OVERSIGHT AND ADMINISTRATION 

OF THE 340B DRUG DISCOUNT 

PROGRAM: IMPROVING EFFICIENCY 

AND TRANSPARENCY 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE 

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

DECEMBER 15, 2005 

Serial No. 109-108 

Printed for the use of the Committee on Energy and Commerce 

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 2006 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 

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30-139PDF 
COMMITTEE ON ENERGY AND COMMERCE 

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

 Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

 Vice Chairman

VITO FOSSELLA, New York 

ROY BLUNT, Missouri

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

 Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, General Counsel

REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS 

ED WHITFIELD, Kentucky, Chairman 

CLIFF STEARNS, Florida 

CHARLES W. “CHIP” PICKERING, Mississippi 

CHARLES F. BASS, New Hampshire 

GREG WALDEN, Oregon 

MIKE FERGUSON, New Jersey 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas 

 (EX OFFICIO)

BART STUPAK, Michigan 

 Ranking Member 

DIANA DEGETTE, Colorado 

JAN SCHAKOWSKY, Illinois 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

HENRY A. WAXMAN, California 

JOHN D. DINGELL, Michigan 

 (EX OFFICIO)

(II)
CONTENTS 

Page 

Testimony of: 

Wright, Stuart, Deputy Inspector General for Evaluation and Inspections, Office of 

Inspector General, U.S. Department of Health and Human Services ......................... 9 

Williams, Denis, Deputy Administrator, Health Resources and Services 

Administration, U.S. Department of Health and Human Services ............................... 16 

Von Oehsen, III, William H., Powers, Pyles, Sutter &Verville PC, General Counsel, 

Public Hospital Pharmacy Coalition ............................................................................. 39 

Brown, David B., Director, Government Contracts and Pricing Programs, 

GlaxoSmithKline ........................................................................................................... 53 

Hatwig, Christopher A., Senior Director, 340B Prime Vendor Program, HealthCare 

Purchasing Partners International ................................................................................. 58 

(III) 

(1) 

OVERSIGHT AND ADMINISTRATION OF 

THE 340B DRUG DISCOUNT PROGRAM: 

IMPROVING EFFICIENCY AND 

TRANSPARENCY 

THURSDAY, DECEMBER 15, 2005 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

Washington, DC. 

 The subcommittee met, pursuant to notice, at 2:14 p.m., in Room 

2322, Rayburn House Office Building, Hon. Ed Whitfield [chairman] 

presiding. 

 Members present: Representatives Whitfield, Blackburn, Stupak, 

DeGette, and Inslee. 

 Staff Present: Andrew Snowdon, Counsel; John Halliwell, Policy 

Coordinator; Jonathan Pettibon, Legislative Clerk; Terry Lane, Deputy 

Communications Director; Edith Holleman, Minority Counsel; and Chris 

Knauer, Minority Investigator. 

 MR. WHITFIELD. First of all, I want to apologize. There are a lot of 

things going on beyond our control. For those who have come to testify, 

we genuinely apologize to you, because I know many of you have 

schedules and planes to catch and so forth. But, unfortunately, we have a 

markup in the Energy Committee going on now, and we have votes on 

the floor. We just had a conference on an immigration issue, and we 

simply could not get around this delay. 

 So having apologized to you, as soon as Mr. Stupak arrives, we will 

go on and get this hearing started and we look forward to the testimony 

from all of you. 

 Mr. Stupak, I have already made an announcement to apologize for 

our delay. Today's hearing subject matter is Oversight and 

Administration of the 340B Drug Discount Program: Improving 

Efficiency and Transparency, and we have two panels of witnesses 

today. On the first panel we have Mr. Stuart Wright, who is the Deputy 

Inspector General for Evaluation and Inspections, Office of Inspector 

General, U.S. Department of Health and Human Services; and 

accompanying him is Mrs. Maxwell. We appreciate her being here very 

much. 
2

 In addition, we have Mr. Dennis Williams, who is the Deputy 

Administrator for the Health Resources and Services Administration at 

the U.S. Department of Health and Human Services. And I will 

introduce the second panel when we call them up. 

 The purpose of today's hearing is to examine the oversight and 

administration of the 340B drug pricing program. Under this program, 

institutions that serve some of the Nation's neediest and most vulnerable 

patients, including public hospitals and community health centers, 

receive outpatient drugs at a discount. It is estimated that the roughly 

12,000 340B entities save between $1.5 and $2 billion annually as a 

result of the program, savings that are often passed along to taxpayers. 

 This subcommittee takes its oversight responsibilities very seriously, 

and if the program is not running smoothly then we need to find out why. 

Over the past several years this subcommittee has devoted a substantial 

amount of time to examining drug pricing in various government 

programs. In December of last year, for example, the subcommittee held 

a widely publicized hearing which exposed in vivid detail just how much 

the Medicaid program is overpaying for prescription drugs because most 

states continue to rely upon average wholesale price as the basis for 

reimbursement. The theme of that hearing and, indeed, the common 

theme of all the subcommittee’s drug pricing work, has been 

transparency. 

 The 340B program certainly fits that mold. It is nonsensical to me 

that the entities entitled to the 340B discount, the 340B institutions and 

the prime vendor, do not have access to the ceiling prices. Imagine 

going to a grocery store which advertises a special discount price, only to 

find that when you go to the register to check out, no one can tell you 

what that discount is. 

 I want to commend the Office of Inspector General for the 

outstanding work that it has done and continues to do on this issue. In its 

most recent report on the 340B program, the OIG identified serious 

deficiencies in the operations of the program and made a variety of 

recommendations for improvement. I look forward to discussing some 

of these recommendations with the witnesses today to see what we can 

do to make the 340B program more efficient and transparent. I want to 

be clear, however, that this is not necessarily a knock on HRSA. There 

may well be structural, statutory, or resource problems that need to be 

identified and addressed. 

 The OIG's work has also shown that this lack of price transparency 

can result in 340B entities overpaying by millions of dollars. When 

Medicaid patients are the recipients, such overcharges, whether 

accidental or intentional, are passed on to the taxpayers. 
3

 It is my understanding that the Office of Inspector General is 

currently doing additional work that will attempt to quantify 340B 

overcharges and delve into the reasons behind them. I look forward to 

holding another hearing when this report is released next spring. 

 I want to thank all of today's witnesses for providing their experience 

and expertise to this subcommittee. In particular, I would like to 

welcome Mr. Brown and recognize GlaxoSmithKline for taking the bold 

step of voluntarily, I might add, posting its ceiling price calculations so 

that 340B entities have the ability to make sure that the prices that they 

are paying are the appropriate prices. If this hearing is able to increase 

transparency by encouraging other drug manufacturers to do the same, 

then I think it will have been a success. 

 [The prepared statement of Hon. Ed Whitfield follows:] 

PREPARED STATEMENT OF THE HON. ED WHITFIELD, CHAIRMAN, SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

 The purpose of today’s hearing is to examine the oversight and administration of the 

340B Drug Pricing Program. Under this Program, institutions that serve some of the 

nation’s neediest and most vulnerable patients, including public hospitals and community 

health centers, receive outpatient drugs at a discount. It is estimated that the roughly 

12,000 

 340B entities save between $1.5 and $2 billion annually as a result of the Program -- 

savings that are often passed along to taxpayers. This Subcommittee takes its oversight 

responsibilities very seriously, and if the Program is not running smoothly, then we need 

to find out why. 

 Over the past several years, this Subcommittee has devoted a substantial amount of 

time to examining drug pricing in various government programs. In December of last 

year, for example, the Subcommittee held a widely-publicized hearing which exposed in 

vivid detail just how much the Medicaid program is overpaying for prescription drugs 

because most states continue to rely upon Average Wholesale Price as the basis for 

reimbursement. 

 The theme of that hearing -- and indeed the common theme of all the 

Subcommittee’s drug pricing work -- has been transparency. The 340B Program 

certainly fits that mold. It is nonsensical to me that the entities entitled to the 340B 

discount -- the 340B institutions and the prime vendor -- do not have access to the ceiling 

prices. Imagine going into a grocery store which advertises a special discount price on a 

gallon of milk -- only to find that when you get to the register no one will tell you what 

that discount is? 

 I want to commend the Office of Inspector General for the outstanding work that it 

has done, and continues to do, on this issue. In its most recent report on the 340B 

Program, the OIG identified serious deficiencies in the operations of the Program and 

made a variety of recommendations for improvement. I look forward to discussing some 

of those recommendations with the witnesses today to see what we can do to make the 

340B Program more efficient and transparent. I want to be clear, however, that this is not 

necessarily a knock on HRSA. There may well be structural, statutory, or resource 

problems that need to be identified and addressed. 

 The OIG’s work has also shown that this lack of price transparency can result in 

340B entities overpaying by millions of dollars. When Medicaid patients are the 

recipients of these drugs, such overcharges -- whether accidental or intentional -- are 
4

passed on to the taxpayers. It is my understanding that OIG is currently doing additional 

work that will attempt to quantify 340B overcharges and delve into the reasons behind 

them. I look forward to holding another hearing when this report is released next Spring. 

 I want to thank all of today’s witnesses for providing their experiences and expertise 

to the Subcommittee. In particular, I would like to welcome Mr. Brown and recognize 

Glaxo-Smith-Kline for taking the bold step of voluntarily posting its ceiling price 

calculations so that 340B entities have the ability to make sure that they are paying 

appropriate prices. If this hearing is able to increase transparency by encouraging other 

drug manufacturers to do the same, then I think that it will have been a success. 

 MR. WHITFIELD. At this time I'd like to recognize the Ranking 

Minority Member, Mr. Stupak of Michigan. 

 MR. STUPAK. Thank you, Mr. Chairman, and apologize to our 

witnesses. We're probably going to have to run downstairs for another 

vote. We're in full committee even as we speak. So I want to give it sort 

of an abbreviated. 

 This is our second hearing of this week. It was clear at the Internet 

pharmacy hearing earlier this week that members on both sides of the 

aisle believe this committee must follow up and demand actions and 

actors to find the best solutions to combat illegal sales of controlled 

substances on the Internet. 

 Mr. Chairman, I ask for your assurances our staff will continue to 

work together and address the outstanding issues and concerns identified 

at the hearing in the next couple weeks, when we get back from the 

break, because there are a lot of things we've got to do that. 

 Last but not least, while the 340B is a useful topic, Hurricane Katrina 

severely damaged the health care system in New Orleans on the gulf 

coast. Many of those facilities were 340B facilities. I think that's sort of 

a disgrace, Mr. Chairman, that they have lost -- especially Charity 

Hospital lost their health care. 

 We have repeatedly asked for hearings on Katrina-related health care, 

energy and communications issues and want to take the opportunity to 

ask that we do a field hearing in New Orleans so the subcommittee can 

see firsthand and hear firsthand about this gaping hole in our national 

health care system. 

 A 340B program is of no value if the providers aren't functioning. 

With that, Mr. Chairman, I'm going to submit the rest of my statement to 

the record because I do want to hear from our witnesses and get this 

hearing moving and hopefully we can have that hearing down in New 

Orleans maybe over the break. Thank you. 

 [The prepared statement of Hon. Bart Stupak follows:] 
5

PREPARED STATEMENT OF THE HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF MICHIGAN

 Thank you, Mr. Chairman. I believe that most of us are supporters of an effective 

340b program. It helps the hospitals, community health centers and clinics that serve the 

poorest of the poor under very difficult financial circumstances, and we support every 

effort to make this program more efficient and effective. After all, we have 45 million 

Americans who are completely without insurance, and many of them are served by 340b 

entities much less expensively than if they went to hospital emergency rooms. And, as 

previous work by the Inspector General has revealed, 340b entities are losing tens of 

millions of dollars every year because of improper calculations of ceiling prices.

 As the Inspector General will testify, the Health Resources and Services 

Administration (HRSA) lacks legislative, regulatory, and contractual authority to enforce 

an effective and efficient 340b program. Mr. Chairman, legislative authority is our job, 

and I hope that this is just not another oversight hearing after which we in Congress 

identify a problem, but do nothing about it. The rest of these authorities require 

commitments from the top levels of Department of Health and Human Services and the 

drug companies, and neither of those 800-pound gorillas are in the room. 

 The Centers for Medicare and Medicaid Services controls all of the data that HRSA 

needs to calculate the ceiling price for 340b drugs. As the Inspector General has 

determined, there needs to be close cooperation between these two agencies in the 

Department of Health and Human Services, and that is not occurring. We on the minority 

side asked for CMS as a witness, but the Department took the position that it would 

provide only a single witness at our hearings. So we can’t hold CMS’s or the 

Department’s feet to the fire and get firm commitments that we can monitor. In our 

experience, a statement from an agency that it “concurs” with the recommendations in an 

inspector general’s report is generally a commitment to inaction. 

 Second, the drug companies calculate their own ceiling price, and that is the one that 

the 340b providers actually pay or use for negotiating lower prices. These providers have 

no idea if the “official” HRSA price is the same as the price they are working with. If 

there are overcharges, they are often not recovered by these entities that serve this very 

vulnerable population. The pharmaceutical companies apparently are very opposed to 

sharing their ceiling price calculations with the 340b prime vendor, but we can’t have a 

full discussion of this issue because the objecting drug companies, or their association, 

are not here. 

 Finally, Mr. Chairman, while 340b is a useful topic, Hurricane Katrina severely 

damaged the health care system of New Orleans and the Gulf Coast. Many of these 

facilities were 340b facilities. This, Mr. Chairman, is a national disgrace. We have 

repeatedly asked for hearings on Katrina-related health care, energy and communications 

issues, and I want to take this opportunity to ask for a field hearing in New Orleans so the 

Subcommittee can see and hear first-hand about this gaping whole in our national health 

care system. A 340b program is of no value if the hospital or health care aren’t 

functioning. 

 [Additional statements submitted for the record follow:] 

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY AND 

COMMERCE

 Thank you, Mr. Chairman, for holding today’s hearing. It seems like any time we 

use “prescription drugs” and “government program” in the same sentence, common sense 

goes out the window. The 340B Drug Discount Program appears to be no exception. 
6

Under this Program, we tell certain institutions that they are entitled to a discount price 

for prescription drugs, except they can’t know what that price is, and the agency in 

charge of running the Program has virtually no authority to ensure that they are getting 

these discounts. Brilliant! 

 A little over a year ago this Subcommittee held a hearing on Medicaid prescription 

drug reimbursement. During that hearing I posed the following question: why shouldn’t 

we “go to some system that really is based on actual sales prices with auditing and 

backup so that we have a transparency in the system so that anybody that has an interest 

can really find out what’s going on?” That premise has shaped this Committee’s recent 

Medicaid reforms, and I hope that it can also be applied to the 340B Program. 

 I look forward to hearing from the witnesses today about what steps might be taken 

to improve the 340B Program. Drug manufacturers, wholesalers, CMS, HRSA (her-sa), 

OIG, the prime vendor, and the 340B entities themselves all have a role to play. If 

legislation is needed to make this Program more efficient and transparent, Congress may 

have a role to play as well. 

 Thank you again, Mr. Chairman, and I yield back the balance of my time. 

 MR. WHITFIELD. Thank you, Mr. Stupak. We look forward to 

working with you on the controlled substances issue, as you said, and 

looking to this additional hearing as well. All of you are aware that this 

committee is holding an investigative hearing and, when doing so, it has 

been the practice of our subcommittee of taking testimony under oath. 

Do any of you have any objection to testifying under oath today? 

 The Chair would advise you that under the rules of the House and 

rules of the committee, you are entitled to be advised by counsel. Do 

you desire to be advised by counsel today? In that case, if you would 

please stand and raise your right hand. 

 [Witnesses sworn.] 

TESTIMONY OF STUART WRIGHT, DEPUTY INSPECTOR 

GENERAL FOR EVALUATION AND INSPECTIONS, OFFICE 

OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES, ACCOMPANIED BY: 

ANN MAXWELL, ACTING REGIONAL INSPECTOR 

GENERAL, CHICAGO OFFICE; AND DENNIS WILLIAMS, 

DEPUTY ADMINISTRATOR, HEALTH RESOURCES AND 

SERVICES ADMINISTRATION, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

 MR. WHITFIELD. Thank you very much and you are now sworn in, 

and I might add that because of the erratic schedule today, there may be 

some other members coming in, and I will probably give some of them 

an opportunity to make opening statements, or all of them, and certainly 

they have an opportunity to put their opening statement into the record. 

 And with that, Mr. White, I will recognize you for your opening 

statement. 
7

 MR. WHITE. Thank you. Good afternoon. I'm Stuart Wright, Deputy 

Inspector General for Evaluation and Inspections for the Office of 

Inspector General. I am pleased to have Ann Maxwell, Acting Regional 

Inspector General from our Chicago, office with me today. 

 I appreciate the opportunity to appear before you to present OIG work 

related to the 340B program which is managed by HRSA. The 340B 

program provides for sales of drugs at or below established ceiling prices 

to certain entities that provide health care to some of the country's most 

disadvantaged citizens who are typically underinsured or uninsured. 

Over the past few years we have issued a number of reports looking at 

various aspects of the 340B program. Our most recent work entitled 

"Deficiencies in the Oversight of 340B Drug Pricing Program" assessed 

whether systems exist to ensure that entities participating in the program 

are able to purchase drugs at or below the statutorily established ceiling 

price. 

 Our work has led us to conclude that the 340B program may not be 

functioning as intended, which was to ensure that appropriate discounts 

on drugs are available to entities. Specifically our work has found a 

number of deficiencies in program oversight as well as broader 

programmatic issues that impact HRSA's ability to administer the 

program. I have a chart that outlines all parties involved in the 340B 

program. As the chart illustrates, both the government and the 

manufacturers calculate 340B ceiling prices. They use the same 

statutorily defined formula based on the drug pricing data that 

manufacturers report to CMS for the Medicaid Drug Rebate Program. 

 The government's calculations are intended for use in programs 

oversight, while the manufacturers calculations are prices used in the sale 

of drugs to 340B entities. Theoretically, HRSA and manufacturers 

calculate the same 340B ceiling prices because they use the same drug 

pricing elements for the calculation. However, this may not be the case 

due to differing interpretation of the drug pricing data used in the 

formula, administrative error, and/or intentional misrepresentation. 

 Because of the potential for discrepancies which may lead to 

overcharges, it is important for HRSA to provide oversight. However, 

we found problems with program oversight related to the following four 

areas which are discussed in detail in my written statement: the 

government's calculation of the 340B ceiling price, monitoring program 

participation, overseeing manufacturers' calculation of the 340B price, 

and ensuring 340B entities pay at or below the ceiling price. 

 In terms of the government's record of 340B ceiling prices, we found 

problems with the accuracy and reliability of the data. For over a decade 

the government's 340B ceiling prices were calculated using incomplete 

data to represent package size. In addition, we found that HRSA did not 
8

have 340B ceiling prices for nearly 30 percent of eligible drugs due to 

missing data. 

 In terms of monitoring 340B program participants, a June 2004 OIG 

report found the HRSA's database inappropriately listed 38 percent of 

sampled entities as participating in the program, when in fact they did 

not. We also found that HRSA does not verify that manufacturers are 

correctly calculating 340B ceiling prices. Specifically, HRSA does not 

compare the government's 340B ceiling prices to the manufacturers' 

ceiling prices to ensure that the results are the same. 

 Finally, we found that there is no systematic oversight process in 

place to ensure that 340B entities receive the ceiling prices to which they 

are legally entitled. HRSA does not monitor the purchase prices paid by 

340B entities to ensure they are at or below the government's 340B 

ceiling prices. 

 Beyond these oversight issues, I would like to mention two 

programmatic issues that limit HRSA's ability to administer the program: 

confidentiality of the drug pricing data and the lack of adequate 

enforcement mechanisms. 

 First, confidentiality provisions in the Medicaid drug rebate statute 

protect the drug pricing elements used to calculate 340B ceiling price. 

This impacts HRSA's ability to use the 340B ceiling price data to ensure 

entities receive the appropriate ceiling praise. HRSA does not currently 

reveal 340B ceiling prices to participating entities. 

 Second, with regard to enforcement, we believe HRSA lacks the 

necessary authority to enforce the manufacturers and wholesalers to 

comply with the Public Health Service Act. Current law provides 

noncompliance with 340B provisions can result in termination from 

participation in Medicaid and the 340B program. However, this remedy 

is so extreme that it limits the likelihood that it will be used. 

 To strengthen 340B program oversight, we have recommended that 

HRSA first ensure that it is correctly calculating the 340B ceiling price 

with complete and accurate data. Second, develop a strategic plan for 

correcting the inaccuracies in the 340B participant data base. Third, 

develop oversight mechanisms to verify that 340B ceiling prices are 

being correctly calculated by manufacturers. Fourth, develop monitoring 

mechanisms that allow for a comparison of the government's 340B prices 

and the prices paid by 340B entities. 

 We also believe that issues associated with the confidentiality of the 

data need to be addressed. We believe that permitting some disclosure of 

information about 340B ceiling prices is essential to improving the 

operation of the program. 

 Finally, we have recommended that HRSA seek authority to establish 

intermediate penalties for program violations. 
9

 In conclusion, we are committed to continuing our work related to the 

340B program and hope that our work helps ensure this vital program 

operates as intended. Thank you. 

 [The prepared statement of Stuart Wright follows:] 

PREPARED STATEMENT OF STUART WRIGHT, DEPUTY INSPECTOR GENERAL FOR 

EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES

 Good afternoon, Mr. Chairman and members of the subcommittee. I am Stuart 

Wright, Deputy Inspector General for Evaluation and Inspections for the Office of 

Inspector General (OIG), U.S. Department of Health and Human Services (HHS). I am 

pleased to have Ann Maxwell, Acting Regional Inspector General from our Chicago 

office, with me today. I appreciate the opportunity to appear before you to present 

information regarding the 340B Drug Pricing Program (340B program), which 

establishes ceiling prices on prescription drugs that are purchased by certain health care 

entities. 

 Over the past few years, OIG has issued a number of audit and evaluation reports 

looking at various aspects of the 340B program. Our most recently published work, 

“Deficiencies in the Oversight of the 340B Drug Pricing Program,” assessed the 

effectiveness of existing systems and processes that are intended to ensure that entities 

participating in the program are able to purchase products at or below a statutorily 

established ceiling price. Currently, we are engaged in another evaluation of the program 

to determine whether entities participating in the 340B program have actually received 

the ceiling prices to which they are entitled, and if not, the potential reasons for price 

discrepancies. Our work has led us to conclude that the 340B program may not be 

functioning as intended to ensure that appropriate discounts on drugs are available to 

eligible entities. We have found a number of deficiencies in oversight of the program and 

have concerns related to broader programmatic issues that negatively impact the program. 

 My testimony begins with a brief overview of the program, followed by a summary 

of OIG findings and recommendations that are aimed at improving the 340B program. 

Background On The 340B Drug Pricing Program 

 In 1992, Congress enacted section 340B of the Public Health Service Act (PHS Act), 

42 U.S.C. 256b, to establish the 340B Drug Pricing Program. This program, which is 

managed by the Health Resources and Services Administration (HRSA), provides for 

sales of drugs at or below established ceiling prices to certain “covered entities” (340B 

entities) that provide health care to some of the country’s most disadvantaged citizens 

who are typically uninsured or underinsured. 340B entities include such health care 

entities as public hospitals, AIDS Drug Assistance programs, and community health 

centers. Based on the most recent HRSA estimates, 340B entities spent $4 billion on 

covered outpatient drugs in calendar year 2005. 

 Pursuant to the PHS Act, manufacturers sign a Pharmaceutical Pricing Agreement 

(Agreement) stipulating that they will charge 340B entities at or below a specified 

maximum price, known as the 340B ceiling price, for covered outpatient drug purchases. 

Ceiling prices are guaranteed whether the 340B entity purchases drugs directly from 

manufacturers or through a wholesaler. 

 The Government and pharmaceutical manufacturers separately calculate 340B ceiling 

prices each quarter. The Government’s calculations are intended for use in program 

oversight, while the manufacturers’ calculations are the prices used in sales to 340B 

entities. Both the Government and the manufacturers calculate 340B ceiling prices using 

the same statutorily-defined formula and the drug pricing data that manufacturers report 
10

to the Centers for Medicare & Medicaid Services (CMS) for the purposes of the Medicaid 

drug rebate program. 

 Due to statutory provisions and policies protecting the manufacturers’ pricing data, 

neither the Government’s nor the manufacturers’ ceiling prices are disclosed to the 

covered entities. Instead, 340B entities pay the prices they are billed by the manufacturer 

or wholesaler with no way to verify that they are being charged at or below the 340B 

ceiling prices to which they are entitled. The chart below illustrates the current flow of 

340B ceiling price calculations in the purchase of drugs and oversight of the program. 

The dotted lines represent where program oversight should be strengthened, as I will 

discuss further. 

Calculation of the 340B Ceiling Price and Purchase Flow 

340B Program Oversight Issues 

Calculating the 340B Ceiling Price 

 For many years CMS calculated the 340B ceiling prices used by the program. More 

recently, HRSA assumed that responsibility. HRSA needs the 340B ceiling prices for 

research, analysis, audit, and dispute resolution purposes. However, OIG has found 

systemic problems with the accuracy and reliability of the Government’s historical record 

of 340B ceiling prices. For example, for over a decade, the Government’s 340B ceiling 

prices were calculated using incomplete data to represent package size. HRSA has not 

established any standards or technical guidance on using the statutorily-defined formula 

to calculate 340B ceiling prices. 

 Problems with reliability and accuracy also stem from missing data. When any of the 

drug pricing elements needed to calculate a ceiling price are missing, an accurate 340B 

ceiling price cannot be calculated, and HRSA cannot create an accurate record of ceiling 

prices for program oversight purposes. Missing ceiling prices are most often the result of 

manufacturers not reporting to CMS, or not reporting in a timely manner, the drug pricing 

data necessary for the calculation. While HRSA is eventually provided the missing data 

when they are submitted by the manufacturer to CMS at a later date, HRSA does not 

have a policy in place to update the ceiling prices when supplemental data are received. 
11

Thus, any missing data elements or 340B ceiling prices simply remain missing. OIG 

found that HRSA did not have 340B ceiling prices for nearly 30 percent of eligible drugs 

due to missing data. Another 8 percent of 340B ceiling prices were calculated incorrectly 

due to missing data. 

Monitoring of 340B Program Participation 

 Based on our review, we concluded that 340B entities’ participation in the program is 

not adequately monitored. HRSA is required to maintain a complete listing of all its 

participating 340B entities. This permits pharmaceutical manufacturers to verify entities’ 

eligibility for the discount and ensure that their drugs are only shipped to legitimate sites. 

However, in a June 2004 report, “Deficiencies in the 340B Drug Discount Program’s 

Database,” we found that HRSA’s participant database inappropriately listed 38 percent 

of sampled entities as participating in the program when, in fact, they did not. 

Additionally, we found that the database had incorrect address information for 43 percent 

of sampled entities. The inaccuracies in the participant database limits HRSA’s ability to 

ensure that only legitimate entities are receiving the 340 ceiling prices. 

Ensuring That 340B Entities Pay 340B Ceiling Prices or Below 

OIG also found that there is no systematic oversight process in place to ensure that 

340B entities receive the ceiling prices to which they are legally entitled. HRSA does not 

monitor the purchase prices paid by 340B entities to ensure that they are at or below the 

Government’s 340B ceiling prices. Conducting this type of oversight is essential to 

ensure that Federal grant dollars are spent appropriately. 

 Rather than establishing a systematic means of monitoring prices, HRSA generally 

checks the appropriateness of 340B entities’ prices only when requested by the entity to 

do so. An entity may submit a written request to HRSA to conduct a review for a 

maximum of 10 products. If HRSA agrees to undertake the review, the results will only 

confirm or refute that the entity has been overcharged. HRSA does not convey the extent 

of any overcharges due to confidentiality concerns. 

Overseeing the Drug Industry’s 340B Ceiling Price Calculations 

 OIG found that HRSA does not verify that manufacturers are correctly calculating 

340B ceiling prices. It is especially important for HRSA to monitor manufacturers’ 

ceiling price calculations because the 340B entities are not permitted access to ceiling 

prices themselves, and therefore cannot perform their own checks. Specifically, HRSA 

does not compare the Government’s 340B ceiling prices to the manufacturers’ ceiling 

prices to ensure that the results are the same. Theoretically, HRSA and manufacturers 

should calculate the same 340B ceiling prices because they use the same drug pricing 

elements for the calculation. However, this may not be the case due to differing 

interpretations of the drug pricing data used in the formula, administrative or other error, 

and/or intentional misrepresentation. 

 The lack of written, formal procedures explaining how the Government calculates its 

340B ceiling prices increases the possibility of differences in interpretation that could 

cause manufacturers’ ceiling prices to differ. It is also possible for a manufacturer to 

correctly interpret the calculation but to make an administrative error in applying or 

transmitting the calculation. Alternatively, manufacturers can benefit from any 

overpayments that result from their intentional inflation of the 340B ceiling prices or the 

inappropriate manipulation, to their advantage, of any of the drug pricing data used in the 

calculation. OIG’s current work will attempt to ascertain the extent to which each of 

these factors may be contributing to 340B entities paying more than the stipulated ceiling 

prices. A previous OIG report, “Pharmaceutical Manufacturers Overcharged 340BCovered Entities” (A-06-01-00060), found that five drug manufacturers inappropriately 
12

excluded certain sales from one of the drug pricing elements in the calculation, resulting 

in overcharges to 340B entities of $6.1 million in 1999. 

Broader Programmatic Issues 

Confidentiality Provisions 

 Confidentiality provisions in the Medicaid drug rebate provisions of the Omnibus 

Budget Reconciliation Act of 1990 (OBRA ’90), regarding manufacturers’ pricing 

information, impact HRSA’s ability to ensure that 340B entities receive the appropriate 

ceiling price. The Medicaid drug rebate statute protects the pricing and other data that 

manufacturers submit to CMS for the Medicaid drug rebate program, in particular 

Average Manufacturer Price (AMP) and Best Price, as confidential. The law states that 

the pricing information disclosed by manufacturers “...shall not be disclosed by the 

Secretary...in a form which discloses the identity of a specific manufacturer, ...[or] prices 

charged for drugs by such manufacturers,” except as the Secretary determines to be 

necessary to carry out the provisions of the statute or in other limited situations.1

 This 

provision has been interpreted to mean that HRSA is precluded from revealing exact 

overcharges to 340B entities, so as not to reveal the 340B ceiling prices to the entities. 

 Confidentiality provisions related to disclosure of 340B ceiling prices also limit the 

ability of the Prime Vendor to negotiate for prices below stipulated 340B ceiling prices. 

The PHS Act mandates the creation of a Prime Vendor Program. The Prime Vendor may 

attempt to negotiate subceiling prices on behalf of 340B entities. However, the Prime 

Vendor cannot effectively negotiate subceiling prices if it is not allowed access to the 

340B ceiling prices. Such access has been limited by the manner in which the 

confidentiality provisions have been interpreted. 

340B Program Enforcement Authorities 

 We believe that HRSA lacks the necessary legislative, regulatory, and contractual 

authority to enforce manufacturer and wholesaler compliance with the PHS Act and the 

Agreement. The PHS Act does not provide HRSA with the authority to impose civil 

monetary penalties for noncompliance with the 340B program requirements. Instead, the 

PHS Act and the companion provisions of the Social Security Act require that 

manufacturers must comply with the terms of the 340B program and the Medicaid drug 

rebate statute. Noncompliance could result in termination from participation in the 

Medicaid and 340B programs. This remedy is so extreme that it limits the likelihood that 

it will be used. To date, it has never been used. Terminating a manufacturer’s 

participation is an exceptionally severe sanction, given the effect that terminating a 

manufacturer would have on access to medications for the millions of Medicaid and 

340B beneficiaries. 

 Further, it is CMS and not HRSA that initially receives the data from manufacturers, 

and manufacturers are not required to report the information directly to HRSA. HRSA 

does not have statutory authority to compel manufacturers to report complete drug 

pricing data in a timely matter to CMS. Under the Medicaid drug rebate program statute 

(pursuant to which manufacturers send data to CMS), the Secretary of HHS has the 

authority to impose a civil monetary penalty for late submission of drug pricing data. We 

are unaware of any use of this provision in recent years. Instead, manufacturers are 

generally notified by CMS of the late data and are afforded the opportunity to supply the 

previously missing data with a subsequent data submission. While subsequent data 

submissions do not pose a significant problem for the retrospective Medicaid drug rebate 

program, which CMS oversees, late submissions of the drug pricing data prevent HRSA’s 

timely and accurate calculations of the Government’s 340B ceiling prices. Also, because 

 

1

 42 USC §1396r8(b)(3)(D) 
13

manufacturers are not required to share the 340B ceiling prices that they calculate with 

the Government, there are no data available for comparison. 

 OIG also found limitations with the obligations outlined in the Agreement. The 

Agreement gives the Secretary of HHS the ability to require manufacturers to reimburse 

entities for discounts withheld. However, even when HRSA attempts to take action 

against violators based on the Agreement, HRSA’s lack of legal authority makes the 

Agreement challenging to enforce. For example, in response to the 2003 OIG finding 

that five manufacturers had overcharged 340B entities by $6.1 million, HRSA issued 

letters to each of the five drug companies requesting that they develop action plans that 

include refunding covered entities for overcharges. According to HRSA, the companies 

have responded to the letters, but refunds have yet to be recovered. 

 OIG found that the only compliance mechanism that HRSA currently has with regard 

to refunds is an informal dispute resolution process that has never been utilized. Because 

the 340B program dispute resolution process is voluntary, manufacturers and 340B 

entities are not required to participate. If the manufacturer does not cooperate with the 

dispute resolution process, HRSA can neither compel their participation nor sanction 

their lack of participation. 

OIG Recommendations 

 OIG’s recommendations to improve the 340B Program focus on the steps HRSA can 

take to strengthen its oversight and management of program operations and on the two 

broader programmatic issues I just described. 

340B Program Oversight 

 To strengthen HRSA’s ability to oversee the program, OIG recommends that HRSA: 

(1) publish detailed standards for the Government’s calculation of 340B ceiling prices, 

(2) work with CMS to ensure timely receipt of manufacturers’ pricing data, and (3) 

develop a strategic plan for managing the 340B program database. HRSA concurred with 

these recommendations and has made some progress in implementing them, including 

launching a new database to track entity participation. 

 In addition, OIG recommends that HRSA develop oversight mechanisms to verify 

that 340B ceiling prices are being correctly calculated by manufacturers. We suggest that 

HRSA selectively audit manufacturers and wholesalers. HRSA has stated its intention to 

review 340B prices that manufacturers voluntarily supply to them. However, OIG does 

not believe that this approach provides a sufficiently systematic review of compliance 

necessary to provide adequate oversight to the program. 

 OIG also recommends that HRSA develop monitoring mechanisms that allow for a 

comparison of the Government’s 340B prices and the prices paid by 340B entities. There 

are several ways HRSA could achieve this. For example, HRSA could spot-check 

covered entity invoices against the Government’s record of 340B ceiling prices. 

Alternatively, HRSA could develop a system for covered entities to access certain 

secured pricing data to help them determine whether the prices they pay exceed the 340B 

ceiling prices. 

Broader Programmatic Issues 

 OIG believes that permitting some disclosure of information about 340B ceiling 

prices is essential to improving the operation of the program. HRSA’s options for using 

340B ceiling prices to monitor the program are limited due to the confidentiality of the 

drug pricing data elements used to calculate the 340B ceiling prices. The Social Security 

Act expressly permits the Secretary to disclose information if disclosure is determined to 

be “necessary to carry out” the programs, including the 340B program. However, HRSA 

has been following a CMS interpretation of the confidentiality provision that prohibits 
14

HRSA from using the 340B ceiling prices to monitor the program. OIG sees a need for 

clarification of the confidentiality provision. 

 OIG also recommends that HRSA seek authority to establish penalties for program 

violations. We disagree with HRSA’s assessment that it has sufficient authorities to 

enforce the requirements of the 340B program statute. The Secretary of HHS could 

terminate a manufacturer’s participation in the Medicaid drug rebate and 340B programs, 

but HRSA has no effective penalties to use for violations of the PHS Act or the 

Pharmaceutical Pricing Agreement. We believe that legislation authorizing the 

imposition of penalties and fines would provide HRSA with more effective tools to 

enforce the 340B program requirements. 

Conclusion 

We appreciate the Committee’s interest in this important subject. Further, we are 

encouraged by HRSA’s response to our recommendations. We believe that HRSA has 

been responsive in terms of its improvements in the accurate calculation of the 340B 

ceiling prices and its 340B participant database. However, we encourage HRSA to fully 

address OIG’s recommendations related to strengthening the administration and oversight 

of the 340B program. In addition, OIG continues to believe that confidentiality issues 

and a lack of enforcement authority impact HRSA’s ability to ensure that the program is 

functioning properly and that 340B entities are paying at or below the 340B ceiling 

prices. 

 OIG is committed to continuing its review of this program and addressing the 

concerns of congressional oversight committees. As previously mentioned, OIG is 

currently engaged in a review to determine whether 340B entities pay at or below the 

statutorily-defined 340B ceiling price, and, if not, the potential reasons for price 

discrepancies. We anticipate a final report on this topic in Spring 2006. This concludes 

my testimony. I would be happy to answer your questions. 

 MR. WHITFIELD. Mr. Wright, thank you very much. At this time, I 

recognize Mr. Williams for his opening statement. 

 MR. WILLIAMS. Mr. Chairman, members of the subcommittee, my 

name is Dennis Williams. I am the Deputy Administrator of the Health 

Resource and Services Administration, and I'm pleased to appear before 

you today to discuss the oversight and administration of the 340B drug 

pricing program in light of the recent reports by the Office of Inspector 

General. 

 The 340B program was created by section 602 of the Veterans Health 

Care Act of 1992. The purpose of the program is to limit the costs of 

covered outpatient drugs to federally funded grantees and other 

safety-net health care providers referred to as covered entities. By 

expanding access to affordable drugs, the 340B program plays an 

important role in eliminating health disparities and improving the health 

of the uninsured and underinsured. 

 HRSA is responsible for ensuring that drug companies and covered 

entities carry out their responsibilities under the law. Drug companies 

participating in the Medicaid program are required to enter into 

pharmacy pricing agreement with HRSA and to provide outpatient drugs 
15

to covered entities at or below a maximum or ceiling price established by 

the law. In turn, covered entities are prohibited from reselling or 

transferring a drug obtained with a 340B discount to a person who is not 

a patient of the entity. They also agree not to request a 340B discount for 

a drug which is subject to a Medicaid rebate. 

 HRSA administers the 340B program based on Medicaid drug data 

received from the Centers for Medicaid and Medicare Services. 

Currently there are over 12,000 covered entities and approximately 650 

drug manufacturers participating in the program. Covered entities have 

realized significant savings on pharmaceuticals estimated at 20 to 

50 percent below list price or average wholesale price. This translates 

into roughly $1.5 billion to $2 billion savings annually. We estimate an 

annual purchasing volume of $4 billion, which represents about 

1.7 percent of the $230-billion-a-year pharmaceutical market. 

 Recent reports by the Office of Inspector General have focused on 

pharmaceutical manufacturers' compliance with their obligation to sell 

outpatient drugs at or below 340B prices. In a March 2003 audit, the 

OIG found that five pharmaceutical manufacturers overcharged 340B 

covered entities $6.1 million for sales during the 1-year period ending 

September 30, 1999. In September 2004, HRSA sent letters to these 

companies requesting corrective action plans for payment of the OIG 

stated overcharges. We are currently working with the drug companies 

and CMS to resolve the issues raised by the OIG. 

 At the request of the Department of Justice, which is investigating 

one of the companies, we have temporarily suspended our inquiry of this 

company. 

 In October 2005, the OIG issued a final report concerning the 

oversight of the 340B program. In this report the OIG made five 

recommendations: 

 First, HRSA and CMS should continue to work together to ensure 

accurate and timely pricing data. 

 Second, HRSA should establish detailed standards for the calculation 

of ceiling prices. 

 Third, HRSA should institute oversight mechanisms to validate 340B 

price calculations and the prices charged to participating entities. 

 Fourth, HRSA should seek authority to establish penalties for 

statutory violations. 

 And fifth, HRSA should provide participating entities with secure 

access to certain pricing data. 

 We have taken several steps to address the findings of the OIG. In 

September 2005, HRSA signed an interagency agreement with CMS to 

receive the average manufacturer's price and the Medicaid unit rebate 

data needed to calculate the 340B ceiling prices. Since that time we have 
16

assumed the responsibility for calculating ceiling prices from CMS. In 

addition, we have arranged to purchase packet-size data from First Data 

Bank to accurately compute the 340B prices, and we have increased 

outreach and technical assistance to encourage enrollment in the 340B 

program. 

 In order to validate 340B prices calculated by pharmaceutical 

companies, we plan to compare quarterly manufacturer pricing data 

available through the Prime Lender Program with 340B pricing data; 

contact manufacturers to resolve discrepancies; and, request the IG audit 

difficult cases and/or refer to the Department of Justice. 

 HRSA has targeted some of its administrative resources to monitoring 

allegations of drug diversion by covered entities, and we have referred 

some cases to the Department of Justice through the OIG. These cases 

have helped us to examine the need to revise program guidelines to more 

clearly define the patient-provider relationship under the 340B program. 

In addition, we are drafting guidelines on the use of multiple contract 

pharmacies as a way to expand access to discounted drugs, especially in 

rural areas. 

 The 340B program is essential to ensuring access to quality health 

care for the Nation's most vulnerable patient populations. Thank you for 

the opportunity to report on the oversight and administration of the 

program. We look forward to working with you to guarantee the 340B 

drug price program continues to be a valuable Federal resource. 

 MR. WHITFIELD. Mr. Williams, thank you for your testimony. 

 [The prepared statement of Dennis P. Williams follows:] 

PREPARED STATEMENT OF DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH 

RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES

 Mr. Chairman and Members of the Subcommittee: 

 My name is Dennis Williams. I am the Deputy Administrator of the Health 

Resources and Services Administration (HRSA). I am pleased to appear before you 

today to discuss the oversight and administration of the 340B Drug Pricing Program 

(340B Program) in light of the recent reports by the Office of the Inspector General. 

History of the Program

 The 340B Program was created by Section 602 of the Veterans Health Care Act of 

1992 (P.L. 102-585), which was enacted on November 4, 1992. As established, the 

340B Program limits the cost of covered outpatient drugs to certain safety-net providers, 

referred to as covered entities. These covered entities include: Federally Qualified 

Health Centers (FQHCs), Hemophilia Treatment Centers, Ryan White Programs, 

Sexually Transmitted Disease/Tuberculosis Programs (STD/TB), Title X Family 

Planning (FP) Clinics, Urban/638 Tribal Programs, Federally Qualified Health Center 

Look-Alikes and certain Disproportionate Share Hospitals (DSHs). 

 The 340B drug discount prices, commonly referred to as ceiling prices, are based on 

Average Manufacturers Price and Medicaid Drug Rebates. Pharmaceutical companies 
17

that participate in the Medicaid program must sign a Pharmaceutical Pricing Agreement 

that obligates them to participate in the 340B program. Under the 340B program, the 

selling price may be lower than the ceiling price, but never greater. 

HRSA Oversight and Administration

 HRSA administers the 340B program based on Medicaid drug data received from the 

Centers for Medicaid and Medicare Services (CMS) pursuant to an Intra-Agency 

Agreement. Through our Office of Pharmacy Affairs (OPA), we: enroll eligible entities 

in the 340B program; maintain a web accessible database that houses eligible covered 

entity data, program guidelines and other useful information; calculate the 340B discount 

price; execute Pharmaceutical Pricing Agreements with drug manufacturers; provide 

information and technical assistance to covered entities via the Pharmacy Services 

Support Center (PSSC); administer the Prime Vendor Program; and provide program 

oversight. 

 The PSSC, operated under a contract with the American Pharmacists Association, 

provides expert technical assistance to covered entities that want to access the 340B 

program and to improve their pharmacy programs. 

 The new Prime Vendor Program, which operates under a competitively awarded 

agreement with Health Purchasing Partners International, became effective in September 

2004, and has three primary functions to increase value for participating covered entities: 

1) negotiate drug prices below the statutorily required 340B ceiling price; 2) enter into 

favorable distribution agreements with multiple drug wholesalers; and 3) provide 

discounts on other value-added pharmacy products and services. As of November 2005, 

approximately 2,000 covered entities participate in the Prime Vendor Program and 

represent over $1.7 billion in combined purchases. 

 Currently, there are a total of over 12,000 participating 340B covered entities. As of 

October 2005, approximately 650 drug manufacturers have signed Pharmaceutical 

Pricing Agreements. 

 The most important benefit of participation in the 340B Drug Pricing Program is the 

significant savings on pharmaceuticals estimated at 20% to 50% below list price or 

average wholesale price. We estimate annual 340B purchasing volume of $4 billion, 

which represents about 1.7% of the $230 billion a year pharmaceutical market. We 

estimate that participating entities can save $1.5 billion to $2 billion annually. 

 In June 2001, the Alternative Methods Demonstrations Projects were initiated to 

increase access to affordable drugs for uninsured and underinsured patients of covered 

entities, particularly in rural areas. These projects involve one or a combination of the 

following three activities: 1) a network of covered entities; 2) multiple contracted 

pharmacy services sites; or 3) a contracted pharmacy to supplement in-house pharmacy 

services. As of October, there were 11 approved projects. 

2003 OIG Report

 In a March 2003 audit, the Office of Inspector General (OIG) found that 5 

pharmaceutical manufacturers overcharged 340B covered entities $6.1 million for sales 

during the 1-year period ending September 30, 1999. 

 In September 2004, HRSA sent letters to these companies requesting corrective 

action plans for repayment of the OIG stated overcharges. To date, we have not received 

refunds from the companies. We are currently working with CMS to resolve the issues 

raised by the OIG. 

2004 OIG Report 

 In June 2004, the OIG assessed the accuracy of information contained in 340B Drug 

Discount Program’s database. The OIG recommended that HRSA develop a strategic 

plan for managing 340B program data. In order to implement the recommended 
18

improvements, HRSA contracted with a firm to assist in the completion of these 

enhancements. We have also entered into a separate contract for the development of the 

new Web database using the new systems requirements as a guide. 

2005 OIG Report

 In October 2005, the OIG issued a final report concerning HRSA’s oversight of the 

340B Program. In this report, the OIG recommended actions to: ensure accurate and 

timely pricing data; set detailed standards for calculation; create procedures to validate 

price calculations and prices charged; establish penalties for violations; and, provide 

access to certain pricing data to help approximate 340B ceiling prices. 

 HRSA and CMS recently signed an Intra-Agency Agreement (the Agreement). In 

accordance with the Agreement, we now receive the AMP and the Medicaid Unit Rebate 

data from CMS to calculate the 340B ceiling prices. In addition, we have increased 

outreach and technical assistance to covered entities. Currently, we are seeking 

voluntary data submissions for the Prime Vendor secure Web site; monitoring 

compliance with 340B legal and regulatory requirements; and working with the OIG and 

DOJ in instances of drug diversion. These cases of drug diversion have led us to examine 

the need to revise program guidelines to more clearly define the patient-provider 

relationship under the 340B Program. Lastly, we plan to compare pharmaceutical 

company ceiling price data with market place selling price data on a quarterly basis and 

follow-up with the respective drug company or wholesaler to resolve discrepancies. 

Unresolved discrepancies may be referred to the OIG and DOJ for assistance. 

 With over twelve thousand participating covered entities, the 340B Drug Pricing 

Program plays an important role in improving the health of the uninsured and 

underinsured. The 340B Program ensures that federally funded grantees and other safety 

net health care providers purchase prescription medication at significantly reduced prices. 

In so doing, this program expands access to affordable pharmaceutical drugs, improves 

health outcomes and eliminates health disparities among the nations most vulnerable. 

 Thank you for the opportunity to report on the oversight and administration of the 

340B Drug Pricing Program. We look forward to working with the Committee to ensure 

that the 340B Drug Pricing Program continues to be a valuable Federal resource. 

 MR. WHITFIELD. We are getting ready to have a final vote in the full 

committee downstairs. So we're going to recess for 15 minutes and when 

we come back, hopefully we're going to ask these questions, go to the 

second panel, and there won't be any more interruptions. So we'll recess 

for 15 minutes, we'll be right back. 

 [Recess.] 

 MR. WHITFIELD. The hearing is reconvened and once again I 

apologize to you all. But, Mr. Wright, I would like to ask you a few 

questions to start off with here. Does HRSA currently verify that 

manufacturers are correctly calculating the ceiling prices for their drugs? 

 MR. WRIGHT. I do not believe that they currently do that, sir. 

 MR. WHITFIELD. Now, if HRSA and the drug manufacturers are 

independently calculating these ceiling prices based on the same data, 

shouldn't their calculations be exactly the same? 

 MR. WRIGHT. Yes. Theoretically, as I indicated in my opening 

statement, they should be the same. However, there are some nuances in 

terms of how the calculations are done. There may, in addition, be sort 
19

of inadvertent administrative error or there could be intentional 

misrepresentation. Any of those three things would cause there to be a 

discrepancy. And as a I stated in my statement, as a result of that, it's 

imperative for HRSA to conduct aggressive oversight to ensure that there 

are in fact no discrepancies. 

 MR. WHITFIELD. And so it would not be unusual that there be 

different prices because of the three or four reasons that you've 

elaborated on there. 

 MR. WRIGHT. Correct. And the ongoing work that you referenced in 

your opening statement is actually looking at invoice prices paid by 

340B entities and comparing that to the government's ceiling price. To 

the extent that there are discrepancies, we will identify them in this 

ongoing work, and we will calculate any overcharges that are resulting to 

340B entities. 

 MR. WHITFIELD. I'm assuming HRSA would not check to make sure 

that the covered entities are actually receiving the discount they are 

entitled to, because of what you already said, they don't really have the 

mechanism to do that. 

 MR. WRIGHT. Yes. I believe that they currently do not do oversight 

of the manufacturer's generated number. There is some spot-checking of 

the 340B entities' invoices, but that is not systematic and not widespread. 

 MR. WHITFIELD. And from your report, your investigation, I'm 

assuming that it's not unusual that there are overcharges; would that be 

accurate or not? 

 MR. WRIGHT. Certainly from the audit report that was issued in 

1999, there were $6.1 million in overcharges just from five 

manufacturers and 11 drugs for a period of 1 year. The ongoing work 

that we have will quantify the overcharges and project total overcharges 

to all drugs covered under the 340B program. But as of yet I can't 

quantify that for you. 

 MR. WHITFIELD. Now we have a witness with GlaxoSmithKline that 

will be on the second panel, and I said in my opening statement, the fact 

that Glaxo is now posting its ceiling price on the prime vendor's web site, 

is that sufficient to increase transparency in the 340B program? 

 MR. WRIGHT. It is certainly a step in the right direction. We are in 

favor of anything that increases transparency between the 

government-calculated 340B ceiling price and those prices paid by the 

340B entities. And this is certainly a step in the right direction. It does 

not cover all drugs and all entities. 

 MR. WHITFIELD. Now, if HRSA becomes aware of an overcharge, 

what are the current options in terms of dispute resolution and/or 

enforcement that's available to HRSA? 
20

 MR. WRIGHT. To our understanding, the only enforcement 

mechanism that is available to HRSA if there is noncompliance with the 

340B program requirements is to terminate the manufacturer from both 

Medicaid and the 340B program. And as I indicated in my statement, 

that is such a drastic penalty that it is likely not to be used. 

 MR. WHITFIELD. And are you aware of any incidences where that 

has been the case? 

 MR. WRIGHT. I believe it has never been utilized. 

 MR. WHITFIELD. It's my understanding -- and I'll get to Mr. Williams 

in just a minute -- or has my time expired -- that HRSA does not believe 

there are any legislative changes needed at this time. From your 

experience looking into this issue, do you feel like there are some 

specific legislative or regulatory or contractual changes that need to be 

made to improve this program? 

 MR. WRIGHT. Yes. We have stated very clearly that we think 

additional intermediate sanctions should be authorized and that HRSA 

should seek legislative authority to impose civil monetary penalties for 

situations of noncompliance. I certainly will let Dennis speak, but I 

believe that HRSA has taken the position that a number of the other 

things that they're currently undergoing in terms of addressing the 

previous OIG recommendations should occur first before they make a 

full assessment about whether or not additional penalties are necessary. 

 But clearly we've said that there should be additional penalties 

because the current penalty of kicking manufacturers out of Medicaid 

and the 340B program is so draconian that it's not likely to be utilized. 

 MR. WHITFIELD. Mr. Williams, of course you have seen the OIG 

report, I'm assuming, and was HRSA aware of these problems prior to 

this report coming out? I'm assuming that you were. 

 MR. WILLIAMS. Yes, we were aware of them. But I think the IG has 

done a very good job in systematically looking at a number of these 

issues and laying them out in one place. So I think they have done a 

good job and focused us on a number of tasks that I think can help us 

improve the administration of the program. 

 MR. WHITFIELD. Now, do you all feel like you need additional 

legislation or do you feel like HRSA can do it from a regulatory 

standpoint or what? 

 MR. WILLIAMS. Our primary job is to administer the program within 

the legislative context that we currently have, and we are working hard to 

try to do that. I think the OIG has pointed out some areas where 

additional authorities under certain circumstances may be useful, but I 

don't think that we have exhausted all of the possibilities to try to carry 

out our responsibilities within the existing authority. There are some 

limitations in that. 
21

 MR. WHITFIELD. So officially HRSA is not asking for any legislative 

changes at this point. 

 MR. WILLIAMS. Not at this time we're not. 

 MR. WHITFIELD. Now, on page 21 in the OIG's recommendations, he 

says that HRSA should establish detailed standards for the calculation of 

ceiling prices. And in the wake of the OIG report, I was curious, have 

you all taken any steps to develop some specific procedures for 

calculating these ceiling prices? 

 MR. WILLIAMS. No, but we think it's a good idea. We just took over 

-- CMS up until about September was responsible for actually calculating 

the 340B ceiling prices, which they then passed on to us. We have 

agreed with CMS beginning in October that we will now do that 

calculation, again, with information provided to us by CMS and drug 

companies. But now that we do have the responsibility, I think the idea 

of laying out the procedures is a good idea and we'll work on that. 

 MR. WHITFIELD. Do you all have the ability or the authority to 

compel manufacturers to provide their ceiling prices? 

 MR. WILLIAMS. We don't directly. As part of their agreements to 

participate in the 340B program and the Medicaid drug rebate program, 

they have an obligation to provide that information. 

 MR. WHITFIELD. How many of them provide the ceiling prices to 

HRSA? 

 MR. WILLIAMS. Up until now they have been providing the 

information to CMS, and through CMS the calculations have come to us. 

 MR. WHITFIELD. What about the underlying data to calculate the 

ceiling price; do they provide that to you? 

 MR. WILLIAMS. No. They will be. Again, they provide -- up until 

September they have been providing that information to CMS, the 

average wholesale price and the other information CMS needed. We'll 

be getting that information. 

 MR. WHITFIELD. What about the actual calculation itself? 

 MR. WILLIAMS. We got the calculation from CMS, up through 

September. We're going to do that now ourselves, in conjunction with 

them, but we'll actually do the calculation ourselves. 

 MR. WHITFIELD. I see my time has expired, so at this point I'll 

recognize Mr. Stupak. 

 MR. STUPAK. Mr. Wright, the 2001 OIG report found that 50 percent 

of the drugs provided by 340B entities were priced at levels exceeding 

the government's applicable ceiling prices. Do you have any reason to 

think that is not true today? 

 MR. WRIGHT. Are you speaking of the June 2004 OIG report? 
22

 MR. STUPAK. 2001. Back then they said 50 percent of drugs, or 

more, were exceeding government levels. Any reason to think that's not 

true today? 

 MR. WRIGHT. As I indicated, we're currently doing a review which 

consists of a random sample of invoices that 340B entities have paid. 

We'll be able to quantify exactly the extent of the overcharges in terms of 

the percent and the amount. That isn't information that I have today, and 

we do hope to report to you in the spring. 

 MR. STUPAK. Let me ask you this one. In October 2004, HRSA, the 

Administrator and Chairman Barton promised a comprehensive plan to 

strengthen the effectiveness of the 340B drug pricing program, and that 

was based again on an OIG report of 2004. HRSA also concurred with 

those recommendations. Did you see any evidence of that plan during 

your work in 2005? 

 MR. WRIGHT. I think we have had fairly good communication with 

HRSA regarding the 340B work that we have done. We think, as I 

indicated in my testimony, that they have been fairly responsive to the 

OIG recommendations. There are a number of areas where we think 

they can take additional steps, but in general I think we have been 

pleased with the actions that HRSA has taken to date based on what 

we've found. 

 MR. STUPAK. Is there a plan that came over from 2004 to now? 

 MR. WRIGHT. I have not seen a specific plan and certainly welcome 

Mr. Williams to address that. I have seen detailed responses from HRSA 

in terms of the OIG recommendations that have been made to date, 

including various correspondence with Members of Congress delineating 

what they're planning on doing specific to each recommendation. 

 MR. STUPAK. Let me ask you then, Mr. Williams, has a plan been 

developed as they said they were going to do in 2004? 

 MR. WILLIAMS. We have taken a number of steps to try to improve 

our administration of the program. We're working on the development of 

a database which will -- one of the things the inspector general pointed 

out to us is our list of covered entities, addresses, contact information 

was not up to date. 

 MR. STUPAK. I'm asking about a comprehensive plan. Was a plan 

put forth in writing? 

 MR. WILLIAMS. Not a plan. We have a series of steps which we are 

working on. 

 MR. STUPAK. I'm glad you're talking to each other, and I'm glad 

things are going better, but the point I was asking about is a 

comprehensive plan as you said you were going to do in October of 

2004. I just need to know if there's a plan. 
23

 MR. WILLIAMS. Well, if you mean -- as a result of the work of the 

Inspector General and others, we have identified a number of weaknesses 

in the program which we are working on. 

 MR. STUPAK. Are those weaknesses in writing anywhere? 

 MR. WILLIAMS. They are on our work plan. 

 MR. STUPAK. Could you submit that work plan in to us? I'm not 

making this up. Says "comprehensive plan" in quotes, so we want to see 

that plan. 

 MR. WILLIAMS. We'd be glad to tell you the steps we're undertaking 

to improve the program. 

 [The information follows:] 

RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH 

RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES

What steps are we undertaking to improve the program? 

We signed an Interagency Agreement with CMS for fiscal year 2006. We assumed 

the responsibility of computing 340B ceiling prices beginning October 1, 2005. The 

Interagency Agreement continues to restrict our use of the data and does not allow for 

pricing transparency. 

 On December 30, 2005 we mailed the letter requesting voluntary submission of 

manufacturer 340B ceiling price data and requested drug company permission to share 

their pricing data on a password-protected secure web site maintained by the 340B Prime 

Vendor. We have gotten a positive response from many manufacturers, and have to date 

received pricing submissions to the Office of Pharmacy Affairs (OPA) from 134 

manufacturers. These manufacturers comprise roughly 20 percent of all manufacturers 

participating in the 340B program. Only one of these companies has voluntarily agreed 

to permit their data to be shared with the Prime Vendor. 

 We have compared computed 340B prices with those submitted in Excel format by 

manufacturers, and have identified pricing discrepancies that allowed us to further review 

the data submitted and price algorithm assumptions. Informal contact with the OIG has 

confirmed that there remain pricing discrepancies attributable largely to different package 

size conventions used by the pharmaceutical industry and CMS. 

 We hope to have a more formal interaction with OIG by the end of March to discuss 

findings and problem-solve. In the interim, OPA and its contractor are reviewing data 

anomalies to discover root causes for pricing errors. These anomalies include 

mismatches in CMS and First Data package size data, apparent changes in package size 

for a given National Drug Code (NDC) and incomplete data. 

 We may seek OMB approval to request that drug companies submit their pricing data 

in a standard format. Standardization of price submissions will give HRSA the ability to 

review data submitted in a cost-effective manner while ensuring the quality of the data. 

We have created a draft Excel template for drug companies’ voluntary submission of 

340B prices from our experience thus far with manufacturer price submissions. HRSA 

will explore with HHS and OMB if additional approvals are required to stipulate an Excel 

format. 
24

 MR. STUPAK. Okay. Let me ask you this: Can you explain to me -- 

the Chairman was asking you about the pricing. There is really two 

pricing plans, isn't there, one by the government, one for the ceiling 

price; one by the government they calculate, and then the manufacturers 

calculate one? 

 MR. WILLIAMS. Yes. 

 MR. STUPAK. Is that both plans provided to you so you can check 

calculations, things like that? 

 MR. WILLIAMS. Now, we have the drug companies provide 

information to CMS, who calculates the 340B ceiling prices. The drug 

companies calculate their own, and they use that as the basis for doing 

business in the marketplace with covered entities. 

 MR. STUPAK. Have you ever seen the manufacturers' drug pricing 

plan? 

 MR. WILLIAMS. We have seen GlaxoSmithKline. They have 

voluntarily agreed to give us their 340B ceiling price calculations, and 

they've provided to us and -- 

 MR. STUPAK. Anyone else besides GlaxoSmithKline? 

 MR. WILLIAMS. No. We are hopeful that they, having stepped 

forward -- they're a major company, and stepping forward, voluntarily 

making information available into the marketplace, and we hope that that 

will lead others to do the same. Limitations in the law don't allow us to 

go at this more directly, but if the drug companies voluntarily provide 

information -- 

 MR. STUPAK. Do you think it would be helpful if the drug companies 

provided their ceiling price plans? 

 MR. WILLIAMS. If they provide it voluntarily, and depending on 

what limitations they put on its use. 

 MR. STUPAK. Even if they didn't voluntarily, let's say if they had to 

provide it to you, wouldn't that be helpful? I'm a little disturbed when 

they say at the beginning, here we spent $61 million for 11 drugs from 5 

different manufacturers, a random sample they did. I'm sorry; $6.1 

million for 11 drugs from 5 manufacturers. 

 I mean, if you have got two ceiling prices, you know what yours is 

because you calculate it, but you don't know what the drug companies' 

are. How do you know if you're getting the right deal? 

 MR. WILLIAMS. The law provides certain limitations on the use of 

the information that we get from drug companies. They can provide us 

pricing data related to their drug data, and the law puts limitations on 

what we can do with that limitation and how we can use it. 

 MR. STUPAK. Are you saying the law puts a limitation on you from 

getting a ceiling price from the drug companies? 

 MR. WILLIAMS. From using that ceiling price. 
25

 MR. STUPAK. I'm talking about getting it for comparison purposes. 

If you're trying to figure out if you're getting overpaid or underpaid, I 

would think you need a yardstick to measure it by. I would think that 

yardstick would be, since there is two ceiling price plans -- 

 MR. WILLIAMS. Not necessarily. They are calculated in two 

different ways, but the drug companies calculate using the same formula 

that we do for a ceiling price. As the OIG has pointed out, we don't 

know the degree of discrepancy. 

 MR. STUPAK. Absolutely you wouldn't know it. So wouldn't you 

want to see it? 

 MR. WILLIAMS. Sure. 

 MR. STUPAK. Have you ever asked? 

 MR. WILLIAMS. I am limited on what I can do with that information. 

 MR. STUPAK. There's nothing in the law that says you can't ask for it, 

right, or to make the comparison? 

 MR. WILLIAMS. No. 

 MR. STUPAK. The concern I have, and, again, in answer to a question 

to the Chairman, you said you had not exhausted all your possibilities, 

and therefore you didn't think you needed any legislative changes. This 

law has been around since 1993, and we're on our 12th year. I would 

think we would have exhausted our administrative remedies. After 12 

years I think you would try something to get control over this, because 

the problem is a lack of information being shared between all the parties, 

correct? 

 MR. WILLIAMS. I think transparency is an issue in this program. 

There are covered entities in the marketplace purchasing drugs at certain 

prices, and the law requires drug companies do make those drugs 

available to covered entities at certain prices, and not everybody has full 

information. 

 MR. STUPAK. The Inspector General says in the report you need 

more legislative, regulatory, and contractual authority to enforce 

manufacturer and wholesale compliance with the 340B program. Do you 

agree? 

 MR. WILLIAMS. I think our job is to work as best we can within the 

limitations of the law, and we're trying to do that. I think we've made 

some progress. Drug companies in the case of -- 

 MR. STUPAK. My question is do you agree with the inspector general 

when they say you need more legislative, regulatory, and contractual 

authority to enforce manufacturer and wholesale compliance with 340B 

program; do you, yes or no? 

 MR. WILLIAMS. I think we're making progress with the authorities 

we have, and we're going to continue to try to do that. 
26

 MR. STUPAK. It's been 12 years' worth of progress. When will you 

get to the final analysis here? 

 MR. WRIGHT. In recent months I think we've made a lot of progress, 

and there are a lot of opportunities here to improve the situation. I think 

we look forward to the IG study this spring. I think no one really knows 

the overall degree to which ceiling prices are not actually being provided 

to people. I think that information would be very helpful to all of us. 

 MR. STUPAK. I'll yield back, Mr. Chairman. 

 MR. WHITFIELD. Mr. Inslee, you're recognized for 10 minutes. 

 MR. INSLEE. Thank you. I'm probably the least -- 

 MR. WHITFIELD. Mr. Inslee, excuse me, I didn't see Ms. Blackburn. 

So, Ms. Blackburn, you're recognized for 10 minutes. 

 MS. BLACKBURN. Thank you, sir, and I will not take all of my time 

because I know we're going to have a vote very soon, and the others 

would like the opportunity to question. And I do have several questions 

for you all, and I want to thank you all for staying while we were 

between votes. 

 I want to follow right along, Mr. Williams, with what Mr. Stupak was 

talking with you about, and please understand I can hear the frustration 

in your voice, and I don't know if you're frustrated with us or with the 

situation or with the bureaucracy, which can be very difficult to deal 

with. And many of us -- I have hospitals that participate in this program, 

and what we find ourselves looking at is probably we have a lot of bad 

data that is out here and no confirmation that the hospitals are getting the 

prices at the levels at which they're supposed to get under this program. 

So there is a lot of frustration and call to question. 

 Now, you have mentioned the identified weaknesses that you all -- 

and that you all have a work plan. Mr. Stupak has asked that you submit 

that. What I would like to see from you is a time line, because one of the 

things that frustrates me is the fact that repeatedly we have hearings with 

different agencies who are always going to get around to it, and they're 

always go to do something, and in the meantime we have taxpayers that 

continue to foot the bill for systems that do not work and do not yield the 

quality of service that they should be yielding. The 340B program is one 

of those that should be doing a good work, but nobody can really confirm 

if it is or if it is not, so, therefore, yes, it is going to be questioned. And 

we are getting our vote. 

 Going to transparency, Mr. Wright, if I can come to you, please. In 

your testimony you mentioned that in your review that the 340B entities' 

participation in the program is not adequately monitored, including 

38 percent of the database listed as participating the program when they 

did not and incorrect address information for 43 percent of the entities. 
27

 Now, I tell you, I'm coming to this because when I previously served 

on government Reform with government efficiency and financial 

management. One thing that was quite frustrating is the fact that whether 

it is monetary resources or human capital, there seems to be either a lack 

of will or a lack of knowledge in how to manage those resources. So, 

you know, that caught my attention when you said that. A third to a half 

of your program you feel like you don't have a good handle on. 

 So based on that, can a drug manufacturer participating in this 

program be assured that the hospitals they are offering the 340B prices 

are actually participating in the program? And then what investigations 

or oversight is being formed to ensure that only eligible entities are 

receiving those prices? 

 MR. WRIGHT. It is essential that only eligible entities receive those 

discounts. 

 MS. BLACKBURN. How can you assure that? 

 MR. WRIGHT. The 38 percent of the entities that we sampled told us 

that they were not participating in the program even though they were 

listed in the database that contained the full listing of all 340B 

participants. So since they stated that they weren't participating in the 

program, one would expect that they had not billed any drugs using 340B 

prices. But, nevertheless, it is still somewhat disconcerting -- 

 MS. BLACKBURN. If I may interrupt you for the sake of time. You 

have no confirmation on that. That is just your assumption. 

 MR. WRIGHT. They said they were not participating. 

 MS. BLACKBURN. I want to move on with you on that because I'm 

going to submit the rest of my questions, but I want to know what you're 

doing as far as penalties. When you talk about the $6.1 million in 

overcharges, I want to know if you're recouping that money, and what 

percentage of that you're recouping, and if you're recouping it with 

penalties. And you're going to get these questions submitted to you for 

your answers. 

 I also have some questions on the flow chart dealing with ensuring 

that manufacturer ceiling price and the government ceiling price are 

going to match. 

 With that, Mr. Chairman, I'm going to yield back so that the others 

have the opportunity before we're called to vote. I thank you. 

 MR. WHITFIELD. Thank you, Ms. Blackburn. 

 Mr. Inslee, you're recognized. 

 MR. INSLEE. Thank you. 

 I was just reading some staff memorandum, and it says: Drug 

manufacturers are not required to provide their ceiling price calculations 

to HRSA, so HRSA does not have ability to compare its ceiling price 
28

calculations to those of the manufacturers in order to identify 

discrepancies. Is that accurate? 

 MR. WILLIAMS. Yes, although as we pointed out, one company has 

come forward and offered to voluntarily provide that information. They 

also are making that information available to the prime vendor and 

through the prime vendor in a secure Website. 

 MR. INSLEE. If you were to conclude that's a problem, that we want 

HRSA a to have that information so it can act accordingly, is it fair to say 

that we ought to adopt a statutory requirement that that happen, that 

HRSA be provided that? 

 MR. WILLIAMS. Well, that's for this committee and the Congress to 

decide. I think there are opportunities for us to work with the drug 

companies and covered entities to create a situation where everybody has 

the information they need to carry out their obligations under the law. 

 MR. INSLEE. I guess what I'm trying to get at is if we don't statutorily 

require that, it's probably not going to happen, is that a fair statement, 

because for reasons outside of your control, you're not going to 

accomplish that; is that a fair statement or not? 

 MR. WILLIAMS. We have not concluded that, no. 

 MR. INSLEE. Well, so let me ask you this: If we don't compel them 

to provide it to you and give you the right to obtain it, what can you tell 

us as to whether or not you'll get that information? 

 MR. WILLIAMS. I can tell you that we are working with drug 

companies to try to create a situation where transparency can be 

improved. At this stage we have made some very good progress there. 

We have a long way to go, but a good step forward, and we're hoping 

that the fact that GlaxoSmithKline has stepped forward, this is a very 

competitive industry, and that people will notice what they do, and we 

would hope that others would come forward also. 

 MR. INSLEE. Can you give us any percentages like 50 percent in next 

12 months or any assessment at all? 

 MR. WILLIAMS. No, I can't give you that assurance. 

 MR. INSLEE. So what incentive do people have for providing you this 

information right now? 

 MR. WILLIAMS. I think it is -- I can't speak for the drug companies. 

GlaxoSmithKline will come forward in the second panel. I think that's a 

good question for them, what was the incentive of them to give us that 

information. They felt it was in their interest. We did not, as you point 

out, force them to give us that information; they came forward 

voluntarily, and I think that's a good question for them to answer for you, 

and I think it's probably instructive for other drug companies as well. 

 MR. INSLEE. Thank you. 
29

 MR. WHITFIELD. To follow up 1 minute, could the pharmaceutical 

pricing agreement be changed to require drug manufacturers to provide 

the ceiling price calculation? 

 MR. WILLIAMS. I think the pricing agreement does not carry 

necessarily the statutory weight that the law does. The agreement lays 

out some mutual responsibilities, but it's still within the overall 

framework of the statute that we both operate within. 

 MR. WHITFIELD. Okay. I'm very sorry to say that we have four more 

votes on the House floor. And how many minutes are left in this vote? 

We have about 7 minutes left. So I hate to say we're going to recess this 

again, and we'll be back just as soon as we can. I hope you're becoming 

familiar with the cafeteria downstairs and the machines where you can 

buy Cokes and things to eat. We'll be in recess, and we'll be back just as 

soon as we can. 

 [Recess.] 

 MR. WHITFIELD. We are waiting for Ms. DeGette of Colorado. She 

had some questions specifically of the first panel, but while we were 

waiting for her, there was an additional question that I want to ask you. 

 Mr. Williams, relating to the OIG who had recommended that you 

selectively audit manufacturers, wholesalers, and covered entities, and I 

was going to ask, do you intend to follow those recommendations? Then 

I also was told that there had been some legislation introduced relating to 

the two audits. Would you briefly comment on that? 

 MR. WILLIAMS. Well, with respect to the first part we really don't 

have authority under the law to audit directly. There is legislation, I 

think, pending, that would give us that authority, but we do not have that 

authority today. 

 MR. WHITFIELD. Do you know the status of that legislation? 

 MR. WILLIAMS. No, I don't. 

 MR. WHITFIELD. At this time, I recognize Ms. DeGette for her period 

of questions. 

 MS. DEGETTE. Thank you so much, Mr. Chairman. I want to thank 

the panel for staying. I appreciate your patience. 

 I have a couple of questions. Mr. Wright, the first one is for you. 

Your report indicates that HRSA has been unable to correctly determine 

the ceiling price set by drug manufacturers. How was the OIG able to 

verify that HRSA's methodology was incorrect? 

 MR. WRIGHT. The report that we issued this past October addressed 

primarily oversight issues in terms of HRSA's oversight of the program. 

The report that we had done last June actually quantified the 

overpayments that 340B entities were incurring as a result of the 

discrepancies in the data. 
30

 As you are aware, we withdrew that report and we are currently 

redoing it. In the spring, when we report back to this committee the 

results of that work, we should be able to quantify exactly the extent to 

which 340B entities are being overcharged. But the October report, 

which I discussed in the testimony, really only dealt with oversight 

issues. 

 MS. DEGETTE. So the upcoming report next spring will talk more 

about the methodology? 

 MR. WRIGHT. Will actually quantify the extent to which overcharges 

are occurring. 

 MS. DEGETTE. You think you will be able to verify the methodology 

in that report next spring then? 

 MR. WRIGHT. Yes, that report will verify the extent to which 

overcharges are occurring, and then will actually look behind when 

overcharges occur and try to determine why in fact those overcharges 

happened. 

 MS. DEGETTE. Do you think that we need any statutory changes for 

HRSA to be able to utilize the methodology in the future? 

 MR. WRIGHT. We have talked about statutory changes in terms of 

additional intermediate sanctions that HRSA could use to enforce 

noncompliance. 

 MS. DEGETTE. Okay. 

 MR. WRIGHT. The other areas we have talked about just increased 

HRSA oversight. 

 MS. DEGETTE. You wouldn't need statutory changes for that? 

 MR. WRIGHT. No, not for those. 

 MS. DEGETTE. Mr. Williams, I have some questions for you. The 

first one I want to ask you is sort of the fundamental question that's been 

hinted at in many of the other panel member’s questions. That is if you 

have a voluntary reporting system and you have only one company that 

has voluntarily reported, then how can you administer this system? 

 MR. WILLIAMS. Well, we have a range of responsibilities under the 

system, which we, I think, carry out reasonably well with respect to 

verification. 

 MS. DEGETTE. Right. 

 MR. WILLIAMS. A voluntary -- under the structure of the law, we can 

get information -- we cannot disclose the manufacturer's data or pricing 

data of the manufacturers. That puts a limitation on what we can use 

with the data that we have. With a company coming forward, and 

voluntarily giving us that pricing data and voluntarily allowing us to use 

that data to verify whether the calculation is correct, they have also 

voluntarily -- they are also making that information voluntarily available 

to covered entities who purchase the drug. 
31

 MS. DEGETTE. Right. 

 MR. WILLIAMS. All that brings for that company a transparency in 

the system that benefits covered entities who purchase and benefits us in 

our oversight role. 

 MS. DEGETTE. Right, that's one company. 

 MR. WILLIAMS. One very large company, yes. 

 MS. DEGETTE. So that sort of begs the question of what about 

verification for all the other companies that have not chosen to 

participate on the system? 

 MR. WILLIAMS. Well, we rely on a range of tools. If covered entities 

are uncertain about or have questions about whether they are getting the 

right price, they can ask us, and we can take that request and try to verify 

the situation. 

 MS. DEGETTE. How often does that happen? 

 MR. WILLIAMS. We get a number of requests. 

 MS. DEGETTE. Are you able to verify that information? 

 MR. WILLIAMS. We can take that information -- since we calculate, 

or CMS has been calculating the 340B ceiling price, we can tell that 

company or that covered entity whether the price that they are being 

charged is consistent with a ceiling price that we have calculated. We 

can't tell them precisely what the price is, but we can tell them whether it 

is over or under that price. 

 MS. DEGETTE. Okay. So if CMS has a price, and then someone else, 

so there are many covered entities, you could just tell them if it's the 

same as CMS. But there's no independent verification there? 

 MR. WILLIAMS. A covered entity doesn't have that information, no. 

The law doesn't allow us to give that to them. 

 MS. DEGETTE. Have you tried to get the other entities to voluntarily 

report by trying to persuade them that the same kind of transparency that 

Glaxo has would benefit them commercially as well? Have you tried to 

encourage this voluntary -- 

 MR. WILLIAMS. We have lots of conversations with manufacturers as 

well as covered entities. These have been matters that we have discussed 

when companies come forward, and hopefully that will help others to see 

benefits from it. 

 MS. DEGETTE. Okay. Let me ask another question. Your agency's 

inability to properly determine the drug manufacturer ceiling price has 

been highlighted by many, and today as well, as one of the most 

significant problems with the oversight of the 340B program. Can you 

explain to me the process that you inherited from the CMS? 

 MR. WILLIAMS. Well, the process, without going into a lot of detail, 

involves manufacturers providing information about average wholesale 
32

price. There are also questions about package sizes and other technical 

information needed to help calculate the price. 

 As the OIG has pointed out, not all of that information in the past has 

been accurate and then provided in the form in which we have needed it. 

We are working on that. We have now arranged with another company, 

First DataBank, to get the right package size data that we need to 

calculate a price that is meaningful to a covered entity. So we are 

making progress in the areas where I think the IG has pointed out some 

deficiencies in the process. 

 MS. DEGETTE. What is your timeframe for making those changes? 

 MR. WILLIAMS. That change is already made. 

 MS. DEGETTE. Are there any other changes that you intend to make? 

 MR. WILLIAMS. There are some historical data that we need to go 

back and correct in time. But in terms of the pricing data, we are getting 

much better information than we had before. 

 MS. DEGETTE. What is your timeframe for that? Is that a change 

you are planning to make? 

 MR. WILLIAMS. That is already made. We are using that data now in 

the calculation of it. 

 MS. DEGETTE. So you are not planning to make any additional 

changes. Is that what your testimony is? 

 MR. WILLIAMS. No. As we find deficiencies, we will make changes. 

 MS. DEGETTE. But at this point, you have identified no additional 

deficiencies, is that what you are saying? I don't want to put words in 

your mouth, but I am having a hard time -- I am frankly having a hard 

time understanding your testimony, because you said that your agency is 

working to implement some of the recommendations of the OIG, but I 

don't know specifically what those are, what your timeframe for making 

them is. 

 MR. WILLIAMS. We have just taken over in September 

responsibilities for actually recalculating the 340B price from CMS. Up 

to this time this has been the total responsibility of CMS. 

 MS. DEGETTE. I understand. 

 MR. WILLIAMS. We have taken the results of their calculations and 

used it. To the extent there were deficiencies in the data they used or in 

the process they used, that is something they were responsible for at that 

time. 

 Now that we have taken over that responsibility, we will address 

some of the deficiencies that come to our attention. One of the big ones 

was getting the right package size data for the covered entities. 

 MS. DEGETTE. Right. 

 MR. WILLIAMS. And that we have resolved. 
33

 MS. DEGETTE. But you didn't tell me which of the other ones you 

intend to address. 

 MR. WILLIAMS. We will address all of them as they come to our 

attention. 

 MS. DEGETTE. All right. Thank you for clarifying that. 

 Now, according to the recent -- the OIG report, even if your agency 

was able to accurately determine the drug manufacturers' ceiling prices, 

you wouldn't have the authority to enforce compliance or impose 

penalties, and so the OIG recommends that your agency seek legislation 

to give you that authority, including the ability to impose penalties. 

 But in your response you said that HRSA does not want to establish 

penalties for violation. So my question is, how are you going to enforce 

compliance by drug manufacturers if there is no punishment for 

violations? 

 MR. WILLIAMS. Well, this is a -- we have one big penalty, which is 

to get them to leave the Medicaid program or the 340B program. That's 

a very large penalty, which, as the IG correctly points out, the penalty is 

worse really than the problem we are trying to resolve. 

 MS. DEGETTE. That is probably why you never actually enforced 

that penalty; correct? 

 MR. WILLIAMS. I think we have always -- and CMS, together, we 

have always tried to, where we identified problems, to work with those to 

resolve those problems. That's the approach we have always taken. 

 MS. DEGETTE. Yes, I realize that. 

Thank you very much, Mr. Chairman, I yield back. 

 MR. WHITFIELD. I just want to clarify one other aspect of this, Mr. 

Williams. I asked you earlier, relating to Exhibit 1 of the OIG report on 

page 21, about the recommendation that you establish a standard for the 

calculation of the ceiling price. You have indicated, I believe, that, yes, 

you are working on that. 

 Now, they also recommended or pointed out the lack of 

standardization for package sizes, especially drugs sold in powder form, 

liquid form, whatever, that presents a major problem to accurate ceiling 

price calculations. Would you just briefly explain that problem and what 

you are doing to correct that issue? 

 MR. WILLIAMS. That we have already resolved. We have a contract 

with a company called First DataBank. They provide us -- for the drugs 

that are part of the program. They provide us that information, and we 

are now putting that information to the calculation for the ceiling price. 

So that issue has been resolved. 

 MR. WHITFIELD. When was that contract entered into? 

 MR. WILLIAMS. In the past 6 months. 

 MR. WHITFIELD. Six months, okay. 
34

 MR. WILLIAMS. I don't know precisely. I can give you the exact 

date. 

 [The information follows:] 

RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH 

RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES

When did we sign the first contract with First Data? 

 OPA’s contractor is the entity that holds the contract with First Data Bank. The 

contractor first signed with First Data Bank on October 1, 2005. 

 MR. WHITFIELD. Mr. Stupak. 

 MR. STUPAK. Thank you, Mr. Chairman. Mr. Wright, does the law 

state that the Secretary can disclose pricing information if necessary to 

carry out the provisions of the law, or the statute, I should say? 

 MR. WRIGHT. Yes, that was included in my written statement. If the 

Secretary, in fact, determines that that's necessary. 

 MR. STUPAK. So there would be no changes we would have to make 

in order to get that information? 

 MR. WRIGHT. If the Secretary were, in fact, to make that 

interpretation, correct. 

 MR. STUPAK. So it is not a legislative issue, it's a discretionary issue. 

 MR. WRIGHT. Certainly. 

 MR. STUPAK. The law gives that discretion. 

 MR. WRIGHT. Yes, depending on how one reads the statute and I 

believe in fact different people have read it differently. The fact of the 

matter is HRSA is currently precluded either by a statutory interpretation 

or by a matter of policy from disclosing that information. 

 MR. STUPAK. Okay. 

 MR. WRIGHT. So that would have to change. 

 MR. STUPAK. True. Mr. Williams, Ms. DeGette asked you a little bit 

about dispute resolutions or how you do enforcement. Let me ask you 

this question, the Inspector General said the only way HRSA can get a 

refund is through an informal, voluntary -- informal, voluntary, dispute 

resolution process, which it has never used. Why hasn't that ever been 

used? 

 MR. WILLIAMS. Well, I wouldn't say that's the only way. We tried to 

resolve differences that are brought to our attention on calculations 

between a covered entity and a manufacturer. We try to resolve those 

issues. The $6.1 million discrepancies that the IG found, we have 

written the companies and asked them to respond to us about how they 

plan to resolve those issues. 

 MR. STUPAK. Right. They haven't responded? 
35

 MR. WILLIAMS. Well, we have been in touch with them. One 

company we have not -- we have been asked not to pursue, because the 

Department of Justice is in discussions with them. The others have 

responded. CMS has to complete some additional work before we can 

resolve the issue. But we are in discussion with them. They have 

responded. It has not been totally resolved, I would agree with you. 

 MR. STUPAK. If I remember correctly, didn't the letters ask for them 

to develop a corrective action plan? 

 MR. WILLIAMS. Yes. 

 MR. STUPAK. I believe GlaxoSmithKline did for Flonase, and that's 

the only one; correct? 

 MR. WILLIAMS. They have responded, I believe, yes. 

 MR. STUPAK. Yes, Glaxo did on Flonase, so Aventis, Bristol-Myers, 

Squibb, TAP Pharmaceuticals, they haven't responded with a corrective 

plan? 

 MR. WILLIAMS. Well, we are still in discussion with them and CMS 

to try to resolve the issue, with all but one company where we have not 

continued discussions because of the Department of Justice investigation. 

 MR. STUPAK. But if the letter asked to develop a corrective plan and 

then you enter into discussion, how long are these discussions going to 

go on? 

 MR. WILLIAMS. We are hopeful that CMS will be able to resolve the 

discrepancy at issue. 

 MR. STUPAK. When were those letters sent? Weren't they sent in 

2003? 

 MR. WILLIAMS. 2004, I believe. 

 MR. STUPAK. Alright. That was 2004, we are pushing 2006, okay. 

Mr. Chairman, since only Glaxo is here as a witness on the next panel, I 

would like to request that you and I sign a joint letter to these other 

companies and ask them why they have not developed these plans. 

Hopefully that is something we can agree to do on that. I am concerned 

about it. 

 Alright. Mr. Williams, one more question, if I may. We talked a lot 

about these two plans here, these ceiling plans, prices, I should say. 

There is one calculated by you and one by the drug companies. 

 In the past, HRSA hasn't really pushed this issue or really asked the 

drug companies to come up with their plan, because they said they didn't 

have the resources to do that. Do you have the resources now to make 

the comparisons? If you get this information, do you have the resources 

to make the comparisons, manufacturers and your prices? 

 MR. WILLIAMS. We have a small, very dedicated and talented staff, 

and within the resources available to us there are some things that we can 

do that we do not have unlimited resources. 
36

 MR. STUPAK. Well, how many comparisons have you made that -- I 

know you have a small group there. That's why I want to see if you need 

more resources. 

 MR. WILLIAMS. Well, it depends on the nature of the extent of the 

interactions. We have staff that are able to handle individual issues that 

come to our attention. We have the staff, and we cannot do unlimited 

enforcement that way. 

 MR. STUPAK. How many have you done in the last 12 months? 

 MR. WILLIAMS. I don't know, but I can supply that to you for the 

record. 

 MR. STUPAK. One? 

 MR. WILLIAMS. I don't know. I will supply that for the record. I 

don't know off the top of my head. 

 MR. STUPAK. Alright. Thank you, Mr. Chairman. Thank you, 

witnesses. 

 [The information follows:] 

RESPONSE FOR THE RECORD BY DENNIS WILLIAMS, DEPUTY ADMINISTRATOR, HEALTH 

RESOURCES AND SERVICES ADMINISTRATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES

How many comparisons on drug prices have we made in the past 12 months? 

 Since October 1, 2005 we have conducted price comparisons between manufacturersubmitted 340B prices and the government’s calculated 340B prices for roughly twenty 

manufacturers. This effort represents roughly 2,400 unique NDCs. We have also 

conducted 3 quarterly comparisons between 340B selling prices submitted by the three 

national drug wholesalers. 

 We have compared a market basket of ADAP drug prices with 340B prices on 3 

separate occasions. Because of the restrictions on disclosure of 340B pricing 

information, we were limited to disclosing only that the ADAP drug market basket did or 

did not exceed the aggregate cost represented by 340B prices. We have also reviewed 

prices for two Disproportionate Share Hospitals and responded with market basket 

assessments. We have addressed other covered entity price concerns through our Prime 

Vendor. 

 MR. WHITFIELD. Thank you. Obviously there does need to be more 

transparency in this program. I want to thank the first panel. 

 At this time I would like to call up the second panel. Mr. William 

von Oehsen, who is with Powers, Pyles, Sutter & Verville. 

 Mr. David Brown, who is Director of the Government Contracts and 

Pricing Programs for GlaxoSmithKline. 

 Mr. Christopher Hatwig, who is the Senior Director of the 340B 

Prime Vendor Program at HealthCare Purchasing Partners International. 

So we welcome you all. I am sure you were convinced that we would 

never get to you today, but here we are. 
37

 As you heard the questions to the first panel, you are aware that this 

committee is holding an investigatory hearing. When doing so it is the 

practice to take testimony under oath. Do any of the three of you have 

any objection to testifying under oath? 

 MR. VON OEHSEN. No. 

 MR. BROWN. No. 

 MR. HATWIG. No. 

 MR. WHITFIELD. Of course, under the rules of the House and the 

rules of the committee you are entitled to legal counsel. Do any of you 

want counsel today. 

 MR. VON OEHSEN. No. 

 MR. BROWN. No. 

 MR. HATWIG. No. 

STATEMENTS OF WILLIAM H. VON OEHSEN, III, POWERS, 

PYLES, SUTTER & VERVILLE PC; DAVID B. BROWN, 

DIRECTOR, GOVERNMENT CONTRACTS AND PRICING 

PROGRAMS, GLAXOSMITHKLINE; AND CHRISTOPHER 

A. HATWIG, M.S., R.PH., FASHP, SENIOR DIRECTOR, 340B 

PRIME VENDOR PROGRAM, HEALTHCARE PURCHASING 

PARTNERS INTERNATIONAL 

 [Witnesses sworn.] 

 MR. WHITFIELD. You are now under oath. Mr. Von Oehsen, you are 

recognized for your opening statement. 

MR. VON OEHSEN. Thank you, Mr. Chairman. I am Bill von Oehsen, 

Public Counsel for the Public Hospital Pharmacy Coalition. Thank you 

for allowing me to share the views of PHPC and its member hospitals 

participating in the 340B drug discount program. As participants in 

340B, PHPC members have a deep interest in effective oversight of the 

340B program and express our appreciation to your subcommittee for 

holding this hearing. 

 We also want to commend the Office of the Inspector General in 

issuing its recent report outlining ways to improve administration of the 

program. 

 PHPC supports all of the OIG's recommendations and would like to 

offer additional recommendations and comments. But before turning to 

those recommendations, I would like to say a few words about our 

organization and the value of the program to safety net institutions and 

their patients. 

 PHPC is a coalition of approximately 330 disproportionate share 

hospitals which represent a majority of the hospitals participating in 

340B. Its membership encompasses a wide range of institutions, both 
38

urban and rural hospitals, public and private, nonprofit hospitals, 

hospitals with bed sizes over 500, under 50 and in between, religious 

hospitals, academic medical centers and community hospitals. 

 But notwithstanding this diversity, PHPC members share a common 

mission of serving low income and uninsured patients, including 

significant numbers of the working poor. Indeed, it is because of this 

mission to serve the poor that PHPC's members all qualify for and 

participate in the 340B program. Access to discounts and outpatient 

drugs under the 340B program is vital to the ability of PHPC member 

hospitals to provide comprehensive pharmacy services to low-income 

patients and other vulnerable populations. For example, in a 

conversation last week with one of our long-standing members, the 

University of Kentucky Hospital, we were told that access to 340B 

discounts is, quote, the only reason, end quote, why the hospital can keep 

its outpatient pharmacy and chemotherapy clinic open. 

 Shands Hospital, University of Florida, has a large population of 

transplant patients who can live only with extensive pharmaceutical 

support. 340B pricing helps Shands defray the cost of providing their 

postoperative medications, which enables them to resume productive 

lives. Every 340B provider has a story like one of these attesting to the 

value of the 340B program. 

 Returning to the OIG report, we believe of all the OIG's 

recommendations, the three most critical ones are, number one, 

establishing a well-defined system to assure that covered entities receive 

the discounts to which they are entitled. Let me be clear, that means the 

prices calculated by the government, the prices calculated by 

manufacturers, and the prices actually paid by covered entities all have to 

be the same. 

 Number two, giving HRSA the authority to impose meaningful 

sanctions on manufacturers for overcharging covered entities or other 

violations. 

 And, number three, giving covered entities access to information so 

that they can determine whether they are receiving the correct prices. 

 PHPC asks Congress and the administration to fix these problems. It 

is critical that 340B providers receive the full discount on outpatient 

drugs to which they are entitled under Federal law, and it is critical that 

the government agencies responsible for administering the program have 

the resources, authorities, and requisite systems in place to assure that 

this occurs. 

 Importantly, in order to improve administration of the 340B program 

in the above areas, there must be better coordination between HRSA and 

CMS. The need for coordination between these two agencies is not just 

limited to the area of sharing and calculating pricing. 
39

 Consequently, we recommend that HRSA and CMS establish a 

permanent working group to address and monitor all the necessary 

interactions of HRSA and CMS in implementing the 340B program. 

 There are other areas of 340B program administration which need 

attention as well which were not addressed in the OIG report. These 

include, one, stronger enforcement of the 340B pricing agreements 

between manufacturers and the government. 

 Number two, Federal assistance in giving facilities access to 340B 

discounts on drugs that are in short supply, especially IVIG. 

 Number three, the development of a clear and enforceable procedure 

for refunding 340B facilities in cases of overcharges. 

 Number four, the establishment of an effective administrative process 

to resolve disputes between 340B entities and manufacturers. 

 In conclusion, we would like to thank the subcommittee for holding 

this hearing and to commend the OIG for its fine work in assessing some 

of the problems and complexities of the program and in formulating 

recommendations for improvement. We agree with the OIG's 

recommendations and have suggested other areas of reform that if 

collectively implemented would vastly improve the effectiveness of the 

340B program, expanding access to affordable drugs or safety net 

providers and their patience. 

 I appreciate the opportunity to testify and look forward to addressing 

any questions that the subcommittee members may have for me. 

 MR. WHITFIELD. Thank you, Mr. von Oehsen. 

 [The prepared statement of William H. Von Oehsen, III follows:] 

PREPARED STATEMENT OF WILLIAM H. VON OEHSEN, III, POSERS, PYLES, SUTTER &

VERVILLE PC, GENERAL COUNSEL, PUBLIC HOSPITAL PHARMACY COALITION

SUMMARY OF TESTIMONY 

 The Public Hospital Pharmacy Coalition (PHPC)—an organization that represents 

approximately 330 disproportionate share hospitals (DSH) participating in the 340B drug 

discount program—is fundamentally in agreement with the recommendations of the 

Department of Health and Human Services (HHS) Office of Inspector General (OIG) in 

its recent report entitled “Deficiencies in the Oversight of the 340B Drug Pricing 

Program.” However, PHPC believes that there are a number of more specific and, in 

some instances, supplementary measures that should be implemented as soon as 

practicable to achieve truly responsible and effective administration of the program. 

 PHPC applauds the OIG for identifying the three most critical elements of necessary 

reform to the 340B program as it is currently administered by the Health Resources and 

Services Administration (HRSA). These three elements are: (1) establishment of a 

precisely defined methodology for determination of correct 340B ceiling prices, 

combined with a process for routinely making direct comparisons between the 340B 

ceiling prices calculated by HRSA and the ceiling prices calculated and charged by 

manufacturers for the same products; (2) authority for HRSA to impose meaningful 

sanctions on manufacturers in the form of fines and monetary penalties for charging 

covered entities above the 340B ceiling price or other violations of the 340B 
40

pharmaceutical pricing agreement (PPA); and (3) increased access by 340B entities to 

information enabling them to determine whether the prices they are being charged under 

the program are within the applicable statutory ceilings. 

 There are also several other problems in 340B program administration that are not 

covered in the OIG’s most recent report and which are of continuing concern to the 340B 

community notwithstanding the hard work by responsible federal officials to administer 

this important program. These include: (1) undue delay in the execution or limitation on 

the scope of 340B PPAs (2) the lack of a specific HRSA policy detailing the procedure 

by which manufacturers should issue refunds to covered entities whenever it is 

discovered or finally determined that they have sold 340B drugs at above-ceiling prices; 

(3) the difficulty that many 340B covered entities face in attempting to purchase drugs 

that are reportedly in short supply at the appropriate ceiling price; and (4) the absence of 

an effective administrative process for obtaining a binding and judicially reviewable 

resolution of claims by covered entities that manufacturers have charged prices for drugs 

that exceed the appropriate 340B ceiling price. 

 Good afternoon Mr. Chairman. I am Bill von Oehsen, General Counsel and founder 

of the Public Hospital Pharmacy Coalition (PHPC). Thank you for inviting me to share 

the views of PHPC and its member hospitals participating in the 340B drug discount 

program. As participants in the 340B program, PHPC’s members have a deep interest in 

effective oversight of the 340B program and express our appreciation to your 

Subcommittee for holding this hearing. We also want to commend the Department of 

Health and Human Services (HHS) Office of the Inspector General (OIG) in issuing its 

recent report outlining ways to improve administration of the program. PHPC supports 

all of the OIG’s recommendations and, as explained in more detail below, would like to 

offer additional recommendations and comments. Before turning to those 

recommendations, however, I would like to say a few words about PHPC and the value 

of the 340B program to safety net institutions and their patients. 

Background on PHPC 

 PHPC is a coalition of disproportionate share hospitals (DSH) established in 1993 by 

the National Association of Public Hospitals and Health Systems (NAPH) to represent 

NAPH members and other DSH hospitals with respect to the 340B drug discount 

program and other initiatives affecting the availability and cost of pharmaceutical care 

provided by our member hospitals. PHPC has had a longstanding and very constructive 

relationship with the office within the Health Resources and Services Administration 

(HRSA) charged with administering the 340B program, called the Office of Pharmacy 

Affairs (OPA), and with OPA’s staff and director, whose cooperation, commitment to the 

program, and hard work is greatly appreciated by the 340B community. One of the fruits 

of OPA’s efforts is the prime vendor program which has generated deeper discounts and 

other value-added services for prime vendor participants, including many PHPC member 

hospitals. 

 PHPC’s membership stands at approximately 330 hospitals and encompasses a wide 

range of institutions including both urban and rural hospitals; public and private nonprofit hospitals; hospitals with bed sizes over 500, under 50 and in between; Catholic and 

other faith-based hospitals; academic medical centers; tertiary care hospitals with level 

one trauma centers, burn units and other specialized services; and community hospitals 

focused on more traditional acute care services. Notwithstanding such diversity, PHPC’s 

members share a common mission of serving low income and uninsured patients, 

including significant numbers of the working poor. Indeed, it is because of their mission 

to serve the poor that PHPC’s members all qualify for and participate in the 340B 

program. Hospital participation in the 340B program is limited to hospitals that receive 

Medicare DSH payment adjustments of 11.75 percent or higher, a standard that can only 
41

be satisfied if a high percent of the hospital’s inpatient care is furnished, on a per day 

basis, to Medicaid recipients, low income Medicare beneficiaries, and/or other indigent 

individuals. 340B eligibility is also limited to hospitals that are owned or operated by 

state or local governments or have a contract with state or local governments to provide a 

significant level of indigent care (i.e. non-Medicare, non-Medicaid). 

 The subset of PHPC’s membership which overlaps with NAPH’s membership – 

approximately 100 hospitals – provides about 24 percent of all uncompensated hospital 

care in the U.S. even though it represents only two percent of all U.S. hospitals. Other 

relevant characteristics from NAPH include the following. Over 55 percent of gross 

charges are related to patients on Medicaid or are uninsured. Twenty-one percent of all 

costs in NAPH-member hospitals are uncompensated compared to 5.5 percent of costs 

nationally. We suspect that PHPC’s non-NAPH members have levels of uncompensated 

costs more comparable to NAPH members than to the national figures. 

Value of the 340B Program 

 Access to discounts on outpatient drugs under the 340B program is vital to the ability 

of PHPC member hospitals to provide comprehensive pharmacy services to low income 

patients and other vulnerable populations. The role of pharmaceuticals in meeting the 

health care needs of individuals, especially those suffering from one or more chronic 

conditions, has grown significantly over the past two decades. It is therefore no 

exaggeration to say that access to affordable medications can make the difference 

between clinically appropriate and inappropriate care, and in some cases, life or death. I 

often hear from member hospitals that, but for the savings available on drugs bought 

through the 340B program, the hospitals could not afford to keep their outpatient 

pharmacies open or would have to limit pharmacy services by adopting strict formularies, 

higher co-pays or other utilization control measures. 

 For example, in a conversation last week with one of PHPC’s longstanding members, 

the University of Kentucky Hospital, we were told that access to discounts under the 

340B program is the “only reason” why the hospital can keep its outpatient pharmacy and 

chemotherapy clinic open. Shands Hospital at the University of Florida has a large 

population of transplant patients who can live only with extensive pharmaceutical 

support. Many of these patients lack employer-based health insurance and there are gaps 

in coverage even for those patients that have some form of insurance. 340B pricing helps 

defray the cost of their post-operative medications, which enables them to resume 

productive lives. A couple of 340B hospitals in Milwaukee, Wisconsin – St. Joseph 

Regional Hospital and St. Michael’s Hospital – recently reported that they use the savings 

from the program to maintain a pharmacy assistance program for needy residents in the 

Milwaukee area and that one of the hospitals invested its 340B savings on Procrit to start 

a special anemia management clinic for renal disease patients. Every 340B provider – 

referred to as a “covered entity” in the statute – has a story like one of these attesting to 

the value of the 340B program. 

 Even with the savings available under the program, some hospitals still cannot meet 

the demand for low cost drugs by local residents who lack prescription drug coverage. 

Indeed, unless a 340B pharmacy has enough paying business to offset its losses in 

serving the uninsured, access to discounts under the 340B program is not enough to make 

ends meet. This is the primary reason why many eligible 340B covered entities, 

especially community health centers, do not even offer pharmacy services, let alone 

participate in the 340B program. 

 It is therefore critical that DSH hospitals and other covered entities participating in 

the 340B program receive the full discount on outpatient drugs to which they are entitled 

under federal law; and it is critical that the government agencies responsible for 

administering the program have the resources, authorities, and requisite systems in place 

to assure that this occurs. Unfortunately, as the OIG report illustrates all too well, 340B 
42

providers can never be sure that they are receiving accurate pricing. Until such problems 

are resolved, the integrity of the 340B program remains compromised. PHPC asks 

Congress, HHS and HRSA to fix these problems; and in making this request I believe I 

am speaking for all 340B providers and the national organizations that represent them. 

Please note though, in making this request, we do not mean to imply that covered entities 

do not also have responsibilities for maintaining the integrity of the program. Covered 

entities have their own obligations under the law. In particular, 340B providers are 

prohibited from using the discounted drugs for anyone other than their own patients and 

are required to adjust their Medicaid purchasing and billing practices in order to protect 

manufacturers from giving 340B discounts and Medicaid rebates on the same drugs. 

PHPC takes these obligations very seriously and has been active in educating both 

members and non-members on how to comply with all aspects of the 340B program. 

Comments on OIG Report

 PHPC is fundamentally in agreement with the recommendations of the OIG in its 

recent report entitled “Deficiencies in the Oversight of the 340B Drug Pricing Program.” 

PHPC believes, however, that there are a number of more specific and, in some instances, 

supplementary measures that should be implemented as soon as practicable to achieve 

truly responsible and effective administration of the program. In my testimony here 

today, I would like both to address the importance of the OIG recommendations and to 

urge implementation of some of these other measures which, in our view, extend and 

supplement the findings and recommendations of the OIG. 

 PHPC applauds the OIG for identifying the three most critical elements of necessary 

reform to the 340B program as it is currently administered by HRSA. These three 

elements are: (1) establishment of a precisely defined methodology for determination of 

correct 340B ceiling prices, combined with a process for routinely making direct 

comparisons between the 340B ceiling prices calculated by HRSA and the ceiling prices 

calculated and charged by manufacturers for the same products; (2) authority for HRSA 

to impose meaningful sanctions on manufacturers in the form of fines and monetary 

penalties for charging covered entities in violation of the applicable 340B ceiling price or 

other violations of the 340B pharmaceutical pricing agreement (PPA); and (3) increased 

access by covered entities to information enabling them to determine whether the prices 

they are being charged for drugs under the program are within the applicable statutory 

ceilings. Importantly, in order to improve administration of the 340B program in these 

three areas, there must be better coordination between HRSA and the Centers for 

Medicare & Medicaid Services (CMS), especially the office within CMS responsible for 

administering the Medicaid rebate program. 

Improved Coordination between HRSA and CMS 

 Both my testimony and the OIG’s reported findings should serve to underscore the 

importance of improving communication between HRSA and CMS. There is a close 

statutory link between the 340B and Medicaid rebate programs. Although HRSA is 

responsible for administering the 340B program, it must rely on CMS to compile and 

provide the data necessary to calculate and verify correct 340B ceiling prices. Fraud or 

even routine computation errors identified in the Medicaid rebate context can signal 

errors and overcharges in 340B pricing. There are other areas in which effective 

administration of the 340B program requires teamwork between HRSA and CMS. For 

example, the eligibility of a hospital to participate in the 340B program hinges upon its 

DSH payment adjustment percentage, which is calculated by CMS based on data 

maintained by CMS. Plus, the obligations of drug manufacturers to execute 

pharmaceutical pricing agreements (PPAs) with the Secretary of HHS and to participate 

in the 340B program are contingent on execution of Medicaid rebate agreements that are 

managed by CMS. 
43

 The OIG has identified a number of problems associated with computation and 

verification of 340B ceiling prices that are attributable to failures in communication or 

coordination between HRSA and CMS. These problems include CMS’s omission of 

requisite data elements for 340B ceiling price computations and the agency’s failure to 

adequately reconcile package size data necessary to calculate the ceiling prices. 

Accordingly, OIG has recommended that HRSA and CMS “work together to ensure 

accurate and timely pricing data for the Government’s official record of 340B ceiling 

prices.” 

 PHPC fully supports this recommendation, but also wants to point out that the need 

for coordination between HRSA and CMS is not limited to the area of sharing and 

calculating pricing data. Consequently, we feel that institution of a permanent working 

group to address and monitor all of the necessary interactions of HRSA and CMS in 

implementing the 340B program would substantially improve program administration 

and oversight. In addition to promoting coordination on matters of pricing data flow and 

computation, a HRSA/CMS working group would be uniquely positioned: (1) to clarify 

procedures for determining whether a hospital’s disproportionate share adjustment meets 

the 11.75 statutory threshold, (2) to develop mechanisms for protecting manufacturers 

from giving 340B discounts and Medicaid rebates on the same drug, and (3) to coordinate 

manufacturer refunds under the 340B and Medicaid rebate programs based on retroactive 

adjustments to a manufacturer’s average manufacturer price (AMP) and best price. 

For these and other reasons, formal establishment of a permanent HRSA/CMS working 

group would be an especially positive step towards the goal of those components 

“working together” as the OIG has recommended. 

Pricing Computation and Verification 

 Turning now to the need for more concrete administrative reforms, perhaps the most 

glaring deficiency in 340B program administration identified by OIG is the fact that – in 

a program designed to impose price-limits on qualifying pharmaceutical sales – the 

responsible government agency has no system in place for establishing whether the limits 

have been properly applied or how exactly the price limits are to be calculated. It seems 

evident that, in order to verify manufacturer compliance with price ceiling requirements, 

HRSA (1) must determine exactly how, and on the basis of what data, 340B ceiling 

prices are to be computed, (2) must compute an accurate ceiling price for each covered 

drug available for purchase under 340B, and (3) must compare its ceiling price 

determinations with the prices computed and actually charged by drug manufacturers to 

verify that applicable price ceilings are not being exceeded. As the recent OIG report 

points out, the present lack of a precise, established methodology for calculating 340B 

ceiling prices has led to inconsistencies in whether and how certain data elements are 

utilized in determining applicable 340B price ceilings, and has made it difficult or 

impossible to determine whether manufacturers have applied “correct” 340B pricing to 

their products. A specific, detailed methodology is needed but is lacking, for example, to 

standardize the time periods and package sizes used to calculate 340B ceiling prices. 

Clearly the first steps HRSA must make towards better fulfilling its responsibilities to 

oversee the 340B program are to establish a precise methodology by which 340B prices 

are to be calculated, and to calculate accurate prices for covered drugs using that 

methodology. 

 Accurate determinations of ceiling prices by itself will be of little utility, of course, if 

nothing is done to verify that the ceiling prices calculated independently by drug 

manufacturers are the same as those HRSA has determined to be accurate and applicable. 

As the new OIG report emphasizes, the absence of such comparisons is one of the 

systemic deficiencies in HRSA’s administration of the program that makes effective 

oversight of 340B pricing impossible. Especially since covered entities lack access to 

ceiling price information, and thus have no basis on which to independently challenge the 
44

accuracy of 340B prices charged by manufacturers, there is no effective way to identify 

and control overcharging in the 340B program unless HRSA takes affirmative steps to 

verify that the ceiling prices it calculates are the same prices actually applied to purchases 

under the program. 

 Comparisons between the government-calculated 340B ceiling prices and 

manufacturers’ ceiling price figures should therefore be made on a routine basis, and 

should trigger further specific procedures for inquiry and corrective action where 

discrepancies are found. OIG has suggested that this could be accomplished by 

requesting manufacturers to submit some or all 340B prices to HRSA each quarter. 

PHPC believes that HRSA should not merely request, but should require manufacturers 

to submit all of the 340B ceiling prices that they have calculated to HRSA each quarter 

for verification of pricing accuracy. In addition, as the OIG has recommended, HRSA 

should not only verify consistency between its calculations of 340B ceiling prices and 

those calculated by manufacturers, but also perform sufficient spot-checking of entity 

invoices to confirm that actual charges are indeed at or below the properly calculated 

ceiling prices. 

Need for Meaningful Sanctions

 The improved monitoring of 340B pricing that is achievable by the above reforms 

will not lead to more accurate pricing, however, without more effective incentives for 

manufacturers to comply with pricing requirements and directives from HRSA to remedy 

pricing violations that may be discovered. As matters now stand, a manufacturer whose 

product has been determined by HRSA to have been sold to covered entities at an aboveceiling 340B price can refuse to remedy that situation with apparent impunity. For 

example, several manufacturers whose 340B products had been sold to covered entities at 

above-ceiling prices, according to the OIG’s findings in a report issued in 2003, have 

taken no action to refund the overcharges, despite explicit letters from HRSA directing 

them to do so, and have suffered no apparent repercussions as a consequence of their 

refusal to comply with HRSA’s directive. 

 Although, in theory, this situation enables the Secretary of HHS, under the terms of 

the 340B pharmaceutical pricing agreement, to terminate Medicaid and Medicare 

coverage of the non-complying manufacturers’ products, it is plain that manufacturers do 

not take this threat seriously, and are content to simply deny that overcharging occurred 

and refuse to take any remedial action. In the face of this defiance and delay, HRSA has 

been unable to effectively obtain the refunds that are owed to 340B providers. As 

manufacturers are well aware, the chances of HHS deciding to deny coverage of a 

necessary drug for Medicaid recipients because a manufacturer has violated a pricing 

requirement in the much smaller and less visible 340B program, are virtually nonexistent. PHPC believes the only realistic means to remedy this situation would be 

legislation conferring statutory authority on HHS, through HRSA, to impose meaningful 

sanctions, such as fines and monetary penalties, on manufacturers that are found to be in 

violation of their 340B pricing obligations. 

 As the OIG has suggested, the requisite legislative amendments to the 340B statute 

could be modeled after the civil penalty authorities in section 1927(b)(3)(C)(i) of the 

Social Security Act (Act) which governs sanctions applicable to the Medicaid rebate 

program. In the alternative, we think a minor revision to section 1128A(a)(2) of the Act 

could expand the authority of HHS, through the OIG, to impose civil monetary penalties 

in circumstances where a manufacturer has requested payment from a covered entity in 

violation of an applicable PPA. In fact, we believe simple insertion of the words “or with 

the Secretary” in the text of section 1128A(a)(2)(B) would accomplish this purpose. 
45

Pricing Transparency 

 The third major component of an effective strategy for curing current deficiencies in 

340B pricing enforcement would be greater transparency in pricing information for the 

covered entities that actually purchase drugs under the 340B program. Probably the 

single greatest frustration expressed to PHPC by its members is the fact that they have no 

basis on which to assess whether they are being overcharged or not for 340B covered 

products. PHPC receives frequent reports from its members about specific 340B prices 

that seem inconsistent, excessive, or questionable when viewed in comparison with the 

prices negotiated by group purchasing organizations (GPOs) or other purchasers in the 

private market. Yet while these situations give rise to widespread suspicions of 

overcharging for 340B drugs, there is ordinarily no concrete action that can be taken by a 

covered entity to seek relief from suspected overcharges because it has inadequate access 

to relevant pricing information to challenge the manufacturer’s alleged 340B price, or 

even to compile a sufficient factual record to effectively invoke the informal dispute 

resolution process created by HRSA in federal guidelines. 

 In light of the resource limitations that have plagued 340B program administration, 

as well as the historical deficiencies in oversight and enforcement of 340B pricing 

obligations, it makes undeniable sense to supplement HRSA’s compliance-monitoring 

efforts by empowering covered entities to play a role in verifying that they are paying 

statutorily appropriate prices for 340B drugs. 

 Indeed, we believe that more stringent constraints have been placed on covered 

entities’ access to 340B price information than federal law actually requires. Although 

certain components of the 340B ceiling price calculation utilize confidential data, 

disclosure of a drug’s 340B ceiling price is not tantamount to disclosure of the drug’s 

AMP, best price or any other specific information that the Secretary of HHS is prohibited 

from disclosing under Section 1927(b)(3)(D) of the Social Security Act. Because 

calculation of 340B ceiling prices varies depending on how AMP and best price compare 

and whether an inflationary cap on price increases is triggered, it is impossible to deduce 

a drug’s AMP or best price just from knowing what the ceiling price is. 

 In addition, the Social Security Act expressly permits the Secretary to disclose any 

information to the extent such disclosure is determined “necessary to carry out” Section 

1927 of the Act, which pertains to Medicaid rebates as well as, in part, to the limitations 

on prices of drugs purchased by 340B covered entities and the requirement of 340B 

participation by manufacturers of Medicaid-covered drugs. Accordingly, we believe the 

relevant confidentiality provisions of the law may permissibly be construed to allow such 

disclosures of pricing information to 340B covered entities as the Secretary may 

determine are necessary to effectively administer the 340B program, and that some 

disclosure of ceiling price information is in fact necessary to such administration. 

Language in the standard 340B PPA is consistent with this construction of the law, as is 

legislative history of the 340B statute. 

 Even if current law is construed to prevent the Secretary’s public disclosure of 340B 

ceiling prices, however, sound administration of the 340B program demands that some 

compromise be reached under which covered entities can realistically assess whether they 

are being or have been overcharged, and bring those situations to the attention of the 

relevant manufacturers and enforcement agencies. The OIG has recommended that 

covered entities be afforded secure access to certain pricing data to enable them to detect 

differences between the prices that they pay and the prices to which they are legally 

entitled – perhaps through a web-based system by which entities can submit prices and 

gain a response indicating whether ceiling prices have been exceeded. 

 PHPC agrees that effective 340B administration demands greater access to pricerelevant information by covered entities, and believes that a right to such access should 

ideally be established by legislative amendment. Nonetheless, we also believe that a 

more flexible and useful system for affording 340B pricing information to covered 
46

entities than currently exists could be implemented by agency regulations or policy 

issuances, consistent with legal constraints and manufacturers’ legitimate security 

concerns. It is possible, and unquestionably legally permissible, for manufacturers to 

voluntarily make 340B pricing data available to covered entities, and we strongly urge 

manufacturers to consider doing so. Absent such voluntary action on a broad scale in the 

manufacturer community, however, legislative or administrative action must be taken to 

create some mechanism for reasonable covered entity access to 340B pricing information 

directly pertinent to the entity’s own determination of whether its rights are being 

violated, such as, for example, authorization for one designated officer of each covered 

entity (bound by an appropriately structured confidentiality and data use agreement) to 

have access to 340B ceiling prices strictly for purposes of reporting to HRSA any 

discrepancy between those prices and the actual purchase prices paid by the entity for 

drugs. I should note that GlaxoSmithKline has recently committed to sharing its 340B 

ceiling price data with the 340B prime vendor program, and that we applaud that action. 

This is just a first step, however, towards the pricing data accessibility that will be 

necessary to ensure pricing integrity. 

Pharmaceutical Pricing Agreements 

 There are several other deficiencies in 340B program administration of which PHPC 

is aware, but which are not within the scope of the OIG’s most recent investigation and 

published report. For example, we understand that there are a number of manufacturers 

that have avoided or delayed entering into 340B PPAs notwithstanding the continued 

coverage of their products by Medicaid. 

 It appears that this situation stems from the fact that there is no defined or regularized 

process for assuring that manufacturers entering into Medicaid rebate agreements also 

immediately enter into 340B pharmaceutical pricing agreements as the statute requires. 

Due to the absence of any such defined process, it seems the obligations of all 

manufacturers that participate in Medicaid to enter into 340B PPAs have not been 

uniformly enforced. Some manufacturers have restricted the scope of their 340B 

obligations by having subsidiaries enter into the PPAs on behalf of only certain 

manufacturer “business units” (instead of the entire corporate entity manufacturing 

Medicaid-covered pharmaceutical products), or by executing PPAs through mid-level 

corporate representatives whose authorities to bind the corporations extend only to 

isolated business units. We have also heard, in some instances, of manufacturers of 

Medicaid-covered drugs taking months or years before they sign any 340B agreement at 

all. 

 To address these problems, a routine administrative process must be instituted that, at 

a minimum, assures that a corresponding 340B program PPA is executed 

contemporaneously with any Medicaid rebate agreement executed between a 

manufacturer and the Secretary, or within a short, specifically defined time period 

thereafter. HHS should also clearly designate the agency personnel responsible for 

obtaining timely and properly executed PPAs and provide for adequate HRSA review of 

PPAs to verify that they apply to a scope of pharmaceutical products corresponding to the 

scope of Medicaid coverage of the relevant manufacturer’s entire product line. 

 In addition, although PHPC is cognizant of questions that have been raised as to the 

present enforceability of the standard pharmaceutical pricing agreement between the 

Secretary and manufacturers, we believe that certain revisions of that document would 

facilitate more effective program administration and compliance enforcement. At 

present, the PPA represents the only direct source of legal obligation on the part of a 

manufacturer to comply with 340B pricing limitations or other requirements. Yet the 

manufacturer responsibilities expressly referenced in that agreement are quite limited, 

and extend little beyond agreeing to charge 340B entities at or below the applicable 

ceiling prices. 
47

 We believe a number of amendments to the PPA could and should be made to 

address systemic problems of administration and weaknesses in program enforcement 

that have been noted in the recent OIG report and discussed in my testimony before the 

Subcommittee. In particular, PHPC believes that the standard 340B PPA should be 

revised in some or all of the following ways: 

• The PPA should require manufacturers to submit the 340B ceiling prices 

calculated for their drugs to HRSA for purposes of comparison with HRSA’s 

calculations based on CMS data. 

• It should require manufacturers to disclose the 340B ceiling prices they 

calculate for their drugs to designated officers of covered entities, under 

appropriate confidentiality and data use agreements and security mechanisms, 

to be established by the Secretary through regulations or policy issuances. 

• It should expressly require manufacturers to make all of their covered drug 

products available to covered entities for purchase at 340B prices. 

• It should require manufacturers to calculate and refund 340B overpayments to 

covered entities, under a procedure to be outlined by the Secretary in published 

regulations or policy guidance, whenever it is finally determined by the 

manufacturer or HRSA that 340B overcharges have occurred. 

• It should obligate manufacturers to participate in and abide by decisions 

rendered pursuant to an administrative process established for resolution of 

pricing disputes. 

• It should require a manufacturer to calculate and apply 340B pricing 

retroactively to any purchases of covered drugs made by covered entities during 

any significant lag-time that may elapse between execution of the 

manufacturer’s Medicaid rebate agreement and its 340B PPA, and to make 

appropriate retroactive refunds consistent with such calculations. 

• It should require manufacturers to pay covered entities interest on refunds for 

past overcharges. 

 In other words, until legislation is passed or regulations are promulgated to 

implement the OIG’s recommendations, amendment and expansion of the standard 340B 

PPAs may offer an alternative means to some immediate amelioration of programmatic 

deficiencies. 

Refund Procedures 

 We also believe that a specific policy needs to be developed by HRSA requiring 

manufacturers to issue refunds to covered entities whenever it is discovered or finally 

determined that they sold 340B drugs at above-ceiling prices, and that such a policy 

should provide detailed procedures on how to calculate and issue the refunds. There are a 

number of different scenarios under which the existence of a 340B overcharge may be 

established. In some instances, particularly if HRSA oversight of the 340B program is 

enhanced pursuant to recommendations discussed at this hearing, HRSA may determine 

that an overcharge has occurred or – as was the case with certain drug sales scrutinized in 

the OIG’s March 2003 report and investigation – the OIG may find that covered entities 

have been overcharged. In other instances, a manufacturer itself may become aware that 

it has miscalculated AMP or best price for a drug, and that consequently both Medicaid 

rebates and 340B ceiling prices have been inaccurately computed. In the latter scenario, 

there is a defined set of procedures established by CMS to facilitate retroactive 

adjustments of rebate payments to the Medicaid program, but no parallel process for 

repayment of 340B overcharges. 

 Thus we believe that HRSA needs to develop and define a refund process to be 

implemented contemporaneously with CMS rebate adjustment procedures, where 

manufacturers retroactively correct AMP or best price calculations. Furthermore, in any 
48

and all other circumstances in which manufacturer overcharges for 340B drugs are found 

to have occurred, there should be a clearly defined process, established by HRSA, that 

manufacturers are obligated to follow to afford appropriate refunds of 340B overcharges 

to affected covered entities. 

Drugs in Short Supply

 Another frequent topic of complaints that PHPC has heard from its members 

concerns drugs that are reportedly in short supply and are therefore not being made 

available to covered entities at 340B prices. According to our members, there have been 

a number of instances in which covered entities were told by manufacturers that 

particular products – especially intravenous immune globulin (IVIG) and other bloodderived products – are unavailable for purchase under the 340B program because all 

available supplies of the products have already been committed to other purchasers under 

commercial contracts. Often in these situations, the products at issue were readily 

available for purchase on the commercial market or through group purchasing 

organizations at prices above 340B ceiling prices, even though they were ostensibly in 

such short supply that they could not be sold under the 340B program. 

 This problem is especially serious for disproportionate share hospitals in the 340B 

program since they are prohibited under the 340B statute from purchasing covered 

outpatient drugs through their GPOs. Unable to buy product at a 340B price because of a 

shortage problem, the hospitals are faced with the impossible dilemma of having to either 

violate federal law by purchasing the drugs at GPO prices, buy the drugs at higher, retail 

prices that the institution cannot well afford, or deny their patients access to the drugs 

altogether. 

 Although HRSA has issued a letter stating its position that manufacturers may not 

discriminate against 340B entities in allocating drugs that are in short supply, PHPC 

believes that additional protections are needed to adequately address this problem. 

HRSA should audit or otherwise review the allocation methods used by manufacturers to 

ensure that they are not discriminatory and that they do not have a discriminatory effect. 

Moreover, because large purchasers such as GPOs and managed care organizations have 

an advantage over smaller purchasers by virtue of being able to contract for most or all of 

the remaining drugs available, the 340B prime vendor should be directed to take an active 

role in purchasing drugs in short supply at the request of covered entities. Perhaps most 

importantly, we believe HRSA should issue a specific policy that not only addresses 

covered entities’ access to 340B pricing for covered outpatient drugs in short supply, but 

also reinforces the point that Congress’ clearly expressed intent in the 340B statute is for 

covered entities to be able to actually purchase covered drugs at 340B prices, not just to 

enjoy theoretical discounts on products that are not made available under the program at 

all. 

Effective Dispute Resolution 

PHPC also believes that an important step towards enhancing the accountability of 

manufacturers for pricing violations and empowering covered entities to assist HRSA in 

monitoring and enforcing pricing compliance, would be institution of an administrative 

process to resolve disputes between covered entities and manufacturers relating to 340B 

prices and purchases that culminates in a final and judicially reviewable agency decision. 

The capacity of covered entities to effectively pursue relief from above-ceiling charges 

by manufacturers for their drugs is presently unclear. The dispute resolution process 

defined by HRSA guidelines is not binding on manufacturers. Certain putative class 

action lawsuits now pending in federal and state courts may test whether common law, 

third-party beneficiary rights under a contract, or anti-fraud provisions permit covered 

entities to initiate and pursue court actions for recovery of past overcharges, but 

disposition of those cases and questions is unlikely in the near future. 
49

 PHPC has previously advocated legislative amendments clearly conferring on 

covered entities a specific, statutory, private right of action against manufacturers for 

recovery of 340B overcharges, but believes covered entities’ rights and interests in being 

able to independently pursue relief from 340B overcharges might also be protected by the 

development of suitable administrative procedures. Specifically, the administrative 

process we envision would be one through which covered entity and manufacturer 

contentions and evidence of a 340B price dispute would be reviewed and adjudicated by 

a federal agency decisionmaker, who issues a final agency decision respecting the 

controversy. Formal, duly promulgated regulations would be the preferable means of 

defining and establishing such procedures, so that the agency’s decision pursuant to the 

process would have legally binding effect on the parties in the absence of further review 

by a court. PHPC believes and hopes that the availability of such an administrative 

process, as well as implementation of the other programmatic reforms I have described, 

would greatly reduce the likelihood of covered entities deciding that they need to initiate 

litigation in the courts to enforce their rights to proper 340B pricing. 

Conclusion 

 In conclusion, PHPC would like to commend the OIG for its fine work in assessing 

some of the problems and complexities of the 340B program as currently administered, 

and formulating recommendations for change and improvement. My testimony here 

today by no means comprehensively addresses all of the areas in which there is a need for 

federal attention and action. However, in the view of PHPC, each of the measures I have 

suggested is vital to the improvement of the 340B program and to the successful 

attainment of its statutory goals in both the short and long-term. PHPC would like to 

thank the Subcommittee for holding this important hearing. I appreciate the opportunity 

to testify before you today on these critical matters and look forward to addressing any 

questions that Subcommittee members may have for me. 

William H. von Oehsen 

General Counsel

Public Hospital Pharmacy Coalition 

Phone: (202) 872-6765 

Fax: (202) 785-1756 

E-Mail: william.vonoehsen@ppsv.com 

 William von Oehsen, a principal in the law firm Powers, Pyles, Sutter and Verville 

P.C. (PPSV), has extensive experience in general health law, legislation and policy, 

especially in the areas of pharmaceutical pricing, materials management, and third party 

reimbursement, and food and drug law. 

 With respect to Mr. von Oehsen's pharmaceutical pricing practice, PPSV offers a 

wide range of services involving federal and state regulation of drug prices and 

reimbursement. The U.S. pharmaceutical market is unique in that pricing is regulated, 

either directly or indirectly, under a complex array of federal and state laws designed to 

make prescription drugs more affordable to government programs and providers, as well 

as to seniors and other vulnerable populations. As prescription drug prices continue to 

climb at double digit inflation rates, the demand for expertise in these laws has also 

grown. It is not surprising, therefore, that drug pricing has become one of Mr. von 

Oehsen’s most active practice areas. 

 Mr. von Oehsen serves as general counsel to the Public Hospital Pharmacy Coalition 

(PHPC) which was launched more than ten years ago to help high-Medicaid public and 

non-profit hospitals take advantage of a federal law – section 340B of the Public Health 

Service Act – that requires pharmaceutical manufacturers to give drug discounts on 

covered outpatient drugs as a condition of the Medicaid program covering and paying for 
50

those drugs. As membership for PHPC has grown, expertise on 340B matters and related 

drug pricing laws has deepened such that Mr. von Oehsen has become a national leader in 

this area. He was instrumental in forming the 340B Coalition, a coalition of 

approximately sixteen national organizations whose members collectively comprise all 

the entities that are eligible to participate in the 340B program. The 340B Coalition hosts 

an annual conference for safety net providers, industry, wholesalers and policymakers, 

that, as a result of its popularity and broad attendance, now serves a major forum in 

which national drug pricing policy issues are addressed. PPSV is responsible for 

organizing this annual event and delivering regular presentations on recent developments 

– regulatory, legislative and judicial. 

 The 340B program is one of four federal drug discount programs and, because one 

cannot truly understand federal regulation of drug pricing without an understanding of 

how these programs interrelate, Mr. von Oehsen has expertise in each of these federal 

areas. They include the Medicaid drug rebate program, the federal supply schedule and 

the federal ceiling price. States have also been active in helping individuals, especially 

seniors and low-income patients, access affordable drugs, and many of these efforts build 

upon the federal programs. Accordingly, Mr. von Oehsen’s drug pricing client base 

includes a growing number of states that are seeking to lower drug costs for state-funded 

populations, such as Medicaid recipients, Medicaid expansion populations, prisoners, 

mental health and other long term care patients, and state employees. Mr. von Oehsen 

regularly testifies before state legislatures and executive branch officials. Another area of 

collaboration with states relates to numerous ongoing investigations into potential 

violations by industry of federal and state drug discount laws and efforts to recover 

overpayments form industry. 

 As a result of Mr. von Oehsen’s expertise in the drug pricing and FDA areas, he has 

found himself serving a growing number of pharmacies, both freestanding and 

institutional, in various legal and regulatory matters. His pharmacy-related projects have 

involved analysis of federal laws such as Robinson-Patman and the Non-Profit 

Institutions Act, DEA registration, the Prescription Drug Market Act, Medicare/Medicaid 

coverage and reimbursement of pharmaceutical care and federal fraud and abuse laws 

such as Stark and anti-kickback. At the state level, he has state licensure laws. PPSV 

also assists pharmacy clients with their transactional and litigation needs. 

 In the food and drug area, Mr. von Oehsen guides companies through the FDA's 

premarket clearance process; assists companies with product development strategies; 

provides labeling, advertising, manufacturing and import/export advice; and handles 

other issues that arise during the progression from initial clinical testing through 

commercial distribution. He also works on the development and distribution of medical 

devices, biologics, food, food additives, dietary supplements, animal feeds, and 

cosmetics. He has also defended clients against FDA enforcement actions. Mr. von 

Oehsen has lectured and published articles on food and drug related issues. 

 In addition to his drug pricing and FDA practices, Mr. von Oehsen has considerable 

experience in advising clients on materials management, managed care, and general 

health law issues. He works with Medicare/Medicaid and other third-party payment 

programs, hospitals, HMOs, PPOs, physician groups, and other health care providers. He 

counsels clients on such issues as managed care, fraud and abuse, third-party 

reimbursement, mergers and acquisitions, state licensure of health professionals and 

providers, and confidentiality of records. He also has significant advocacy experience on 

health legislative issues, including in the areas of drug pricing, managed care, AIDS, 

long-term care, and Medicare/Medicaid. Mr. von Oehsen is co-author of a book 

concerning Medicare/Medicaid managed care and state health reform. 

 Mr. von Oehsen is a member of the District of Columbia Bar. He received his law 

degree from Georgetown University Law Center in 1988 and a masters from Harvard 

University in 1984. He earned his undergraduate degree from Princeton University in 
51

1981. Mr. von Oehsen participates in a number of professional organizations including 

the Food and Drug Law Institute (where he was an Annual Scholar), the American Health 

Lawyers Association and the American Association of Health Plans. He was also a 

founding director of the Family AIDS Housing Foundation, now called Building Futures: 

Family AIDS Housing. 

 Concentrating in Health Legislation and Policy, Pharmaceutical Pricing, and Food 

and Drug law, Principal, Powers, Pyles, Sutter & Verville, P.C., Washington, D.C. 

 

EDUCATION 

• J.D., Georgetown University Law Center, 1988 

• M.T.S., Harvard University, 1984 

• A.B., Princeton University, 1981 

BAR ADMITTANCE 

• Admitted to the District of Columbia Bar, 1990 

• Admitted to the Pennsylvania Bar, 1988 

MEMBERSHIPS 

• Food and Drug Law Institute 

• American Health Lawyers Association 

• American Association of Health Plans 

• Founding Director, Family AIDS Housing Foundation, Inc. 

• Annual Scholar, Food and Drug Law Institute, 1978-88 

 MR. WHITFIELD. Mr. Brown, you are recognized for your opening 

statement. 

 MR. BROWN. Thank you, Chairman Whitfield, Ranking Member 

Stupak and other subcommittee members. Thank you for the opportunity 

to discuss ways in which GlaxoSmithKline is working with Health 

Resources and Services Administration Office of Pharmacy Affairs to 

improve the 340B Drug Discount Program so that the patients served by 

this drug program have access to the medicines they need. 

 My name is David Brown. I am the Director of Government 

Contracts and Pricing Programs for GSK with the responsibility for 

calculating and reporting government mandated prices, including ceiling 

prices under the 340B drug discount programs. Under section 340B of 

the Public Health Service Act, manufacturers agree to charge 340B 

covered entities no more than the ceiling price for covered drugs, which 

is a discounted price that is calculated on our Federal formula by taking 

the average manufacturers price for the drug and reducing that price by 

the Medicaid rebate percentage. 

 Covered entities particularly purchase covered drugs at a contract 

price through their wholesaler. The contract purchase price usually 

includes both the drug cost, which if the entity qualifies should be no 

more than a manufactured ceiling price, and a wholesaler distribution 

fee. We understand that the contract purchase price is typically agreed 

upon solely between the covered entity and the wholesaler. The covered 

entities, however, have not historically always had the same systemic 
52

access to the quarterly ceiling prices that the wholesalers have had. 

Without this information, the covered entities cannot effectively 

negotiate with the wholesaler over the wholesaler's distribution fee. 

 In 2004 and 2005, the Health and Human Services Office of Inspector 

General issued several reports that identified 340B program issues and 

made recommendations for the program improvement, including a 

recommendation that covered entities be given easier access to ceiling 

price information. 

 In order to help address this issue, GlaxoSmithKline began meeting 

with OPA in an effort to provide our expertise in an atmosphere of frank 

dialogue and cooperation. Following these very productive discussions, 

GSK decided to voluntarily post its ceiling prices on a secure website 

accessible to participating covered entities, starting on October 1, 2005. 

GlaxoSmithKline has supported access to its manufactured ceiling prices 

for eligible covered entities since the beginning of the program in 1993. 

 Historically, this was done through the company responses to 

individual requests for quarterly ceiling price information from eligible 

entities or their GSK account managers, and, as such, showing only those 

entities that request such information. 

 To facilitate broader access to this information, we decided to be the 

first pharmaceutical manufacturer to share its ceiling prices with eligible 

covering entities by helping them to develop an innovative website 

provided through the 340B Prime Vendor Program, HealthCare 

Purchasing Partners International LLC. We believe this will enable all 

interested covered entities that participate in a 340B Prime Vendor 

Program to have secure and easy access to up-to-date drug ceiling price 

information with no added cost to the entities. 

 Specifically, GSK entered into a voluntary agreement with the Prime 

Vendor Program to provide systemic access to 340B ceiling prices to 

covered entities enrolled in the Prime Vendor Program. Under this 

agreement, the GSK ceiling prices are sent to the prime vendor quarterly 

and posted on their secure website on the first of each calendar quarter. 

The website will contain two consecutive quarters of data at one time. 

 Eligible covered entities will be granted access to the 340B secure 

website through a password protected user interface after signing the 

confidentiality clause contained in the standard enrollment agreement 

with the prime vendor. In deciding to move forward with this website, 

GSK worked with OPA to ensure that the confidential and sensitive 

pricing information that would be posted on the website for covered 

entities would not become available to competitors or to those not 

eligible to participate in the program. 

 Since GSK is the only pharmaceutical company providing website 

access to ceiling prices at this time, we needed to do so in a way that 
53

would reduce the risk of competitive disadvantages in the marketplace. 

Ultimately, we decided that leading the way on this issue was the right 

thing to do. Improved access to manufactured ceiling price information 

will help inform the covered entities about the components of the 

ultimate purchase price of pharmaceutical products and as such will 

increase their capabilities to provide care to the underserved patient 

populations they represent. 

 In addition, in order to work cooperatively with the OPA in an effort 

to ensure that GSK ceiling prices are being calculated accurately, GSK 

also agreed to send a copy of its quarterly ceiling prices, as well as 

relevant product package size information to OPA. That way OPA may 

compare them to the ceiling prices using data calculated by CMS. 

 For GSK ceiling prices effective October 1, 2005, OPA recently 

informed us that they found a match of greater than 99 percent accuracy 

to internal CMS calculations for the same period. GSK remains 

committed to working with OPA to meet the needs of the 340B eligible 

entities and to enable successful administration of the 340B Drug 

Discount Program. 

 We believe that by taking a leadership role and identifying and 

proactively resolving these issues, such as providing improved access to 

manufacturer 340B price information to eligible entities, GSK can help 

make the program more effective and efficient and ultimately improve 

patient access to needed drug therapy. 

 Thank you for the opportunity to testify today. I look forward to 

answering any questions you might have. 

 [The prepared statement of David B. Brown follows:] 

PREPARED STATEMENT OF DAVID BROWN, DIRECTOR, GOVERNMENT CONTRACTS AND 

PRICING PROGRAMS, GLAXOSMITHKLINE

 Chairman Whitfield, Ranking Member Stupak, and Subcommittee Members, thank 

you for the opportunity to discuss ways in which GlaxoSmithKline (GSK) is working 

with the Health Resources and Services Administration (HRSA) Office of Pharmacy 

Affairs (OPA) to improve the 340B Drug Discount Program so that the patients served by 

this program have access to the medicines they need. 

 My name is David Brown. I am the Director of Government Contracts and Pricing 

Programs for GSK with the responsibility for operational support of the GSK Federal and 

state contracted business. This includes calculating and reporting government mandated 

prices, including Ceiling Prices under the 340B Drug Discount Program. 

 GSK is a world wide pharmaceutical company with combined sales of over $37 

billion, an annual R&D investment of $5 billion and 100,000 employees world-wide with 

over 24,000 employees in the United States. GSK has leading products in four major 

therapeutic areas - anti-infectives, central nervous system (CNS), respiratory and gastrointestinal/metabolic. In addition, we are a leader in the important area of vaccines and 

have a growing portfolio of oncology products. 

 As stated in our mission statement, GSK is committed to “improve the quality of 

human life by enabling people to do more, feel better and live longer,” and we value any 
54

opportunity to provide input into a process that improves the access and delivery of 

important medicines to patients. 

 GSK works to improve patient access to medicines through a wide variety of 

programs. Through the GSK Global Community Partnerships program, we provide 

money, medicines, time and equipment to help improve health and education in underserved communities. We support public health initiatives and local community projects 

around the world and donate medicines to support disaster relief efforts and impoverished 

communities. This includes funding major health initiatives in developing countries to 

tackle lymphatic filariasis (LF), HIV/AIDS, malaria, and diarrhea-related disease. In the 

United States, GSK is also committed to helping patients with limited means gain access 

to the breakthrough medicines we discover. This is accomplished through multiple 

programs including the “Bridges to Access” and “Commitment to Access” programs, as 

well as through our participation in all of the major government programs designed to 

improve access to medicines for those most in need, such as the 340B Drug Discount 

Program. 

 Under section 340B of the Public Health Service Act, manufacturers agree to charge 

340B Covered Entities no more than the “Ceiling Price” for covered drugs, which is a 

discounted price that is calculated under a federal formula, by taking the Average 

Manufacturers Price (AMP) for the drug and reducing that price by the Medicaid rebate 

percentage. 340B Covered Entities include public hospitals, community health centers, 

AIDS Drug Assistance Programs and other entities that serve indigent and medically 

needy Americans. 

 340B Covered Entities typically purchase covered drugs at a contract price through 

their wholesaler. The contract purchase price usually includes both the drug cost (which, 

if the entity qualifies, should be no more than the manufacturer’s 340B Ceiling Price) and 

a wholesaler distribution fee.2

 We understand that the contract purchase price is typically 

agreed upon solely between the 340B Covered Entity and the wholesaler. The wholesaler 

generally starts with the quarterly 340B drug Ceiling Price, which is confidentially 

communicated to it by each manufacturer, and then may add a wholesaler distribution 

fee. The 340B Covered Entities, however, have historically not always had the same 

systematic access to the quarterly 340B drug Ceiling Prices that the wholesalers have 

had. This can make it difficult for 340B Covered Entities to determine what they are 

paying for the drugs versus what they may be paying in wholesaler distribution fees. 

Without this information, the Covered Entities can not effectively negotiate with the 

wholesaler over the wholesaler’s distribution fee. GSK has been working with OPA and 

the 340B Prime Vendor on cost effective ways to address this issue. 

 Beginning in 2003, improving 340B Covered Entity access to manufacturer 340B 

drug Ceiling Prices was raised as a major issue at the 340B Coalition conferences held 

each year. In 2004 and 2005, the Health and Human Services Office of Inspector 

General issued several reports that identified 340B program issues and made 

recommendations for program improvements, including a recommendation that Covered 

Entities be given easier access to 340B Ceiling Price information. In order to help 

address these issues, GlaxoSmithKline began meeting with the OPA in an effort to 

provide our expertise in an atmosphere of frank dialogue and cooperation. Following 

these very productive discussions, GSK decided to voluntarily post its 340B drug Ceiling 

Prices on a secure website accessible to participating 340B Covered Entities, starting on 

October 1, 2005. 

 Other than GSK, through the secure Prime Vendor Program website that I will 

discuss in more detail below, I am not aware of any government agency, pharmaceutical 

 

1

 As noted by the Office of Inspector General in its recent October 2005 Report (OEI-05-02-00072), 

according to HRSA “it is acceptable for wholesalers to charge covered entities 340B Ceiling Prices 

plus a distribution fee, which varies based on standard business practice.” 
55

manufacturer or contracting agent who routinely offers easy access to all quarterly 

Ceiling Prices to 340B Covered Entities. 

 GlaxoSmithKline has supported access to its manufacturer 340B Ceiling Prices for 

eligible 340B Covered Entities since the beginning of the program in 1993. Historically, 

this was done through company responses to individual requests for quarterly Ceiling 

Price information from eligible entities or their GSK Account Managers, and as such 

reached only those entities that requested the information. To facilitate broader access to 

this information, we decided to be the first pharmaceutical manufacturer to share its 

Ceiling Prices with eligible 340B Covered Entities by helping to develop an innovative 

website provided through the 340B Prime Vendor Program / HealthCare Purchasing 

Partners International, LLC (340B PVP). We believe this will enable all interested 

Covered Entities that participate in the 340B Prime Vendor Program to have secure and 

easy access to up-to-date drug Ceiling Price information with no added costs to the 

entities. 

 Specifically, GSK entered into a one year voluntary agreement with the 340B PVP to 

provide systematic access to 340B Ceiling Prices to Covered Entities enrolled in the 

340B PVP. The key elements of making this pricing available include the following: 

• 340B PVP will receive quarterly 340B Ceiling Prices by 11 digits National 

Drug Code (NDC) from GSK. 

• 340B PVP will post quarterly 340B Ceiling Prices on their secure website on 

the first of each calendar quarter and maintain two consecutive quarters of data 

at one time. 

• Eligible Covered Entities will be granted access to the 340B PVP secure 

website through a password protected user interface 

• All entities are required to sign / agree to the confidentiality clause contained in 

the 340B PVP standard enrollment agreement prior to receiving access to the 

secure website. 

 In deciding to move forward with an external website, GSK worked with OPA to 

ensure that the confidential and sensitive pricing information that would be posted on the 

website for 340B Covered Entities would not become available to competitors or to those 

not eligible to participate in the program. The pharmaceutical market is a highly 

competitive commercial market populated with other companies competing in many 

therapeutic classes. Since GSK is the only pharmaceutical company providing website 

access to 340B Ceiling Prices at this time, we needed to do so in a way that would reduce 

the risk of competitive disadvantages in the marketplace. 

 By previously providing GSK 340B Ceiling Prices to eligible 340B Covered Entities 

on a confidential basis upon request, GSK had already decided that it was willing to take 

some commercial risk that those prices would be improperly disclosed to our 

competitors, but we concluded that the benefits to the 340B entities requesting such 

information outweighed these risks to GSK. We believe that the new external, website 

provided by the 340B Prime Vendor has provided a mechanism that will best ensure 

against sensitive Ceiling Price information being released to competitors or non-Covered 

Entities while enabling the Covered Entities to gain access to pricing information in an 

efficient, easy manner. Ultimately, we decided that leading the way on this issue was the 

right thing to do. Improved access to manufacturer Ceiling Price information will help 

inform the Covered Entities about the components of the ultimate purchase price of 

pharmaceutical products and as such will increase their capabilities to provide care to the 

underserved patient populations they represent. 

 In addition, in order to work cooperatively with the OPA in an effort to ensure that 

GSK’s 340B Ceiling Prices are being calculated accurately, GSK has also agreed to send 

a copy of its quarterly 340B Ceiling Prices, as well as relevant product package size 

information, to OPA. That way, OPA may compare them to the 340B Ceiling Prices 

calculated using data maintained by CMS. For the GSK 340B Ceiling Prices effective 
56

4Q2005, the OPA Affairs used GSK’s data to review the reported GSK 340B Ceiling 

Price calculations and to compare them to internal CMS calculations. We are pleased to 

report that OPA recently informed us that they found a match for more than 99% of 

GSK’s Ceiling Prices. GSK works hard to calculate Ceiling Prices accurately, and we 

were pleased to have achieved a 99%-plus accuracy rate. 

 GSK remains committed to working with the OPA to meet the needs of the 340B 

eligible entities and enable the successful administration of the 340B Drug Discount 

Program. We believe that by taking a leadership role in identifying and proactively 

resolving issues such as providing improved access to manufacturer 340B Ceiling Price 

information to eligible entities, GSK can help make the program more effective and 

efficient and ultimately improve patient access to needed drug therapy. 

 Again, thank you for the opportunity to testify today. I look forward to answering 

any questions you might have. 

 MR. WHITFIELD. Thank you, Mr. Brown. 

 Dr. Hatwig, you are recognized for your opening statement. 

 MR. HATWIG. Thank you. Good afternoon, Chairman Whitfield, Mr. 

Stupak and members of the subcommittee. My name is Chris Hatwig. I 

appreciate the opportunity to testify. I am a registered pharmacist and 

currently serve as Senior Director of the 340B Prime Vendor Program. I 

am employed by HealthCare Purchasing Partners International, HPPI, 

which is based in Irving, Texas. HPPI was awarded HRSA's prime 

vendor contract effective September 10, 2004. As Senior Director of the 

Prime Vendor Program, I am pleased to appear before you today. 

 Prior to joining HPPI, I was Director of Ambulatory Pharmacy and 

Value Analysis Programs at Parkland Health & Hospital Center, a major 

disproportionate share hospital in Dallas, Texas, where I practiced for 

13 years. 

 The Veterans Health Care Act of 1992 requires HRSA's Office of 

Pharmacy Affairs to establish a prime vendor for the 340B Drug 

Discount Program. The mission of the prime vendor is to approve access 

to affordable medications. Its primary goals include contracting for 

pharmaceuticals below the 340B ceiling prices, providing covered 

entities with access to efficient drug distribution solutions, providing 

contracts for other products and services to meet the unique needs of the 

covered entities. 

 The Prime Vendor Program is designed to use the private industry 

and the free market to increase competition and lower drug prices for all 

participating covered entities by securing voluntary discounts from the 

pharmaceutical manufacturers. Since participation in the Prime Vendor 

Program is voluntary for the eligible covered entities and the 

manufacturers, the prime vendor must recruit the participants and the 

manufacturers to the program based on the value that the program 

provides. HPPI has structured the program to enable covered entities to 

participate in this program at no cost. 
57

 During our first year of directly managing the Prime Vendor 

Program, we have tripled the number of participating entities to over 

2,000. This includes 690 hospital sites and 580 community health 

centers, which is approximately -- which accounts for approximately 

$2.2 billion in pharmaceutical purchases annually. 

 We have successfully leveraged the entity's business to secure 

sub-ceiling discounts from 18 pharmaceutical manufacturers. 

 In summary, the Prime Vendor Program provides the following 

benefits to the participating covered entities: 

 There is no cost to participate. 

 It enables covered entities to maintain their existing distributor, while 

accessing the program. 

 It offers a contract portfolio of sub-ceiling discounts on branded and 

generic pharmaceuticals. 

 It offers discounts on other outpatient pharmacy-related products and 

services. 

 It leverages the collective purchasing power of all program 

participants to secure discounts for the smallest covered entities, which 

might not otherwise be able to obtain such discounts. 

 It provides participants a secure website to access the contract's 

pricing on products and services so all parties know what they should be 

paying. 

 A criticism of the 340B Drug Discount Program has been the lack of 

pricing transparency. For example, participants do not have access to the 

340B selling prices to validate the accuracy of the pricing. HRSA's 

Office of Pharmacy Affairs and GlaxoSmithKline were aware of HPPI's 

development of a secure site for contract pricing. They approached us to 

consider a pilot to make Glaxo's reported selling prices available upon a 

voluntary basis within our website, and we have worked closely with 

GSK staff to activate the value-added service as of October 1, 2005. 

 I have also been asked by the subcommittee to share my thoughts on 

how the 340B program may be improved. Improving the accuracy and 

the transparency of the 340B ceiling prices is critical to improving the 

effectiveness and the value of the program. I have three primary 

recommendations that would serve this purpose. 

 First, the OPA should consider working directly with the 

pharmaceutical manufacturers to verify the accuracy of the 340B ceiling 

prices prior to those prices being made available at the start of each 

quarter. 

 Secondly, the OPA should consider establishing a secure mechanism 

for sharing the 340B ceiling prices with its prime vendor and covered 

entities. 
58

 Third, the OPA should be granted sufficient resources to audit 

manufacturers, wholesalers and covered entities to ensure accountability 

with the requirements of the 340B program. 

 Mr. Chairman, I appreciate the opportunity to appear before the 

subcommittee to discuss the 340B program and ways to improve its 

effectiveness. This program is critically important to the safety net 

providers in their mission to providing access to affordable medications 

to our most vulnerable patient populations. I look forward to answering 

any questions this subcommittee may have. 

 [The prepared statement of Christopher A. Hatwig follows:] 

PREPARED STATEMENT OF CHRISTOPHER A. HATWIG, SENIOR DIRECTOR, 340B PRIME 

VENDOR PROGRAM, HEALTHCARE PURCHASING PARTNERS INTERNATIONAL

Personal Background 

 Good Afternoon. My name is Chris Hatwig. I am a registered pharmacist and 

currently serve as Senior Director of the 340B Prime Vendor Program (PVP). I have 

been employed by HealthCare Purchasing Partners International (HPPI), an LLC based in 

Irving, Texas. HPPI competed in HRSA’s public bid of the 340B Program’s Prime 

Vendor and was awarded the contract effective September 10, 2004. Prior to that, HPPI 

operated for a year as a subcontractor to AmeriSourceBergen, a pharmacy wholesaler, 

which served as HRSA’s first Prime Vendor for the 340B Drug Discount Program. In the 

capacity as Senior Director of the 340B Prime Vendor managed by HPPI, I am pleased to 

appear before you today. By way of background before taking the position at HPPI, I 

held the position of Director of Ambulatory Pharmacy and Value Analysis Programs at 

Parkland Health & Hospital System. Parkland is a major disproportionate share hospital 

located in Dallas, Texas where I practiced for thirteen years. I was responsible for 

management of Parkland’s ambulatory pharmacy and purchasing programs. Parkland is 

one of the larger and more progressive safety-net healthcare systems in the U.S. It 

operates a network of community based clinics in medically underserved areas and 

processes approximately 10,000 outpatient prescriptions per day at an expense in excess 

of $65 million annually. 

Prime Vendor Program 

 In 1992 Congress enacted the Veterans Health Care Act. Section 340B of that Act 

required pharmaceutical companies whose drugs are covered by the Medicaid program to 

provide mandatory discounts on outpatient covered drugs purchased by certain 

government-supported facilities called covered entities. Today, there are over 12,000 

covered entities participating in the 340B Drug Discount Program, which include 

disproportionate share hospitals, federally qualified health centers, family planning 

clinics and other government grantees. 

 The Veterans Health Care Act also requires HRSA’s Office of Pharmacy Affairs 

(OPA) to establish a Prime Vendor for the 340B Drug Discount Program. A primary 

mission of the 340B Prime Vendor is to improve access to affordable medications for 

covered entities and their patients. Its primary goals include: 

 Contracting for pharmaceuticals below the 340B ceiling prices 

 Providing covered entities with access to efficient drug distribution 

solutions to ensure access to affordable medications 

 Providing contracts for other products and services to meet the unique 

needs of participating covered entities 
59

 The Prime Vendor program is designed to use the private industry and the free 

market to increase competition and lower drug prices for all participating covered entities 

by securing voluntary discounts from pharmaceutical manufacturers. 

 Since participation in the PVP is voluntary for the eligible covered entities and 

manufacturers, the Prime Vendor must recruit participants and manufacturers to the 

program based on the value it provides. HPPI has structured the program to enable a 

covered entity to participate in the program using its existing pharmacy wholesaler with 

no additional costs to the entity. There are eleven wholesalers participating in the current 

program, greatly improving access to the program and its discounts. During HPPI’s first 

year of managing the Prime Vendor program, it has more than tripled the number of 

participating covered entities. The program currently represents over 2000 covered 

entities (including 690 hospitals and 580 community health centers) purchasing $2.2 

billion in pharmaceuticals annually. HPPI has successfully leveraged the entities’ 

business to secure sub-ceiling discounts on branded and generic products from 18 

pharmaceutical manufacturers. The program’s contract portfolio also includes discounts 

for important products such as vaccines, diabetic meters, and test strips which are not 

required to be discounted through the 340B program but are critical products for the 

participating covered entities’ preventive health programs. As more covered entities join 

the program, the value of the program’s contract portfolio will continue to grow. 

 In summary, the 340B Prime Vendor Program provides the following benefits to 

participating covered entities: 

 No cost to participation 

 In most cases, enables covered entities to maintain their existing 

distributor while accessing the program 

 Offers a contract portfolio of sub-ceiling discounts on branded and generic 

pharmaceuticals 

 Offers discounts on other outpatient pharmacy related products and 

services 

 Leverages the collective purchasing power of the program’s participants to 

secure discounts for even the smaller covered entities (It is important to 

note that there are approximately $3.5 billion in 340B related 

pharmaceutical sales in the U.S. representing only one to two percent of 

all US pharmacy sales) 

 Provides participants a secure website to access the program’s contracted 

pricing on products and services. 

Voluntary Transparency of 340B Selling Prices 

 Many of the Prime Vendor participating hospitals and clinics have expressed a desire 

to have access to the 340B ceiling prices to validate the accuracy of pricing listed in the 

pharmacy wholesalers systems. At HPPI, we had already developed a secure website 

requiring logons and passwords to share our confidential sub-ceiling pricing with 

participants. We were initially approached by HRSA’s Office of Pharmacy Affairs and 

GlaxoSmithKline (GSK) about conducting a pilot to make GSK’s reported selling prices 

available on a voluntary basis in a secured portion our website. A separate section of the 

website was proposed to avoid any confusion with the Prime Vendor’s separate contract 

portfolio. We were able to work with GSK staff to finalize an agreement, complete 

programming enhancements, and activate the value added service on October 1st 2005. 

The website currently lists GSK’s 4th quarter pricing. As of December 5th, we have had 

792 hits on the secure site and the GSK price file was downloaded a total of 75 times or 

nearly 10% of the time a participant accessed the site. 

 I believe the additional service will encourage more manufacturers to work with the 

Prime Vendor Program and will eventually lead to manufacturers offering additional subceiling pricing on their products to further benefit the program’s participants. The service 
60

offering is available at no cost to any pharmaceutical manufacturer offering sub-ceiling 

discounts on their products to the program’s participants. The new section of the website 

provides a more efficient method for pharmaceutical manufacturers to directly share their 

selling prices with eligible covered entities over previous methods. Having access to the 

selling prices will enable the covered entities to verify they are receiving the accurate 

pricing through their pharmacy wholesalers and enable them to pursue appropriate 

resolution of any pricing discrepancies. 

 Recently I have received inquiries from other pharmaceutical manufacturers about 

the pilot program and have shared copies of our data sharing agreement for those 

companies to review. 

Suggestions for Improving the 340B Drug Pricing Program 

Improving the accuracy and transparency of the 340B ceiling prices is critical to 

improving the effectiveness and value of the program. The following recommendations 

would serve this purpose: 

1. HRSA should work directly with pharmaceutical manufacturers to verify the 

accuracy of 340B ceiling prices prior to the prices being made available to pharmacy 

wholesalers at the start of each quarter. 

2. HRSA should identify a secure mechanism for sharing the selling prices with its 

Prime Vendor to validate its own contracts are indeed sub-ceiling. HRSA should 

also establish a secure method of providing access to 340B selling prices to 

pharmacy wholesalers and the eligible covered entities through its contracted prime 

vendor or other means. 

3. HRSA should be granted sufficient resources to audit manufacturers, wholesalers, 

and covered entities to ensure accountability with the requirements of the 340B 

program.

I appreciate the opportunity to appear before the subcommittee to discuss the 340B 

Drug Discount Program and ways to improve its effectiveness. This program is critically 

important to the safety-net providers in their mission of providing access to affordable 

medications for the low-income and uninsured populations in the U.S. 

 MR. WHITFIELD. Thank you, Dr. Hatwig. 

 Mr. von Oehsen, you are the General Counsel for the Public Hospital 

Pharmacy Coalition. Just how serious is this overcharge situation? Is 

this serious, or is this just an isolated incident that happens periodically? 

 MR. VON OEHSEN. Well, the reality is we don't know how serious it 

is. There is ample evidence to be very concerned. Back in 2000 we 

actually submitted some sample prices to the Office of Pharmacy Affairs, 

because these were prices where there was significant variation between 

our members. So we submitted a range of prices and said something just 

doesn't look right here. Can you tell us whether any of these are 

overcharges? 

 Well, we got a letter back in 2001, January of 2001, that indicated 

that in fact a very significant amount of those prices were overcharges. 

But probably even more disturbing was that for a significant number of 

those prices, they couldn't tell us whether an overcharge had occurred or 

not because they didn't have the proper data. 

 MR. WHITFIELD. So they didn't know either? 

 MR. VON OEHSEN. They didn't know either. 
61

 MR. WHITFIELD. Well, I noticed that on page 17, Exhibit 1 of that 

report, they say specifically there that you submitted six of your hospital 

sales data to HRSA for price verification and HRSA subsequently found 

that 37 out of 50 drug prices exceeded the ceiling prices. 

 MR. VON OEHSEN. Exactly. 

 MR. WHITFIELD. Now, from your knowledge, have the hospitals ever 

recovered those charges? 

 MR. VON OEHSEN. No. We talked it over with Office of Pharmacy 

Affairs. I think essentially they just felt like there wasn't anything they 

could do. I mean, the only recourse they had, was to try to convince the 

Secretary to try to terminate these drug companies from the Medicaid 

many practice. Well 340B is a much smaller program than the Medicaid 

program. There is no way they will do that. 

 MR. WHITFIELD. That is not a realistic solution? 

 MR. VON OEHSEN. It really is not. 

 MR. WHITFIELD. Did HRSA initiate a dispute resolution on those 

cases that you are aware of? 

 MR. VON OEHSEN. No. 

 MR. WHITFIELD. If you were over at HRSA yourself, and you were 

responsible for HRSA, would you be more aggressive? Do you think 

there needs to be additional legislation? What is your opinion? 

 MR. VON OEHSEN. Well, first of all, if you look at the pharmaceutical 

pricing agreement, there's language in there that manufacturers are 

required to -- let me just read it to you. Manufacturers are responsible 

for affording the Secretary or his designee reasonable access to records 

of the manufacturer relevant to the manufacturer's compliance with the 

terms of the agreement, which is basically to give the 340B prices. 

 We think it is right in the pharmaceutical pricing agreement that they 

should give these prices to HRSA. So that's number one. I would get the 

prices from the manufacturers. I would compare how they have 

calculated the prices with how the government has calculated the prices, 

and that is step 1. 

 Then step 2 is to make sure that the actual price is being invoiced to 

the covered entities, comply, you know, is also the same as the 340B 

ceiling price or lower. Can be lower than the ceiling price, but it can't be 

higher. 

 MR. WHITFIELD. You feel the language is adequate now and that 

HRSA is simply not enforcing it? 

 MR. VON OEHSEN. I think the government has the authority to 

require manufacturers to submit their 340B prices to the government. I 

think that a lot of the manufacturers actually do submit their 340B prices 

to the government. What Glaxo has done, which is so important, is for 
62

the first time they have disclosed the prices to the covered entities -- or at 

least the covered entities in the Prime Vendor Program. 

 MR. WHITFIELD. HRSA keeps saying well, confidentiality prevents 

us from sharing these prices with the covered entities or the vendors, 

right? 

 MR. VON OEHSEN. That's what they say. We strongly disagree with 

that, though. We think the statute allows them to disclose to the extent 

necessary for the proper administration of the 340B program. We think 

this is fundamental to the proper administration of the 340B program. 

Why can't they disclose it? It would solve all of these problems. 

 MR. WHITFIELD. So, Mr. Brown, ever since I have been involved in 

politics, I have always heard that drug manufacturers are very protective 

of pricing and want to maintain the confidentiality. So why all of a 

sudden did Glaxo just decide to provide this information? 

 MR. BROWN. Mr. Chairman, we do believe that the pricing 

information is confidential, but we also believe that the entity should 

have the right to the prices that they are due, access to the information to 

see the prices that they are due, and we felt that by going through the 

website that we were able to maintain the confidentiality and be able to 

supply that information. 

 MR. WHITFIELD. You do not see any reason why other 

manufacturers would not be willing to do the same, I am assuming? 

 MR. BROWN. Mr. Chairman, I cannot speak for other manufacturers, 

but I can speak for GSK. We again believe that its entities should have 

access to the pricing that they are due, information. 

 MR. WHITFIELD. Mr. Hatwig, from the Prime Vendor Program, you 

mentioned single ceiling price list. Would you all support a system 

whereby manufacturers would submit ceiling prices to HRSA? You 

would support that, I am assuming? 

 MR. BROWN. Again, Mr. Chairman. 

 MR. WHITFIELD. You are speaking only for yourself. 

 MR. BROWN. Yes, we are speaking only for ourselves. Actually, we 

do feel that the current legislation and the current mechanisms in the law 

are sufficient to resolve the issues set in the OIG, and we do support -- 

 MR. WHITFIELD. I do commend you for doing it. I think it is the 

right thing to do. I think it does help on transparency. 

 Mr. von Oehsen, you pointed out in your testimony there is often a 

shortage of drugs at 340B prices, even though these drugs can be 

purchased elsewhere at higher prices. How significant is this problem? 

 MR. VON OEHSEN. It is a very significant problem, with respect to 

IVIG, which is a very expensive drug, and it's a drug which a lot of the 

patients of these hospitals need. 
63

 The problem that they are encountering is that if they go to the 

manufacturer and ask for the drug at the 340B price it's not available. 

However, if they were to purchase the drug through their group 

purchasing organization at a higher price, the drug is available. We 

frankly don't understand how a drug can be available at a higher price 

and not at a lower price. 

 MR. WHITFIELD. So when you raised this issue, what explanations or 

justifications are you given? 

 MR. VON OEHSEN. Well, we are hearing that there is a drug shortage 

problem, and that manufacturers have prior commitments on how they 

allocate the drugs to other purchasers, and they allocated all of their 

drugs that are in short supply to commercial purchasers, which leaves 

nothing left over for 340B. 

 MR. WHITFIELD. Mr. Brown, what do you say about that, this drug 

shortage issue? 

 MR. BROWN. Mr. Chairman, it is not really an issue I am familiar 

with. So I cannot really comment. It is not a practice at GSK. 

 MR. WHITFIELD. So you can't comment on that then? You are just 

not aware of it? 

 MR. BROWN. I am not aware of that issue. 

 MR. WHITFIELD. Okay. 

 Mr. Hatwig, does the prime vendor currently have access to ceiling 

price calculations? 

 MR. HATWIG. No, sir. 

 MR. WHITFIELD. I am assuming it would be quite helpful if you did 

have that information. 

 MR. HATWIG. Well, my preference would be just to have access to 

the ceiling prices and not to actually have all the data, to actually have to 

calculate them yet again ourselves. 

 MR. WHITFIELD. Since you are the head of this program, and you 

deal with it on a day-to-day basis, what do you consider the biggest 

operational problems that you confront? 

 MR. HATWIG. Well, with our program, the prime vendor many 

practice, my biggest challenge in running this program is everything is 

voluntary. We have to go out and recruit the covered entities to 

participate in a program that does nothing but save them money. We 

have to recruit the members in. We also have to -- it is also voluntary for 

pharmaceutical manufacturers to offer additional discounts through the 

program. 

 That is our biggest challenge day to day is building the value of this 

program. When we won this contract in September of 2004, we really 

started with nothing. We didn't have participants. We didn't have 
64

suppliers. We had to slowly build this program up to where we thought 

it would actually make it and it could survive. 

 We are at a point now where we have a critical mass of customers 

that pharmaceutical manufacturers are paying attention to it now. 

 MR. WHITFIELD. What percent of the covered entities would you say 

are participants with you? 

 MR. HATWIG. As far as percentage, if you look at the numbers out 

there, I hear 12,000 eligible covered entities, we are a little over 2,000. 

But if you were to look at actual purchase, actual 340B-related 

purchases, I would say we are probably closer to -- we are representing 

60 percent of the volume in the country. The word spreads much slower 

to the smaller entities, because the people at those entities are not at 

national meetings and things like this. They don't have those resources. 

 MR. WHITFIELD. I see my time has expired. 

 Mr. Stupak, you are recognized. 

 MR. STUPAK. Thank you, Mr. Chairman. 

 Mr. Hatwig, if you don't have access to any of the ceiling prices then 

how are you negotiating sub-ceiling prices? 

 MR. HATWIG. That's a very good question, Mr. Stupak. We are in 

negotiations with the manufacturers. We demand to know what the 

340B ceiling prices are, and in those negotiations, you know, do I know 

for sure? No, I do not. But I trust that they are sharing their ceiling 

prices with us, because in many cases we are negotiating a discount off 

of the actual ceiling price. Because I want to be sure that our contract 

pricing is staying there, it would be nice to be able to have that price 

available to us from the OPA. 

 MR. STUPAK. Sure. Is there any reason not to make it available to 

the members themselves then? 

 MR. HATWIG. No, in my opinion, especially when you have got a 

system like we do. We can share that information with our customers on 

a secured website with log-ons and passwords. It's certainly a problem, 

if you, I think, were to throw that information out into the public domain. 

But as long as there's a secured way of delivering the pricing to the 

entities that need to know, it's an excellent move for the program. 

 MR. STUPAK. If you had it and your 2,000 members had access to it, 

that certainly would help out. But wouldn't it also help be sort of an 

enhancement mechanism to make sure the program is being run 

properly? 

 MR. HATWIG. Yes. 

 MR. STUPAK. Mr. von Oehsen, I have some questions for you. I 

know I did. In your testimony, you state that the integrity of the 340B 

program will remain compromised until the program has the resources, 

authorities, and the requisite systems in place to assure that this happens. 
65

Mr. Williams, I think, if my memory of his testimony is correct, seems to 

think that everything is under control. Have you observed any additional 

resource authorities or systems going into this program, the 340B 

program? 

 MR. VON OEHSEN. Do I recommend that there be? 

 MR. STUPAK. No, no. Do you recognize, do you recognize anything 

that has been changed or additional resources to make it better in the last 

18 months or so? 

 MR. VON OEHSEN. Oh, yes, I think a couple of years ago Office of 

Pharmacy Affairs lost some personnel, but they have regained a number 

of them over the past year. They have also -- there was a reorganization 

of HRSA, and they moved it from just a branch level up to an office 

level. So that gave them more direct access, I guess, to the HRSA 

Administrator. 

 MR. STUPAK. Could you explain to me the problems with the 

calculation of the DSH payments to the hospitals and its impact on the 

340B program? 

 MR. VON OEHSEN. Well, this is vitally important to the hospitals, 

because they can only qualify for the program if their disproportionate 

share budget is over 11.5 percent, which means they are serving a lot of 

Medicaid and low-income patients. 

 The calculation of the DSH adjustment is a fairly complicated one, 

and I think through litigation and other means it has been determined that 

there have been some inaccuracies in the calculation of the DSH 

adjustment. 

 Unfortunately, it is CMS that really administers the Disproportionate 

Share Program, and yet it is the eligibility criteria for HRSA. This is one 

of the areas where we think we need much better communication and 

cooperation between HRSA and CMS. 

 What happens is if a hospital says no, our DSH adjustment is really 

above 11.5, we are really qualified to join this program, HRSA will say, 

well, we don't administer that program. You need to talk to CMS. Well, 

CMS will say 340B is not our program, you need to talk to HRSA, and 

there is really no place to go. 

 MR. STUPAK. Well, we had hoped that CMS would be here because 

those are some of the questions I had, but unfortunately we don't have 

them here today. Maybe our next hearing we can get them, Mr. 

Chairman. We would like to ask them some of those questions. 

 MR. STUPAK. Let me ask Mr. Brown, if I can, under the 340B 

pharmaceutical pricing agreement are you providing those same drugs to 

the 340B entities in the Medicaid agreement? 

 MR. BROWN. Congressman, the covered drugs that are covered under 

Medicaid are offered on the 340B BBA. 
66

 MR. STUPAK. There was a little bit of discussion about shortages, 

and can you shed any light on that for us? 

 MR. BROWN. Shortage. No, sir, I can't. 

 MR. STUPAK. Chronic shortages? 

 MR. BROWN. No, sir, I can't. 

 MR. STUPAK. Who in your company could, do you know? 

 MR. BROWN. I can take your request back and provide it to the 

appropriate people and get that answer back to you, yes, sir. 

 [The information follows:] 
67
68

 MR. STUPAK. I think I mentioned in the last panel that we are talking 

about those letters, and I think Glaxo received one of those letters from 

HRSA -- I think Mr. Williams said it might have been in 2004 -- about 

overcharges to the 340B program. As we know, the OIG did not review 

every single drug and Glaxo settled, I think I said, with Flonase, right? 

 MR. BROWN. Correct. 

 MR. STUPAK. What about the -- have there been some other 

overcharges with Glaxo or something with Glaxo, and has that been 

resolved? 

 MR. BROWN. Congressman, first we do not believe we have 

overcharged the 340B entities. GSK and the government did disagree on 

the interpretation of the law for calculating best price. The matter was 

investigated by the Department of Justice, to include a review of all the 

products and relevant transactions, and GSK fully cooperated with that 

investigation. At the end of the day, we decided it was appropriate to 

settle this matter. Part of our settlement did include payments to the 

340B entities. 

 MR. STUPAK. On Paxil, you mean? 

 MR. BROWN. On the drugs that were covered under the settlement. 

 MR. STUPAK. Good, and Paxil was one of them, I take it. 

 MR. BROWN. For one quarter, yes, sir. 

 MR. STUPAK. For one quarter. 

 MR. BROWN. To the best of my knowledge, Department of Justice 

has closed the investigation, and we believe this matter is resolved. 
69

 MR. STUPAK. You know, you testified earlier that you are providing 

ceiling prices on a secure website, right? 

 MR. BROWN. Yes, sir. 

 MR. STUPAK. For some of the 340B entities that are covered there. 

Are any other drug companies doing that that you know of? 

 MR. BROWN. Not to my knowledge at this time. 

 MR. STUPAK. Since you are doing it, do you see any downside in 

providing this information? I guess I am a little bit wondering why you 

are doing it and they are not. Is that part of the settlement or anything? 

 MR. BROWN. Congressman, no, it was not. I think it is a voluntary 

thing that we are doing. Again, the one downside is always the 

confidentiality that the price could be given to entities that are eligible 

for it or to our competitors, but we do feel that the benefit to the 340B 

entities outweighs that. 

 MR. STUPAK. You haven't found that to happen, the information has 

been secured with the website; have any troubles with that? 

 MR. BROWN. Congressman, to the best of my knowledge it has been 

secured, yes. 

 MR. STUPAK. I know it's only been up for a short time, a couple of 

months or so, but have there been any problems with that? I am just 

trying to get as much as I can on the record, because I want the other 

companies to do the same thing. 

 MR. BROWN. Sure. As I understand, there have been some problems 

but it has gotten almost no activity. But Mr. Hatwig could answer that 

better. 

 MR. STUPAK. Any problems that you are aware of, Doc? 

 MR. HATWIG. No, no problems that we have. We have -- since 

approximately October 1st to December 5th, we had 790 hits on the site. 

We had members -- that's viewing the pricing, and we had 10 percent of 

the customers actually download the pricing. So there's interest in the 

pricing for sure. 

 MR. STUPAK. I would think if we did this, and I think we should be 

able to come up with some kind of simple computer program just to be 

able to do the comparisons, if we have the two prices, the HRSA price, 

the manufacturer's price, part of enforcement, make it clean, we wouldn't 

have to have all these hearings and all of these other things, right? 

Solved that problem, let's go home? 

 MR. WHITFIELD. I think there are some people out there who would 

like to go home. 

 Ms. DeGette. 

 MS. DEGETTE. Thank you, Mr. Chairman. 

 Mr. von Oehsen, I just wanted to clarify something you had said in 

response to Mr. Whitfield's question. You said that you believed that the 
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agency has the authority to require disclosure, correct? You need to 

answer verbally. 

 MR. VON OEHSEN. Yes, disclosure of their 340B ceiling prices, that 

priority. 

 MS. DEGETTE. So my follow-up question to that is, do you think 

then that the company should be required to make disclosure or should it 

be voluntary as it is now? 

 MR. VON OEHSEN. I think it should be mandatory. I just don't see 

how the government is going to be able to verify that the prices are 

correct unless they are checking their calculations against the 

manufacturer's calculation. 

 MS. DEGETTE. Right. And if you only have one manufacturer that is 

qualifying, that doesn't give you the full information, does it? 

 MR. VON OEHSEN. Well, it is my understanding that there are a 

number of drug companies that are actually submitting their 340B price 

lists, and certainly not all drug companies, but a fair number of them are. 

I think what GlaxoSmithKline has done is unique in that they are 

disclosing the prices to the covered entities directly, at least the ones in 

the Prime Vendor Program. 

 MS. DEGETTE. Why do you think that is an important addition? 

 MR. VON OEHSEN. Well, because there are really two challenges 

here: one, just to make sure that the manufacturers are pricing the drugs 

correctly, actually paying, and being charged the right price, and there 

are errors that can occur in that process as well. I mean, I think it would 

be onerous to ask the government to be, you know, auditing every single 

input. 

 MS. DEGETTE. Micromanaging? 

 MR. VON OEHSEN. Right. So it would be better to give the covered 

entity the 340B price so that it can do its own comparisons. 

 MS. DEGETTE. Do you want to add to that response? 

 MR. HATWIG. I just support that same opinion that I think it is 

impossible to expect HRSA to monitor and police this with the covered 

entities, but if at least we give the covered entities the ceiling prices that 

are participating in the program they can police it themselves. 

 MS. DEGETTE. And you think that can be done without revealing 

confidential or proprietary information? 

 MR. HATWIG. Yes. Through a secured site, I think it can be done. 

 MS. DEGETTE. Would you agree with that, Mr. Brown? 

 MR. BROWN. We do agree that you can give the covered entities the 

ceiling price information voluntarily, as we have done, to a secure site 

and maintain the confidentiality. 

 MS. DEGETTE. Great. 
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Now, Mr. von Oehsen, I wanted to ask you about the OIG report. It is 

clear that participating entities in the 340B program at best have, and you 

testified to this, have had incomplete information about purchasing drugs 

through the program, and at worst are paying inflated prices. 

 Now, your coalition represents the DSH hospitals throughout the 

country. So my question is, how much money do you think that the DSH 

hospitals have overpaid since the program's inception because of the lack 

of information? Do you have any idea? 

 MR. VON OEHSEN. We don't. We really don't. 

 MS. DEGETTE. Do you have the sense that there have been 

overpayments? 

 MR. VON OEHSEN. Oh, absolutely. 

 MS. DEGETTE. Why? Why do you have that sense? 

 MR. VON OEHSEN. Well, again, referring to this submission that 

FASHP made to the Office of Pharmacy Affairs, varies. Back in 2000 

for six hospitals there were over 100 drug prices where there was 

significant variation of prices. Something just didn't look right. So we 

asked the government to let us know whether any of these were 

overcharges. 

 Now, back then, HRSA had to rely on the CMS calculations. So they 

looked at the CMS calculations and they came back and a very large 

number of those prices were apparently overcharges. So that by itself 

gave us, you know, real concern that overcharging might be a rampant 

problem. Then again, manufacturers may be doing a good job, and you 

know, maybe it was more of a problem earlier in the program than it is 

now. We just don't know. But it is important that we have a system in 

place to make sure that it doesn't happen, and if it does happen, that there 

is some recourse for covered entities to get refunds. 

 MS. DEGETTE. Well, that is my next question. Currently, what 

recourse does a covered entity have if it thinks it is being overcharged? 

 MR. VON OEHSEN. I can't tell you how many e-mails we have sent to 

Pharmacy Affairs saying, you know, we have a member that was charged 

this price, it looks like their GPO or someone in the private market is 

getting a better price. Under 340B these covered entities are entitled to a 

best price in the market. 

 Now, there are some exceptions to that, but it doesn't look right, so 

we send the e-mails to the Office of Pharmacy Affairs asking them to let 

us know whether an overcharge has occurred, and we don't hear back. 

There is not much we can do. 

 MS. DEGETTE. So let me stop you. Have your members received any 

kind of money back or any kind of responses at all? 

 MR. VON OEHSEN. We have, and there has been an awful lot of 

education that has had to go on. There have been some settlements 
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where there have been some best price violations which have -- which 

has entitled the Medicaid program to certain refunds. For a long time the 

negotiators of those settlements didn't realize that this had a direct impact 

on 340B, so it was not included. We have educated the Department of 

Justice and the OIG, and we do feel that henceforward, we are going to 

be included in all of those settlements. 

 There have been some, GlaxoSmithKline was one of them, and there 

was -- in fact, there have been some refunds as a result of those 

settlements with the Department of Justice. Some manufacturers have 

discovered errors and have voluntarily issued refunds, but some 

manufacturers really are reluctant to, you know, to issue refunds, and the 

problem is that there is no refund process in place. 

 MS. DEGETTE. Right, okay. I got you. 

 Mr. Brown, I just have one follow-up question for you. This website 

that you were talking about earlier, I just want to know, for Glaxo has the 

development and maintenance of the website caused a significant 

financial or resource burden on your company? 

 MR. BROWN. Congresswoman, no, it has not. 

 MS. DEGETTE. Mr. Chairman, I want to thank you for having this 

hearing. I think it is pretty clear after listening to both of these panels 

that this is a valuable program, but it is one that is so loose as to have 

little enforcement, little -- is no quantification as to what is going on. I 

think everybody would agree it really needs to be tightened up, so I hope 

we can do more work on this, and I yield back. 

 MR. WHITFIELD. Thank you, Ms. DeGette. I certainly agree with 

you, and I think all of the witnesses agree, with maybe very few 

exceptions. We feel like we have spent the whole afternoon with most of 

you, and we have enjoyed getting to know you. 

 One follow-up question I would like to make to Mr. Hatwig. I have 

been told that during your interview with committee staff you mentioned 

wanting to see a single unified ceiling price list that would be given to 

wholesalers; is that correct? 

 MR. HATWIG. Yes. What I had mentioned was a lot of the 

discrepancies and all that can happen with the system, there are so many 

players in delivering pricing to the marketplace. We were just 

hypothetically thinking about it and talking about the audits and things 

that could be going on. What if the Office of Pharmacy Affairs worked 

directly with the manufacturers to create a master price file? One single 

master price file, and you could even argue technically at that point if it 

was validated, worked together on and validated before the beginning of 

the quarter, then the covered entities might not have to see the pricing. 

You wouldn't have to go through different steps of exposing that pricing, 

but there would be one single master price file that is created, and then it 
73

could be pushed to all distributors through like the Prime Vendor 

Program and the relationships with HRSA there. So then, at that point, 

you are cutting out all of the variations, the fail points in the system that 

pharmacy wholesalers may make with these price files, because the 

pharmacy wholesalers are working with every single manufacturer in the 

marketplace loading their own pricing. There are humans involved. 

 So if you could go, I guess, go up the food chain, if you will, and 

address the problems and create a master file there and then push that 

same price file to everyone, the integrity of the program would be greatly 

improved. 

 MR. WHITFIELD. Right. 

 Mr. von Oehsen, one other question to just follow up on Ms. DeGette. 

We were talking about these overcharges and little enforceability as far 

as getting refunds. I am assuming as a representative of your group you 

have had conversations with your manufacturers about overcharges. 

What do they basically say to you, generally speaking? 

 MR. VON OEHSEN. Well, it is a real mixed bag. Some manufacturers 

are quite willing to cooperate and in fact voluntarily issue refunds. 

Others say that they will, but then don't follow through, and others just 

refuse to talk to us or simply claim that they don't owe refunds. 

 MR. WHITFIELD. And there is not anything you can do, really. 

 MR. VON OEHSEN. You know, absent some big lawsuit which we 

would prefer not to do, frankly. 

 MR. WHITFIELD. Right. Well, I want to thank you all very much. I 

think it is quite obvious, as Ms. DeGette said, that there are some areas 

that we need to pursue on this. I am sure we will be back in touch with 

many of you. I want to thank you for your time and hopefully the next 

time you come to testify it won't be all afternoon. 

 So thanks again. The record will remain open for those members 

who would like to submit additional data or information or opening 

statements. 

 With that, this hearing is concluded. 

 [Whereupon, at 5:25 p.m., the subcommittee was adjourned.] 

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