children?
    To Senator Murray and Senator Alexander, who is now on the 
floor, thank you for stating strongly the need that we should 
act in accord with our values and our laws, and support 
families.
    This is an important hearing, but the urgency of this issue 
compels a congressional urgency in providing a fix. If the 
President will not do it, we have to. We are not the Article 
Two-and-a-Half Branch. We do not have to wait around. We are 
the Article One Branch and we should act like it.
    With respect to the HRSA hearing, Captain Pedley, I 
appreciate your testimony. I just have a couple of questions.
    You talk about audits. The vast number of audits of 
providers, and you indicate what some of those audits have 
shown. You also indicate that there were 12 audits of 
manufacturers.
    What are you finding as you audit manufacturers' 
compliance?
    Captain Pedley. For the manufacturer audits, HRSA monitors 
the one core obligation as part of the statute, which is to 
ensure the manufacturers are charging at, or below, the 340B 
ceiling price.
    To date, we have not had any findings in the manufacturer 
audits around that one core obligation. We do post that 
information on our public Website, both stating the name of the 
manufacturer that was audited and any findings, if there are 
any.
    Senator Kaine. There was testimony last year at the House 
Energy and Commerce Committee about re-audits of providers that 
resulted in some repayments to manufacturers.
    Have you done re-audits of manufacturers?
    Captain Pedley. We have not. The standard on the covered 
entity side is that we would re-audit a portion of covered 
entities that had problems in their first audit that required 
repayment, and we would then re-audit a certain portion of 
those.
    We apply the same standard on the manufacturer side. 
However, we did not have any findings yet in any of those 
reports, so we have not re-audited any manufacturers.
    Senator Kaine. What is the rationale for the repeated delay 
in the draft guidance that would have clarified standards 
around 340B and imposed fines on manufacturers that did not 
offer the correct discounts?
    Captain Pedley. The ceiling price and civil monetary 
penalty regulation, that has been delayed to July 1, 2019, is 
an important rule.
    It has been delayed in order to allow for a more 
deliberative process in the context of the broader drug pricing 
strategy that is being discussed at the Department. Therefore, 
it would be premature to put that rule into effect at this time 
as there are broader discussions, not only around the 340B 
Program, but drug pricing in general.
    That is why that has been delayed.
    Senator Kaine. Thank you.
    Thank you, Mr. Chairman.
    Senator Cassidy. Senator Hassan.
    Senator Hassan. Thank you very much, Senator Cassidy and to 
Ranking Member Murray, thank you as well.
    Captain, good morning. Thank you for being here and thank 
you for your service.
    I will just echo what the Ranking Member, and the Chairman, 
and now Senator Kaine have said, to ask you to please express 
the most urgent concern from me, as well as all of our 
colleagues who are speaking up, about this Administration's 
policy at our border.
    Early in May, I visited Mexican officials in Mexico City to 
talk about the opioid crisis and how we could work together 
because, as you may know, New Hampshire, my home state, has one 
of the highest mortality rates because of the opioid epidemic.
    To Senator Kaine's point, the flow of money and weapons 
from this country to drug cartels south of us is contributing 
to a level of violence that is unprecedented and is a large 
driver in the number of people we see coming from places like 
Guatemala, where I was in the summer of 1974, I think, doing 
public health work.
    It is critical that we address the root causes, but even 
more critical and more urgent at this time is that we stop 
separating families, stop separating children from their 
parents. We do not traumatize children to punish parents in the 
United States of America and we should stop this policy 
immediately. And I hope very much you will take that back to 
the Secretary and anyone else in the Administration you talk 
to.
    With that, on this issue, in New Hampshire, we have 13 340B 
hospitals. These hospitals use 340B as intended. They rely on 
the Program in order to help them stretch Federal dollars 
further, so they can help provide benefits to their 
communities.
    I want to share a few examples of how New Hampshire 340B 
hospitals are using their 340B savings.
    Dartmouth-Hitchcock funds substance use recovery coaches in 
its emergency department. The coaches assist patients 
experiencing an overdose or substance use disorders to connect 
them with community programs. The coaches keep in touch with 
patients long after discharge to ensure that their needs are 
being met.
    Androscoggin Valley Hospital in Berlin, New Hampshire 
supports their federally Qualified Health Center with a subsidy 
that otherwise would not be available if not for the additional 
funds received from the 340B Program.
    The hospital and FQHC both support the uninsured and 
underinsured individuals in their communities with access to 
primary care and other services. If those went away, then the 
only access to care would be the hospital emergency department.
    Support from the 340B Program also allows Valley Regional 
Hospital's physician practices in Claremont, New Hampshire to 
continue to provide needed primary care in the community at the 
right time and the right place for their patients most in need.
    For Valley Regional Hospital, the 340B Program also allows 
for health care services such as advanced chemotherapy to be 
provided locally. Otherwise, Valley Regional's patients would 
have to travel far outside their community for this type of 
care.
    Captain, I know there has been a lot of discussion about 
greater transparency in the 340B Program. It is my 
understanding that there are robust auditing requirements 
currently in place for 340B covered entities.
    Can you walk us through the current auditing requirements 
for hospitals participating in 340B?
    Captain Pedley. The audit process is one where it is 
consistent across the board with covered entities. We have a 
very specific audit protocol that is used onsite when the 
entities are audited. There is a pre-meeting with the covered 
entity to ensure they have all the information necessary. They 
have to produce records to HRSA.
    Senator Hassan. Right.
    Captain Pedley. They have to produce their drug dispenses 
to HRSA so that we can sample certain prescriptions to ensure 
they are meeting the statutory requirements accordingly.
    If there are findings related to that audit, a corrective 
action plan would need to be submitted to HRSA to ensure they 
are correcting any issues that we find. And any repayment is 
owed to manufacturers if there are any findings related to a 
payment and we would follow them and help them through that 
process.
    Senator Hassan. Okay, thank you.
    My time is running short, but I wanted to point out that 
340B covered entities are already operating on thin margins, 
and they are using their 340B savings to benefit their 
communities and serve more patients.
    For them complying with audits and balancing the need to do 
that with providing necessary services on a very thin margin 
are a concern, and I hope you all will take that need to 
balance into consideration.
    Lastly, I just wanted to make sure that I understand that 
HRSA has done only 12 audits of manufacturers compared to 900 
hospitals audits.
    Is that about right?
    Captain Pedley. That is correct, but the rates, because 
there are less manufacturers, we do about 0.8 percent 
manufacturer audits and about 1.5 percent on the covered entity 
side.
    Senator Hassan. Okay. That is helpful. I just want to point 
out that we should not let up on the manufacturers either.
    Thank you, and thank you, Mr. Chairman.
    Senator Cassidy. Senator Smith.
    Senator Smith. Thank you, Mr. Chairman, and Ranking Member 
Murray.
    Thank you, Captain, for being here with us today.
    I am really grateful that you brought up this terrible 
situation we are seeing on the border, Senator Murray, and I am 
very grateful to Senator Alexander for echoing your recognition 
that we have a humanitarian crisis. I hope that we can resolve 
this quickly because to use cruelty to children as a deterrent 
as a public policy of our Government is just so wrong.
    I am grateful that we have this chance to talk about the 
340B Program because it is so important to hospitals, rural 
safety net hospitals especially in Minnesota.
    In my state, hospitals especially in rural areas are facing 
big challenges. It includes caring for an increasingly aging 
population; really on the frontlines of addressing the opioid 
crisis and drug overdose epidemic; and also really struggling 
to recruit and retain qualified people to work in the hospital.
    I appreciate the questions that have been raised about this 
delay in enforcement of the manufacturer civil monetary 
penalties rule. I wonder if you can just give us some sense of 
when you think we can expect that. I understand that you are 
holding back as the President's drug blueprint is under 
consideration, but what does your timing look like, do you 
think?
    Captain Pedley. The rule has been finalized and our plan is 
for the rule to be effective July 1, 2019. As we take another 
look at the policies contained within that rule as it relates 
to drug pricing more broadly, and to also look at other 340B 
policies that intersect with some of the issues in that 
regulation, so that we can take a more comprehensive look at 
policy across the board.
    Senator Smith. Well, I would just urge you as you do this--
I mean, I am certainly all for accountability in the 340B 
Program--I urge you to continue to bring accountability to all 
partners in this effort.
    I will also just point out that the GAO identified that the 
top 25 pharmaceutical companies had an average profit margin of 
over 20 percent in 2015. I can tell you that the 340B hospitals 
operating in my state are not looking at that kind of profit 
margin at all.
    I recently was talking with Central Health in central 
Minnesota and they are using the 340B savings to make sure that 
sexual assault victims, when they visit their emergency room, 
are able to immediately start getting preventative HIV 
treatment. That is a cost of $3,000 for a 28-day course.
    Another great example of what we are doing in Minnesota is 
the Essentia Health-Ada in northwestern Minnesota, which is 
using 340B savings to help provide diabetes prevention efforts.
    I am concerned that delaying this rule will potentially put 
a burden on our hospitals. I think it is just so important that 
we move forward with it.
    I would also like to just mention and I would like to get 
your feedback on this. We have 11 tribal nations in Minnesota, 
and like the rest of Indian country, they are also dealing with 
significant health disparities. One of the ways that they can 
tackle these health disparities is through the benefits that 
they get through the 340B Program.
    Can you tell me about how you are able to work with tribal 
governments as you think about changes with the 340B Program?
    Captain Pedley. There are certain tribal organizations that 
are eligible for the 340B Program. We work with them very 
closely upon registration into the Program to make sure there 
is no technical assistance needed as they go through the 
process necessary to do registration.
    We also have an annual recertification process and we 
ensure they have the education necessary to go through that 
process so that they are not terminated from the Program 
because they are not able to, again, recertify.
    We also have a lot of different training and education 
opportunities, not just for tribal, but for other organizations 
through our prime vendor program. We have a Website that has 
FAQ's and more information as it relates to how to comply with 
the Program. So there are a lot of different efforts that we 
undertake.
    We have a specific point of contact in the Office that is 
able to work with the tribal governments to assist them in any 
way possible.
    Senator Smith. I think it is so important. Sometimes we 
forget. It is so important that we have the right level of 
consultation as changes to programs are being considered.
    It sounds like you will commit to me that you will be happy 
to do that kind of consultation as you move forward with 
changes to the Program?
    Captain Pedley. Yes, we will and we will continue the 
efforts we undertake now to ensure, as well, that they are part 
of any of our public comment processes. That we reach out to 
them directly to receive that feedback on how it will impact 
them specifically.
    Senator Smith. Thank you very much.
    Senator Cassidy. Senator Casey.
    Senator Casey. Thanks so much.
    I first wanted to start with a statement. I really 
appreciate what Senator Murray said at the beginning of her 
opening statement about the child separation policy. I know 
that is not the subject of the hearing, but what is compelling 
in terms of the arguments against this policy is what we have 
heard from professionals, doctors across the country.
    ``The Washington Post'' yesterday had an article entitled, 
``What Separation from Parents Does to Children.'' And then in 
quoting a doctor, Captain Nelson, a pediatrics professor at 
Harvard Medical School, the effect is, quote, ``Catastrophic.''
    That is why you have the American Academy of Pediatrics, 
the American College of Physicians, and the American 
Psychiatric Association representing a quarter of a million 
doctors saying end the policy. Not debate. Not have a policy 
discussion. End it.
    I hope the Administration will heed those calls from 
professionals who do not want to have permanent damage done to 
thousands of children because of an American policy that was 
put into place recently.
    Captain, thanks for your testimony. I wanted to ask you a 
couple of questions about hospitals; in particular, one 
hospital in our state that is affected by some of the 
interpretations. Let me provide some background.
    The GAO has recommended that we reconsider the scope of 
nonprofit hospital eligibility to participate in the 340B 
Program. It seems to me that different hospitals provide care 
to uninsured, underinsured, and our seniors in different 
proportions.
    Some have suggested that qualifications to be a 340B 
hospital should be based on so-called, quote, ``charity care,'' 
alone as the sole determinant. But charity care does not tell 
the entire story.
    We know that there are only eight hospitals in the country, 
only eight, including Temple, the hospital I just referred to, 
Temple University Hospital in Philadelphia that has over 80 
percent of their inpatient caseload comprised of Medicaid, 
uninsured folks, and Medicare patients. So they are in the 
unique circumstance.
    Hospitals like these have almost no room to shift costs 
onto higher paying commercial insurers and they operate on very 
thin or even negative margins. In Temple's case, they 
technically do not have a lot of ``charity care,'' but they 
have no taxing authority and chronically struggle to make ends 
meet. Last year, they operated at a loss.
    Pennsylvania is also unique because it has no public acute 
care hospitals. So I have two questions.
    Number one, would you agree that it makes sense to assess 
needy hospitals based upon a broader set of metrics than just 
``charity care'' and legally recognize bad debt? That is 
question number one.
    Question number two, have you looked at the idea of varying 
the value of the 340B discount based on the relative, 
uncompensated care burden of different institutions?
    Captain Pedley. The current statute is very specific around 
hospitals as it relates to the requirements they must meet and 
it relies upon the disproportionate share adjustment 
percentage. Certain hospitals have to meet greater than 11.75 
percent; others are greater than 8 percent, for example.
    In addition to that metric, they have to be one of three 
types. They have to have a contract with state or local 
government. They have to be owner operated by state government 
or they have to have governmental powers.
    As HRSA registers hospitals that want to come in to the 
340B Program, those are the current things we use to evaluate 
whether they would meet the eligibility requirements for the 
statute.
    If there were changes to be made to those requirements, 
such as the utilization of charity care, uncompensated care, 
any of those metrics, a statutory change would need to be made 
to look at that. We would be happy to serve as a resource to 
look at any proposals around that.
    Again, very complicated issues as you mentioned, but we 
currently implement the Program according to those standards 
that I had mentioned.
    Senator Casey. How about on the question of varying the 
value of the 340B discount based upon the relative 
uncompensated care burden of different institutions? Any 
commentary on that?
    Captain Pedley. That is not something that HRSA has looked 
at around whether that should be varied based on the type of 
hospital or level of care that they provide.
    Senator Casey. Okay. We may send you some follow-up on 
this.
    Thanks, Captain.
    Captain Pedley. You are welcome.
    Senator Cassidy. I will take my turn now.
    Thank you for being here, Captain.
    As you may or may not know, I am a physician. I worked 25 
years in a public hospital for the uninsured, similar to what 
Temple did, except we were really uninsured, Medicaid, poorly 
insured. And so, I understand very well the importance of 340B.
    But I do think it is important to move beyond anecdote, 
because everyone is quoting articles that quote hospitals in 
their district. Of course, the hospital has a vested interest 
in the Program maintaining as it currently is.
    Senator Murray, in her opening statement, I think I recall, 
said that people are alleging that it is actually raising the 
cost of insurance. But if I recall----
    Senator Murray. No, I did not.
    Senator Cassidy. I thought you said that. I apologize.
    Because it is, and that is not an anecdote as best I can 
tell. I just want to move beyond the anecdote, if you will.
    For example, there is a February 2016 blog published in the 
``New England Journal of Medicine,'' from the University of 
Chicago in which the person speaks about how, ``Reports suggest 
that the original program substantially expanded in recent 
years to include newly qualified entities, affiliated clinics, 
certain contract pharmacy arrangements.''
    It is, ``Currently so vast for drugs that are commonly 
infused or injected into patients by physicians that their 
prices are probably being driven up for all consumers. As 
pharmaceutical manufacturers face substantial and expanding 
demand for discounts on the acquisition prices of these drugs, 
they can, and do, pass the costs of these discounts on to other 
payers.''
    If you have commercial insurance, you are paying more 
because of 340B. Again, a blog post from the University of 
Chicago.
    Secondly, to point out, there is an article from the ``New 
England Journal of Medicine'' which, as the Chairman, I will 
submit for the record and so approve.
    Senator Cassidy. In which they find that 340B entities are 
buying physician practices.
    They have an overrepresentation of physicians that infuse 
drugs that the cost has been elevated. Importantly, the poor 
patients, the Medicaid patients are seen less frequently as a 
percent of their business than in the non-340B. 
Counterintuitive, but the more you go into business of 
providing 340B, proportionally the fewer Medicaid patients you 
actually see.
    Importantly, they also said that the financial gains for 
hospitals have not been associated with clear evidence of 
expanded care or lower mortality for lower income patients. As 
a doctor, this means a lot to me.
    We have raised the cost of care. There is no improvement in 
mortality outcomes and indeed, the lower income patient is less 
likely to be seen. That is incredibly important for us all.
    I will also point out another article from ``The American 
Society of Clinical Oncology,'' that despite similar--comparing 
those 340B hospitals--inpatient/outpatient for cancer care, the 
hospital based care, which is associated with 340B payments is 
associated with substantially increased costs.
    Another article, which I have lost in my mess, but which 
would say that Medicare patients, under Medicare Part B 
payments are 10.2 percent higher--again, moving beyond 
anecdote--10.2 percent higher among the 340B entities because 
they are using higher cost drugs in a higher cost setting. So I 
do think it is important that we look at the academic data, 
which is objective, as we look at all of this.
    You mentioned earlier, and just something to mention, 
Senator Hassan asked how many of the covered entities are 
audited.
    Did I hear you correctly? Only 1.5 percent of covered 
entities are audited to make sure they are using the Program 
correctly?
    Captain Pedley. That is correct.
    Senator Cassidy. Now, also for the record, you just 
mentioned to Senator Casey the criteria by which someone could 
become a covered entity.
    But if you have someone that meets that criteria who 
subsequently buys, let us just say, a cosmetic surgery practice 
in a very rich suburb of that city, and frankly, who do not see 
any Medicaid, Medicare.
    Is that daughter site, so to speak, allowed to benefit from 
the 340B Program?
    Captain Pedley. Our standard for eligibility for sites that 
are offsite of the main hospital, for example, is that those 
clinics have to be reimbursable on the hospital's Medicare Cost 
Report for HRSA to consider them an integral part of the 
hospital and eligible for the 340B Program.
    Senator Cassidy. If they accomplish that, even though it 
might have nothing to do with poor folks or not seeing any 
Medicaid patients whatsoever, indeed, doing cosmetic surgery 
that they can benefit from the 340B Program, getting the 
discounted drug, but then charging at the list price for that 
medication?
    Captain Pedley. If that site meets our eligibility 
requirements, then they would be able to participate.
    Senator Cassidy. Again, buy them at a discounted rate, but 
billing at the normal rate for their cosmetic surgery patient.
    Captain Pedley. Yes.
    Senator Cassidy. We actually posed that question to CRS, 
and they gave me the same answer.
    I will submit that CRS report for the record.
    Senator Cassidy. I am out of time.
    Our next person will be Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Secretary Azar and President Trump have been making a lot 
of promises about how drug prices are going to come down as a 
result of the blueprint that they released this month. They 
have been boasting about how they are taking on the drug 
companies.
    But Americans have not seen their drug prices come down and 
when you scratch the surface on the President's tough talk, you 
find that the Trump plan lets Big Pharma keep jacking up prices 
and keep raking in profits. Part of the Trump blueprint 
involves changes to the 340B Program and that is the part that 
we are digging into today.
    Captain Pedley, you run the 340B Program, and just so we 
are all on the same page, this is a Federal program that 
requires drug companies to provide discounts on drugs purchased 
by eligible hospitals and clinics.
    Is that right?
    Captain Pedley. That is correct.
    Senator Warren. Thank you.
    Now, the President's drug pricing blueprint suggests that 
the 340B Program, a drug discount program, is causing high drug 
prices. The plan asks for input on whether the 340B Program 
has, quote, ``Caused cross subsidization by increasing list 
prices applicable in the commercial sector.''
    This is a bizarre question. Apparently, the argument is 
that right now, we are being too hard on the giant drug 
companies by forcing them to provide discounts to help children 
with cancer get treatment.
    We are asked to believe that these discounts, which total 
less than 2 percent of the entire U.S. drug market, leave drug 
companies with no choice except to raise their prices for 
everyone else so that they do not have to take a penny out of 
the billions of dollars in profits that they rake in every 
year.
    Captain Pedley, I am trying to make sense of what the Trump 
blueprint is proposing here.
    If Congress were to reduce the number of discounts that the 
drug companies have to provide, does HRSA expect them to turn 
around and reduce prices for everyone else out of the goodness 
of their hearts?
    Captain Pedley. HRSA's role is to implement the Program 
according to the statute.
    We work closely with the Department on all 340B policy 
matters, in addition to what is in the blueprint, and the 
questions that were asked related to the 340B Program so that a 
more comprehensive look could be taken across the board for not 
only the 340B Program, but all of the other measures that are 
part of that Program.
    Senator Warren. Okay. I will take that as a no.
    Here is what it looks like to me. It looks like the 
Administration is trying hard to dig up some excuse to let drug 
companies charge hospitals and clinics more for their drugs, 
and that is exactly the opposite of what President Trump 
promised when he was a candidate. It is also bad policy.
    It is not the only way that this Administration is trying 
to let Big Pharma off the hook.
    Eight years ago, Congress gave HRSA the authority to impose 
fines on drug companies that knowingly and intentionally 
overcharged health care providers in the 340B Program.
    The rule that implements these fines was finalized in 
January 2017. That is almost a year and a half ago. But as we 
have heard from the Inspector General at our last 340B meeting, 
HRSA still has not implemented it.
    Captain Pedley, HRSA has delayed this rule five separate 
times since 2017.
    Why will this Administration not penalize drug companies 
that break the law by overcharging for their drugs?
    Captain Pedley. HRSA does monitor manufacturer compliance 
and when there is an overcharge, they are required to refund 
covered entities accordingly.
    The rule that you mention is specific to defining how to 
calculate that price when the manufacturer knowingly and 
intentionally overcharges a covered entity. We are in the 
process of looking at the policies within that rule in the 
broader context of drug pricing. It is currently set to be 
effective July 1, 2019.
    Senator Warren. You just keep delaying the rule that would 
do exactly what it is we are asking people to do.
    I appreciate the work that everyone at HRSA does to 
implement the 340B Program, but if the President is truly 
worried about the connection between high drug prices and the 
340B Program, he could forget his blueprint and simply 
implement the law that Congress wrote to make sure the drug 
companies do not cheat on their discounts.
    It is already available to us in the law. We do not have to 
change the Program.
    Thank you.
    Senator Cassidy. Senator Murphy.
    Senator Murphy. Thank you very much, Mr. Chairman.
    We were talking about the difference between anecdote and 
data. There are enormous amounts of data to show very clearly 
that hospitals that take part in the 340B Program are actually 
providing much more charity care, much more uncompensated care 
than hospitals that do not.
    A recent study, for instance, found that 340B hospitals 
provide 53 percent more uncompensated and unreimbursed care 
than non-340B hospitals, and that low income patients make up 
approximately 42 percent of 340B hospitals' patient load 
compared with about 27 percent for non-340B.
    Go back a couple of years ago to a 2015 GAO report which 
found maybe not as impressive numbers, but similar numbers. The 
GAO found that 340B hospitals generally provide a lot more 
charity care. 340B hospitals had uncompensated care levels that 
are 23 percent higher than non-340B hospitals and charity care 
levels that were 62 percent higher.
    That is some pretty compelling data to tell us that we 
might be trying to find a problem that does not exist at the 
acuity levels that might be suggested by this hearing.
    Let me just ask you, Captain Pedley, a simple question. One 
of the things you have been talking about here today is 
increased reporting requirements for these hospitals to prove 
that they are using the money in the way that is intended. This 
Administration has made a lot of noise about reducing 
regulations and paperwork for companies, but here is a proposal 
to increase the paperwork requirement on hospitals. So I assume 
it is for a good reason.
    What is the evidence we have today, the hard evidence, that 
we have today that hospitals do not use 340B savings to offset 
the cost of uncompensated or undercompensated care? Especially 
when we have a GAO report and other datasets that tell us that 
they actually are providing higher levels of uncompensated care 
than non-340B programs?
    What is the data that exists today that leads you to 
propose requiring hospitals to report more?
    Captain Pedley. The 2011 GAO report does outline how 
entities are using their savings, and have shown that the 
entities do put that money back into ensuring that patients and 
their programs can expand based on the 340B Program.
    HRSA has no data related to how they use their savings 
because we do not have the authority to both define or collect 
that information. So HRSA does not have any specific data as it 
relates to that element.
    Senator Murphy. Then, you could ask for data on anything, 
but are you suggesting that you do not have any data today or 
any hard information to suggest that there is a problem? That, 
in fact, you have data to the contrary. You have data from the 
2011 report suggesting that they do put the money into increase 
some uncompensated care.
    Normally, when you ask for reports, it is because you have 
some evidence that there is a problem that you need to identify 
with increased information.
    But you are saying here that you do not have evidence that 
there is a problem. And, in fact, the evidence you do have is 
that they are putting money back into care for uncompensated 
populations.
    Captain Pedley. HRSA has proposed in the budget to take it 
to that next step to ensure that they are using the money to 
benefit patients, especially those that are low income and 
underinsured. We think that is an important next step to take 
so that we can ensure that the intent of the Program is being 
served accordingly.
    Senator Murphy. However, the impression when you were 
asking for that is that there is an existing problem. And so, 
again, you do not know that there is an existing problem you 
are trying to solve.
    When we spend an entire hearing talking about the need to 
get this data, it suggests it is because we have evidence of a 
problem. But again, we do not have that evidence today. You may 
get it in the data that is being submitted, but you do not have 
it today.
    Captain Pedley. HRSA does not have data as it relates to 
savings.
    Senator Murphy. Mr. Chairman, I think one of our 
frustrations in this Administration is that there is often an 
attempt to try to find a solution for a problem that does not 
exist.
    We are going through this battle over work requirements for 
Medicaid imagining that there are scores of Medicaid recipients 
who are scoff laws, able to work, not working when the reality 
is very different.
    Similarly, I worry that we are creating an impression that 
these hospitals are providing less uncompensated care, less 
charity care when they are, in fact, providing much more 
charity care. We have testimony today that suggests there is no 
evidence that HRSA holds currently to suggest that there is a 
problem necessary of solving.
    I appreciate the time. Thank you, Mr. Chairman.
    Senator Cassidy. I will point out that the GAO study you 
reported is entitled, ``Action Needed to Reduce Financial 
Incentives to Prescribe 340B Drugs at Participating 
Hospitals.'' One quote, ``Twelve percent of the 340B DSH 
hospitals were among the hospitals that reported providing the 
lowest amounts of charity care across all hospitals in the 
GAO's analysis.''
    A more complete rendering of that article would suggest 
there might be.
    That said, I think it is Senator Jones.
    Senator Jones. Thank you, Mr. Chairman.
    Let me, before I begin, Captain Pedley, let me also add to 
the growing chorus of folks thanking the Ranking Member and 
Chairman Alexander for their comments concerning what is 
happening on the border.
    I know a little bit about prosecutions and in this country, 
there is something known as prosecutorial discretion, which 
this Department of Justice seems to be putting in a lockbox 
somewhere and not adhering to.
    But prosecutorial discretion will give a prosecutor the 
means to either take a case and go to the most extreme way or 
go to a much more lenient way. How that prosecutor's office 
does that is a matter of policy, not a matter of law. They can 
flip a switch. They can send a memo. They can send a phone call 
and it will change immediately.
    The second thing is the Attorney General should know better 
than to simply compare what is going on, on the border with 
people in this country who are sent to prison.
    When someone goes to prison in this country, we do not send 
their children to prison with them or in a separate prison. We 
do not do that. Moreover, we have in this country a support 
system for the kids who are left behind. There are churches. 
There are family services. There are state run services. So to 
compare that is just disingenuous.
    The Attorney General is a former U.S. attorney. He is a 
prosecutor. He should know better than to make those statements 
and have the American public believe that.
    I will get off of that soapbox and back to the issue at 
hand, Captain, and I appreciate your service to this country, 
both in your position at HHS as well as the military. So thank 
you for that.
    The President's budget is calling for user fees for covered 
entities to administer the Program.
    How much would these user fees cost each of the covered 
entities in order to continue their participation?
    Captain Pedley. The proposal is 0.1 percent of their 
purchases under the Program. So $1 for every $1,000 they spend 
under the Program.
    Senator Jones. All right. So it is not going to be too 
burdensome for a covered entity.
    But will that be enough to help cover the administrative 
costs of implementing the Program, do you think?
    Captain Pedley. HRSA believes that amount would be able to 
cover costs and enhance the efforts we are already undertaking 
on both the covered entity and the manufacturer side to ensure 
they are meeting the Program requirements.
    Senator Jones. I would not want to see costs increase, 
those user fees increase because that will take away money from 
those entities that are doing the right thing in providing 
services, or the discounts, or whatever. So $1 for every $1,000 
we could probably live with.
    But I want to talk a little bit about the impact of the 
Program to rural health, which is something I am especially 
interested in.
    In Alabama, we have been losing hospitals left and right, 
12 in just the last few years in our rural areas. We have some 
35, I think, entities that are covered and about 28 of those 
have negative margins. So I want to make sure that this Program 
stays sound to make sure.
    Can you just, for the record here, talk about the effects 
for the rural hospitals? What would be the effect if we take 
away this Program from our rural hospitals and our covered 
entities?
    Captain Pedley. The law was amended in 2010 to add many new 
rural types of hospitals to participate in the Program. Prior 
to that, the rural hospitals were not eligible.
    But since that time, we have enrolled many of those rural 
hospitals into the Program whereby they can now benefit from 
the discounts that are offered that are required by the 
manufacturer so they can have that savings for their patients 
and their communities.
    Senator Jones. All right. I know this has been asked, but 
is it your position that in order to be more transparent and 
require these covered entities to show how they are spending 
the money, that is going to take legislation?
    Is there not rulemaking ability at HHS to require some more 
transparency? Because I think everybody wants to make sure 
there is transparency and that the moneys are going and being 
spent the way they should be. Does HHS not have that authority? 
I know you do a lot of things. This Administration is doing a 
lot of things without talking to the Congress about it.
    Do you not have that authority to require something along 
those lines?
    Captain Pedley. HRSA does not currently have that authority 
under the 340B Program to either require what they do with that 
savings, or to audit, or to receive, or collect that 
information.
    Senator Jones. All right.
    Captain Pedley. Statutory change would be necessary.
    Senator Jones. Okay. Mr. Chairman, I am running out. We may 
have some additional questions for the record.
    Senator Jones. Thank you. Thank you, Captain Pedley.
    Senator Cassidy. Senator Baldwin.
    Senator Baldwin. Thank you, Mr. Chairman, and Ranking 
Member.
    I want to begin, as I have in each of these hearings on the 
340B Program, by sharing a couple of stories from my home State 
of Wisconsin to underscore the benefit of the 340B Program that 
it provides to hospitals, patients, and our communities.
    Door County Medical Center is a critical access hospital in 
northeast Wisconsin and it has relied on its savings from the 
340B Program to expand its dental clinic to serve uninsured and 
Medicaid-eligible adults and children full time.
    Previously, the dental clinic could only serve these 
vulnerable patients on a very, very limited basis which, of 
course, impacted their overall health.
    Last hearing on this topic, I shared a concern of one of 
Wisconsin's 340B hospitals. This hospital regularly faces 
instances when drug companies refused to provide them with the 
340B price of a drug, but do allow them to purchase the drug at 
whole cost. These drug manufacturers typically claim the drug 
is in short supply, but only at the 340B price or they provide 
no excuse at all.
    Dr. Draper from the GAO told me to speak to you about this 
noting that this was a problem the GAO identified in earlier 
reports, but that it should no longer be happening according to 
HRSA's updated nondiscrimination guidance.
    HRSA issued clarified guidance in 2012, but I am concerned 
that hospitals in Wisconsin continue to experience these 
problems today.
    Captain Pedley, what is HRSA doing to positively resolve 
these problems when experienced by hospitals? And, does your 
agency have the authority it needs to prevent manufacturers 
from unfairly gaming the system in this way?
    Captain Pedley. We work very closely with covered entities 
with respect to this issue. We have specific tools they can use 
to contact HRSA or report to HRSA when they are having any 
issues related to either not being able to obtain the drug at 
all or not able to obtain the drug at the 340B price, so that 
we can further investigate what the issue is.
    As we do that, we do allow manufacturers under GAO's 
recommendation to produce what is called a limited distribution 
plan for drugs that are in short supply. They submit that 
information to HRSA and what we look for in those manufacturer 
plans is to ensure they are treating 340B covered entities the 
same as their commercial customers when they are limiting that 
supply.
    If it is not the case that they are doing that, we would 
follow-up with the manufacturer to make sure they are doing so, 
so that they are complying with the statute.
    We want to hear from entities if they are not receiving the 
340B price, even though that drug may be available in the 
market at some other price because there could be an issue 
there that we would look into.
    Senator Baldwin. Modernizing oversight is also an integral 
part of strengthening the 340B Program to ensure that it 
fulfills its purpose. However, any oversight efforts should be 
balanced and address all Program participants.
    HRSA has conducted almost 1,000 audits of 340B entities 
like hospitals, but has only conducted 12 audits of 
manufacturers. What is more, the agency has issued numerous 
compliance improvement documents, guides, and Webinars for 
hospitals, but there are no similar public compliance Webinars 
or guides for manufacturers. I continue to hear concerns from 
hospitals in Wisconsin that this uneven playing field persists.
    Can you describe HRSA's plans to issue more compliance 
measures or create more resources, such as Webinars, to 
encourage manufacturers to play a larger role in ensuring the 
integrity of the 340B Program?
    Captain Pedley. HRSA's role around manufacturer compliance 
is multifaceted.
    As you mention, we do conduct audits of the manufacturers, 
but we also do release program guidance documents. We have a 
lot of educational resources and Webinars, not only through 
HRSA, but through our contracted prime vendor program to ensure 
they are also complying with the statute.
    What is unique about the manufacturers versus the covered 
entities is the manufacturers only have one core obligation 
under the statute, which is to charge the 340B ceiling price, 
unlike the covered entities, who have a lot of requirements in 
the statute.
    Naturally, the oversight is different when it comes to 
entities and the education we provide is in greater detail 
because they have more requirements than what the manufacturers 
do. But we do everything we can as it relates to the 
manufacturers.
    Senator Baldwin. Thank you.
    Mr. Chairman, I have run out of time, but will submit some 
follow-up questions. Thank you.
    Senator Cassidy. We will have a second round now. I will 
start.
    Again, moving beyond anecdote, if you will, Senator Murphy 
quoted a GAO study. I pulled up the summary of that study and I 
think there are a couple of other things to point out.
    Significantly, as we have mentioned, in the articles that I 
previously quoted, 340B, according to academicians, 
incentivizes hospitals to prescribe more expensive medication 
and drives up cost for both commercial and for Medicare 
programs. That is important.
    Medicare is going bankrupt in 8 years and we should be 
aware of anything which is driving up the costs for the Federal 
taxpayer, but also for the patient as she is paying a higher 
co-pay.
    All this is important. I am just taking the perspective of 
what about the patient?
    Here we see, though, just to quote specifically. ``In 2012, 
the average per beneficiary spending at a 340B DSH hospital 
was,'' and DSH hospitals are 340B's, ``Was $144 compared to 
approximately $60 at a non-340B hospital. The difference did 
not appear to be explained by the hospital characteristics.''
    It goes on to say, ``Therefore,'' this is GAO, ``There is a 
financial incentive at hospitals participating in the 340B 
Program to prescribe more drugs or more expensive drugs to 
Medicare beneficiaries. Unnecessary spending has negative 
implications, not just for the Medicare program, but for the 
beneficiary who would be financially liable for larger 
copayments as a result of receiving more drugs or more 
expensive drugs.''
    I will also say as a physician, if you give more drugs to 
somebody, you are more likely to have complications. And if the 
patient is our primary priority, we should not be 
overprescribing because we are exposing her to a greater 
potential for complications. I mean, that is just, bad things 
happen.
    Just to say, that seems to be the same GAO study that 
Senator Murphy was referring to earlier. So I do think that we 
have an issue.
    The rule that was put out by the Administration, is it not 
my understanding that rule actually redistributed some of the 
benefits from the 340B Program to rural hospitals? Are you 
familiar with that rule, Captain?
    Captain Pedley. I believe you are referring to the CMS 
rule----
    Senator Cassidy. Yes.
    Captain Pedley.--as it relates. That is a rule under CMS 
authority and not under HRSA authority.
    Senator Cassidy. Are you familiar with it at all?
    Captain Pedley. I am familiar with the rule.
    Senator Cassidy. You are familiar.
    Captain Pedley. [Nonverbal affirmative response.]
    Senator Cassidy. Okay. So Senator Jones was talking about 
340B hospitals not doing as well, but it is my understanding 
that rule redistributed benefits to rural hospitals. It was net 
neutral in terms of the cost to the Program. But again, it just 
redistributed so that rural hospitals benefited more.
    Is that your understanding as well?
    Captain Pedley. I am not that closely familiar with the 
details of the rule.
    Senator Cassidy. Yes.
    Captain Pedley. But I would be happy to connect you----
    Senator Cassidy. I am fairly confident of that, and so to 
Senator Jones' point, that would actually be a benefit of that 
rule.
    Now, you mentioned, and this I do not know the answer to, 
you mentioned that you audited 1.5 percent of the covered 
entities and 28 percent of the manufacturers.
    What problems have you found among covered entities that we 
should be concerned about?
    Captain Pedley. With covered entities, we focus on their 
statutory requirements as first that they remain eligible in 
the Program when we audit them.
    Senator Cassidy. You had mentioned that earlier.
    What are the issues that you have found? What percent of 
that 1.5 percent you have audited have had problems?
    Captain Pedley. In total, based on our audits, about 70 
percent of the entities had findings. However, based on how we 
choose these audits, they are at higher risk for having 
findings.
    For example, we target audit entities that already have 
known issues and we go in and audit to better understand what 
is happening on the ground.
    Senator Cassidy. Seventy percent of those whom you audited 
who are covered entities have issues, but granted, it is a 
select population.
    What about the pharmaceutical companies? What percent? Now, 
I am asking. I do not know the answer to any of this. What is 
the percent of pharmaceutical companies that have issues?
    By the way, going back to the covered entities, there is 
going to be a level of severity. There is going to be a 
grammatical error that you should have put a comma here, not 
there, and then there are some that are really significant.
    Is there any way? Can you give us any kind of sense of 
whether these are significant issues or not significant issues?
    Captain Pedley. They do vary across the board from minor 
data base issues, to diversion of drugs to patients who were 
not eligible.
    About 60 percent of the audits had required repayment to 
manufacturers. But again, even within that repayment, it might 
have been one drug that was found versus----
    Senator Cassidy. I am almost out of time.
    What about the pharmaceutical companies? What percent of 
those whom you audited are there problems and what is the 
severity of the issues?
    Captain Pedley. We have not found issues in the 
manufacturer audits. Again, we audit based on that one core 
obligation to ensure they are charging the ceiling price and we 
have not found any related to their statutory requirement.
    Senator Cassidy. Got it. Okay. I am out of time and I think 
now, Senator Murray, would you like to?
    Senator Murray. Let Senator Kaine proceed.
    Senator Cassidy. Okay.
    Senator Kaine. Thank you and thanks again, Captain Pedley.
    One question I did not get to, actually a couple.
    In your written testimony, we talked about manufacturer 
audits and we have talked about provider audits. You also 
mentioned if an arrangement with a contract pharmacy is found 
to be out of compliance with 340B Program requirements, HRSA 
may terminate the contract pharmacy arrangement from the data 
base.
    Has that been done with any contract pharmacies to your 
knowledge?
    Captain Pedley. We have removed contract pharmacies from 
the program if the entities are not appropriately overseeing 
those pharmacies. I do not have the specific numbers in front 
of me, but I can get them back to you.
    Senator Kaine. I will ask that for the record, then.
    Let me ask this. Virginia, just in the last month, finally, 
thank goodness, embraced Medicaid expansion. Four hundred 
thousand Virginians are going to have the opportunity to have 
Medicaid who did not have it before. Many of whom will have 
health insurance for the first time in their lives because of 
the action of our state legislature.
    I know that HRSA is doing some studies about 340B 
utilization in states that have expanded Medicaid and those 
that have not.
    What effects, so far, do you know that Medicaid expansion 
has had on covered entities in states that have expanded 
Medicaid?
    Captain Pedley. That is not an area that we have 
specifically looked at.
    Senator Kaine. You are correct. I thought you were doing 
it, but the GAO is currently examining differences between 340B 
hospitals in states that have or have not expanded Medicaid.
    But you do not have your own sense of that from the vantage 
point of HRSA?
    Captain Pedley. No, we do not.
    Senator Kaine. Let me just state something to you that my 
own staff's research uncovered.
    Congress expanded the 340B Program in 2010 to allow 
additional hospitals and other entities to participate in the 
Program. That was an expansion that was at the same time as 
part of the Affordable Care Act.
    This did result in increased access to care and services to 
needy patients, but even with the addition of these new covered 
entities, 340B sales as a percent of total drug sales grew by 
less than 1 percent between 2012 and 2016. In other words, 
while the Program has grown and serves more patients, it is not 
responsible for increased drug costs.
    Would you agree with that statement?
    Captain Pedley. The data we do have is around the sales in 
the Program and the percent of the market that it represents. 
In 2017, sales were $19.2 billion, which represented about 4.3 
percent of the prescription drug market.
    Senator Kaine. The statement that I read to you generally 
agrees with the drift of that. That even though the ACA 
dramatically expanded the number of providers, the increase in 
cost in this Program, even with that expanded number of 
providers, has not been significant as a percentage.
    Captain Pedley. The sales has grown. I have not looked at 
it specifically related to the percentage of entities that have 
been added, but that is one of the reasons that the sales have 
increased.
    Senator Kaine. Yes, thank you. Appreciate it.
    Senator Cassidy. Senator Baldwin.
    Senator Baldwin. Thank you.
    The city of Milwaukee has recently experienced a large 
cluster of HIV and syphilis cases that require a robust 
response from our city leaders and community health 
stakeholders.
    Our AIDS Resource Center is a 340B grantee and also a Ryan 
White Clinic. The AIDS Resource Center has been able to help 
address this crisis in real time by extending testing hours and 
expanding mobile testing capacity thanks to their 340B savings.
    But these clinics continue to face increasing burdens with 
the rise of opioid abuse and related sexually transmitted 
infections.
    In order to ensure that our community providers can meet 
the challenges related to addressing the opioid epidemic, is 
HRSA considering changes to its Program income standards to 
allow for greater flexibility in how these savings are used by 
clinics across the country?
    In light of the ravaging opioid crisis, are there policy 
changes that we ought to be considering to help increase our 
effectiveness in combating the opioid crisis?
    Captain Pedley. As it relates to Program income, that is 
actually a requirement under their grant, which is another part 
of HRSA that oversees their grant requirements as part of how 
they participate under Ryan White. That is not under the 340B 
statute or my specific authority.
    I would be happy to connect you with the right folks to get 
you an answer on that, but I would be unable to provide any 
information on that.
    Senator Cassidy. Senator Murray.
    Senator Murray. Yes. Captain Pedley, I just wanted to 
clarify.
    How many audits has HRSA conducted on drug manufacturers in 
the last 5 years?
    Captain Pedley. Twelve.
    Senator Murray. Out of 600.
    Captain Pedley. Correct.
    Senator Murray. How many on covered entities?
    Captain Pedley. In total, 981.
    Senator Murray. Out of 12,000. Correct?
    Captain Pedley. It is 12,700, I believe.
    Senator Murray. Safety net providers including their child 
sites and contract pharmacies are getting audited at almost 
twice the rate of the drug companies. I just wanted to make 
that clear.
    Mr. Chairman, thank you for doing the hearing.
    I just wanted to say, I am really concerned the 
Administration is cutting back on oversight. They are cutting 
the Program with a nearly 30 percent reduction in payments to 
340B hospitals this January and they are suggesting in their 
recent drug pricing blueprint that this crucial discount 
program is responsible for high drug prices, which does not 
make sense to me.
    Integrity, transparency, accountability are critical to any 
program, and I believe that we can strengthen the 340B Program 
by increasing accountability for drug companies that currently 
have very little. We should focus on that and not on efforts to 
rollback the 340B Program that provides help for patients and 
families across the country.
    Thank you, Mr. Chairman.
    Senator Cassidy. The hearing record will remain open for 10 
days. Members may submit additional information for the record 
within that time, if they wish.
    Senator Cassidy. Thank you for being here today.
    Captain, thank you very much.
    The Committee stands adjourned.
    [Whereupon, at 11:41 a.m., the hearing was adjourned.]

                                   