Testimony Before the United States House of Representatives 
Committee on Energy and Commerce: 
Subcommittee on Health 
 
 
 
 
Examining the 340B Drug Pricing Program  
 
Testimony of: 
 
Ann Maxwell 
Assistant Inspector General  
Office of Evaluation and Inspections 
Office of Inspector General  
Department of Health and Human Services 
 
 
 
 
March 24, 2015 
10 a.m. 
Location:  Rayburn House Office Building, Room 2322 
   
Testimony of: 
Ann Maxwell 
Assistant Inspector General for Evaluation and Inspections 
   Office of Inspector General, U.S. Department of Health and Human Services 
 
Good morning Chairman Pitts, Ranking Member Green, and members of the Subcommittee.  
I am Ann Maxwell, Assistant Inspector General for Evaluation and Inspections for the Office 
of Inspector General (OIG), U.S. Department of Health and Human Services (HHS).  I 
appreciate the opportunity to appear before you to discuss the integrity of the 340B Drug 
Pricing Program (340B program).  
In 1992, Congress enacted section 340B of the Public Health Service Act (PHS Act), 
42 U.S.C. 256b, to establish the 340B program, which is managed by the Health Resources 
and Services Administration (HRSA).  The program was created to generate savings for 
certain safety-net health care providers by allowing them to purchase outpatient drugs at 
discounted prices.  These savings could then be used to stretch scarce Federal resources as 
far as possible, reaching more eligible patients and providing more comprehensive 
services.1  HRSA estimated that the annual savings attributable to the 340B program in 2013 
was $3.8 billion.2 
Pursuant to the PHS 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.  340B providers benefiting from these discounted prices include such 
safety-net providers as community health centers, critical access hospitals, and hospitals that 
serve a disproportionate number of low-income patients.  As of February 28, 2015, 
11,180 providers were participating in the 340B program. 
For over a decade, OIG has performed evaluations and audits reviewing HRSAs oversight 
of the 340B program and various other aspects of the 340B program to ensure that it was 
meeting its intended goals.3  Our initial work, released in the early 2000s, found numerous 
deficiencies in HRSAs oversight of the program.  These deficiencies included inaccurate 
information about which providers were eligible for the discounted prices and a lack of 
systematic monitoring to ensure that drug manufacturers were charging 340B providers the 
correct prices.  In the latter case, confidentiality protections prevented HRSA from sharing 
the ceiling prices with the 340B providers, leaving them in the dark as to whether they were 
being charged correctly by drug manufacturers.  Furthermore, we also pointed out that 
                                                            
1 H.R. Rept. No. 102-384 (Part 2), at 12 (1992) (Conf. Rept.). 
2 The U.S. Department of Health and Human Services.  HRSA FY2015 Budget Justification.     
3 OIG has issued five evaluations on 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; and (5) Contract Pharmacy Arrangements in the 340B Program, OEI-05-13-
00431, February 2014.  
 
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Hearing  March 24, 2015  HRSA lacked the necessary enforcement tools for dealing with compliance violations.   
In response, HRSA has significantly strengthened its oversight of the 340B program.  In 
addition, Congress took action to improve program integrity, including authorizing HRSA to 
share the discounted ceiling prices with 340B providers as well as empowering HRSA with 
new enforcement tools.  HRSAs actions and the statutory changes to the 340B program 
addressed many of OIGs recommendations. 
However, despite these improvements, the 340B program faces continuing challenges.  In 
this testimony, OIG recommends further improving the 340B program by:  (1) increasing 
transparency, and (2) clarifying program rules.  These recommendations are explored in 
detail below. 
OIG RECOMMENDS INCREASED TRANSPARENCY TO SUPPORT OVERSIGHT 
AND STRENGTHEN PROGRAM INTEGRITY 
More transparency is needed in both 340B ceiling prices and Medicaid claims for 
340B-purchased drugs.  OIGs work on the 340B program has consistently found that a lack 
of transparency in both 340B ceiling prices and Medicaid claims for 340B-purchased drugs 
has negatively affected 340B providers, State Medicaid programs, and drug manufacturers.   
The lack of transparency in prices prevents 340B providers and Medicaid from ensuring that 
they have paid the correct amount for 340B-purchased drugs. 
Currently, neither 340B providers nor States Medicaid agencies have access to 340B ceiling 
prices.  Because of confidentiality provisions in the Medicaid statute that protect 
manufacturer pricing data, HRSA previously could not share ceiling prices with 340B 
providers.  Consistent with an OIG recommendation, Congress, as part of the Affordable 
Care Act (ACA), authorized HRSA to share ceiling prices with 340B providers; however, 
HRSA has not yet established a mechanism to do so.  These same confidentiality provisions 
continue to prevent HRSA from sharing 340B ceiling prices with States. 
Without access to ceiling prices, 340B providers cannot ensure that they are being charged 
the appropriate amount by drug manufacturers.  OIGs work has shown that 340B providers 
have, in fact, been overcharged for 340B-purchased drugs in the past:  we found that 14 
percent of drug purchases under the 340B program in June 2005 exceeded applicable ceiling 
prices; as a result, 340B providers overpaid by a total of $3.9 million during that month.4 
Lack of access to 340B ceiling prices also prevents States Medicaid agencies from 
effectively enforcing their Medicaid payment policies for 340B-purchased drugs.  States pay 
for 340B-purchased drugs when 340B providers dispense them to Medicaid patients.  Many 
States have established Medicaid policies to pay for 340B-purchased drugs at 340B 
providers actual acquisition cost; these policies ensure that Medicaid realizes savings from 
the discounted 340B prices.  However, 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.
                                                            
4 OIG, Review of 340B Prices (OEI-05-02-00073), July 2006. 
 
 
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Hearing  March 24, 2015   
HRSA has made improvements in 340B ceiling price transparency, but more action is 
needed to implement outstanding OIG recommendations.  The ACA directed HRSA to share 
ceiling prices with 340B providers via a secure Web site.  HRSA initially indicated that it 
could not do so given limited funding, but announced that it would move forward with the 
project after receiving increased appropriations in 2014.  The ACA also required HRSA to 
take additional steps, such as spot checks of sales records, to ensure that 340B providers are 
not overcharged for 340B-purchased drugs.  The ACA did not, however, authorize HRSA to 
share 340B ceiling prices with States; additional legislative authority would be required to 
do so. 
The lack of transparency regarding which Medicaid claims represent 340B-purchased drugs 
limits States efforts to pay correctly and prevent duplicate discounts. 
In addition to needing greater transparency concerning 340B ceiling prices, States need 
greater transparency as to which Medicaid claims represent 340B-purchased drugs to enforce 
their Medicaid payment policies.  The increasing complexity of 340B program operations, 
including contract pharmacy arrangements, has made it more difficult for States to 
accurately identify these claims.  This means that 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. 
Transparency as to which Medicaid claims represent 340B-purchased drugs is also a critical 
component of preventing duplicate discounts.  Subjecting drug manufacturers to duplicate 
discounts on 340B-purchased drugs is prohibited by law.  Duplicate discounts occur when 
drug manufacturers pay State Medicaid agencies rebates under the Medicaid drug rebate 
program on drugs they sold at the already-discounted 340B price.  
When States invoice manufacturers for Medicaid drug rebates, they exclude claims 
representing 340B-purchased drugs from invoices to prevent duplicate discounts.  States 
must therefore be able to accurately identify these claims to prevent duplicate discounts from 
occurring.  HRSA maintains a tool, the Medicaid Exclusion File, to assist States in this 
process.  However, OIG has found the use and value of this tool to be limited.  Specifically, 
we found that in 2010 over half of States had developed alternatives to the Medicaid 
Exclusion File, and many cited inaccuracies in the Medicaid Exclusion File as a reason for 
doing so.5 
                                                            
5 OIG, State Medicaid Policies and Oversight Activities Related to 340B-Purchased Drugs (OEI-05-09-00321), 
June 2011. 
 
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Hearing  March 24, 2015  The ACAs extension of Medicaid rebates to drugs paid through Medicaid managed care 
organizations (MCOs) has further complicated the process of identifying Medicaid claims 
for 340B-purchased drugs to prevent duplicate discounts.  The share of all Medicaid 
beneficiaries covered by Medicaid MCOs has increased significantly in recent years, from 
approximately 58 percent in 2002 to approximately 74 percent of beneficiaries in 2011.6  
HRSA issued a policy release in December 2014 to clarify that the Medicaid Exclusion File 
is intended for use only with fee-for-service Medicaid, not Medicaid MCOs; however, 
HRSA has not developed or officially endorsed any alternative tools for use with Medicaid 
MCOs.7  Additionally, OIGs 2014 report on 340B contract pharmacy arrangements found 
that difficulties in identifying beneficiaries covered by Medicaid MCOs contribute to 
duplicate discount vulnerabilities.8  OIG has work underway that will assess States current 
methods of preventing duplicate discounts for drugs paid through Medicaid MCOs. 
 
 
Although HRSA and CMS have made progress in this area, OIG encourages HRSA and 
CMS to continue working with 340B providers and State Medicaid agencies to improve 
claims transparency.  In response to OIGs recommendation, HRSA started collecting new 
information as part of 340B providers annual recertification to improve the accuracy of the 
Medicaid Exclusion File.  Also in response to an OIG recommendation, CMS issued 
guidance to States on alternate ways to identify claims for 340B-purchased drugs.  OIGs 
ongoing work on preventing duplicate discounts for drugs paid through Medicaid MCOs 
may result in additional recommendations to improve claims transparency. 
OIG RECOMMENDS CLARIFYING 340B PROGRAM RULES TO SUPPORT 
OVERSIGHT AND STRENGTHEN PROGRAM INTEGRITY 
Since 2010, 340B providers have increasingly used contract pharmacies to dispense 
340B-purchased drugs on their behalf.  Contract pharmacies are external pharmacies (often 
retail pharmacies) that partner with 340B providers to dispense 340B-purchased drugs to the 
providers patients.  In its 2014 report, OIG found that the percentage of all 340B providers 
that use contract pharmacies had risen from 10 percent to 22 percent since 2010.  Moreover, 
the number of unique pharmacies serving as 340B contract pharmacies had grown by 
770 percent.9 
                                                            
6 Centers for Medicare & Medicaid Services (CMS), Medicaid Managed Care Enrollment Report, July 2011. 
7 HRSA, Clarification on Use of the Medicaid Exclusion File, December 12, 2014. 
8 OIG, Contract Pharmacy Arrangements in the 340B Program (OEI-05-13-00431), February 2014. 
9 Ibid. 
 
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Hearing  March 24, 2015  OIG has identified a number of challenges and inconsistencies arising from the widespread 
use of contract pharmacy arrangements.  Their operations 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.  
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.  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 provider, and those services are consistent with the service or range of 
services for which Federal funding is being granted.10 
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 currently define 340B eligibility at the patient level, 
operationally, contract pharmacies determine eligibility at the prescription level.  Retail 
contract pharmacies generally 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 by 340B providers and their contract pharmacies of the patient definition to a 
wide variety of prescription-level scenarios.  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:  
                                                            
10 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. 
 
 
House Committee on Energy and Commerce 
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Hearing  March 24, 2015   
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., 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 to 
only 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.  
Yet another 340B provider in OIGs report noted that it may or may not categorize the 
prescription in this scenario as 340B-eligible, on the basis of a manual review.  Prescriptions 
from nonexclusive physicians go into a queue for 340B provider staff to review and 
categorize as 340B-eligible or not 340B-eligible.   
Neither the 340B statute nor HRSA guidance addresses whether 340B providers must offer 
the discounted price to uninsured patients at their contract pharmacies. 
Despite the 340B programs ultimate goal of increasing access and providing more 
comprehensive care, neither the 340B statute nor HRSA guidance speak 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.   
Several 340B providers in OIGs 2014 report did not offer the 340B price to their uninsured 
patients at contract pharmacies.  These 340B providers contract pharmacy arrangements 
 
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Hearing  March 24, 2015  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 patients in its report.  For uninsured patients, not 
knowing whether the patient is 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 already paid full price. 
 
HRSA has announced plans to issue wide-ranging 340B program guidance, in June 2015, 
that will address patient definition and other contract pharmacy issues.  
Although OIG work has focused on the potential benefits of additional guidance in relation 
to contract pharmacy arrangements, such guidance would also benefit the 340B program 
more generally. 
 
CONCLUSION 
We appreciate the Subcommittees interest in these important issues.  Further, we are 
encouraged by HRSAs response to our recommendations and the progress it has made thus 
far in improving its oversight of the 340B program.  We continue to urge HRSA to fully 
address OIGs recommendations related to improving transparency of 340B pricing 
information for 340B entities and State Medicaid agencies and improving transparency of 
340B claims.  It is also important that HRSA strengthen and clarify program rules regarding 
how the 340B discount should be applied.  Without clear rules, HRSA oversight is 
compromised, interpretations of program rules vary, and vulnerabilities in 340B program 
integrity will persist. 
OIG is committed to continued oversight of this program.  Ongoing OIG work is assessing 
the prevention of duplicate discounts for drugs paid through Medicaid MCOs.  Additional 
OIG work underway is examining the intersection of the 340B program and Medicare 
 
House Committee on Energy and Commerce 
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Hearing  March 24, 2015  Part B.  We anticipate final reports on these issues in 2015, and we look forward to sharing 
those results with the Committee at that time.  This concludes my testimony.  I would be 
happy to answer your questions.  Thank you. 
 
House Committee on Energy and Commerce 
Subcommittee on Health 
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Hearing  March 24, 2015