Testimony Before the United States House of Representatives 
Committee on Energy and Commerce: 
Subcommittee on Oversight and Investigations 
 
 
 
 
Examining HRSAs Oversight of the 340B Drug Pricing Program 
 
Testimony of: 
 
Erin Bliss 
Assistant Inspector General for Evaluation and Inspections 
Office of Inspector General  
U.S. Department of Health and Human Services 
 
 
 
 
July 18, 2017 
10:15 a.m. 
Location:  2322 Rayburn House Office Building 
   
Testimony of: 
Erin Bliss 
Assistant Inspector General for Evaluation and Inspections 
   Office of Inspector General, U.S. Department of Health and Human Services 
 
Good morning, Chairman Murphy, Ranking Member DeGette, and Members of the 
Subcommittee.  I am Erin Bliss, Assistant Inspector General for Evaluation and Inspections for 
the Office of Inspector General (OIG), U.S. Department of Health and Human Services.  I 
appreciate the opportunity to appear before you to discuss ways to protect the integrity of the 
340B Drug Pricing Program (340B program).  
 
OIG oversees the Health Resources and Services Administrations (HRSA) operation of the 
340B program.  OIG reviews have explored various aspects of the 340B program, identified 
potential vulnerabilities, and offered several recommendations to promote program integrity.  
Some of the weaknesses we have identified have been addressed through legislation or by HRSA 
directly.  However, some long-standing, fundamental vulnerabilities persist, impeding effective 
program oversight and operations.  Specifically, OIG work has identified:  1) a lack of 
transparency that prevents accurate payments by 340B providers, State Medicaid programs, and 
pharmaceutical manufacturers; and 2) a lack of clarity regarding program rules that creates 
uncertainty and results in uneven program implementation and limited accountability. HRSA has 
taken some steps toward addressing these concerns, but it has not fully addressed either.  My 
testimony today focuses on the two key improvements OIG recommends to support effective 
oversight and strengthen the integrity of the 340B program.  
 
OIG Recommends Key Improvements to 340B Program Integrity and Oversight: 
  increase transparency to allow payment accuracy, and 
  clarify rules to ensure that the program operates as intended. 
 
 
    
The 340B Program Requires Drug Manufacturers to Sell Products at Discounted Prices to 
Certain Safety-Net Health Care Providers 
 
In 1992, Congress established the 340B program to generate savings for certain safety-net health 
care providers by allowing them to purchase outpatient drugs at discounted prices.1  These 
savings could then be used to stretch scarce Federal resources as far as possible, reaching more 
eligible patients and providing more comprehensive services.2  HRSA manages the 340B 
                                                           
1 Section 340B of the Public Health Service Act, 42 U.S.C.  256b 
2 H.R. Rept. No. 102-384 (Part 2), at 12 (1992) (Conf. Rept.). 
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  program and estimated that the savings to 340B providers attributable to the program in 2015 was 
$6 billion.3  
 
Pursuant to the Public Health Service Act, drug manufacturers sign a Pharmaceutical Pricing 
Agreement stipulating that they will charge certain eligible health care providers (340B 
providers) at or below specified maximum prices, known as ceiling prices.  The manufacturers 
calculate 340B ceiling prices each quarter by applying a statutorily defined formula to 
confidential drug pricing data.  The 340B providers benefiting from these discounted prices 
include such safety-net providers as community health centers and hospitals that serve a 
disproportionate number of low-income patients.  In 2010, the Affordable Care Act expanded the 
types of providers eligible to participate in the 340B program to include childrens hospitals, 
critical access hospitals, free-standing cancer hospitals, rural referral centers, and sole 
community hospitals. As of October 1, 2016, the 340B program included 12,148 providers and 
25,348 associated sites, for a total 37,496 registered sites.4 
 
The 340B program also intersects with State Medicaid programs in important ways.  One way 
relates to how State Medicaid programs reimburse 340B providers for drugs provided to 
Medicaid beneficiaries.  As of February 2016, the Centers for Medicare & Medicaid Services 
(CMS) requires State Medicaid agencies to reimburse providers for 340B-purchased drugs at 
amounts that do not exceed the 340B ceiling price.5  Another way relates to how States claim 
Medicaid rebates from drug manufacturers.  In general, States are entitled to statutorily defined 
rebates from manufacturers for covered outpatient drugs.  However, duplicate discounts  
which occur when drug manufacturers pay rebates to State Medicaid agencies on drugs that they 
sold at the already discounted 340B price  are prohibited by law.6 
 
HRSA Has Strengthened Its Oversight of the 340B Program Over the Years, But Some 
Key Challenges Persist 
 
Across numerous OIG reviews of the 340B program, our work has identified program integrity 
vulnerabilities, many of which have been addressed, but others continue to be concerns.7  Our 
initial work, released in the early 2000s, found deficiencies in HRSAs oversight of the program.  
These deficiencies included inaccurate information regarding which providers were eligible for 
discounted prices and a lack of systematic monitoring to ensure that drug manufacturers were 
charging 340B providers the correct prices.  Systemic monitoring by HRSA was critical, at the 
time, because confidentiality protections prevented HRSA from sharing the ceiling prices with 
                                                           
3 82 Fed. Reg. 1210, 1227 (January 5, 2017) 
4 HRSA, Fiscal Year 2018 Justification of Estimates for Appropriations Committees, p. 245. 
5 81 Fed. Reg. 5170 (February 1, 2016); 42 C.F.R.  447.518(a)(2). 
6 42 U.S.C.  256b(a)(5)(A)(i); 42 U.S.C.  1396r-8(j)(1). 
7 OIG has issued seven evaluations of the 340B program:  (1) Deficiencies in the 340B Drug Pricing 
Programs Database, OEI-05-02-00071, June 2004; (2) Deficiencies in Oversight of the 340B Drug Pricing 
Program, OEI-05-02-00072, October 2005; (3) Review of 340B Prices, OEI-05-02-00073, July 2006; (4) 
State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drugs, OEI-05-09-00321, 
June 2011; (5) Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-00431, February 2014; 
(6) Medicaid Drug Rebate Dispute Resolution Could Be Improved, OEI-05-11-00580, August 2014; and (7) 
State Efforts to Exclude 340B Drugs From Medicaid Managed Care Rebates, OEI-05-14-00430, June 2016 
 
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  340B providers.  This lack of transparency left 340B providers unable to determine whether they 
were paying accurate amounts to drug manufacturers.  Further, HRSA lacked the necessary 
enforcement tools for holding manufacturers accountable.   
 
In recent years, HRSA has taken steps to improve oversight of the 340B program and been 
granted additional oversight authorities.  For example, HRSA has issued several technical 
assistance resources to educate manufactures and 340B providers to facilitate compliance.  In 
one case, HRSA created a training webinar for 340B providers to help them ensure compliance 
with program requirements to prevent duplicate discounts when working with Medicaid patients.  
During this same time, HRSA was authorized in legislation to share the discounted ceiling prices 
with 340B providers.  HRSA was also granted new enforcement tools that it has been using.   For 
example, HRSA now conducts audits of selected manufacturers and 340B providers.   
 
Some of HRSAs efforts to strengthen 340B program integrity through regulations were 
unsuccessful.  HRSA proposed an omnibus 340B regulation, but withdrew it prior to publication 
after a Federal court ruling established limits on HRSAs rulemaking authority for the 340B 
program.  In 2015, HRSA instead issued proposed omnibus 340B guidance.8  However, this 
guidance was withdrawn in January 2017.  HRSA did not provide a reason for withdrawing the 
guidance.    
 
Despite progress in addressing some program vulnerabilities, the steps HRSA has taken have not 
fully addressed the long-standing challenges identified by OIG. As such, OIG continues to 
recommend improving the 340B program by: (1) increasing transparency, and (2) clarifying 
program rules.  HRSA, CMS, and Congress each have roles in advancing these improvements.  
These broad recommendations are explored in detail below. 
 
OIG RECOMMENDS:  Increasing Transparency to Allow Payment Accuracy 
 
Transparency is needed to support payment accuracy in three ways.  First, 340B providers need 
to know the 340B ceiling prices to determine whether they are paying the accurate price.  
Second, State Medicaid programs need to know the 340B ceiling price, as well as which 
Medicaid claims are for 340B-purchased drugs, to determine whether they are paying 340B 
providers accurately.  Third, State Medicaid programs need to know which Medicaid claims are 
for 340B-purchased drugs to ensure that Medicaid programs receive all of the drug rebates to 
which they are entitled and manufacturers do not provide duplicate discounts.  However, the lack 
of transparency regarding 340B prices and claims hampers payment accuracy in all of these 
transactions. 
 
The lack of transparency in ceiling prices impedes 340B providers and Medicaid programs from 
ensuring that they have paid the correct amount for 340B-purchased drugs. 
 
Although Congress authorized HRSA to share confidential ceiling prices with 340B providers in 
2010, HRSA has not yet done so.  HRSA has begun to develop a secure system for sharing 
                                                           
8 80 Fed. Reg. 52300 (August 28, 2015) 
 
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  ceiling prices with 340B providers.  HRSA plans for the system to be a single point of reference 
to calculate, verify, and display 340B ceiling prices.  According to these plans, 340B providers 
will be able to access the system to view 340B ceiling prices and verify that they are paying at or 
below the posted 340B ceiling price.  Manufacturers will also be able to upload their quarterly 
pricing data and validate their prices with the HRSA-verified 340B ceiling price.  HRSA 
identifies this initiative as an ongoing priority for fiscal year 2018.9  However, until the system is 
operational, 340B providers cannot ensure that they are paying the right amount.   
 
The 2010 legislation addressed access to ceiling prices for 340B providers, but it did not address 
access for State Medicaid agencies.  Lack of access to 340B ceiling prices can prevent State 
Medicaid agencies from effectively enforcing Medicaid payment policies for 340B-purchased 
drugs.  OIG found that without access to 340B ceiling prices, States are unable to implement 
automated, prepayment edits to enforce these policies.  Instead, some States conduct labor-
intensive and potentially costly audits and post-payment reviews in an attempt to ensure that they 
have paid 340B providers correctly for 340B-purchased drugs.  HRSA concurred with OIGs 
recommendation to share ceiling prices with States but may need additional statutory authority to 
do so.10 
 
The lack of transparency in Medicaid claims for340B-purchased drugs hinders States efforts to 
pay providers correctly and to claim correct Medicaid rebates from manufacturers. 
 
States also need transparency into which Medicaid claims represent 340B-purchased drugs to 
ensure that they make payments in accordance with their payment policies.  Even if States can 
determine how much they should be paying 340B providers for 340B-purchased drugs, they still 
may not know which claims to reimburse at that rate.   
 
Likewise, knowing which Medicaid claims represent 340B-purchased drugs is essential for 
States to correctly claim rebates from manufacturers.  If States cannot accurately identify which 
Medicaid claims involve 340B-purchased drugs, two types of problems may result.  One, States 
may inappropriately include claims for 340B-purchased drugs in rebate invoices sent to 
manufacturers, potentially causing duplicate discount situations.  Two, States may 
inappropriately exclude claims for non-340B-purchased drugs and forgo rebates to which they 
are entitled.  In addition, without reliable methods for identifying claims for 340B-purchased 
drugs, States may be more likely to have rebate disputes with drug manufacturers, which would 
require additional resources to resolve and may impede or delay rebate payments. 
 
HRSA maintains a tool, the Medicaid Exclusion File, to assist States in identifying providers 
who have chosen to dispense 340B-purchased drugs to Medicaid patients in the fee-for-service 
program. OIG found that in 2015, States typically used HRSAs Medicaid Exclusion File to 
identify and exclude 340B drug claims for the purpose of collecting rebates.11  However, we 
found that this provider-level approach may not accurately identify all individual 340B drug 
                                                           
9 HRSA, Fiscal Year 2018 Justification of Estimates for Appropriations Committees, p. 245. 
10 OIG, State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drugs, OEI-05-09-00321, 
June 2011. 
11 OIG, State Efforts to Exclude 340B Drugs from Medicaid Managed Care Rebates, OEI-05-14-00430, June 2016. 
 
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  claims, creating a risk of duplicate discounts and forgone rebates. We found that methods that 
operate at the claim level can improve accuracy in identifying 340B drug claims and thereby 
help prevent duplicate discounts and improve collection of rebates.  Identifying and excluding 
340B claims paid by Medicaid managed care organizations involves additional complications, 
and claims-level transparency would help address these challenges, too.   
 
To increase transparency, OIG recommended that CMS require States to use claim-level 
methods to identify 340B claims. CMS did not concur with OIGs recommendation to require 
the use of claim-level methods to identify 340B claims, stating that it agreed with the importance 
of claim-level methods but that the statute does not contemplate such a requirement.  To the 
extent that CMS determines it does not have sufficient statutory authority to implement such a 
requirement, additional action from Congress may be needed. 
 
OIG RECOMMENDS:  Clarifying Rules to Ensure that the 340B Program Operates as 
Intended 
 
OIG has identified a number of challenges and inconsistencies arising from the widespread use 
of contract pharmacy arrangements.  Contract pharmacies are external pharmacies (often retail 
pharmacies) that partner with 340B providers to dispense 340B-purchased drugs to the 
providers patients, and their prevalence is on the rise.  These pharmacies typically dispense both 
340B-purchased drugs on behalf of 340B providers, as well as non-340B drugs.  The operations 
of contract pharmacies are often quite complex, and this complexity has important 
consequencesvariation in eligibility determinations across different 340B providers and 
inconsistencies in whether uninsured patients benefit directly from the 340B program.  As such, 
OIG recommends that HRSA clarify rules to address these ambiguities and inconsistencies. 
 
HRSA initiated steps to address OIGs concerns by proposing updates and clarifications that 
address the patient definition, contract pharmacy arrangements, and other program integrity 
provisions in its 2015 proposed omnibus 340B guidance.  However, HRSA never finalized that 
proposed guidance.  As such, these issues remain unaddressed.  To address these issues through 
rulemaking, HRSA may need additional statutory authority. 
 
HRSAs current patient definition guidance does not account for the complexity of contract 
pharmacy arrangements. 
 
340B providers are prohibited by law from dispensing 340B-purchased drugs to anyone who 
is not their patient.12  However, the law does not further define what constitutes a 
patient.  HRSAs official definition of patient eligibility comes from guidance issued 
before 340B providers were permitted to contract with networks of retail pharmacies.  That 
guidance specifies that an individual is an eligible patient only if he or she has an established 
relationship with the 340B provider, he or she receives health care services from the 340B 
                                                           
12 42 U.S.C.  256b(a)(5)(B). 
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  provider, and those services are consistent with the service or range of services for which 
Federal funding is being granted.13, 14 
 
Dispensing a 340B-purchased drug to an ineligible patient, which is prohibited by law, is 
referred to as diversion.  Thus, appropriately determining patient eligibility for 
340B-purchased drugs is critical to preventing diversion. 
 
Although the law and HRSA guidance focus on 340B eligibility at the patient level, 
operationally, contract pharmacies determine eligibility at the prescription level.  Retail contract 
pharmacies often have no way to distinguish a 340B patient from any other customer filling a 
prescription at their stores.  To address this reality, many contract pharmacies dispense drugs to 
all of their customers340B-eligible or otherwisefrom their regular inventory.  Only later, 
after dispensing a drug, do these contract pharmacies determine which prescriptions were given 
to 340B-eligible patients.  They then order the appropriate quantity of drugs at 340B prices to 
replenish their inventory. 
 
To identify which prescriptions were given to 340B-eligible patients, contract pharmacies often 
match information from the 340B providers, such as patient and prescriber lists, to their 
dispensing data.  In its 2014 report, OIG found wide variation in these eligibility determinations.  
Different determinations of 340B eligibility appear to stem from the application of the patient 
definition by 340B providers and their contract pharmacies to a wide variety of prescription-level 
scenarios.15  Depending on the interpretation of HRSAs patient definition, some 340B provider 
eligibility determinations would be considered diversion and others would not. 
 
HRSAs current guidance on patient definition does not account for many of the 340B eligibility 
decisions that arise in contract pharmacy arrangements.  The following example illustrates how 
contract pharmacy operations have led to different determinations of 340B eligibility in the 
absence of a clearer patient definition:  
 
Scenario:  Nonexclusive physician 
 
A physician practices part time at a 340B provider, but also has a private 
practice.  The physician first sees an individual at the 340B provider.  
Separately, the physician sees the same individual at his private practice and 
writes a prescription for that person.  The individual fills the prescription at the 
340B provider contract pharmacy. 
 
                                                           
13 Disproportionate share hospitals are exempt from the requirement that services be consistent with the service or 
range of services for which Federal funding is being granted. 
14 61 Fed. Reg. 55156, 55157-8 (October 24, 1996). 
15 OIG, Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-00431, February 2014. 
 
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  Whether contract pharmacies determine the prescription in this scenario to be 340B-eligible 
depends on how they match their dispensing data to information from the 340B provider.  One 
340B provider in OIGs report noted that it would automatically categorize the prescription in 
this scenario as 340B-eligible because it uses a list of all prescribers working at the 340B 
provider to identify 340B-eligible prescriptions.  Because the physician in this scenario would be 
on the prescriber list, the prescription would be categorized as 340B-eligible, even though it was 
written at the physicians private practice (i.e., it originated outside the 340B provider).  
 
Another 340B provider in OIGs report noted that it would not categorize the prescription in this 
scenario as 340B-eligible because, although the 340B providers contract pharmacy also uses a 
prescriber list to identify 340B-eligible prescriptions, it limits the prescriber list only to those 
prescribers who work exclusively for the 340B provider.  Because the physician in this scenario 
would not be on the prescriber list (as he does not work exclusively for the 340B provider), the 
prescription would not be categorized as 340B-eligible.  
 
In its 2015 proposed omnibus guidance, HRSA proposed an update to the patient definition that 
could have addressed this scenario.  The guidance proposed a six-part patient definition, to be 
applied on a prescription-by-prescription basis, that would have deemed prescriptions to be 
340B-eligible only if they resulted from a service (e.g., a physician consultation) provided by the 
covered entity.  However, HRSA has not issued final guidance on the patient definition. 
 
Neither the 340B statute nor HRSA guidance addresses whether 340B providers must offer the 
discounted price to uninsured patients. 
 
Despite the 340B programs goal of increasing access and providing more comprehensive care, 
neither the 340B statute nor HRSA guidance speaks to how 340B providers must use savings 
from the programnor do they stipulate that the discounted 340B price must be passed on to 
uninsured patients.  Given this discretion, some 340B providers have chosen to institute extra 
measures to ensure that uninsured patients benefit through lower drug costs when filling 
prescriptions at contract pharmacies.  If they do not, uninsured patients can pay full price for 
drugs filled at contract pharmacies and thus not directly benefit from the 340B discount on their 
prescriptions.  Guidance on how the program should apply to uninsured patients in these 
scenarios should be clarified to ensure that patients are treated consistently across 340B 
providers and that operations align with the programs intent.   
 
In OIGs 2014 report on 340B contract pharmacy arrangements, we found that several 340B 
providers did not offer the discounted price to their uninsured patients at contract pharmacies.16  
These 340B providers contract pharmacy arrangements would have required additional 
processes to identify uninsured patients as 340B-eligible because, as previously noted, many 
contract pharmacies do not know which patients are from the 340B providers when they come to 
the pharmacy.  Not knowing whether the patient is 340B-eligible may not have a financial 
impact on insured patients, because their costs are often determined by standard copayments 
stipulated in their insurance plans.  OIG did not assess the specific consequences for insured 
                                                           
16 OIG, Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-00431, February 2014. 
 
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  patients in its report.  For uninsured patients, not knowing whether they are 340B-eligible means 
that they may be charged the full price for their drugs.  Contract pharmacies may later identify 
uninsured patients prescriptions as 340B-eligible, but those patients will have paid full price. 
 
Conclusion and Specific OIG Recommendations 
 
We appreciate the Subcommittees interest in these important issues.  We also appreciate the 
progress that HRSA has made to improve its oversight of the 340B program.  However, we 
continue to urge HRSA, in coordination with CMS, to improve transparency of 340B pricing 
information for 340B providers and State Medicaid agencies and to improve transparency of 
claims for 340B-purchased drugs.  Specifically, we recommend that: 
 
  HRSA fully implement its authority to share ceiling prices with 340B providers; 
  HRSA work with CMS, and with Congress to obtain any needed authority, to share 
ceiling prices with State Medicaid agencies; and 
  CMS require Medicaid programs to use claims-level methods to identify claims for 
340B-purchased drugs and that HRSA update its related guidance. 
 
Clarifying 340B program rules in a complex and evolving health care delivery system is also 
essential.  Without clear rules, HRSA oversight is compromised, program implementation and 
outcomes vary, and vulnerabilities in 340B program integrity persist.  OIG recommends that 
HRSA: 
 
  clarify the definition of eligible patient; and  
  address whether 340B providers must offer discounted 340B prices to uninsured patients.   
 
To the extent that HRSA determines it does not have sufficient statutory authority to carry out 
these recommendations, we encourage Congress to consider statutory changes to support 
increased clarity in program goals and requirements and more effective oversight. 
 
Thank you for the opportunity to testify on ways to improve oversight of the 340B program.  
OIG will continue to work with HRSA, CMS, and Congress to protect the integrity of this 
program and help ensure that it is efficiently and effectively meeting its intended goals.  
 
 
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